The Organizational Structure of a Supply Chain Transformation
Oct 25, 2005
By: Tim Carroll
Aligning organizational structures, roles, and skills with a supply chain transformation strategy is perhaps the most challenging and critical--yet underestimated--factor in a successful operational transformation. Many companies that have embarked on operational transformation to achieve and end-to-end supply chain integration have fallen short of their goals largely because they maintained their non-integrated functional organizational structures. Successful companies realize that organizational design is the critical element for ensuring that day-to-day execution effectively maintains alignment of strategy, process, and performance. Such compannies include organizational transformation as an integral part of their overall effort. This column describes how IBM used an organizational structure in its divestiture of 11,000 employees across 66 countries to Lenovo earlier this year.
Less than five months after IBM announced the sale of its PC business to Chinese computer maker Lenovo on Dec. 7, 2004, phase one of the transition was complete with the final changeover in the most complex divestiture in IBM history completed on April 29. Nearly 2,500 people from IBM and Lenovo worked day and night during the transition period to enable processes and systems, transfer thousands of applications and Lotus Notes databases to the new company, and to customize systems and infrastructure to support sales and marketing, human resources, and an entirely new ledger system -- all without disrupting either company's clients.
One of the earliest decisions that the IBM/Lenovo Project Transition Team made was that all major decisions would work through a single project management office, using systems and processes developed by IBM Business Consulting Services. We treated the transition as a virtual corporation, with its own reporting structure and IT infrastructure. For example, we established a comprehensive management system that looked at three layers: functional, country/geography, and business process and we used a common Lotus Notes team room, so when information was pulled for IBM project reviews, we were using the same data Lenovo was using to report to its teams.
From the beginning we also determined that we would not get involved in contract negotiations. We felt that contract negotiations would be a huge distraction that we could not afford if we had any chance of meeting our aggressive schedule. Using a methodology based on IBM's own procurement processes, if we weren't clear on what the contract said, or if there was a dispute, we immediately turned it back over to the negotiating executives. Rather than debating about what we weren't sure about, we agreed that negotiating teams would do their jobs while we focused on executing those
things that were clear. This may sound trivial, but contract disputes are notorious for squandering weeks from a project.
Defining the Organization
To complete the actual work of separating process and operations from IBM and integrating them into Lenovo, we developed a "three-by-three" management system. The first part of this entailed establishing responsibilities around "send and operate," managed by IBM; "carve out," handled jointly by IBM and Lenovo; and "receive and operate," controlled by Lenovo.
In send and operate, the job was to separate the 22 functional entities from IBM (e.g., finance, accounting, development, etc.) while assuring IBM remained operational for its remaining businesses. Receive and operate involved Lenovo bringing up the processes on its side. Carve out was the work that needed to be done to make those two things possible, while ensuring that both companies continued to operate smoothly and efficiently, because the excuse, "sorry your order is late Ms. Customer, please understand that we are going through a transition," just wasn't going to cut it.
Once all the 'three-by-three' work was done, we set up comprehensive readiness reviews. Worldwide functional leaders had to sign off that they were ready for the switch. In addition, country general managers and their respective chief financial officers had to sign off that their countries and their processes were ready for the cut over as well. On Thursday, April 21, we had commitments from 120 executives across the two companies and from that point it was full speed ahead. We established a Unified Command Center to manage through the cutover that was 24/7 around the world, which did a magnificent job of what I call "identify, quarantine, and resolve." The transition went so smoothly that we had some suppliers and customers wondering if we actually had done the cutover.
Challenges
Our biggest challenge was breaking apart the International Information Products Company (IIPC, a joint venture between IBM and Great Wall, Ltd.) facility in Shenzhen, China. The PC part of the plant had to be transferred to Lenovo, but we also had to manage the remaining IBM hardware production that resides in Shenzen -- most notably in our xSeries eServer product line -- so essentially IIPC had to be split in two. To accomplish this, we established a new joint venture between IBM and Great Wall, Ltd., called International Systems Technology Company (ISTC), which had to be physically separated as well as transferring contracts/relationships of IIPC with contract manufacturers and component suppliers to Lenovo.
The second biggest challenge is transitioning the remaining 45 countries to Lenovo for phase two. These 45 countries represent less than 10% of the affected revenue and less than 10% of the affected employees. While these are small numbers, the task is somewhat trickier due to the distinctive nature of doing business in countries with unique laws and business expectations and where they have a limited skill set. Either way, if the customers are in France or the Republic of Congo, we can't afford disruptions.
Lessons Learned
The greatest takeaway is that you have to first begin and end with the client. Then, never lose sight of the end objective for both companies, which is successful execution on behalf of clients, shareholders, and employees. From there, quickly establish the ground rules of how the teams will interact to achieve their joint objectives. Once you have that, it comes down to laser focus and sheer determination -- working as a team.
The other major lesson is that when you have two great companies enter into a partnership with a willingness and trust in building solid business relationships, the ability to accomplish great things is limitless. The precision execution of the separation is just the beginning.
By: Tim Carroll
Aligning organizational structures, roles, and skills with a supply chain transformation strategy is perhaps the most challenging and critical--yet underestimated--factor in a successful operational transformation. Many companies that have embarked on operational transformation to achieve and end-to-end supply chain integration have fallen short of their goals largely because they maintained their non-integrated functional organizational structures. Successful companies realize that organizational design is the critical element for ensuring that day-to-day execution effectively maintains alignment of strategy, process, and performance. Such compannies include organizational transformation as an integral part of their overall effort. This column describes how IBM used an organizational structure in its divestiture of 11,000 employees across 66 countries to Lenovo earlier this year.
Less than five months after IBM announced the sale of its PC business to Chinese computer maker Lenovo on Dec. 7, 2004, phase one of the transition was complete with the final changeover in the most complex divestiture in IBM history completed on April 29. Nearly 2,500 people from IBM and Lenovo worked day and night during the transition period to enable processes and systems, transfer thousands of applications and Lotus Notes databases to the new company, and to customize systems and infrastructure to support sales and marketing, human resources, and an entirely new ledger system -- all without disrupting either company's clients.
One of the earliest decisions that the IBM/Lenovo Project Transition Team made was that all major decisions would work through a single project management office, using systems and processes developed by IBM Business Consulting Services. We treated the transition as a virtual corporation, with its own reporting structure and IT infrastructure. For example, we established a comprehensive management system that looked at three layers: functional, country/geography, and business process and we used a common Lotus Notes team room, so when information was pulled for IBM project reviews, we were using the same data Lenovo was using to report to its teams.
From the beginning we also determined that we would not get involved in contract negotiations. We felt that contract negotiations would be a huge distraction that we could not afford if we had any chance of meeting our aggressive schedule. Using a methodology based on IBM's own procurement processes, if we weren't clear on what the contract said, or if there was a dispute, we immediately turned it back over to the negotiating executives. Rather than debating about what we weren't sure about, we agreed that negotiating teams would do their jobs while we focused on executing those
things that were clear. This may sound trivial, but contract disputes are notorious for squandering weeks from a project.
Defining the Organization
To complete the actual work of separating process and operations from IBM and integrating them into Lenovo, we developed a "three-by-three" management system. The first part of this entailed establishing responsibilities around "send and operate," managed by IBM; "carve out," handled jointly by IBM and Lenovo; and "receive and operate," controlled by Lenovo.
In send and operate, the job was to separate the 22 functional entities from IBM (e.g., finance, accounting, development, etc.) while assuring IBM remained operational for its remaining businesses. Receive and operate involved Lenovo bringing up the processes on its side. Carve out was the work that needed to be done to make those two things possible, while ensuring that both companies continued to operate smoothly and efficiently, because the excuse, "sorry your order is late Ms. Customer, please understand that we are going through a transition," just wasn't going to cut it.
Once all the 'three-by-three' work was done, we set up comprehensive readiness reviews. Worldwide functional leaders had to sign off that they were ready for the switch. In addition, country general managers and their respective chief financial officers had to sign off that their countries and their processes were ready for the cut over as well. On Thursday, April 21, we had commitments from 120 executives across the two companies and from that point it was full speed ahead. We established a Unified Command Center to manage through the cutover that was 24/7 around the world, which did a magnificent job of what I call "identify, quarantine, and resolve." The transition went so smoothly that we had some suppliers and customers wondering if we actually had done the cutover.
Challenges
Our biggest challenge was breaking apart the International Information Products Company (IIPC, a joint venture between IBM and Great Wall, Ltd.) facility in Shenzhen, China. The PC part of the plant had to be transferred to Lenovo, but we also had to manage the remaining IBM hardware production that resides in Shenzen -- most notably in our xSeries eServer product line -- so essentially IIPC had to be split in two. To accomplish this, we established a new joint venture between IBM and Great Wall, Ltd., called International Systems Technology Company (ISTC), which had to be physically separated as well as transferring contracts/relationships of IIPC with contract manufacturers and component suppliers to Lenovo.
The second biggest challenge is transitioning the remaining 45 countries to Lenovo for phase two. These 45 countries represent less than 10% of the affected revenue and less than 10% of the affected employees. While these are small numbers, the task is somewhat trickier due to the distinctive nature of doing business in countries with unique laws and business expectations and where they have a limited skill set. Either way, if the customers are in France or the Republic of Congo, we can't afford disruptions.
Lessons Learned
The greatest takeaway is that you have to first begin and end with the client. Then, never lose sight of the end objective for both companies, which is successful execution on behalf of clients, shareholders, and employees. From there, quickly establish the ground rules of how the teams will interact to achieve their joint objectives. Once you have that, it comes down to laser focus and sheer determination -- working as a team.
The other major lesson is that when you have two great companies enter into a partnership with a willingness and trust in building solid business relationships, the ability to accomplish great things is limitless. The precision execution of the separation is just the beginning.
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