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Making the Next Move

Chemical industry CIOs defend their role as strategists in the post-cost-cutting era

September 6, 2004 | A version of this story appeared in Volume 82, Issue 36

Kagermann touts SAP's open architecture as the key to future growth.
Kagermann touts SAP's open architecture as the key to future growth.

The 1972 film "The Candidate"--a great rental in any election year--culminates in a victorious senatorial candidate's desolate query: "What do we do now?"

Chief information officers (CIO) across the chemical industry, to the extent that their campaigns to corral computer systems have succeeded, are inevitably confronted with the same thought that seized senator-elect Bill McKay, played in the movie by Robert Redford, on election night.

It is a tough transition. Having risen from obscurity and into the executive suite in the 1990s, CIOs were looking almost as good as Redford for a while. At the helm of multi-million-dollar efforts to rewire entire companies, they were as directly involved with business strategy development as the chief financial officer (CFO) or the senior vice president of environment, health, and safety (EHS).

Nowadays, however, it is likely that the CIO's job has been given to the CFO or vice president of EHS, or that the CIO has taken on a roster of new responsibilities.

It is even more likely, according to Colin Masson, a chemical industry information technology (IT) analyst at AMR Research in Boston, that investment decision-making regarding IT has been dispersed among business unit managers, and that the CIO--if there is one anymore--has been relegated to the task of maintaining and outsourcing infrastructure--more or less as he or she had been doing before the great CIO uprising 10 years ago.

The problem, according to Masson and other industry observers, is that improvements in operational efficiency--the target of the last round of big chemical industry IT projects--have mostly been achieved. Chemical industry business computing, however, has yet to align itself with the strategic goal of most companies going forward: growth.

Analysts say the tools needed to move forward are available. Software vendors have introduced a spate of products to assist in customer segmentation, value-added service, and supply-chain management--all of which are designed for gaining competitive advantage in both specialty and commodity chemical markets. IT system design has also evolved away from monolithic enterprise resource planning (ERP) systems to interoperable software modules that can be added to ERP backbones to custom fit IT to the business plan.

MASSON SAYS chemical companies again need an IT czar to take the reins of system design. An executive with equal savvy in IT and business must ensure that the right pieces are in place to pursue specific goals for growth, he says.

Henning Kagermann, chief executive officer of SAP, the dominant ERP software supplier to the chemical industry, hit this theme immediately when he took the stage at SAP's big annual user meeting in New Orleans earlier this year. "Cost cutting," he said, "is not a strategy." Companies cannot expect to slash their way to profitability, Kagermann said. Investments must be made to foster growth.

Kagermann admitted to attendees that IT infrastructure may not always be flexible enough to allow users to take advantage of growth opportunities that will arise as the economy recovers.

He said SAP has focused its $1.2 billion R&D budget on this problem, building an Internet-based architecture called NetWeaver that will allow applications to be added as "building blocks" to tie ERP tightly to specific business needs. An extension of the company's mySAP architecture that introduced modular business applications in the late 1990s, NetWeaver incorporates several industry standards, including a Microsoft operating system, and the Internet to make this easier.

Product development specialists at SAP are tracking the needs of users whose transactional computing backbones are now in place, Kagermann said. "Now you can dream about what to do with it."

Other key vendors are developing Web-based information sharing mechanisms and modular business management applications. The J.D. Edwards division of PeopleSoft, a significant player in the chemical industry software market, recently introduced a networking tool called AppConnect that, according to Eric S. Thurston, industry director for asset-intensive industries, is comparable to NetWeaver.

J.D. Edwards had made several enhancements to its offerings for chemicals as a result of being purchased by PeopleSoft last year, Thurston says, including supplier relationship management capabilities and in-house data access modules. It also boosted funding for improvements to the asset life-cycle management function of J.D. Edwards' Enterprise One ERP system.

CIOs in the chemical industry have lost status in recent years, Thurston believes. In fact, he says the industry is unique in this regard. "Nowadays, you'll see CIOs in the chemical industry who came out of business management and who are not technology people," he says. "This is because so much was spent on Y2K projects without having a business plan." Chemical companies' top IT issue now is getting a return on whatever they have already invested in rather than on planning and implementing new IT projects, Thurston says. "I just don't see CIOs where they were four or five years ago."

Industry watchers acknowledge that there are a number of highly regarded CIOs in the chemical industry. But, they argue, these executives are not representative of leadership in the sector. "There are a few very strong CIOs out there who are very intimately involved in the business strategy," Masson says. "But I really think that is the exception in the current environment."

Interviews with several chemical company CIOs illustrate that while the approach to systems implementation is fairly uniform--nearly all major chemical companies are SAP users, for example--companies are at different points along the line of establishing a global IT infrastructure. Most are at least exploring software extensions to support growth strategies, and many say they are ready to make adaptations to their basic infrastructure with Web-based data management, wireless technology, or radio-frequency identification systems (RFID). CIOs concede, however, that much of their focus is on extracting value from big investments made over the past five years.

Several CIOs interviewed have management responsibilities other than IT stewardship. All contend, however, that their role in top-level business strategy is growing, and they object to the notion that CIOs have lost traction in recent years.

"I don't necessarily see the CIO role disappearing in the organization," says Abbe M. Mulders, Dow Corning's CIO. "I see it changing. CIOs are becoming more versed in what is going on in the business." She says the IT manager has evolved toward a position among the highest level executive planners. "We have always been searching to have that spot in the organization, and I see that happening more and more with many of the CIOs I talk to."


Dow Corning can point to Xiameter, its self-service e-business channel for silicones, as an example of where IT has supported an innovative business strategy catering to a specific subset of customers. Mulders says the company is currently expanding the Haht Commerce order-management software underpinning Xiameter to its companywide website. She says this expansion will improve customers' access to material safety data sheets, product quality specifications, and other data, much of which reside in the company's Documentum document management system. Dow Corning's IT/e-business infrastructure also includes Siebel System's customer relationship management software and Lighthammer Software Development's Illuminator, an Internet portal.


Mulders emphasizes the importance of establishing a single, companywide ERP backbone as the first line of attack on IT. Consolidating and standardizing allows easy upgrades to system architecture and expedites the process of integrating software from multiple vendors, she says.

The next major upgrade to Dow Corning's IT system may be SAP's NetWeaver, which Mulders says will facilitate multivendor software integration and access to data for customers and employees. "SAP is basing NetWeaver on Web services," she says, "and I think that is something the industry has needed for a long time in order to standardize how you actually get at data, display them, and make them usable."


ROHM AND HAAS completed a $300 million worldwide implementation of SAP's R/3 software in May. According to Anne M. Wilms, vice president and CIO, the company is now focused on extracting value from the system. Wilms is also gauging the usefulness of SAP applications that Rohm and Haas owns as part of its licensing agreement but has not yet installed. Among these, she says, is interactive marketing, one of the functions bundled in SAP's customer relationship management application.


Upgrading to the NetWeaver architecture is an obvious route to expanding the capabilities of the ERP system, Wilms explains. Rohm and Haas worked with SAP in developing the product, she points out, and the upgrade would be relatively painless. "They are accountable for the integration. It won't call for a change in the configuration of the system."

Wilms says Rohm and Haas is reluctant to stray from SAP as a supplier of new business applications now that the R/3 software permeates the company. "I am an absolute nonsupporter of best-of-breed strategies," she says. The cost of establishing and maintaining links between different vendors' systems, she says, generally outweighs whatever benefit can be derived by adding top-of-the-line software that is not directly compatible with the installed IT base. Wilms maintains that mixed-vendor architectures actually hamper system flexibility because each module added to the network forces reprogramming of other applications.

"You spend a lot of money for a 100% best-of-breed solution, versus the 90% single-source solution," she says. "If there is a case where there is a tremendous business value [in non-SAP software], or if we absolutely have to have it because it is driven by some compliance issue, we will do it."

Michael J. Kern, CIO at Huntsman, also sees a benefit in sticking with SAP as a prime, if not only, business software vendor. Like many companies, Huntsman has used its global R/3 installation as a means of rationalizing and consolidating IT systems that have been brought in through acquisition. The software has also brought discipline to the firm's work processes, he says. SAP provides a template for both commodity and specialty chemical business management, according to Kern, and users have to stick to it.

"SAP is not flexible," Kern says. "Many companies have made the mistake of not changing their business model to make it congruent with SAP. We think that's a mistake. The world is full of graveyards of people who tried to modify SAP, thus causing a lot of cost, delayed action, and inability to fill orders. Efficiency comes through streamlining your business processes with the model that SAP provides you."

Kern, who is also Huntsman's vice president of EHS, says his two jobs are complementary in that both responsibilities center on developing mechanisms to enable work processes. As EHS chief, Kern reports to the CEO, Peter R. Huntsman. As CIO, he reports to J. Kimo Esplin, the CFO.

Not everyone is as sold on SAP. Cytec Industries, for example, has taken the contrary tack of institutionalizing a mixed-vendor ERP system, according to Jeffrey C. Futterman, vice president of IT. The company uses ERP software manufactured by SSA for its specialty chemical businesses, and Bahn software for its engineered products unit. Cytec uses a product from Portolan for cost accounting, MRO Software's Maximo to manage manufacturing resources, and Logility for demand management.

"We have been very good at integrating systems into our suite," Futterman says. "We have folks who are good at writing interfaces and maintaining them. We really haven't had some of the issues that people say are the negatives of best of breed--having to spend all your time writing interfaces. And our best-of-breed system is just that."

Even though Cytec, by eschewing a single-vendor ERP, is bucking the biggest trend in chemical industry IT over the past 10 years, Futterman agrees with other IT managers about the role of the CIO. "We have moved from back office to a leadership position, and we got there through credibility--being able to execute on projects and show the value that IT provides," he says. "Executives are slowly realizing that there is truly a value to bringing IT to the table."

AT DOW CHEMICAL, which completed its global SAP implementation in 1999, CIO David E. Kepler was among the first to ask himself, "What next?" for IT.

Kepler concedes that once the global ERP link-up is established, CIOs generally focus on keeping the system going. "People start thinking about life-cycle management, support cost, and security," he says. "Companies have to balance their reinvestment to keep the thing going, to deal with the drive from the software supplier to launch new releases, and to leverage the inherent operability of the system as opposed to putting new features on top of it."


Dow, he says, is also looking to bolster its infrastructure with some emerging technologies, such as wireless communication and RFID for security applications. "We are still harvesting the investment in ERP from the 1990s, and we are now looking at where we can bring new technologies in, scale them up early, and live with the life cycle for a long time."

Kepler has recently taken on more management responsibility at Dow as corporate vice president of shared services. His new responsibilities include overseeing integrated supply-chain purchasing, customer service, work process improvements, and the company's Six Sigma quality program. Kepler sees a direct connection between work processes and IT in all these areas. Rather than distracting him from IT strategy, his expanded responsibility "is an opportunity to integrate IT into work processes," he says.

Rohm and Haas's Wilms agrees that new responsibilities are a natural progression for a CIO engaged in higher level business strategies. "Our role has not diminished; it's expanded," she says. "It is not just about systems, it's about process excellence and innovation. IT is not just seen as a cost center or necessary evil. There is real value to be achieved there. And I don't think any of my colleagues--the CFO, business directors, the general counsel--would be able to do their jobs if they didn't have a CIO who was doing a good job."


Spending Inches Up In IT For Chemicals

Making The Next Move
Chemical industry CIOs defend their role as strategists in the post-cost-cutting era


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