Management Imperatives
To Make IT Business-Smart
1.
A Success Story - Why it Worked?
– Asian Paints vs. Nike
2.
Why Companies Don’t Get IT
3.
A Model for Managing IT - Cisco Case
4.
The Cisco Inventory Wreck: How Did It Happen?
5.
Lessons for Making IT Business-Smart
6.
Build or Buy or Rent or Outsource
7.
If Cement Can in Mexico, Anyone Can!
CEMEX Case
8.
Summing Up
L. Mohan
–
1
A Big Splash In Wall Street
in March 2001...
Nike Says Profit Woes Due To IT
Philip Knight, Nike’s Chairman and CEO, blamed the “complications
arising from the impact of implementing our new demand-and-supply
planning systems and processes” for the shortages of some products and
excess amounts of others as well as late deliveries.
Result: Profits Fell Short of Estimate by 33%
I guess my immediate reaction is: This is what we get for $400 million?
Source: Computerworld, March 5, 2001
L. Mohan
2
Some Causes for the Nike Problem
 BIG Global Supply-Chain Project
 Suppliers in Indonesia, Malaysia, China…. A Real Challenge
 High degree of Customization
 i2’s Supply Chain application had to be linked with SAP’s
ERP and Siebel’s CRM systems
 Wide range of footwear products in a multitude of styles
and sizes
 Complexity in mapping the supply-chain software to the
company’s internal business processes
L. Mohan
3
A Success Story: Asian Paints
IT Funded Global Acquisitions
$20M investment in IT
Benefit:
 $80M operating cash flow
generated over the past 3 years
 Implemented SCM from i2 before ERP from SAP
 Inventory Turns: 11.6 in 2002 vs. 6.5 in 1998
L. Mohan
4
---------SUCCESS
@ ASIAN PAINTS
---------
FAILURE
FACTOR
@ NIKE
Restricted to India
Number of locations
Suppliers across the globe
Decided to install SCM
software before ERP
software
Phased – First SCM, then
ERP, last CRM
Top management insight
Restructured in 1998,
before SCM Project – only
modest customization
needed in the software
Organization issues
Did not recognize the
complexity of a global Supply
Chain Project
Three packages
simultaneously – Nike IT staff
spread thin
Heavy customization of i2
software to fit Nike’s business
processes – no pilot test due
to aggressive time-table
i2 played a proactive role suggested implementing
smaller modules one at a
time.
i2’s role
Implementation strategy
i2 did not adhere to what it
did usually – it adopted a bigbang rollout approach
L. Mohan
5
An Opportunity to be Seized. . .
- Computers used in Business for Nearly Five Decades
- Dazzling Progress in Technology
- Significant Investments in IT Infrastructure
Hardware, Software and Peopleware
YET . .
Focus on OPERATIONAL SYSTEMS has blurred
the potential of using IT for
MANAGING the Business
L. Mohan
6
The Bottom Line
The power of today's computing technology
is not being used as it should in most
enterprises.
- James Martin, The IS Manifesto
WHY NOT ???
L. Mohan
7
A Hypothesis
 Traditional focus on the "4 M's“ (Money,
Machines, Markets & Men)
 Hands-off approach to IT
HENCE:
 IT is treated as a cost center
 No real understanding of the potential of
IT to help achieve business objectives
L. Mohan
8
Managerial Implications
CANNOT TREAT IT AS A COST CENTER
TO BE RUN BY TECHNICAL PEOPLE
EXECUTIVE LEADERSHIP IS NEEDED TO ENSURE:
• IT is aligned with Corporate Strategy
• IT projects are not bogged down in
Operational Systems that are required to run
the business - must pay attention to
critical Information Support Systems to
manage the business
L. Mohan
9
Companies That just Don’t Get IT!
In the near future, some management guru will write a
book about how executives in the 1990s spent too
much money on IT because they were afraid to manage
it properly. Unsure of what went on in the “black box”,
they put their trust in technological experts to deliver
business value from IT investment…
CEOs don’t seem to apply the same management
scrutiny to their IT department as they do to the rest of
the organization.
Source: Wall Street Journal, December 12, 1996
L. Mohan
10
Why IT is a “Black Box”
to Top Management
… Unsure of what goes on within it and not particularly
anxious to find out
… Do not know “the right questions to ask and the
wrong answers”
… Cannot penetrate the “techno-speak” of the IT group
L. Mohan
11
Treat IT as a Traditional Business System
- Does Not Require “T” Knowledge
Typical Business Functions
Business Strategy
& Planning
Product
Development
Operations
Customer
Service
Typical IT Functions
IT Strategy
& Planning
IT Applications
Development &
Implementation
IT
Infrastructure
Operations
User
Support
IT should be managed like any business system to deliver value.
L. Mohan
12
IT Strategy & Planning
- Business strategy and priorities must guide IT investment decisions.
- IT Budget should channel funds toward critical areas – e.g., growth of market
share, increased revenues and overall competitiveness.
- IT leaders should work from the same agenda as their business counterparts.
- IT leaders must understand the fundamentals of business – to make decisions
based on real measures of business value, not politics or pet projects.
- They should have a seat at the table where business priorities are set.
- Business unit heads should be held accountable for the performance benefits
promised by IT projects.
- In turn, they must have a seat at the table when IT strategies are developed.
L. Mohan
13
Cisco in 1993 - $500 M Company
 IT ran traditional order-entry, manufacturing and financial
systems - basically transaction processing systems
 Software package from vendor; CISCO was biggest
customer
 IT viewed as a cost center
 Reported through the CFO
 Too internally oriented
Result
Contribution of IT to the business was much less than its potential.
Current legacy systems could not scale to support Cisco’s growth nor
were they flexible to meet management requirements
L. Mohan
14
Changes Made to the IT Function
1. IT reporting changed from Finance to “Customer Advocacy”
department to enable IT to facilitate Cisco’s “Customer Focus”
strategy.
2. IT budget pertaining to the functions were returned to the
functions
 All IT application projects are client-funded
3. Central IT Steering Committee was disbanded
 All IT investment decisions on application projects were
pushed out to the line organization but executed by the
central IT department
For example, if a sales manager has a goal to grow his sales 50% next
year, it is his decision as to what resources he invests in it to accomplish
his goal. Do I need more salespeople? Do I create more marketing
programs? Or, do I invest in IT? All the money is in his P & L.
L. Mohan
15
Cisco in 1998: $8.5 B Company
 IT department has about 1, 000 people (employees and nonemployees)
 Operating budget: $300 M (excludes telephone usage, PC
acquisition cost and Engineering department’s IT expenses)
 Central management of the “T” in IT.
User decides how much to spend on IT, but not which
technology is purchased or used.
 Implemented a $15 M Enterprise Resource Planning System to
replace all legacy systems worldwide in an aggressive 9-month
big bang effort (June ‘94 - February ‘95)
L. Mohan
16
Cisco’s Approach to IT
 Philosophy
 Focus on reducing cycle time and improving customer
satisfaction in a cost-effective manner
 IT is integral to the business
 IT’s Relationship with Clients
Our clients manage IT as one of the resources available to achieve business goals.
We jointly define with our clients the scope of IT projects. Clients are held accountable for
attaining the business results with their IT investments. We are held accountable for
implementing effective solutions as defined
Companies that achieve a high degree of business responsiveness and business integration
usually have decentralized IT; they optimize for the business unit but sub-optimize for the
overall enterprise. We have been able to walk that difficult line between centralization and
decentralization and yet achieve a very high degree business ownership of IT decisions and
investment.
L. Mohan
17
A Key Lesson
- How to View IT Investment
In the information age, spending less is no longer the
goal; getting benefits and maximizing cost
effectiveness is the goal…
…We manage IT as an integral part of every function in
the company. Manufacturing decides how much to
invest in IT, and IT becomes part of the COGs (Cost of
Goods). The same thing happens in R&D, sales,
finance, marketing and distribution, human resources,
etc. While all this seems pretty obvious, it’s amazing
the number of companies that lump most of their IT
into G&A (General & Administrative) expense, and then
manage IT to minimize the cost as if it were a necessary
evil.
L. Mohan
18
The Customer is THE Business
- Pervades IT Department Too
I have 150,000 registered Customers hooked up - those are customers with a
big “C” - compared to 15,000 Cisco employees. In contrast to most internally
focused IT organization in many other companies, my mission does not
primarily focus on providing services and systems to meet the needs of the
employees of the business. In fact, I refer to my employee users as clients,
and not as customers.
Customers that are using our systems directly express higher satisfaction with
us, and enjoy a lower cost of doing business with us than those who do not
use our systems. And, of course, we also lower our cost of doing business.
CIO spends 25% of his time meeting with customers to brief them on his
IT mission, strategies, organization structure and applications.
L. Mohan
19
IT Application Development &
Implementation
Top management have a significant role to play in the
oversight of “big” IT projects – cannot abdicate this
responsibility to the CIO
Example: Cisco’s ERP System
– Installed an ERP System to replace all legacy systems
worldwide in an aggressive 9-month big-bang effort
– Cisco had NO CHOICE…
The legacy systems could not scale to the explosive growth
of Cisco in the early Nineties – the crash of the system in
January 1994 shut the company for two days
L. Mohan
20
Key Steps taken by Cisco Management
1. Oversight by Top Management
– CEO made the project one of the company’s top 7 goals for
the year and tracked its progress in executive staff meetings,
company-wide meetings and board meetings
2. Project was Not An IT-only Initiative
– Hand-picked the best business people to work with IT
personnel on the project
– Team of 100 members placed onto one of 5 tracks (process
areas)
L. Mohan
21
Key Steps taken by Cisco Management
3. Implementation Responsibility at Two Levels
– Executive Steering Committee composed of VPs of
Manufacturing and Customer Advocacy, CIO, Corporate
Controller and Senior VPs of Vendors
– Project Management Office headed by business manager
overseeing the 5 tracks, each of which had a business leader
and an IT leader jointly overseeing the work of the team
L. Mohan
22
The “Cisco After” $2.2 B Inventory Write-Off in Apr 2001
How could a posterchild of E-Business, with all the
publicity about the brilliant integration of its systems
-“ the company could close its books in 24 hours, any day of
the year”… Not stop building inventory worth billions of dollars
that could not be sold?
The Great Inventory Wreck of Cisco:
Blamed the economy –
compared it to an “unforeseeable natural disaster”
- Sales plunged 30%
- 8,500 people laid off
- Stock sunk to $13.63 on April 6, 2004,
from $82 in March 2000 L. Mohan
23
The Demand Chain
CISCO
Ford
Auto
Dealers
Auto
Buyers
Boeing
Airlines
Air
Travelers
Merrill
Lynch
Stock
Traders
L. Mohan
24
Demand Chain Management
 Shifts in end-stage demand should drive
production planning and inventory decisions
 Problem: Available information is of varying
levels of accuracy and time discrepancies
 B2B firms must understand that the business
drivers of their “B” customers are different –
must track these drivers for the “20%” key
customers accounting for 80% revenue
L. Mohan
25
Cisco Miscalculated Demand
 Cisco’s customers placed multiple orders on Cisco and its
competitors during the Year 2000 boom, when network gear
was hard to come by, even though they would ultimately
make just one purchase – from whomever could deliver the
goods first.
 Because of long lead times, customers ordered more than
they needed to, as a sort of insurance policy.
 Cisco’s order books did not hence reflect the real demand.
When the economy slowed down abruptly, these orders
evaporated.
L. Mohan
26
Over-reliance on IT Systems
 Other networking companies with far less sophisticated tools
saw the downturn coming, and downgraded their forecasts
months earlier – Cisco Did Not!
 Cisco’s highly touted IT systems contributed to the fog that
prevented it from seeing what was clear to everyone else
… Blinded by their own good press
 Big Problem with Cisco’s State-of-the-Art Networked
Supply Chain Management Systems
… Outsources over 70% of its production to Contract Mfrs
… “55% of orders flow from Suppliers to Customers without
even touching us”
But: No Visibility into the Demand Chain
L. Mohan
27
Cisco Compounded
The Problem!
 To lock in suppliers of scarce components during the boom,
Cisco placed large orders on multiple contract manufacturers
based on demand projections from the company’s sales force
– which were artificially inflated.
 Factories of Cisco’s Tier 2 Suppliers are mostly located in
Southeast Asia, necessitating long delivery times.
- JIT is really “Nearly” JIT: Shipping Times are NOT RealTime!
 Just because the faucet was turned off at Cisco, the company
could not renege on orders with its contract suppliers which
were placed months earlier because of the long lead times.
L. Mohan
28
Cisco’s Vaunted Management
Process Did Not Measure Up!
1.
Inflated sales forecasts from Cisco’s customers due to the
shortage environment in 2000
 Must have corrective mechanism to adjust for the artificial
inflation in salespeople’s forecasts during shortage
 Dell has a “contingency planning” model for training sales
people to get demand estimates from “B” customers
 Valuable to institute a reward system for salespeople to
provide “good” sales forecasts
 Must track business drivers of key customers
2.
Forecasting models based on growth:
 40 strength quarters of stout growth;
last 3 quarters of extreme growth (66%)
 No “What If” analysis if growth assumptions did NOT
materialize
L. Mohan
29
Cisco’s Vaunted Management
Process Did Not Measure Up!
3. Models ignored macroeconomic factors such as debt levels,
interest rates, the bond market, etc, that overshadows the
entire communications industry
 “ We never built models to anticipate something of this
magnitude” - CEO admitting to The Economist, April 2001
4. Did not encourage key suppliers to share market knowledge
 Cisco’s supplier, Solectron, saw a growing disparity
between what they and their other customers thought
was happening and what Cisco said was happening
 “Can you really sit there and confront a customer and tell
him he doesn’t know what he is doing with his business”
- CIO Magazine, August 1, 2001
L. Mohan
30
Cisco’s “Sense & Response” Mechanism –
Missing during Sept. – Nov., 2000
 By Sept. 2000, Cisco’s Tier 1 and Tier 2 Suppliers were
strategizing for a downturn in the economy: either a “V” (deep,
short but right back up) or a longer, more serious “U”-shaped
recession
 But Cisco remained upbeat
“We haven’t seen any sign of a slowdown”…
Chief Strategy Officer, Nov. 2000
“I’ve never been most optimistic”…CEO to analysts, Dec. 4, 2000
 Why did Cisco executives not sense the looming problem in the
“virtual close” system?
 The system forecast a slowdown in Japan’s economy in 9 months
before competitors did
 It enables decision-makers to have real-time access to detailed
operating data.
L. Mohan
31
Cisco’s “Sense & Response” Mechanism –
Missing during Sept. – Nov., 2000
 Cisco saw the problem a little too late on Dec.
15, 2001.
 Actual sales had crossed under its projections in
the system… Decided to seriously curtail expenses
 3 weeks later, a hiring freeze was on!
 What was Cisco doing during Sept. – Nov., 2000?
 Did they not see that the actual sales line and the
forecast line were converging?
L. Mohan
32
Management Imperatives
- To Make IT Business-Smart
1. IT spending should be based on the strategic role
of IT to achieve business goals
- Industry benchmarks not appropriate
Example: FedEx vs. UPS
– Same Annual IT Expenditure: $1 B
– But FedEx Annual Revenue: 33% less than UPS
– Difference due to different IT strategies
– FedEx: Decentralized approach to IT management
-- Focus on flexibility to meet needs of various customer
segments
– UPS: Centralized, standardized IT environment
-- Dependable customer service at relatively low cost
L. Mohan
33
Management Imperatives
- To Make IT Business-Smart
2. IT is not “little i, Big T”
– Information is a critical resource that can provide competitive
advantage to the business.
– Examples: Frito-Lay, Elf Atochem.
– Senior management should recognize the potential of the “I”
in IT and play a leadership role in bringing about
organizational change to make use of better information in
the firm’s management process.
– Upgrading the “I” will be all costs and no benefits unless it is
used to upgrade the management process, with the help of
the “I”, which is more difficult and requires push from top
management
L. Mohan
34
Management Imperatives
- To Make IT Business-Smart
3. Priorities for IT projects should be set by top
management in line with business imperatives.
Example: Which comes first – ERP or SCM or CRM?
–
–
–
–
Frito Lay: CRM first
Asian Paints: SCM first
Nike & Hershey: All three together
Owens Corning: ERP first,
but had to seek bankruptcy protection
L. Mohan
35
Owens Corning put ERP Before CRM
– “You have to have your internal transactions, your base
transactions in place before you automate anything to the
end-customer” – CIO
– ERP package from SAP costing $ 280 M took 7 years to implement –
replaced 200 disparate systems with a single platform to support
operations of multiple SBUs in multiple countries
– Got the CRM system from SAP as part of the package – but
“everything was being sunk into CORE business systems. CRM didn’t
sink in as a priority at the time.”
– Today the CIO concedes that the firm should have focused
more on what customers wanted instead of working only
on getting its internal processes right. “We should have
spent more time working with the customer and gone
backward from there.”
L. Mohan
36
Management Imperatives
- To Make IT Business-Smart
4. Head of IT should be business savvy and be an
“equal among peers” in the boardroom – CIO is not
just a change of title
Characteristic
MIS Manager
CIO
CFO
CEO
Middle
Senior
Computer Systems
Info.Resources
Skills Needed
Technical
Business
Planning
Technical
Strategic
Control
Influence
Reports to
Management Level
Manages
Management Style
L. Mohan
37
Management Imperatives
- To Make IT Business-Smart
5. The “T” should be centrally managed by the CIO to
realize significant cost savings and strategic
benefits that come from centralizing IT capabilities
and standardizing IT infrastructure across an
organization
– Leverages “T” expertise across the company
– Enables large and cost-effective contracts with “T” suppliers
– Facilitates global business processes
Caveat: Limits the company’s responsiveness to differentiated
customer segments and is resisted by business unit heads
L. Mohan
38
Management Imperatives
- To Make IT Business-Smart
6. Business leaders should play a significant role in
oversight of IT projects, especially the “big”
projects; AND be accountable for realizing the
anticipated business benefits.
– A new IT system alone has little value unless it is coupled
with a new or redesigned business process, which entails
change in the organization
– CIO is responsible for delivering systems on time and on
budget, with the potential to be both useful and used, but
NOT the organizational changes needed to generate
business value from a new system
L. Mohan
39
The Buy Option
 System would be available sooner than the “Build”
option
 Management time to design a custom system saved
 BUT : Would the standard reports meet user needs?
IF NOT :
Custom changes can be done only by the vendor cost will depend on # of hours billed at the hourly
consulting rate
 MORE IMPORTANT
All commercial software packages assume:
Data is a GIVEN !
IN REALITY : Data is a BIG
issue
L. Mohan
40
Test Drive the Package…
Before Buying It
Vendor should give an evaluation copy of the software which
should be used for a trial period of 3 - 6 months to check:
 Does the promised functionality actually exist?
 Does the product work in our technical environment?
 Is it really easy to use the product?
... Does it involve significant end-user input?
 Does it work with our data? A make or break issue
 Can it handle our full data load?
(Simulate the full data load)
How well does it meet our performance metrics?
 Is the per-user cost worth the value?
L. Mohan
41
The Build Option
 Can customize to meet user's specific information needs
 Data to be captured in the system will, hence, be tailored to
generate the information needed – “no more, no less”.
 Data issues will be identified during the building process
 User group can trade-off the effort for collecting data and the
value of that data in the report generated
 Enhancing the system can be done in line with users’ needs
― Users control the destiny of the system !
 A Big Problem with the “BUY” Option
― When the Vendor upgrades the software, the Customer
HAS TO UPGRADE, even when the customer does not
want the enhancements
L. Mohan
42
A New Model: “Rent” Software
- Software-as-a Service (SaaS)
Salesforce.com: A Pioneer to Offer CRM Software
through the Web
- Launched in 2000 by Marc Benioff, a Silicon Valley
veteran, who rose through the ranks at Oracle doing
sales, marketing and product development to become a
prominent executive - and one of the youngest – in the
1990s
- An initial backer of Siebel Systems
- Made over $ 20 M from his 1993 investment
- Goal: “Put Siebel Systems out of business”
- Cost of Software: Flat $ 50 Fee Per User Per Month
L. Mohan
43
Benefits of SaaS
- Scalable: Hire more people, pay more;
Lay people off, pay less
-
No Investments in Hardware or IT Staff
… All Computing takes place on Salesforce.com machines
-
No Upfront Licence Fees for Software
-
Time savings in Software Installation
-
Software Upgrades: Do not have to start from scratch
-
Users can access through a web browser, wherever they are
 Rival SaaS Startups
-
RightNow Technologies, NetSuite, SalesNet…
 Siebel Followed Suit in 2002
-
“On-Demand” CRM with L.IBM:
$ 60 fee !
Mohan
44
Why Not Just Outsource IT?
Rationale for Outsourcing
– IT is not a core competency of the business
– Outsource to IT service providers who excel in that
– Possible cost savings, especially for offshore outsourcing
AND
– No headaches of managing IT!
BUT… There are Risks
– Service providers may not be flexible to meet changing
business needs
– Vulnerable if the provider fails to meet contractual
obligations
L. Mohan
45
Mutual Life Insurance of New York (MONY)
- A Case of “IT Out and Back”
 1995
– Outsourced the IT function staffed by 240 people to Computer
Sciences Corp
– Objective: to update MONY’s IT architecture while controlling costs
 1997
– CEO brought IT back in-house
– MONY faced intense pressure from banks and other aggressive
competitors which necessitated radical changes in MONY’s business
strategy that required a variety of new systems
– CEO was diffident about the suppliers ability to keep up with MONY’s
needs
– IT staff expanded by 37%
– IT budget up $60 M in 1998 vs. $42 M in 1997
L. Mohan
46
Cemex One of the World’s Digital Innovators
An extraordinary anomaly
- Cement: A highly unpromising industry
-----
Commodity-based; Asset-intensive;
Low growth; Low profit margins;
Unpredictable demand
Uncontrollable environmental factors
- weather, traffic jams, government policies,…
- An “Old Economy” Company: Founded in 1906
- Location: Hidalgo, Mexico - “ Middle of Nowhere”
-- Not near Silicon Valley, Seattle, Boston,…..
-- No special advantages in terms of talent base or high-tech
infrastructure. Cemex plant outside Mexico City was in a town
with only 20 telephone lines
L. Mohan
47
Cemex Today…..
- World’s third largest cement manufacturer
-- Has plants in 30 countries
-- Sales in 60 more countries
-- More profitable than either France’s Lafarge
or Switzerland’s Holcim
- A blue-print of a “smart” business model
-- Added a brilliantly integrated layer of IT to an
asset-intensive low-efficiency business
-- In today’s digital age, anyone can play!
- Essentially built a “bits” factory to complement
and support the “atoms” factory
L. Mohan
48
The Beginning
- A New CEO in 1985
Business Issues
1. An overly diversified company
- Also owned hotels, petrochemical plants, mining
companies, etc
2. High volatility of the Mexican economic and financial
systems
3. Price pressure from more efficient multinational companies
4. Growing competition from new low-cost Asian companies
A number of factors could be listed in the “excuses” section of
the CEO letter in the annual report. But the new CEO, grandson
of the founder and a Stanford MBA, preferred to change the
rules of the game!
L. Mohan
49
The Transformation….
- Started by divesting almost all the non-cement
businesses
- Hired a Wharton MBA to serve as Chief Information
Officer
Powerful partnership was THE key
-- A CEO attuned to the strategic value of IT
-- A CIO with a genuine understanding of
business
L. Mohan
50
Delivering Ready-mixed Concrete
-A Tough Business Anywhere!
- A logistical nightmare to get mixer trucks from the plants
to the building sites at the right time
-- cement has to be poured within 90 minutes of mixing.
- Especially so in Mexico
-- wild weather, traffic gridlock, work stoppages and
arbitrary government inspections may hit at any time
-- And, customers (contractors at the site) who are always
changing their orders - 50% of orders are cancelled or
rescheduled or changed (vs 5% change rate at a US Cemex affiliate)
- Cemex tried to force customers into predictability
-- Required orders 24 hours in advance
-- Imposed price penalties for change
- Still, could promise delivery only within 3 hours
L. Mohan
51
Starting Point:
Who Else has Solved Our Problem?
- Benchmark the Best World-Class Practices
Fed-Ex
- Customers never provide forecasts
- Achieved unparalleled speed and reliability of delivery of packages
to millions of destinations around the world, using Memphis as a hub.
Exxon
- Tracking, scheduling and rerouting oil shipments
- Global fleet of tankers, at the mercy of ocean weather, military and
political unrest, was efficiently managed
Houston 911 Center
- Coordinates hundreds of ambulances, fire and police vehicles in
response to unpredictable, often life-threatening, emergency calls
- Deal with city traffic, inaccurate addresses and incomplete information
L. Mohan
52
Common Thread in the
Three Companies…..
They had developed systems for quickly and
accurately capturing, responding to, and
sharing information about their customer’s
needs. As a result, they were able to
substitute management of information for
deployment of costly assets such as trucks,
ships and employees
- BITS in place of ATOMS.
L. Mohan
53
The IT-Enabled Solution
CEMEXNET, a satellite system for communications (1987 - 89)
- Connected 11 Cemex cement factories in Mexico and 175
mixing plants with central “operations center”
- Central coordination of supply and demand instead of each
plant operating independently
- Central dispatching system for routing of 1500 trucks;
previously each plant had its own fleet of trucks
Computer terminals installed in every delivery truck with Global
Positioning Satellite (GPS) systems
- Could dispatch the right truck to pick up and deliver a
particular grade of cement (8000 products)
- Reroute the truck when the chaotic traffic conditions
delayed delivery
- Redirect deliveries from one customer to another if lastminute changes were made L. Mohan
54
Expert System
- For Smarter Decisions
- To project order rates by day, hour and location
-- improved predictions as the data grew
- Customer site of the incoming order is triangulated against
the mixing plants and delivery trucks scattered throughout
the city
- ”Best” combination selected based on traffic,
pouring conditions and the pattern of predicted orders
L. Mohan
55
The Payoff...
- Reduced the 3-hour delivery window for ready-mix
concrete to 20 minutes with reliability of over 98%.
Goal: 10 minutes.
- Fewer lost orders because the phone systems aren’t
tied up
- Uses 35 % fewer trucks
-- Less inventory in transit
-- Large savings in fuel, equipment maintenance
and payroll costs.
L. Mohan
56
Cemex’s Unique Value Proposition
To Its Customers
- Rapid Responses
-- Order changes and same-day delivery are standard service
- Reliability
-- Worry less about late deliveries
-- Avoid huge costs of idle workers in case of late deliveries
- Guarantee
-- If the truck is late by over 20 minutes,
buyer gets rebate of 5%
L. Mohan
57
New Technology is Nothing
Without New Attitudes ...
- Dispatchers were told:
“ You are no longer scheduling; you are committing.”
- Compulsory computer and customer-service training
for drivers (with an average schooling of 6 years)
-- Six hours at half-pay -- every Sunday for 2 years
- Changing of “old” work rules
-- Unions consented on the promise that
more efficient trucks meant higher pay.
It is better for the Company as well as for us. As a matter of fact, we are
the Company. (Salvador Lamas, a truck driver and union leader)
L. Mohan
58
Today: IT is a Separate Business
- Spun off the internal IT department, Cemtec, and joined it
with 4 other Spanish and Latin American firms in 2000.
-- Created Neoris, an IT consultancy
- Neoris is now part of CxNetworks
-- a Miami-based subsidiary that Cemex wants
to use to turn itself into an e-business
- Launched under CxNetworks:
-- Construmix: a construction industry online marketplace
-- Latinexus: an e-procurement site
L. Mohan
59
Effective Management Strategies
Used by CEOs Who Get IT!
1. Operational Strategy
– Should have a clear view as to how the company must
operate differently once the investment in IT is in place
2. Emphasis on Key Processes
– Concentrate IT investments to support re-engineering of key
processes such as using the Net to connect with customers
and suppliers or helping people at all levels do their jobs
more effectively through information support systems
L. Mohan
60
Effective Management Strategies
Used by CEOs Who Get IT!
3. Effective Governance
– Make the CIO a member of the top management team so that
the CEO and CIO are in touch on a weekly, if not daily, basis.
– Or, set up an effective IT steering committee with the CEO or
COO, CIO and the heads of business units that meets
periodically to set IT direction within the context of the
business strategy and balance company-wide and business
unit IT needs
4. Line Managers Should “Get IT”
– Make IT education a part of the management training
program to ensure line management at all levels view IT as a
competitive weapon, not as a cost
– Encourage efforts to use IT effectively, monitor and reward
L. Mohan
61
them