How eight firms transformed - with technology.

As your business changes, you keep looking for that one ingredient that pushes you ahead of your competition. Is the key in mastering information technology?

During the 1980s, American corporations got a wake-up call for quality. Those that responded substantially improved their businesses, even in hard times. Today, the wake-up call is for total business transformation. This time, those that don't respond may not even survive.

Today's business literature is filled with articles on total quality management, continuous improvement, just-in-time inventory management, flattening the organization, business process re-engineering and employee enablement and empowerment. Collectively, these represent the beginnings of total business transformation.

There's just one problem. People don't like change, and organizations strongly resist it. For change to occur, companies first must perceive an external threat to the business and then they must act on that threat, using the best tools they have. Some companies think taking advantage of their information technology, or IT, capabilities is a good start. But is it enough?

What transformations are taking place in businesses today, and what role does information technology play? Top financial and information executives from eight corporations that are pioneering business transformation tell their stories.

ELECTRONICS

Motorola, Inc. Kenneth J. Johnson, Corporate Vice President, Controller and Director of Audit Les Shroyer, Corporate Vice President of MIS and Telecommunications 

Motorola's business transformation is now in its second decade. In the early 1980s, our industry began to realize--as told to us during customer visits--that our quality could be improved, from our products and services to our invoicing. Because of this, we believed other competitors, including the Japanese, would make inroads into our business unless we significantly addressed the quality issue. That's why we initiated our "total customer satisfaction" program.

Management set out by educating every employee in every aspect of the business in quality management. In fact, education was the largest investment that Motorola made in transforming its business.

Top management not only supported the transformation--the executives went out of their way to signal the change whenever possible. Robert Galvin, former chairman of Motorola, emphasized the importance of quality by example in monthly management review meetings: He asked for the quality information to be presented before the financial data. When the quality presentations were finished, he left the meeting.

The cornerstone for our transformation has been having aggressive goals at all levels. For example, Motorola has doubled its sales in the past five years with the same number of employees. In fact, rapid sales growth continues to be a management direction, as we target such underdeveloped markets as China, India and Brazil.

In the first five years of our quality program, Motorola had a goal of "100x," or one hundred times improvement, moving toward six sigma (three defective parts per million). We found that setting such aggressive targets encourages people to change or re-engineer processes. They can't meet the aggressive goals any other way!

After achieving the initial six sigma target, we began to look into cycle times. We now have targets to reduce the length of these cycles by 10 times by 1997.

We didn't have to look for IT's role in Motorola's transformation. People throughout Motorola came looking for IT. They desperately needed help in linking diverse technology platforms that ran independently throughout the company. One of the major roles that IT played at Motorola was to enable us to quickly collect and share nontraditional information. The MIS Department changed the computing environment from that of working on a mainframe to one of supporting and linking a variety of dispersed computing technologies.

But the new IT emphasis on networks and information sharing didn't come easily. Members of the IT staff had to develop new skills or, when necessary, we had to bring in the new skills from the outside. Catching up with demand was a major effort. Our advice to IT executives: Anticipate the demise of traditional mainframe systems and long development cycles. You must position yourself to deliver IT products with 10-times reductions in cycle time to keep up with today's user demand.

AUTOMOTIVE

The threat to survival in the automotive business is getting a lot of attention in the press lately. Chrysler's brush with bankruptcy and General Motors' current restructuring are just outward signs of an American industry struggling in the global economy. Ford recently announced a $7-billion loss for 1992, due entirely to changes in accounting for retiree health benefits. GM has announced a $24-billion loss for 1992, most of which also reflects changes in accounting practice. Even though these are "accounting" losses, they point to the need for drastic changes.

Ford Motor Company Stanley A. Seneker, Executive Vice President and CFO S. I. Gilman, Executive Director of Information Technology

We think we've coped with today's challenges well, although we had our share of problems in the early 1980s. Our answer was to go back to basics and to execute those basics well. In the process, the company has been transformed. But the management team did more than react to problems. We set out three fundamentals that were key to Ford's success: customer satisfaction (remember "Quality is job one"?); cost management; and reduced cycle times for processes.

Information technology was involved in most of the changes at Ford, but the initiative generally came from the business units. The business people own the processes, and they're responsible for changing them. In doing so, they couldn't use IT to simply automate the existing processes. They had to apply technology to come up with new ways of running the business and changing the process.

For example, the support team responsible for Ford's dealers demanded a more effective and timely way of servicing today's engines, which are operated by sophisticated microprocessors. In response, we deployed a service system for our dealers based on a microprocessor surrounded by diagnostic software tools. This system enables the service technician to replace only the parts necessary and to solve the customer's problem the first time.

In another example, we just installed a new material control system in more than 50 plants in North America. Previously, each manufacturing division had its own material control system, resulting in "islands of automation" and redundant support costs. Now, with a common system, all plants can take advantage of efficiencies that were available in only a few plants and at the same time eliminate redundant efforts.

Ford used to be a regional company. Getting global has been a specific Ford objective for a number of years. This wouldn't be conceivable without modern computer and telecommunications technology. For instance, we have a single system for product releasing, the process we use to transfer a product from design to manufacturing. This worldwide system runs on one very large computer in Detroit that's used by 10,000 people around the world.

Similarly, we need supercomputers to run design simulations for new car development. Access to Ford's supercomputers in Detroit is available anywhere in the world through modern telecommunications links. Our IT staff now is working to reduce the time to run these simulations by a factor of 30--resulting in a quicker time to market and better cars.

With these and other computer assists, Ford is launching the Mondeo, our first truly worldwide car. Mondeo models are being introduced now in Europe as replacements to the Sierra models and next year in the United States to replace the Tempo and Topaz.

PETROCHEMICALS

The petrochemical industry, particularly the commodity chemicals sector, is primarily driven by cost and, in the past few years, by excess capacity. Quality plays an important role, but even the quality issue boils down to the customer's perception of cost. Thus, in a stagnant, low-inflation economy, the petrochemical industry has no upward pricing possibilities. The only way to improve corporate performance is to cut costs.

The urgency of change in the chemical industry is so strong that several major companies are undergoing transformation. Four of these are Texaco, Du Pont, Occidental Chemical and Rohm & Haas--each with a unique approach to transformation that goes far beyond just cutting costs.

Texaco, Inc. Allen J. Krowe, Senior Vice President and CFO James R. Metzger, General Manager, Information Technology Division

In the mid-1980s, Texaco lost a court decision that eventually cost the company more than $3 billion. We went into a Chapter 11 bankruptcy for a year following the court decision to protect the company during negotiation of the settlement. Since that time, Texaco has been actively reducing costs by consolidating and downsizing its operations. At the same time, we've made extensive use of special technologies, for such products as special fuel and lubricant additives, to provide motorists with greater value.

In our upstream operations, we've invested heavily in technology to improve the economics of oil extraction in the United States as well as in many other technologies to assist exploration and extraction abroad. This includes a heavy commitment in information technology, especially in the areas of supercomputers and scientific computing.

Texaco employees are at the core of our transformation. Our guiding principles are quality, customer service, shareholder return, inspired leadership, corporate responsibility, respect for the individual, working with the highest ethical standards, teamwork, communication and technological leadership. Our employees own more than 10 percent of the company, so 10 cents on the dollar earned goes to them. Therefore, employee loyalty and commitment are extremely high.

At Texaco, IT is a key ingredient in transforming the business. We want Texaco to be a technology leader in every function within the industry. For example, we want to have the finest technology in place for use by the Texaco teams that are responsible for currency management, for crude oil and product trading and hedging, and for global taxation and planning.

One major effort in applying IT to the business has been in opening up global channels of communication. Our emphasis here is on gaining access to and sharing information. This was critical for starting Texaco's exploration and production operations in Russia and Malaysia.

Also, the Information Technology Division, working together with the financial organization, has made the company's executive information systems serve the needs of Texaco employees throughout the company, not just the executives. Today, "corporate data" at Texaco is the same information we use to run our operations.

E.I. du Pont de Nemours & Coo. John J. Quindlen, Senior Vice President of Finance Cinda A. Hallman, Vice President of Information Systems

Du Pont's crisis is reflected in the almost $4-billion loss it posted in 1992. Although all of this loss was due to changes in accounting for pensions and health benefits, the imperative to reduce infrastructure costs was clear. We actually began the transformation in 1990, when we realized the infrastructure built up in the 1980s was way too much for the 1990s.

Over the past decade, business growth was coming from our overseas sectors, while expense growth was mostly in the United States. What Du Pont needed to do was to reduce a too-large U.S. infrastructure while holding the line overseas. By eliminating redundancies--mostly in the United States--we decreased the costs of the global financial function by 45 percent. For example, Du Pont went from 3,300 salary runs per year before beginning our transformation to a current 36 per year!

Before the transformation, Du Pont had an annual global information technology expenditure of about $1 billion. Again, this was too much for the 1990s. The role the IT staff initially took was to work together with operating groups to reduce the IT expense.

The first step in the transformation was to get the IT infrastructure down to an affordable size. This meant eliminating redundant systems, consolidating data centers and leveraging procurement. The second step was to benchmark Du Pont's IT activities against the "best of class," or the best known practices of a competitor or at another location. This benchmarking helped to sell the need for IT affordability limits and leveraging services and systems.

As a result of our effort to reduce the IT infrastructure, Du Pont reduced its IT costs within a year and a half by about 25 percent worldwide and 30 percent in the United States.

Occidental Chemical Company Raghavan Rajaji, Senior Vice President of Finance and CFO John R. Ott, Director of Information Services 

Occidental Chemical, or OxyChem, is a commodity chemical company with most of its facilities in the United States. Even so, we must compete on a global basis with companies from all over the world. There's excess global capacity in OxyChem's market, so price competition is fierce. As a result, we must manage our investments and costs to be the low-cost producer of high-quality products.

Business transformation at OxyChem has emphasized the consolidation of all staff. Before transformation, each of our business units had its own staff functions, such as accounting, personnel, legal, purchasing and information services. This proved to be too costly in a down economy.

So we restructured the organization, consolidated the administrative offices in one location and combined the staff departments with common systems and standards that the operating units could share. The result has been substantially reduced costs with little or no sacrifice in the quality of service to the operating units.

We had to adjust our overhead spending to appropriate levels. Consolidating overhead functions proved to be the most effective solution for our commodity-oriented chemical company.

So what's the role of IT at OxyChem today? It's to consolidate IT operations and to implement integrated, standard, off-the-shelf software that would offer the greatest economies of scale. We actually outsourced our data processing and telecommunications to a subsidiary of Occidental Petroleum, Inc., in Tulsa, Oklahoma. That freed our reduced IT staff to focus on the standard software package approach, which proved to be very significant in overall cost savings.

Rohm & Haas Company Fred W. Shaffer, Vice President and CFO David A. Stitely, Chief Information Officer

Rohm & Haas has more than 50 percent of its business outside the United States. Our chemical products are more specialized than those of commodity producers like OxyChem. Still the market is fiercely price-competitive. Our worldwide operations are highly integrated. So business transformation here focuses on several areas: the customer, for higher quality and improved service; the employee, for empowerment and career development; the owner, for better return on investment; and the community, for environmental safety and jobs. And we use the quality process to implement all of these.

We believe that information technology should focus on the process area. Consolidating IT operations, as well as most of the production accounting work, in one location made us much more efficient and effective in supporting company processes. It also helped us identify and then eliminate activities that didn't add value. Such consolidations weren't possible 10 years ago and are possible today only because we use state-of-the-art telecommunications and computer systems.

IT's primary role in business transformation at Rohm & Haas is enablement. Nevertheless, we formed an Information Technology Review Committee (ITRC) to oversee the IT investment. The CIO's role is to push the ITRC to consider new ways that technological innovation can improve the business.

Our current focus for IT investment is to reengineer our total materials management information process on a worldwide basis. The object is to have a seamless interface from the customer to collections and payables. When this project is done, Rohm & Haas will have renovated all of its processes.

FINANCIAL

Sears Mortgage Banking Group Walter C. Klein, Jr., Chairman and CEO Leilani E. Allen, Senior Vice President of Information Technology

The mortgage banking market is a very competitive retail environment. Sears Mortgage is a relative newcomer in this business, having started in the early 1970s. Our young age is an advantage because we don't have the traditional entrenched organization that some of our older competitors do. Since our inception, Sears Mortgage has always attempted to minimize staff by using technology.

During the past decade, the homeowner financing industry has experienced a great deal of consolidation. Nevertheless, many companies remain in the business. Before the industry consolidation, the leaders had 1 percent of the business. After consolidation, the leaders have 3 percent to 4 percent. We expect further consolidation, and those companies not able to pick up a greater market share will be acquired, merged or go out of business.

Mortgage businesses operate on a thin margin. This makes cost management a critical element of the business. At the same time, because of the competitive retail environment, quality and customer service are also critical. The mortgage business is also highly regulated, so we expend a great deal of effort responding to regulators' requests and adjusting for changing regulations around the country. This raises the cost of business.

Sears Mortgage's transformation deals with automating more of our processes while maintaining a "high touch," or people-oriented, retail environment, superior customer service and flexibility to respond to regulation.

We're currently automating our underwriting process. But, before we could start the automation, we had to standardize and proceduralize the rules for underwriting. The effort was like pulling teeth. But we believe this is the basic issue with transformation. People-intensive activities derive their strength from being able to work with a great deal of fuzziness--even though it's usually at great expense. The weakness of computer systems is they can't yet work that way.

The advantages of automated processes are their low cost and repeatability. We've realized at Sears Mortgage that the key to our success is in learning to empower our people to improve business processes to satisfy our customers. We believe the cost-effective way to do this is through innovatively using information technology.

SOFTWARE

Comshare, Inc. T. Wallace Wrathall, Senior Vice President and CFO Kevin D. Roberts, Senior Director of System Services

Comshare, a producer of executive information and decision support systems, enjoyed a decade of increasing profitability after its inception. But, as more competitors came into the market and as the economy forced potential customers to postpone buying plans, we felt we wouldn't survive the next decade unless we changed the way we did business.

Before our transformation, Comshare was a multinational company. Each location around the world was fairly autonomous in its products and support organization. Under this structure, we were initially successful, but as time passed we faced obstacles.

As the computer industry began to accept more and more standards, we felt a tremendous pressure to change our product lines. To do that, we had to design a new organization that would make more effective use of the company's resources.

As a first step in the transformation, we decided we would have one global product line. The only difference in any global area would be language.

As a second step, all of our development organizations around the world would work on an integrated set of global products. This meant that developments made in one region would be used in all the others. This led to economies of scale, better response to customer needs and more effective product development and support.

On the other hand, we dispersed centralized customer support so that all the support centers and hotlines would be local, using a common, worldwide support system. Relational data base technology made this possible. The result has been better customer support, better problem reporting and better communications of solutions. Also, our customers can recommend product improvements that the product development organizations can more readily implement.

Interestingly, the greatest resistance to the transformation came from about 40 percent of the managers at the vice president and director levels. These managers had to be replaced to effect the change.

Information technology's role in the transformation was to provide the data base and telecommunications structure to support the new organization. Because our senior director of systems services came from the development and support organization in the United Kingdom, we had a good idea of the local customer support environment. This knowledge was key in developing a single set of support systems and a single, global information base.

To free up the IT resources we needed for the transformation, we consolidated all our data centers into one that was subsequently outsourced. We realized economies of scale and relieved IT management of the day-to-day distractions of running a data center.

THE HARDEST PART

In all of the cases of business transformation discussed above, IT is a key element. But IT is not the single solution that it's often touted as in the media. While all of these financial and information executives feel that IT is a supporting and enabling element for business transformation, they agree that the crucial element in business transformation is not in computing but in getting people to change.

Mr. Vincent is president of The Information Group, Inc., in Santa Clara, California.