Alcan Case Although There Are Many Drawbacks

¶ … Alcan Case

Although there are many drawbacks to Alcon's current application management, there are justifications for the current IT management system. The current Alcon application management structure, prior to Robert Ouellette's overhaul, emphasizes a culture of decentralization (Dube, Bernier, & Roy, 2009, Pt. A). This decentralized model is logical, in part, because it allows each practice group to structure its own strategic IT plan and choose its infrastructure based on each group's specific needs. Such a hands-off model permits the groups to pursue their own objectives, without regard to impediments or resistance from any one of the other practice groups. This is particularly relevant when one considers the income distribution among the four major practice groups, specifically the Bauxite & Alumina group (Dube et al., 2009, Pt. A). According to Dube et al., (2009), the Bauxite and Alumina group contributes the most to annual revenues; however, Figure1 indicates that just 7% of the annual income is distributed to this group. This means that the Bauxite and Alumina group has much higher costs than the other three groups -- income being the difference between revenues and costs. Accordingly, the Bauxite & Alumina group's IT organization has much more incentive "to meet the specific needs of their own business group" -- needs which can be met without regard to the needs of any of the other three groups, which apparently have lower costs than Bauxite & Alumina (Dube et al., 2009, Pt. A, p. 3).

Another arguable "pro" of the current system is that it permits the groups to remain focused on their own needs through mergers and acquisitions. By way of example, the acquisition of Pechiney may not have had a large impact on the Packaging and Engineered Products groups' operations, but it likely significantly altered the Bauxite and Alumina group's production, as Pechiney utilizes an electrolytic process "reputed to be the best in the industry"; a process directly related to the processing of bauxite and alumina (Dube et al., 2009, Pt. A, Appx. 1). Accordingly, the "pro" of the current decentralized model is that it allows the business groups to reallocate their IT management resources and structure proportionate to the affect of said mergers and/or acquisitions.

In stark contrast to the arguable "pros," there are significant "efficiency" problems with the current application management -- "cons." Indeed, not only does Alcan spend a substantial amount of money on IT, approximately $100 million of the $295 million is "flying under the radar," i.e., unaccounted for (Dube et al., 2009, Pt. A, p. 4). As noted by Dube et al., (2009), each business group generated multiple costs, each of which were recorded using "a wide variety of methods" such that costs were "included in the groups' operating expenses, thus ending up in cost of goods sold [emphasis added]" (Pt. A, p. 3). This means that the Bauxite and Alumina group's income displayed in Figure 1 is likely inaccurate, as the costs of IT management should not be lumped into cost of goods sold in such a cavalier fashion. Another "con" of the current system is the difficulty mergers and acquisitions presented to IT management. Indeed, because of the "decentralized" model, Alcan had an influx of information systems, many of which included financial data (Dube et al., 2009, Pt. A). Because of the multiplicity of operations handling management and application of government regulations, e.g., Sarbanes-Oxley, Alcan was incurring significant costs. The inefficiency of the current model is further exacerbated by the fact that a number of SAP integrated software packages were being implemented by Alcan "without any apparent intergroup coordination" (Dube et al., 2009, Pt. A, p. 4). Furthermore, IT projects and initiatives which affected processes common across all four business groups "were inadequately coordinated" (Dube et al., 2009, Pt. A, p. 4). This lack of coordination promotes a lack of institutional knowledge and expertise.

With respect to Corporate IT, the inefficiencies were likewise present, particularly in the case of the Infrastructure and Shared Services group. The Pechiney acquisition, and the concomitant integration of Pechiney and Alcan resources, is illustrative of this inefficiency, demonstrating the failure of communication between the Pechiney and Alcan groups, which in turn put excessive strain and pressure on IT management for the various business groups. Other "cons" of the current model included the lack of any "coordinated leadership for financial applications," requiring Alcan to subcontract outside experts for assistance (Dube et al., 2009, Pt. A., p. 5). The corporate "Architecture" group was also ill-equipped to assume responsibility for the various applications and information management. In short, Corporate IT was overstaffed and inefficiently allocating its resources to address Alcan's IT needs.

In contrast to the current Alcan application management, the model proposed by Robert Ouellette significantly reduces inefficiencies by reallocating leadership from the individual business groups to a centralized corporate group with a top-down model; i.e., governance and directives come from Ouellette and his IT team rather than the individual business group fiefdoms. The creation of a shared service centre was particularly wise. This centralized service reigned in the previous inefficiencies caused by billing and management of services, providing a common, shared service model across the business groups, facilitating the use of "shared competencies, consolidation, standardization, reuse and low-cost access to expertise" (Dube et al., 2009, Pt. B, p. 2). In addition, the newly structured IT management governance model is a good move because it permits a collaborative effort between the senior IT management personnel, who are concerned with global IT objectives, and the individual business groups' IT directors/VPs, who are concerned with the respective business groups' own business objectives and responsibilities. In other words, Ouellette's model removes the business groups' autonomy, which resulted in the inefficiencies discussed earlier, but at the same time provides a platform for each business to "take stock of current initiatives and better plan for future projects" (Dube et al., 2009, Pt. B, p. 5).

On the other hand, Ouellette's model is very aspirational, and does not account for real-world practicalities and problems, i.e., it focuses primarily on corporate efficiency. For instance, re-centralization of IT management facilitates, among other things, "provisions for global management of IT human resources" (Dube et al., 2009, Pt. B, p. 12). This recentralization of human resources, however, must take into account varied labor and employment laws, which it apparently does not. By having a centralized process, Alcan will be exposing itself to unforeseen litigation costs that could have (and in fact may have) been avoided by having localized oversight and compliance. Moreover, Ouellette's model imposes a significant amount of bureaucratic oversight. Although such oversight may facilitate the standardization of practices and norms, it may in fact impeded efficiency because of the red tape that IT must now navigate in servicing the business groups.