Posted: May 24th, 2022
Alcan Case Study
Alcan IT Infrastructure Case Analysis
The strategic challenges that Alcan is having to overcome in order to continually grow profitably is common across enterprises that have grown through mergers, acquisitions and lack of unified Information Technology (IT) strategic planning. The result is often a balkanized, diverse IT architecture that lacks integration at the system and process level, weakening enterprises from getting to their goals and objectives. Alcan has all of these characteristics as they have a diversified business model, highly balkanized IT architecture, and a divisional organizational structure that has further made the coordination of IT strategies even more difficult. Based on the analysis of the collection of case studies concerning Alcan, it is clear the highly decentralized nature of their IT strategies is limiting their ability to fulfill strategic objectives. The lack of integration across legacy systems and business units is also significantly reducing the ability of the company to share analytics, tacit and implicit knowledge, and accomplish complex tasks as a result. The goal of this analysis is to analyze the pros and cons (or advantages and disadvantages) that the existing Alcan IT platform architecture has today, followed by an analysis of the pros and cons of Robert Ouelette’s proposal for the new Alcan technology infrastructure. The last section of this analysis will include recommendations of additional improvements to the Alcan IT infrastructure. Alcan’s future will be predicated on how effectively they use their information assets, which will either accentuated and strengthened by the adoption of a more efficient IT architecture.
Assessing the Pros and Cons of the Current Alcan IT Architecture
The lack of shared ownership of complex, integrated business initiatives and strategies within Alcan can be traced back to the non-integrated, siloed and highly inefficient IT architecture the company has in place. While the decentralized nature of the company’s organizational structure made sense from a business strategy execution standpoint, it drastically reduced the ability of the entire enterprise to effectively share information, intelligence and knowledge across the divisions of the company. The lack of unified IT architecture was crippling the ability of the company to complete more effectively as a unified enterprise. The greatest benefit of decentralizing IT is the accuracy, speed and relevance of the data to the operations of the specific business unit the systems are designed for. At Alcan the opposite is starting to occur, as corporate-wide strategies are not getting accomplished due to the lack of IT system coordination. At a strategic level, Alcan is facing the daunting task of winning business against competitors who have a more agile, have better system and process integration, and can quickly transform their accumulated experience and intelligence into competitive advantage and won business. For Alcan, the challenge of creating a unified system of record that encompasses all business units, giving the company greater competitive agility and speed to market are critical to their long-term growth.
The advantages (or pros) of a decentralized IT architecture is the ability to gain greater insight and intelligence into the performance of a given business unit or division with analytics, metrics and Key Performance Indicators (KPIs) that are tailored to the specific processes, procedures, strategies and system of a given business unit. Arguably this gives a business unit or division much greater insight and ability to respond quickly to market opportunities and threats. For Alcan, this has translated into significantly more control over purchasing, procurement and supply chain strategies, making production more efficient and focused than would have been possible with centralized IT. Second, using two-tier or decentralized Enterprise Resource Planning (ERP) systems continues to show significant potential for transforming business units from being inward-centric and myopic to being more customer-centric and focused on the market, not themselves (Bock, Flores, Latumahina, Cheng, Lam, Chan, Soeharto, Kang, 2009). Another advantage of having a highly decentralized IT architecture where ERP systems are specific to each business unit is the ability to fine-tune each process area more precisely than if a centralized ERP system was being used. In the case of Alcan, each business unit has a very specific set of requirements for procurement and sourcing, and having an ERP system dedicated to each business unit allows for greater customization to each specific process area. Customizing an ERP system to the unique process and product requirements of a given business unit can also significantly increase system adoption as well, meaning more people use the system and get value from the data and analysis it provides (Esfahani, Murad, Sulaiman, Udzir, 2011). For Alcan, the relatively high rate of adoption of IT systems within each specific business unit can be attributed to the fact that each division’s ERP systems are tailored to the specific and unique requirements of each business unit.
The disadvantages (or cons) of having a highly decentralized ERP and IT infrastructure is the manually-based approaches many companies must resort to in order to synchronize analytics, data, historical sales, profit and operations, in addition to the loss of knowledge transfer that occurs due to lack of any process or system integration (Holland, Light, 1999). Another costly and time-consuming disadvantage is the lack of financial leverage and bargaining power with enterprise software vendors. A decentralized IT architecture using enterprise-wide applications including ERP will be very expensive to maintain from an annual services fee standpoint, as every enterprise software vendor will require annual licensing fees fro both the core components and modules (Bock, Flores, Latumahina, Cheng, Lam, Chan, Soeharto, Kang, 2009). A third disadvantage (or con) is the lack of agility that Alcan has at a strategic level, including a slowed response time to new market opportunities and threats. This lack of agility could cost Alcan new market opportunities that require a concerted response from all divisions working in conjunction with each other (Esfahani, Murad, Sulaiman, Udzir, 2011). The inability of enterprises to pursue and attain strategic objectives that require the best performance from each division is often not possible when there is a highly decentralized IT architecture in place (Esfahani, Murad, Sulaiman, Udzir, 2011). As a result, when market forces push the urgency of responding to emerging, nascent market (Waggener, 2007). Due to all of these factors and concerns, Alcan needs to re-evaluate their decentralized IT architecture. Foremost will be the decision of whether to pursue procurement, purchasing and supply chain strategies by business unit or enterprise-wide.
Assessing Robert Ouelette’s Proposed Application Management Platform
Unifying the many diverse IT architectures, systems, platforms and processes together into a federated, corporate-wide Web Service is at the center of Robert Ouelette’s proposed Application Management Platform proposal. Mr. Ouelette contends that having an enterprise-wide Web Services platform or framework that integrates all mission-critical IT analytics, assets, and systems together will make Alcan more agile and competitive over the long-term. He cites the potential of using the new Web Services Platform on a per-strategy and per-project basis to gain faster time-to-market and more effective corporate-wide performance. The advantages (pros) and disadvantages (cons) of his proposal are analyzed in this section.
Clearly the greatest advantage of a federated approach to managing IT through the use of a Web Service is the ability to quickly define and execute corporate-wide strategies that require coordination of supply chain, sourcing, procurement, marketing, sales, service, pricing and production (Evgeniou, 2002). This alone would mean that Alcan could quickly enter new markets with their entire product and services line in a fraction fo the time it takes today. The second major advantage is the significant time and cost advantages possible with a unified data model and single system of record company-wide, delivered as an enterprise Web Service (Olson, 2007). Greater accuracy and precision of reporting and analysis, and greater coordination with outside stakeholder including suppliers, service partners and distributors would be possible when an enterprise-wide Web Service was used over a more fragmented IT architecture or framework (Evgeniou, 2002). A third advantage is the ability to more effectively and quickly analyze, interpret and take action on customer needs and wants that span multiple product divisions or business units of the company from a new product development standpoint (Waggener, 2007). Another advantage or reason to pursue the enterprise Web Services strategy is that Alcan can gain significant economies of scale at the IT, pricing, procurement and production level by including a Service-Oriented Architecture (SOA) (Esfahani, Murad, Sulaiman, Udzir, 2011). For many enterprises who have chosen to implement enterprise-wide Web Services, their SOA frameworks deliver significant performance and accuracy gains across business units and divisions not possible with previous-generation process and system integration techniques (Evgeniou, 2002).
While the advantages are compelling for the enterprise Web Service, there are several disadvantages as well. First, centralized IT architectures over time become myopic and more inward-focused, often losing sight of the fact that business units and customers outside the company are a priority (Olson, 2007). This occurs because IT staffs tend to measure the centralized IT performance on a transaction basis, not paying attention to the end result of how the data and information they provide contributes to business goals and objectives being achieved. Without that insight at Alcan, the enterprise-wide Web Service will most likely become more myopic and focused only on its own performance, not taking into account the broader business objectives being accomplished. Second, enterprise-wide Web Services are very expensive to implement and maintain and often require continual fine-tuning and professional services to generate accurate, reliable results (Esfahani, Murad, Sulaiman, Udzir, 2011). Mr. Ouelette’s proposal may be optimistic in this regard as it is common to see up to ten times the amount spent on enterprise Web Services and SOA implementations (Esfahani, Murad, Sulaiman, Udzir, 2011). A third disadvantage is the loss of tacit knowledge throughout each division of the company when IT becomes centralized, and it is not captured anymore. In the strategically critical areas of procurement, purchasing and supply chain management, each division and business unit of Alcan has a significantly different approach to managing these processes. Centralizing them, even with an enterprise-wide Web Service unifying the company, will lose much of the division-specific knowledge the company has. It is common to find tacit and implicit knowedlge at the department and division level lost when a centralized IT infrastructure is implemented (Esfahani, Murad, Sulaiman, Udzir, 2011). Finally and most significant will be the resistance to change on the part of employees and their potential rejection of the new systems and processes necessary to make the enterprise Web Services strategy work (Holland, Light, 1999). It has been shown the resistance to change and lack of an effective change management strategy can lead to an enterprise-wide IT project failing quickly and with a very high cost (Esfahani, Murad, Sulaiman, Udzir, 2011). Alcan will need to take that into account as the consider the proposal from Mr. Ouelette as well.
Additional Improvements to the Proposal
Starting with the centralized, enterprise-wide Web Services framework, Alcan needs to consider how to take the most transaction-intensive aspects of their business and automate it first. This is not clear from the proposal, yet it must be a priority for the enterprise-wide strategy to work. Studies indicate that by reducing the level of complexity in transactions within procurement, supply chains and sourcing, enterprises can drastically increase the Return on Investment (ROI) and accuracy of their enterprise Web Services initiatives (Olson, 2007). Starting with distributed order management and progressing into supplier enablement, Alcan could save common transaction costs of supply chain management by centralizing these areas first in the enterprise-wide Web Services architecture. A prioritization is needed of the key areas the company will automate first if it chooses this direction.
A second area is answering the difficult question of whether or not the enterprise-wide Web Service will give Alcan greater time-to-market advantages in its core segments relative to having a distributed IT platform. If time-to-market will be more effective and at a reduced cost, the enterprise Web Service proposal will be that much more valuable. On the other hand, there needs to be greater quantification and ROI assessments of product lines Alcan has that are highly specific for a given market, tailoring analytics to track performance and the advantages of a decentralizing IT. In short, the existing vs. proposed IT architecture must be evaluated from the standpoint of its contributions (both present and potential) to business objectives over the long-term. Once that analysis is complete, the true ROI of the enterprise-wide Web Service will be known.
Third, the proposal does not include an assessment of how costs will be reduced from greater information and knowledge sharing due to using the enterprise Web Services Management Platform. Licensing of duplicate ERP systems and associated modules will certainly decrease, which will be a major component on calculating the ROI fo the Web Services strategy (Bock, Flores, Latumahina, Cheng, Lam, Chan, Soeharto, Kang, 2009). The additional cost component of more efficient information and knowedlge sharing, while difficult to quantify, will provide greater insight into the actual performance of the proposed Web Services Management Platform however (Olson, 2007).
Bock, G., Flores, E., Latumahina, D., Cheng, H., Lam, V., Chan, S., Soeharto, R., & Kang, Y.. (2009). Integrating ERP Systems in a Decentralized Company: A Case Study: Research Note. Journal of Information Technology Case and Application Research, 11(1), 59-64.
Esfahani, F., Murad, M., Sulaiman, N., & Udzir, N.. (2011). Adaptable Decentralized Service Oriented Architecture. The Journal of Systems and Software, 84(10), 1591.
Theodoros Evgeniou. (2002). Information integration and information strategies for adaptive enterprises. European Management Journal, 20(5), 486-494.
Holland, C., & Light, B.. (1999). A critical success factors model for ERP implementation. IEEE Software, 16(3), 30-36.
Olson, D.L. (2007). Web services composition strategy in enterprise systems. Human Systems Management, 26(1), 53.
Shelton M. Waggener. (2007). A New IT Services Model Based on Demand and Supply. EDUCAUSE Review, 42(6), 42.
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