Exam Case.

2 - Owens Corning's Enterprise System Struggle

In the early 1990s, Owens Corning was a United States leader in the production and sale of such building materials as insulation, siding, and roofing, but management wanted the company to grow. he company had only two possible paths to growth! offering a fuller range of building materials, and"or becoming a global force. o increase its range of products Owens Corning decided to ac#uire other companies. o become a global force, management reali$ed the company would need to become a global enterprise that could coordinate the acti%ities of all of its units in many different countries. &ead#uartered in oledo, Ohio, Owens Corning had been di%ided along product lines, such as fiberglass insulation, e'terior siding, roofing materials. (ach unit operated as a distinct entity with its own set of information systems. ) he company had more than *00 archaic, infle'ible, and isolated systems.+ (ach plant had its own product lines, pricing schedules, and truc,ing carriers. Owens Corning customers had to place separate telephone calls for each product ordered---one each for siding, roofing, and insulation. he company operated li,e a collection of autonomous fiefdoms. Owens Corning management belie%ed that implementing an enterprise system could sol%e these problems. he company selected enterprise software from S./ .0 to ser%e as the foundation for a broad company o%erall. 1 he primary intent with S./ was to totally integrate our business systems on a global basis so e%eryone was operating on the same platform with the same information,1 answered 2ennis Sheets, sourcing manager for the insulation and roofing business. Sheets wanted to centrali$e purchasing. 1/rior to S./,1 he said, 1we were buying widgets all o%er the world without any consolidated ,nowledge of how much we were buying and from whom. 3ow 4using S./5s 6"7 software8 we can find out how many widgets we5re using, where they5re being purchased, and how much we paid for them, 4allowing8 us to consolidate the o%erall ac#uisition process.1 3ow, he added, 1we can. . . ma,e better business decisions and better buys.1 Sheets e'pected the company5s material and supply in%entories to drop by *9 percent as a result. &owe%er, the pro:ect to install S./5s enterprise system would ultimately cost Owens Corning about ;100 million and ta,e se%eral years, too e'pensi%e and time consuming to be :ustified only by the reasons gi%en by Sheets. he company hoped that the new system would also enable it to digest ac#uisitions more easily. Owens Corning wanted to ac#uire other companies to e'pand its product line so it could increase sales from ;*.9 billion in 199* to ;9 billion within a few years. hat meant that Owens Corning would ha%e to digest the archaic, infle'ible systems

from the companies it purchased. If Owens Corning were to become a global enterprise, it would need a fle'ible system that would enable the company to access all of its data in an open and consolidated way. (6/ e'perts point out that simply con%erting to (6/ systems does not sol%e companies5 problems. 1Unless a company does a lot of thin,ing about what its supply chain strategy is and articulating what its business processes are, these tools are going to be of little use,1 e'plained <ar, Orton, of the 3ew (ngland Supplier Institute in =oston. Owens Corning5s pro:ect began with its insulation group, and those on the pro:ect team understood this. hey undertoo, a redesign process before implementing S./5s 6"7. hey set up cross-functional teams because 1>e had to identify the handoffs and touch points between the %arious functions,1 said <o,e <orey, the di%ision5s (6/ implementation pro:ect manager. &e e'plained 1<y team, for e'ample, had accountability for the process that runs from the time we need to buy something through the payment issuance to the supplier. Other areas, such as logistics and accounting, touch this process.1 he teams also ,ept in close touch with suppliers who needed to ,now what Owens Corning would re#uire of them. .s a result of the redesign, purchasing decisions were mo%ed from the plants up to a regional le%el, enabling commodity specialists to use their e'pertise and the le%erage of buying for a larger base to impro%e Owens Corning5s purchasing position. he teams also decided to re#uire that all suppliers ha%e a capability to send the company digital information that could be fed directly into its enterprise system. &ow did the first (6/ pro:ect go? O%er a wee,end in <arch 199@ a team of about A0 people transferred legacy data into the S./ system, and on <onday morning the company went li%e. hat morning 2omenico Cecere, president of the roofing and asphalt unit, called the manager of his <edina Ohio plant to as,ed how it was going. 1=etter than e'pected,1 was the report. &owe%er, Owens Corning5s director of global de%elopment, 2a%id Bohns, later concluded, 1>hen we first went li%e with S./, it was a tough time.1 &e said that o%erall producti%ity and customer ser%ice dropped sharply during the first si' months. 1>hen you put in something li,e S./, it5s not a mere systems change,1 he said. 1Cou5re changing the way people ha%e done their :obs for the past *0 years.1 he first problems that surfaced were technical. .ccording to Bohns, application response time had increased from seconds before (6/ to minutes under the new system. Other technical problems also emerged. Dor e'ample Bohns said, 1 he functionality wasn5t wor,ing the way it was supposed to.1 Bohns belie%es the source of these problems was inade#uate testing. 1 he first wee, 4after going li%e8 we :ust focused on the technical issues,1 said Bohns. he team further tuned the software and o%er the ne't wee,s response time reduced to an acceptable speed, and slowly the software began operating smoothly. 2

&owe%er, 1after we fi'ed some of the technical problems, we started peeling bac, the onion and saw that this was much bigger than a technology problem,1 e'plained Bohns. 1>e saw that there were problems in the business, problems with the way people5s new roles had been defined, communication and change management issues, and business process issues.1 Dor e'ample, the S./ system demanded that the entire corporation adopt a single product list and a single price list. Staff members initially resisted. Owens Corning employees had not been properly trained and they were o%erwhelmed, resulting in a lot of errors. Bohns e'plained that at Owens Corning 1we underestimated the impact that swapping out all our old systems would ha%e on our people.1 Users had indeed been properly trained on their own functions, but (6/ systems are integrated, and the users did not understand the impact their wor, was ha%ing on other departments. (6/ systems are comple' and errors ripple throughout the system. >hen using the old systems, employees had time to correct data entry mista,es, and if they were not caught, they only affected the local function. &owe%er, now that they were using 6"7, the databases are immediately updated. hus, for e'ample, the data flows instantly from sales to purchasing, production and logistics systems. Bohns offered another e'ample. 1If you5re at a warehouse, and you don5t tell the system when a truc, is lea%ing the doc,, the truc, can still lea%e, but the customer will ne%er get an in%oice for the goods. .ccounting won5t find out later because the transaction will ne%er get to them.1 Such errors can be costly. Users needed to be more careful as they did their :obs. o moti%ate users to wor, with more care, they needed to understand the comple'ities of the system. hey had to ,now how their errors would affect other wor,ers and e%en company profitability. o address this problem the company #uic,ly instituted a new training approach. raining now would include information on the larger system and its comple'ities so users would understand the impact of their wor,. Under the new training regimen, all employees were denied access to the system until they had passed a test and became certified. hose who failed the test had to return to training until they could pass it. .bout *0E of Owens Corning employees ne%er passed the test and had to change :obs. his :ob shifting was massi%e and timeconsuming, causing organi$ational disruption. >hereas the original pro:ect training was budgeted for @E of o%erall costs, training e%entually consumed 17E of the budget. Customers also suffered. Owens Corning had been ,nown for its e'cellent customer ser%ice, but the #uality of that ser%ice declined sharply after the S./ system went li%e. <any customers were shoc,ed, and some began turning to other suppliers. Owens Corning began losing important customers. he company was forced to de%ote

a great deal of personnel time rebuilding relations with its customers while simultaneously ha%ing to repair both its organi$ation and the software installation. (6/ implementation problems of this type are common. .ccording to =arry >ilderman of the <eta 0roup, (6/ pro:ects often result in a negati%e return-on-in%estment )6OI+ for fi%e or more years. >hy? =ecause (6/ systems are so comple'. he company may not understand all that needs to be done in preparation. <oreo%er, these systems are e'pensi%e, and testing and training will often get cut for budgetary reasons. 3ot only do employees need to become accustomed to new ways of doing business, but customers and suppliers may need to change their business processes as well. &ow successful was the whole pro:ect? <anagement belie%es it has been a success. Bohns said 1>e made each mista,e only once. (ach deployment 4in the rollout8 got better.1 Dor instance, 1>e do a lot more testing now before we go li%e,1 he said, 1to ma,e sure that all the different pieces of the system wor, together.1 <i,e 6adcliff pointed out that customers now ha%e a single point of contact for all orders. <oreo%er, he adds, 1>ith our old system, we didn5t ,now what in%entory we had in stoc,. >e would ha%e to chec, around and get bac, to the customer.1 oday, he continues, 1we can see what in%entory is a%ailable, when it will be produced, and who is the lowest-cost carrier. >e can commit to the customer before we hang up the phone.1 &e noted, howe%er, that the changes ha%e been massi%e. &e estimates that about 10,000 people were in%ol%ed with the reengineering effort. 1Bust about e%erybody5s role in the organi$ation has changed.1 he (6/ systems rollout was completed in *000. 2uring those years, Owens Corning ac#uired and integrated 1@ companies, successfully e'panding their product offerings. Company sales ha%e reached ;9 billion annually. =ecause of the new system, Owens Corning has been able to reduce its in%entory significantly, while centrali$ing coordination of %arious functions and di%isions. Fot si$e and machine allocations ha%e become more efficient. he company can perform production planning and control globally because it has one uniform system to wor, with. he integrated system lets the company le%erage common carriers and ta,e ad%antage of o%erlapping transportation routes. <anagers can use the system to identify its biggest suppliers across the entire company and use that information to negotiate bul, discounts. . customer needs to call only one location to place an order. Dactory production managers no longer ha%e to concern themsel%es with ta,ing customer orders, trac,ing logistics or after-sales ser%ice. =ecause centrali$ation applied not only to United States operations but also to foreign acti%ities, the corporation has been transformed into a truly globali$ed enterprise.

Organi$ationally the role of Owens Corning5s information systems department has changed dramatically. /rior to the enterprise system pro:ect, the information systems department saw its role as limited to technical support. It used to be that if there were problems with the system, the IS staff would chec, it to see if it was running properly, and if it was, it would throw the problem bac, to the business units to sol%e. Since transactions flowing through the enterprise system impact the entire business, the information systems department has become responsible for the entire business problem. &owe%er, the information systems department does not try to sol%e business problems alone. hey only act on them if they ha%e the full in%ol%ement of the business units. Unfortunately, Owens Corning is facing a ma:or problem unrelated to its information technology. On hursday, October 9, *000, Owens Corning filed a petition for reorgani$ation under Chapter 11 ban,ruptcy protection. .ccording to Owens Corning, the company 1too, this action in order to address the growing demands on its cash flow resulting from its multi-billion dollar asbestos liability. he filing will enable the company to refocus on operating its business and ser%ing its customers, while it de%elops a plan of reorgani$ation that will resol%e its asbestos and other liabilities and pro%ide a suitable capital structure for long-term growth.1 he company claims it will emerge from ban,ruptcy by *007. &owe%er, Owens Corning has continued to build for the future. Dor e'ample in 2ecember *001, it purchased 2en%er Colorado5s >all echnology. 3onetheless, we will be unable to :udge its I success until after it emerges from ban,ruptcy. Sources! 1>all echnology =ought by Owens Corning,1 The Denver Business Journal, 2ecember G, *001. (ileen Col,in, 1 Owens Corning Uses =roadHision Software o /ersonali$e >eb Site,1 InformationWeek.com, Buly *@, *001I 6a:agopal /alaniswamy and yler Dran,, 1(nhancing <anufacturing /erformance with (6/ Systems,1 Information Systems Management, Summer *000I Christopher Joch, 1Drom eam echie to (nterprise Feader,1 CIO Maga ine, October 19, 1999I om Stein, 1<a,ing (6/ .dd Up,1 InformationWeek, <ay *G, 1999 and 1Jey >or,! Integration, Information >ee,, September **,199@I im <inahan, 1(nterprise 6esource /lanning! Strategies 3ot Included,1 !urchasing, Buly 1A, 199KI Banice Diora%ante, 1(6/ Orchestrates Change,1 Beyon" Com#uting, October 199KI =ruce Caldwell and om Stein, 1=eyond (6/1 InformationWeek, October 1*, 199KI Bohn (. (ttlie, 1 he (6/ Challenge,1 $utomotive Manufacturing % !ro"uction , Bune, 199KI and Boseph =. >hite, 2on Clar, and Sil%io .scarelli, 1/rogram of /ain,1 The Wall Street Journal, <arch 1G, 199@I and http://financialreorganization.owenscorning.com/.