Information Technology Insights: The Dow Chemical Company

25 June 2001 00:00  [Source: ICB Americas]

Dave Kepler, vice-president, chief information officer and corporate vice-president of electronic business for Dow Chemical, talks about Dow's strategies for leveraging information technology. Cynthia Challener reports.

CMR: How would you describe the organization of Dow's IT department? What are the advantages of your system?

A: At Dow, it's not about technology, but using technology to create value for the company. Therefore, all IS [information systems] decisions are grounded in the ability to help Dow do business better and more efficiently, and to make it easier for internal and external users to do business with and within Dow.

The role of Dow's IS team is to essentially be a franchised service. It is Dow's goal to ensure a consistent and reliable set of services to all employees, businesses and customers, regardless of where they are located in the world. The company primarily uses a centralized IS organization for ease of administration and support of services, but also has strategically aligned individuals within the respective businesses to ensure appropriate technology integration throughout the company.

CMR: How does Dow deal with software and system development? What about outside vendors?

A: Dow uses a 'buy versus build' strategy. As a result, roughly 80 percent of application projects use some portion of purchased application. This has helped improve productivity by 35 percent over the last four years. The leading application packages used by Dow include SAP, Siebel, PeopleSoft, Business Objects, Cognos PowerPlay and AspenTech. We select vendors based on the needs of Dow's global scope, reach and focus. Key vendor attributes include the ability to deliver global design, long-term cost of ownership and architectural fit.

CMR: What is the main focus for IT at Dow?

A: Dow's overriding information focus is on using the fundamentals of IT to drive business transformation. Through an aggressive, yet strategic, IT build-out, the company is driving out inefficiencies, reducing operating costs, enabling new profit opportunities and leading a "brick-and-mortar" industry into an age of e-empowerment.

CMR: What is a key differentiating characteristic about Dow's IT strategy?

A: Many manufacturing companies manage information technology as a cost, rather than an investment, but not Dow. Dow believes the challenge is not only alignment, but also measurement. To manage IT as an investment, Dow believes a company must ensure that there is discipline to align investments with the company's strategy and that a measurable return on investment (ROI) is expected.

CMR: What are the major goals of your IT strategy?

A: Based on our core IT philosophy, Dow has continued to make significant investments and has adopted concepts to enable the company's transformation into a truly global entity. First, we are establishing a global enterprise system using SAP R/2. Today, the system runs 24/7 with a prime time availability of 99.9percent, serving Dow's roughly 50,000 em-ployees in more than 170 countries.

Second, we are implementing a standardized global work platform called Dow Worksta-tion. Dow's computing environment allows employees to collaborate and work more efficiently on a global basis via standardized hardware and software. A centralized support and service organization enables seamless and uniform support, maintenance and upgrades.

Third, we are creating a global data warehouse that we call the Shared Data Network (SDN). The SDN houses more than two terabytes of information and supports more than 50 global data marts. This helps Dow extract considerable value and make informed decisions on a global basis based on data analysis.

CMR: What type of return are you expecting to receive on your IT investments?

A: These strategic plays have already recouped their costs and are now returning more than $400 million per year in value to the company. This is on track to support the company's IT goal that Dow's investment in information technology will deliver $2 billion of EBIT (earnings before interest, income taxes and minority interests) to Dow over five years.

CMR: How is Dow planning to leverage the Internet and other e-business opportunities?

A: By establishing such an effective IT infrastructure, Dow is well positioned to capture value through electronic mediums--whether for customer service, employee communications, inventory management or participation in new e-marketplaces. As the company drives forward, our three core IT fundamentals are helping enable Dow's continued business transformation in the areas of infrastructure improvements, enabling human performance and improving customer interface.

CMR: What are your plans for developing Dow's infrastructure?

A: Just as Dow leveraged a common PC environment, it plans to exploit advances in telecommunications. Dow is working with EDS and Cisco to create the world's first common, global, integrated network for data, voice and video, right down to the desktop level, based on Internet protocol (DowNET). Dow's advanced infrastructure is also proving to be a competitive advantage in making mergers and acquisitions more seamless, such as Union Carbide.

CMR: How will DowNET be implemented?

A: DowNET will be the first global application of voice-over Internet protocol (VoIP). The network will be 'intelligent' so that it can dependably handle multimedia and automatically distinguish between different types of information and process the highest priority, revenue generation systems or applications first. DowNET will reduce the variability of multiple computer networks by integrating them into a single, more manageable solution. The system will also offer enhanced data speeds and minimize the limitations of simultaneously running multiple network applications.

EDS will be responsible for designing, developing, implementing and providing ongoing network support. Cisco will provide hardware and software that enable the VoIP capabilities for DowNET, using its Voice Video and Integrated Data (AVVID) technology. We estimate that more than 40,000 VoIP phones and related technologies, such as unified messaging, will be installed across the company.

CMR: What specific advantages do you expect DowNET to provide?

A: DowNET will be the first, global-scale network to allow employees the mobility, control and flexibility to send and retrieve e-mails, fax documents, send voice and video messages, access files and local area network (LAN) services on a 24/7 basis, regardless of where they are in the world. DowNET essentially allows us to integrate everything into a single-source, real-time communications solution.

Dow also expects to realize significant savings by simplifying its customer, employee and e-business operations into a single, more reliable network. We also anticipate significant cost reductions through realization of the inherent benefits of integrating multiple systems into a single solution-- lower engineering, field support and maintenance costs.

CMR: With respect to your business transformation goals, how does Dow plan to enable human performance?

A: In order to capture the power of Dow's knowledge workers, the company is implementing tools to enhance collaboration and innovation and accelerate decision-making. Investments are specifically being targeted at ideation, technology development and commercialization processes. The company is also investing in employee growth and knowledge through Intranet-based learning.

To provide standard, high quality training to a global organization and minimize training time for the varying skills required of Dow's employees worldwide, Dow developed an innovative multi-tier Web-based training delivery and management system--Learn@Dow.now. Learn@Dow.now provides over 300 courses to a population of 50,000 employees as Web-based, point-of-need training to the desktops of its workforce in order to swiftly deploy global education initiatives. This interactive delivery method has reduced training costs by millions of dollars through reduced training time and other costs normally associated with the more traditional instructor-led approach.

CMR: What about improving the customer interface?

A: E-commerce is dramatically changing business models in the chemical industry. Dow is offering customers multiple methods to interact with the company, including a 'self-serve' capability. Whether the e-relationship is direct or indirect, Dow is making it simple for customers to do business with the company. Customers can order, sell and track products and raw materials in real time through Dow's direct, one-on-one channel, MyAc-count@Dow. This service plugs into the power of Dow's SAP system and leverages SAP and the company's data warehouse capabilities to customers globally. In addition, the company has been among the first to transact via industry sponsored portals such as Omnexus and Elemica.

CMR: How does Dow measure the performance and savings attributed to IT projects?

A: Value add (net present value [NPV]/discounted cash flow [DCF]) is used to authorize all projects and actual value add realized is determined 12 to 18 months after project completion.

CMR:Do you have any specific examples of this ROI?

A: One benefit of Dow's globally standard environment was that Dow spent considerably less on addressing the Y2K problem compared to other companies that did not have global systems. At a cost of roughly $75 million, including all information and process systems, Dow spent roughly 30 percent of what other companies of similar size spent to allow a seamless rollover.

In another area, the original value proposition for SAP integration was to achieve expected added value of $100 million to $200 million annually based on an aggregate investment of between $400 million to $500 million over five years. This projection included im-provements in selling and administrative expense, IT infrastructure, logistics and planning, manufacturing costs and working capital improvements.

While many companies have yet to show measurable value from their SAP investments, Dow has met its original value proposition and is now harvesting the benefits. Actual company performance significantly exceeded the projection with more than $2.0 billion of annual structural cost reduction; more than $150 million annually of tangible value can be attributed to these systems. These systems have also resulted in a reduced cost exposure of an estimated $120 million in the Y2K effort, euro conversion project and in merger and acquisition IT integration activities.

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