Communications of the ACM

Communications of the ACM

Enterprise Integration Across the Globally Disbursed Service Organization

By Barry Shore
Communications of the ACM, June 2006, Vol. 49 No. 6, Pages 102-106
10.1145/1132469.1132475
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There is a paradox in managing a global service organization. On the one hand, there are pressures to decentralize operations and outsource appropriate business processes. On the other hand, there are competitive pressures to centralize management functions and integrate the dispersed operations of the firm.

Integration is frequently considered the price of entry for running a business [7]. For most organizations, integration is supported through enterprise information systems, capable of sharing information across the extended enterprise from suppliers to customers. They promise reduced costs, tighter control, higher quality, and above all, increased customer service and satisfaction.

Enterprise systems, however, do not always meet their goals. Spending often exceeds budgets, staff frequently resists changes, and projects can be burdened with technical problems [10, 11]. Some fail altogether and others produce only disappointing results [3, 8].

While creating an integrated enterprise environment is certainly challenging for the organization whose business units are geographically concentrated and centrally controlled, it becomes even more challenging when these units are geographically dispersed and individuals from around the globe must work together [1].

This article highlights a strategy for managing an important component of the integration process and illustrates the use of this strategy with a case study of how the largest financing company in the world addressed integration issues and how it succeeded in bringing together a diverse group of business units, business practices, legacy systems, and managers.

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Emphasis for Global Integration

Enterprise integration must address technological/ business process issues [9], and organizational/management issues [10]. The emphasis given to each varies. When the emphasis is on technological/business process issues, there is an assumption that the type of knowledge transferred—including best business practices, which dominates organizational/management issues—is relatively straightforward and explicit, and that carefully articulated work processes can be implemented regardless of cultural context [2]. For example, implementing an airline reservation system in a new region of the world is considered a relatively straightforward process since only explicit knowledge needs to be transferred. Here, centralized planning and implementation does work (airlines do it all the time!). When the business processes become more complex, when the type of knowledge transferred is complex and tacit, the challenge increases.

In one Fortune 500 company I studied, a centralized manufacturing and accounting system was implemented at plants across the globe. At headquarters, a map of the world revealed plant locations. Green pins represented a successful implementation; yellow pins represented partial success; red pins represented failure. Pointing to the red pins (one-third of the pins were red), one manager confided, "They just don't get it." Offering an explanation, he continued, "We've had trouble finding the right managers for the job." But his response suggests an emphasis on the technological/business process issues. Little was expressed about the challenge of organizational/management issues.

When the emphasis is on organizational/management issues, attention is drawn to the social structure of business units and the challenges these structures impose on the implementation process. Scott and Vessey [10], studying ERP implementation at two companies, concluded the major difference between a successful and failed implementation was related to organizational culture. They suggest that implementation success increases when the culture supports open communication and when the company recognizes that employees are the primary source of ideas.

A wider variation in organizational culture is expected when implementation spans the globe. This can be attributed to differences in national culture. A recent study, Project GLOBE, compared 18,000 middle managers from 62 countries [6]. What they found, confirming earlier studies [5], was that managers behave differently across the world. Examples of cultural dimensions affecting these differences include: the assertiveness of individuals; power distance among peers, subordinates and superiors; the willingness to take risks; and the preference for collective or individual activity. They suggest that as the geographic scope of a project broadens, the social framework within which the project must unfold becomes more complex.

The implications of these studies are that cultural factors may add another layer of complexity to the role of organizational/management issues in the integration process.

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Case Study

This case study was based on corporate presentations as well as interviews with a senior project leader. It examined the transition from what management referred to as an "old legacy system" designed for "old business processes" and using "old organization structures" to new business processes featuring state-of-the-art integrated systems.

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Company Background

IBM Global Financing, IGF, offers financial products and services in two areas—asset financing and asset recovery. With over $37 billion in assets under management, IGF is the largest financing company in the world and is equal in size to the 18th largest U.S. bank. The company employs 3,200 people and provides services to over 125,000 customers located in 43 countries.

Asset financing includes such products and services as fixed rate, variable rate, and balloon loans targeted to customer, who have purchased IBM and non-IBM hardware and software products. In most cases these loans represent long-term obligations for technologies subject to high obsolescence. To accommodate these long-term risks, IGF offers options for mid-term upgrades, swaps, and early termination of leases.

The second area of business, asset recovery, provides services that help customers manage end-of-lease decisions. These services include refurbishing equipment for resale, providing resale support, de-manufacturing equipment to salvage components, or scraping equipment altogether. With both flexible financing and asset recovery services, IGF maintains that their services help ensure that business needs drive a customer's end-of-lease decisions rather than end-of-lease decisions driving business needs.

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Critical Success Factors

Fui-Hoon Nah and Lee-Shang Lau [4] summarized the critical success factors for enterprise integration. They included top-level support, adequate business plan, business process reengineering, collaborative teamwork, effective communication, appointment of a project champion, and capable project management. Here is how IGF addressed these factors as it managed the transfer to an integrated environment.

Top-level support. IBM CEO Lou Gerstner stated in 2002 that to really get the benefit of e-business there was a new imperative to integrate all parts of the enterprise, all those core processes, and the applications that support them. He continued that it was important to integrate customer relationships with all the products and services the enterprise created, and all the relationships that connect the enterprise with the outside world.

Business plan. With a mandate from the top, IGF developed a business plan that included many strategic goals.

• Integrate customers, suppliers, and partners;
• Improve customer and business partner satisfaction;
• Establish a Global Asset Recovery Services brand;
• Reduce administrative costs;
• Raise productivity;
• Lower IT operations and systems maintenance costs; and
• Enhance security and business controls.

The new system would integrate the extended enterprise and link all offices in all locations. It would transform a geographically dispersed organization with independent systems into one virtual company capable of competing in an "e-business environment through the next decade and beyond."

At the center of this project would be a common global system. It would be the most on-demand business at IBM and provide the highest level of integration.

Business process reengineering. The starting point for the project was the development of an as-is model of the business. Processes were documented worldwide and as expected, uncovered many different approaches to getting the job done. Loan application, credit scoring, loan payment, and asset record-keeping processes had been created to accommodate local or regional preferences. The as-is model provided the data to identify cross business synergies, and common process flows. As work continued key business decisions were defined, followed by flowcharts of the leasing life cycle, and, from this data, recommendations were made for business process improvement.

Teamwork. IGF chose a strategy that addressed both the technical/business process and organizational/management challenges. This strategy combined centralized, top-down leadership with bottom-up collaboration. It would be, commented one manager, a "new approach for IBM." Further, it would be a strategy that would provide the opportunity for business units across the globe to participate collectively in the integration project.

A team of 15 individuals was selected, including six U.S. managers and the remaining representatives from operations in Denmark, France, Sweden, the U.K., Japan, Australia, and Italy. Workshops were held at six different international locations. At these meetings business processes, used by 3,200 employees from 43 countries, were studied and compared. What became clear was that the inability to share data was having a detrimental effect on the ability to compete in an increasingly competitive marketplace. As one manager commented, "It didn't have to be that way."

Making the transition from a geographically dispersed and decentralized system is a difficult challenge, but the team of 15 managers, from across the world, and meeting face-to-face, made progress as a common environment evolved. Indeed, the team approach appeared to provide an effective mechanism through which complex differences of substance and style could be addressed and effectively resolved. Teams, then, became the cultural melting pot.

One observer commented that it was not the particulars of new business processes that seemed to be the biggest challenge. Nor was it the protection of familiar processes these individuals had used for a long time. Nor was it the threat of new software. The biggest challenge, he said, was in "managing a cultural change, not a software change."

Communication. Participation by individuals from a wide range of national cultures can make effective communication challenging. Only five of 15 team members on the team spoke English as a first language, but language was considered a non-issue. A more significant issue was the challenge of bringing different organizational cultures and management styles together. Using Hofstede's research [5], it could be expected, for example, that participants from high power distance countries like France and Japan might be reluctant to voice their concerns about a project initiated with a top-down perspective. Or, it could be expected that they might be reluctant to abandon a decentralized system, over which they maintained control, for a centralized/corporate system, over which they could exercise much less control. Uncertainty avoidance could also affect team participation and project outcomes. Those from countries low in uncertainty avoidance like Denmark and the U.S. might be expected to be less resistant to trying new ways of processing loans or communicating with customers than those from high power distance countries like Japan and France.

Indeed, the kind of effective communication that would ensure a successful implementation would be difficult to achieve, but the cultural melting pot, created by the team approach, served to provide the context within which these different management styles could be used to best advantage.

Project champion. Champions are often seen as the motivators behind the success of any project. For global integration projects they must be capable of balancing the technological/business process and management/organizational issues in a cross-cultural environment. The IGF champion, a senior person in the organization, was an individual who seemed to balance these issues quite well and who was capable of addressing the complexities associated with managing a diverse group of 15 individuals from many countries.

Project management. According to one manager, traditional IBM strategy in situations like this would be to introduce changes in bits and pieces where modules would be rolled out one-at-a-time and the first tested before the next began. The IGF project would take a very different approach, one in which the extended enterprise would be integrated at once. This was particularly challenging because the legacy systems to be reengineered included 800 unique business processes used worldwide and with 290 different IT systems. As is true in many integration projects, some technological challenges, especially software development, can be outsourced. The new asset financing system was implemented using SAP standard core modules. They included Finance/Controlling, Fixed Assets, Sales and Distribution, Accounts Receivable, Accounts Payable, and Lease/Loan Accounting. Other modules were implemented including an SAP Customer Resource Management module.

The global asset recovery system was also built on standard SAP core modules. It maintained data on the tracking and receipt of off-lease and other IBM used equipment, surplus, and excess inventory. In addition, it maintained data on refurbished, dismantled, resale, and scrap activities.

Not all applications were integrated in an ERP environment. IGF would still use best of breed applications. For example, a system developed by Fair, Isaac and Company Inc., would support the credit review process.

Realistic project milestones, tight controls, and constant communication were the hallmarks of project control. Often, however, it is the management and organizational issues that challenge the timetable. Here the emphasis on communication seemed to keep activities moving toward a timely completion of the project.

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The team approach appeared to provide an effective mechanism through which complex differences of substance and style could be addressed and effectively resolved. Teams, then, became the cultural melting pot.

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Project Results

When completed, 800 unique business processes were reduced to 19 common processes used in all offices throughout the world. Furthermore, 290 separate IT systems were reduced to 36 including the SAP software and the best of breed applications that were specific to IGF's business.

Benefits from the system included a reduction in sales cycle time from days to hours, improved inventory turnover, reduced administrative costs, improved customer satisfaction and loyalty, and increased business. In one year the asset-financing systems alone produced $200 million in gross profit, a significant return for a project with a price tag in the range of $60 million. Its success was recognized by the leasing industry when IGF won the 2002 annual Technology Innovation Award.

But the benefits of an integrated system extended to management planning and control. Using data warehousing technology, which capitalized on the accessibility of the transaction data stored in the common database environment, managers now had "views of data that they never had before." Strategic planning, as a consequence, significantly improved.

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Lessons Learned

IGF expressed several lessons learned from the experience:

• Take a holistic or central view.
• Wait for absolute CEO commitment.
• Appoint an organizational champion.
• Outsource what you can ... no one can do it alone.
• Assign the best goal-oriented business and IT builders to the project.
• Maintain tight management control.
• Communicate, communicate, communicate.

These lessons address both technological/business process and organizational/management issues. The last lesson, repeated three times by management, underscores the additional challenge imposed by global integration. Communication in this context is complicated by managers whose national cultures affect their way of thinking and their management style. To facilitate communication among this diverse group, this lesson suggests the creation of international teams supported by face-to-face meetings.

While it is difficult to speculate on the degree to which national differences would have interfered with the IGF project had other methods of development and implementation been used, anecdotal evidence from those involved suggests that face-to-face collaboration within a structured framework that combined a top-down centralized focus with a bottom-up collaborative environment was very effective. Establishing a working team of international managers is therefore a strategy worth considering when an integration project must span geographic and cultural boundaries.

Another lesson worth emphasizing, and closely related to the communication lesson, is that the complexities of global integration underscore the need to choose the right champion. That individual must have the skills necessary to balance technological/ business process and managerial/organizational issues including the complexities brought on by a diverse cultural group. Further, this individual must be capable of taking greater organizational risks by opening the process to international collaboration, yet maintaining tight project control. Less social control but more project control is the real paradox in managing the global integration. It is the challenge this paradox expresses that may separate success from failure.

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The Digital Library is published by the Association for Computing Machinery. Copyright © 2006 ACM, Inc.

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