The Most Exciting Project I NEVER Managed! Lee Rizio Rizio & Associates June 21, 2011

The Most Exciting Project I

NEVER Managed!

Lee Rizio

Rizio & Associates June 21, 2011

Key Topics to Cover

• The Perils of Mergers and Acquisitions - Honeywell

• IT Strategies – How to Cope!

• Honeywell - Challenge and Plan • IBM Grand Proposal(s)

• Steps – Governance

• Implementation Methodology and Challenges

So what use is this to Me?

• Mergers and Acquisitions – How Can IT deal with them?

• IT Strategies – Planning

• Outsourcing - Generalities • IBM Grand Proposal

• Governance

• Project Management – Numerous Lessons!

For The Love of Mergers

• A major Objective – Drive out duplication and seek synergies, SAVE MONEY and THRIVE!

• Honeywell Merger History- $ 35 B

– Honeywell - Instruments and Control

• Engine Services and Systems

• Bendix – Aerospace Instrumentation

– Allied Chemical – Extractive

Honeywell Major Businesses

• Aerospace - Engines, Auxiliary Power Units, Avionics, Landing Systems- 12 businesses

• Automation and Control

Solutions – Environmental, 5 total

• Specialty Materials – Nuclear, Fibers, Semiconductors, 15 total • Transportation Systems – Cars,

Honeywell’s IT Scenario

• Legacy Systems – Systems “purchased” with the merged companies

– Some obsolete – no longer supported by IT

– ERP Systems – SAP, Oracle, BPCS, AMS, LOTS more over 20 systems

Honeywell’s IT Scenario

• Legacy Systems – Systems “purchased” with the merged companies

– Some obsolete – no longer supported by IT

– ERP Systems – SAP, Oracle, BPCS, AMS, LOTS more over 20 systems

– Literally hundreds of “names” and “titles”

• Estimated IT Development and Maintenance Costs - $ 330 Million per year!

So What Can Honeywell Do?

• Do nothing – continue to live with it!

• Ask each unit to convert by themselves – and choose whatever system they want

• Set up a lottery – let each business develop their own strategy and then decide what the best approach is…

• LET’S MANAGE the environment and set up a new system for business units and Corporate

IBM’s Grand Strategy

• IBM is outsourcing Honeywell’s Hardware and Infrastructure. We are meeting every SLA!

• IBM has a huge Services Consulting Business – and especially AMS and SAP!

• IBM is global and can harness and leverage global resources!

• IBM has Outsourced Services in India and numerous other places! For over 10 years!! • Propose an offer “Honeywell cannot refuse!”

BusinessInnovationServices EngineeringConsulting&Svcs e-businessStrategy&Design Consulting DigitalMarketing&Branding e-commerceServices Security&PrivacyServices CustomerRelationship Management EnterpriseResourcePlanning SupplyChainManagement BusinessIntelligenceServices ProcurementServices WebApplicationDevelopment e-businessSkillsDevelopment CustomSystemsIntegration KnowledgeManagementServices e-businessHostingServices ApplicationManagement Services NetworkOutsourcingServices DataCenterOutsourcing Services DesktopOutsourcingServices e-businessInfrastructureServices ITConsulting TotalSystemsManagement Infrastructure&SystemsManagementServices Networking&ConnectivityServices BusinessConsulting&RecoveryServices TechnicalSupportServices ITConsolidation MidrangeExpressServices ITProductTrainingServices Strategic Outsourcing Services IntegratedTechnologyServices WhyIBMisFirstinServices WhyIBMisFirstinServices IBMGlobalServices...deliveringindustry-focused e-businesssolutions

IBM has conducted extensive market research which indicates that ERP customers are looking to out task their ERP applications support.

25% 14% 21% 9% 13% 7% 8% 3% 56% 54% 47% 39% 36% 28% _27% 13% 0% 10% 20% 30% 40% 50% 60%

70% Primary Reasons for Outsourcing

Access to leading edge ERP tools/ methods Access to Scarce Resources Capacity Flexibility Improved Service Levels Lower Cost relative to current/ expected internal spending Predictability of Cost Access to leading edge skills/ capabilities for HW/infrastructure Outsourcing Access to leading edge skills/ capabilities for mgmt. of apps. integrated with ERP app. = Somewhat Important = Extremely Important

Sample Size = 190 customers

Let’s Make a DEAL!!!

• IBM proposed an “offer that Honeywell could not refuse!”

– Sit down right now and write us a check for $ 300 Million and we will take over your Maintenance work. That will save you $30 Million right away

and allow you to do SAP unencumbered.

– OR write us a check for $ 330 Million and we will take over your Maintenance Business and also take you to SAP throughout Honeywell for free!

– We will figure out how many years the contract as to be for us to recover our investment.

What is Necessary to Pull off this

Business and Contract?

• What is IBM’s Application Management Service?

• What Governance Rules and Environment must IBM set up with Honeywell?

• How does Outsourcing Play into this?

• How does anyone do something like this?

• PROJECT MANAGEMENT enters in!!!! HEY!

THAT’S US! DON’T Forget! Explored at end – Slide 18

So REALLY What IS AMS??

• Applications Management Services is:

 Portfolio Analysis and Management

 Identify Applications for Consolidation – Upgrade

 Identify Applications for Remote and On-line -Grow by Web Enablement (B2B, B2C)

 Applications for Decommissioning – Sunset  Project Plan Definition into Business Case

Legacy Transformation

 Identify Legacy Applications for Transformation  Project Plan Definition into Business Case

Implementing IBM AMS Services

• Management of Legacy Systems

– Day one – nothing has changed

– Learn the applications – Little documentation

– Ship what we can Off shore – Cost and retirement

• Development of a Total Development

– Application Portfolio Management

• New Systems in SAP that have new features

– Legacy Transformation

• Systems that replace Legacy Services outright • Other services needed to add

HONEYWELL – IBM

Governance Model

IBM OUTSOURCING/OFFSHORING

• IBM had used India- Bangalore to support its own SAP, Siebel and Maintenance applications (SAP alone - the largest in the world!)

• IBM had a large communications resources

and capacity for Honeywell global applications • IBM had re-engineered their own applications

a few years before

• IBM was supporting all of Honeywell’s hardware and networking infrastructure

OK-

ISN’T IT TIME FOR PM??

YES!! And so WHAT?

1. Integration and Planning!

2. Scope – You’d better believe it!

3. Time, Cost, Procurement Management 4. Human Resources and Communications

Thousands of employees, languages, time zones, etc. etc. etc.

5. Project Quality – Determined by whom? 6. Project RISK? RISK? RISK!!!!

We Won – RIGHT?

WRONG! NO WAY!!!!! WHY?

• The Human Factor – IBM Outsourcing • The Human Factor – Real CIOs do REAL

projects!

• The Mystery Factor – Too good to Believe! • If it is that easy we can do it ourselves!

The Desire for Adventure@

• CIOs wanted the opportunity to do this! They would NEVER have the chance to do anything like this again!

• The project was RISKY!!

• Governance would be a BIG challenge • ERPs change the whole scenario

• Too many businesses – DIFFERENT BUSINESSES

SO??

• Honeywell developed a separate IT Section to plan and implement the project

• They went out to bid

• The selected one Big 6 Consultancy

• The CIO left – now CIO of a large California Company

• Two years later, Honeywell re-organized • And now???

Outsourcing in General

• Present

• Potential Scenarios

Offshoring –

Observations

• If you plan to outsource just to save money,

You will NEVER get there!

• Do not bet on any one solution or location.

You MUST Explore them all!

• Do not think these will stop –

Either Global Sourcing growth or competition • Core Competencies – NO!

Offshoring – Potential Issues

• Shared knowledge – transition • Disengagement Peril

Managing into the IT Future!

• Determine Business Strategy • Align IT Strategy

• Determine Critical Success Factors to succeed • Business Management 101 –

– Plan – What?

– Organize – How?

– Staff – Where do I get my best resources – Control ruthlessly and ruthlessly Follow up!

Offshoring – Where- You Name IT!

So what does this all mean?

• The Future

– Most companies will not do good planning- they usually don’t!

– The “stars” will do a GREAT job at planning strategically

– It all comes down to GOOD MANAGEMENT!

– If you think that education is costly, consider the cost of incompetence!

Offshoring – China and India

• The Rise

of the

“New Super Country”

• Brief History of India and China • Why China First?

• Did India Catch Up?

• The “New-er” Super Employers! • The Dynamic Changes Today

China vs. India

– Training in Technology – Language

– Elite “Class”

• China Rushes in “Management by Trial and Error” – Don’t laugh – It Works!

China

• Mao and “The Cultural Revolution” • Corruption in the Provinces –

Leads to Starvation

• The Workers “Revolt by Silence”

• The “Management” overlooks the trespass • China transforms “from the bottom up!”

• Deng learns “Roadmap by genius!”

• USSR (Old Russia) was a scary Example to Deng. He did not want a repeat!

India

• Prime Minister Vajpayee 2003 visit – ten years after his last visit

• Cannot believe the Changes!

• Vows to follow

• Returns to India – faces the challenges

– Government Bureaucracy – Invigorate the Higher Caste – Their strength – Technology

Offshoring – Who??

• Manufacturing – China

• IT Offshoring – India and now MANY! – CHINA???

• At first, everybody and anybody! Then, as expected – A Shakeout!

• Tier One - Indian based companies

– Tata Consultancy, Infosys, Wipro, Satyam (No More!), IntelliGroup

• Near Tier One - IBM, Accenture, HP, SAP • Tier Two - Others

Offshoring – Some Facts

• McKinsey Quarterly – August 24, 2009

India leads the world in providing offshore services in business and technology, with revenues of $ 58 Bil in 2008, out of a global total of $ 80 Billion. McKinsey estimates this is just the beginning: the global market for offshore business and technology services

could grow to about $ 500 Billion by 2020. Yet even with this growth, the industry will still serve less than 1/3 of the potential market for these services, which McKinsey estimates at $1.65 Trillion to $1.8 Trillion in 2020.

Offshoring – Some Quotes

• “Immigration Victory,” Wall Street Journal, Op-Ed - June 29,2007

“Either the US will accept more of these workers, especially from American graduate schools, or

more companies will outsource more high-tech jobs to Ireland and India.”

Outsourcing in General