“One Manufacturer”: Harmonization Strategies for Global Companies How to Align Enterprise Architecture with Corporate Strategy

Manufacturing the way we see it

Recently we have seen many global Drivers for One Manufacturer manufacturers running a “One Programs Manufacturer” or “One M” program, The need to harmonize stems from where “M” is typically the name of the different business drivers, and manufacturer (One Philips, One Canon, depending on a company’s product One Ford, etc.). The objective of these portfolio and market conditions, these programs is to harmonize all or parts drivers will be assigned a different of the organization and rationalize the priority. As these drivers are addressed application landscape. Years of growth through a One program, a number of (organic, but in particular through business benefits can be realized. mergers and acquisitions) have created a myriad of process standards I Operational Efficiency and and supporting applications. Compliance: Many manufacturers today are focused on operational But what are the different strategies efficiency and compliance of all the behind the design and business processes. Process implementation of these programs? improvements in terms of quality, What benefits can companies expect efficiency and compliance should to achieve? And what are the critical lead to an exchange of best success factors for a One program? practices across the organization, and aligning the Many One programs are implemented company on these best practices is primarily as cost-saving initiatives. another important driver for One However, our experience has shown programs. Improved efficiency from that additional benefits include process harmonization can also improvements in areas such as reduce costs on the business side, customer satisfaction and increased particularly in areas such as speed to market. To ensure that all the procurement. In fact, based on our benefits are achieved, an organization’s experience working with clients, the corporate strategy should be majority of the cost savings from a considered before implementing a One program typically come from harmonization program. operational efficiencies in the business. Framework for Corporate Strategy One Manufacturer: Key Takeaways I Costs: The recent crisis has put even more emphasis on the need to Capgemini conducted research to manage costs effectively. The current analyze how organizations go about application landscape is typically integrating their processes globally in Capgemini’s One Manufacturer research vast and complex, and new order to move towards the One M leads to three key recommendations: requirements from business owners approach. In addition, we compared are harder to implement. Simplifying harmonization strategies with the 1. Good business reasons exist to adopt this landscape and reducing the IT enterprise architecture developments, each of the operating models, and to cost and effort of maintenance, to as these must go hand in hand. The differentiate the choice of operating make headroom for innovation, is an research made it clear that companies models by function. important objective of these One need to understand the fit/gap 2. The research identified a gap programs. In particular, optimizing between their corporate strategy and between companies’ current state IT systems leads to a reduction in enterprise architecture if they want to and their ambition, even though move towards a One approach. complete Unification is not always the variable costs, which is an important end goal. priority for many global manufacturers. The research focused on four types of 3. The enterprise architecture maturity operating models that serve as the I Global Growth: Further expansion to implement these choices needs to framework for corporate strategy: be sufficient to support the ambitions across the globe, both in terms of Diversification, Coordination, of the operating model. new markets as well as new sourcing Replication and Unification (see and production locations, has sidebar, next page, for further details). increased the need for common These operating models provide a set processes and application platforms. of options for “being One” for a Companies must share processes certain level of the organization. For and data across regions to have example, sometimes Unification can better control and visibility as they be applied all the way to the corporate grow. A clearly defined set of level, but quite often, this ambition processes and applications can help will apply to the strategic business an organization establish a new unit (SBU) or division level. operation quickly and cost Organizations with a Unification effectively in emerging markets. operating model have integrated and I Corporate Synergy: In more general standardized business processes in terms, the alignment efforts of a One order to have one face to their program are also aimed at fulfilling different customers. the corporate strategy. How are the different business units working Although Unification is the model to together under one brand? What are achieve full harmonization, it may not the synergies among these units? be the right choice for every Can parts of the processes be offered organization. In some cases, there are more centrally, as part of a shared- good reasons for organizations to service center? choose a Coordination or Replication strategy at the division or corporate level. An organization using the

2 Manufacturing the way we see it

Replication operating model, for Figure 1: Operating Model Classification 1 instance, largely focuses on standardizing key processes across the company High through automating technology, enabling it to rapidly expand its

business. With a Coordination model Integration Process Business companies can present a common face Coordination Unification to the customer by integrating the results from sharing key data across business units.

And even though the Diversification operating model will not necessarily Diversification Replication make the organization more “One,” it can be a valid choice for certain parts of the organization, particularly those that run more or less independently, Business Process Standardzation or certain functions, as we will Low High see below.

In our research we found that there was often a gap between a company’s Research Methodology and Operating Model Classification current state and its ambition, with many functions still quite diversified. In most cases, companies have an Capgemini’s One Manufacturer study involved primary and secondary research and ambition for further harmonization, in-depth interviews. Interviews were conducted with experts representing a range of although not always full Unification. manufacturers from different segments (Aerospace and Defense, Automotive, High Tech A certain level of Replication or and Industrial Products) and focused on the strategies and current situation of these Coordination may be desired in order companies. to share best practices, improve 2 operational efficiency and The research was based on several well-established models, from COBIT and Ross et al. The typology for operating models and enterprise architecture from Ross in particular are lower costs. central to the research.

Operating model is defined as the desired level of business process integration and business process standardization for delivering goods and services to customers. Corporate strategy can be implemented through four operating models:

I Diversification: Characteristics include independent business units with different customers and expertise; autonomous business management; and few data standards across business units. In a Diversification model, both business process integration and business process standardization are low.

I Coordination. Characteristics include unique business units with a need to know each other’s transactions; shared customer/supplier/product data; and impact on other business unit transactions. In a Coordination model, integration is high, but standardization is low.

I Replication. Characterized by independent but similar business units; autonomous business unit leaders with limited discretion over processes; and standardized data definitions but data locally owned with some aggregations at the corporate level. In this model, integration is low but standardization is high.

I Unification. Characterized by a single business with global process standards and global data access; centralized management often applying functional/process/business unit matrices; and globally integrated business processes often with the support of enterprise designs. Both business process integration and business process standardization are high.

1 "Enterprise Architecture as Strategy," Jeanne W. Ross, Peter Weill, David C. Robertson, Harvard Business School Press, 2006 2 COBIT (Control Objectives for Information and related Technology) is a framework for IT governance improvement, risk mitigation, IT value delivery and strategic alignment maturity assessments.

“One Manufacturer”: Harmonization Strategies for Global Companies 3 Functional Understanding Is In Production, Diversification and A company’s prioritization of the Essential Coordination are likely because business drivers may also impact its One of the key insights from the facilities and product portfolios may choice of operating model. For research is that the overall operating be very different but need to be linked example, many global companies model analysis cannot apply together on some levels. Replication of looking to achieve better synergies, uniformly. It makes more sense to go processes can also be a viable option. cost management and operational to the functional level (see Figure 2). For Distribution, Diversification seems efficiency have centralized their In fact, it may be necessary to do this to be justified because of the business processes within the R&D not at the corporate level, but at the differences in markets and product and Sourcing functions. However, if division level for many functions. characteristics, but increasingly global growth is the main priority companies are beginning to unify then a company may want to focus on It should be noted, however, that their processes in this area. For both Replication, particularly in Production, supporting functions like Human of these functions companies may be to enable faster time to market. Resources and Finance can be unified diversified at the group level, but have even at the corporate level. This is a Coordination model within a An organization’s internal culture may typically the place where Unification business unit. also be a factor in the selection of starts for most multinationals as they operating model. For example, a more have generally centralized their For Sales and Marketing and Service centralized, hierarchical-driven processes within these functions for Management, the majority of company will likely have a greater corporate control and better access to companies diversify in order to organize appetite for full harmonization than information. themselves around customers and will a company that is more markets, but the business processes decentralized and locally driven. For R&D, there are also possibilities are well coordinated within the to unify to the corporate level, but business units. For Sales and Marketing, Different Models for Different Diversification is also quite common, customization to sales channels and Segments depending, for example, on the markets is key, but this also offers Summarizing the choices made for homogeneity of the product portfolio. opportunities to unify product groups these different functional areas, we For Sourcing, Coordination can help across these channels. A similar can assess a general operating model provide synergy benefits without situation holds true for Service for each multinational manufacturer necessarily unifying all systems Management, where this function studied. It is interesting to note that and processes. becomes more strategic due to the different manufacturing segments are general shift from products to services. making different choices in their operating model (see Figure 3).

Figure 2: Operating Models Can Vary by Function

R&D Sourcing Production Distribution Sales & Service Marketing Management

High

HRM Coordination Unification

Finance Business Process Integration Diversification Replication

Business Process Standardzation

Low High

The research demonstrates that operating models often vary depending on the function. However, supporting functions like Human Resources and Finance are more likely to be unified at the corporate level.

4 Manufacturing the way we see it

Figure 3: Operating Models Differ by Segment for overall service requirements, which may lead companies to coordinate systems and processes. We High also see some Unification efforts in Sourcing and support functions like Coordination Unification Human Resources and Finance.

Within the High Tech segment, Replication is apparent, especially in Sales and Service Management. However, due to the diverse product portfolios and the need for quick time Diversification Replication to market, companies run the risk of

Business Process Integration moving back to Diversification.

In the Industrial Products segment, some functions are unified. This is Business Process Standardzation especially true in Sourcing in order to Low High leverage a low-cost strategy and to synergize the supplier network. Aerospace & Defense Automotive High Tech Industrial Products However, functions like R&D, Sales and Service Management are more likely to be coordinated. Different manufacturing segments make different choices in their operating models. For example, Diversification is more prominent in Aerospace & Defense due largely to the type of products with long lifecycles and dedicated production and service vehicles. Coordinate Enterprise Architecture to Become More “One” For companies looking to harmonize all or parts of their organization it is In general, we see good In the different segments, variances not enough to focus only on the harmonization in Automotive and are also apparent depending on operating model. Corporate strategies Industrial Products, driven by price functional area. In the Production no longer are managed just through pressure and an ongoing quest for function, for example, Automotive central guidelines and KPIs, but also operational effectiveness. These companies may have coordinated through active integration and process companies typically have gone processes and systems. While alignment guided by an enterprise through years of organic growth, production facilities are mostly architecture approach. To become allowing a coherent approach even at harmonized at the highest level more “One,” companies need to the corporate level. possible with common processes, coordinate their enterprise some parts of the processes may have architecture. Many of the companies that have a unique role to play in the global grown through acquisitions and network. Enterprise architecture is the which offer a wide product portfolio organizing logic for business processes prefer the Coordination operating In the Aerospace & Defense segment, and IT infrastructure reflecting the model, even though they have Diversification is more prominent. integration and standardization ambitions to achieve greater This is due to the type of products requirements of the company’s centralization. Balancing the needs of with long lifecycles and dedicated operating model. It ensures that the the different product divisions and production and service verticals. strategic and management processes markets means that Coordination can However, for the Distribution function of the enterprise are in sync. be the sensible choice. companies in this segment may shift to the Coordination model as they The research made it clear that The route to Unification seems to go look to move goods more efficiently harmonization of processes and data through Coordination more often than through global supply chains. requires complementary structuring of through Replication, but some of the Similarly, for the Service Management the operating model and the High Tech and Automotive companies function, maintenance, repair and enterprise architecture. Enterprise have a preference for Replication. overhaul (MRO) is increasingly being architecture exists in different levels of looked at as a single point of contact maturity in the global manufacturing

“One Manufacturer”: Harmonization Strategies for Global Companies 5 Figure 4: Enterprise Architecture Maturity Exists in Different Levels is a constant need to seek a balance between harmonization and differentiation.

Stages of Architechture The result of this analysis is shown in

Business Silos Standardized Optimized Business the accompanying diagram (see Figure Technology Core Modularity 4). There is a wide spread of enterprise architecture maturity across Aerospace all the levels, with Automotive and & Defense Industrial Products showing some of

Automotive the higher scores, and Aerospace and Defense and High Tech somewhat more to the left. High Tech Conclusion: Aligning Enterprise Industrial Architecture with Corporate Products Strategy When we combine the two sides of

Aerospace & Defense Automotive High Tech Industrial Products the analysis – corporate strategy choices in terms of operating models Harmonization of processes and data requires complementary structuring of the operating model and the and enterprise architecture maturity enterprise architecture. Enterprise architecture exists in different levels of maturity in the global manufacturing companies studied. levels – we see that there is indeed a good correlation (see Figure 5). It is clear that how you run your company should be well aligned with how you run your architecture. To move companies we studied. We have but still leaves the detailed design and towards One M, organizations need to adopted the terminology of maturity implementation open to the divisional achieve a level of process harmonization levels as described by Ross et al needs. Standardizing on technology and system consolidation by aligning (Business Silos, Standardized typically begins with the infrastructure their enterprise architecture with their Technology, Optimized Core and level and works its way up. At this corporate strategy. Business Modularity) and have also level shared technology platforms assessed the organizations using the enable cross-business information A Diversification strategy does not COBIT model. flow, but freedom in functional need a very mature enterprise implementation enables local architecture, whereas Unification The Business Silos level of maturity information needs to be filled. requires quite advanced maturity to means that IT is mostly designed and support the different needs through delivered separately for each division The Optimized Core level of maturity one platform. It is also interesting to or strategic business unit, with little facilitates the development of the note that the Standardized Technology central control at the corporate level. applications across the organization level is more related to Replication Organizations focused on delivering through a reusable data and process and the Optimized Core to solutions for local opportunities architecture. At this level shared IT is Coordination. Nevertheless, it should require local autonomy and are often based on a corporate information model, be stressed that not all companies at this level of maturity with their with companywide standardization of should go through Replication before enterprise architecture. Agreement on processes helping to maintain quality attempting Coordination. reporting processes and reporting data standards. Core enterprise process standards is necessary to maintain a definition and measurement is a key The enterprise architecture maturity basic level of integration between management capability. levels are particularly important when business units. However, communication different operating models exist for and integration tend to be rigid within The Business Modularity level provides different functions. For example, how the business silos due to the presence seamless linkages of reusable and does a company unify its Finance of disparate systems. customizable IT modules to provide function when Sales is diversified? In maximum agility for the business these situations, the enterprise The Standardized Technology level processes. This level features central architecture is the glue that holds all involves a central effort to make control on delivery of standard services the functions together. standard technology choices for the but allows more local influence in the different layers of the IT architecture, planning phase to avoid rigidity. There

6 Manufacturing the way we see it

Figure 5: Correlation Between Operating Model and Enterprise Architecture Maturity Three key recommendations stem from the research: 1. Good business reasons exist to adopt each of the operating Unification models and to differentiate the choice of operating models by function. The main drivers and Coordination benefits for these harmonization programs are operational efficiency and cost reduction, but the Replication alignment with corporate strategy and global growth objectives are also important longer-term benefits. Diversification Depending on the function under consideration, harmonization can Business Standardized Optimized Business be achieved at divisional or even Silos Technology Core Modularity corporate level.

Aerospace & Defense Automotive High Tech Industrial Products 2. The research identified a gap between companies’ current state When we combine corporate strategy choices in terms of operating models and enterprise architecture and their ambition, even though maturity levels, we see good correlation. complete Unification is not always the end goal. There are valid reasons to stay at other levels. The choice of operating model will depend on factors such as the benefits of synergy, time to market and corporate culture. For example, if your company has a large, diverse product portfolio, you may have less reason to harmonize Sourcing or Production; instead, the right approach may be Diversification.

3. The enterprise architecture maturity to implement these choices needs to be sufficient to support the ambitions of the operating model. In particular, your enterprise architecture must be able to bridge the different operating models across functions.

“One Manufacturer”: Harmonization Strategies for Global Companies 7 www.capgemini.com/manufacturing

Implementing One M: Capgemini’s industry-specific process accelerate development of How Capgemini Can Help models and system templates for standardized platforms across a It is evident from the research that different segments (Automotive, manufacturer’s operations. manufacturers must streamline Industrial Equipment, etc.) can operations on a global scale using flexible processes and applications that can be employed worldwide. Based on our experience helping One Manufacturer: 7 Critical Success Factors companies implement One programs, Capgemini has identified a number of 1. Align project objectives, approach, planning and results. critical success factors, particularly the importance of alignment between the 2. Provide transparency in terms of status, issues, risks and implications. business and IT as much of the savings will come from the business 3. Ensure that your approach is driven by the business benefits. side (see sidebar). 4. Align business and IT within the project approach and team. Using our One Manufacturer approach Capgemini has helped 5. Establish cross-team collaboration and identify critical decision points. global companies consolidate, 6. Establish alignment with major stakeholders and opinion makers. rationalize and harmonize processes and systems to simplify the business, 7. Incorporate sufficient change management in areas such as communication, boost productivity and cut costs. Our mobilization and enabling. approach comprises:

I Strategy and roadmap: Design the target architecture and process model, develop the business case, define the role of technology, outline a comprehensive roadmap and About Capgemini and the develop a rapid scan analysis. Collaborative Business Experience I Analysis and design: Benchmark and design best-practice processes Capgemini, one of the get the right balance of the best talent and systems, and model the current world’s foremost providers from multiple locations, working as one and future systems architecture. of consulting, technology and team to create and deliver the optimum I Accelerated implementation, outsourcing services, enables its clients solution for clients. Present in more than migration and rollout: Develop a to transform and perform through 35 countries, Capgemini reported 2009 streamlined, standardized approach technologies. Capgemini provides its global revenues of EUR 8.4 billion and and produce templates for clients with insights and capabilities that employs over 100,000 people accelerated delivery, data migration, boost their freedom to achieve superior worldwide. results through a unique way of working, distributed delivery and testing. the Collaborative Business Experience TM . More information about our services, I Shared services and Business The Group relies on its global delivery offices and research is available at Process Outsourcing (BPO): Create model called Rightshore ®, which aims to www.capgemini.com. future scenarios that integrate shared-service and BPO capabilities, as well as cloud delivery platforms For more information about our One Manufacturer research, please contact: and services. Ard Jan Vethman Chakrawarthy Kondapalli I Change management and +31 30 689 5819 +91 9920148267 governance: Support planning and [email protected] [email protected] design authority, integrate Application Lifecycle Services and Dr. Volkmar Varnhagen establish governance procedures. +49 151 4025 1706 [email protected]

Research for the One Manufacturer study was conducted by the members of Capgemini Consulting’s Manufacturing Lab in Mumbai, India: Swapnil Desai, Nihal Sharma and Kolli Viznani.