Magna CIO on creating IT value in a decentralized company

Imagine that your CIO mandate is at odds with your corporate culture. Imagine that you are one of the few C-level executives hired from outside the company in decades. Imagine that you have virtually none of the basic building blocks that you need to create value from IT. That’s the situation Paul Bellack, vice president of global IT and CIO for Magna International, found himself in when he joined the $35 billion global company roughly 15 months ago. I caught up with Bellack to learn more.  

Martha Heller: Can you describe the transformation you are leading at Magna International?

Magna International

Paul Bellack: Magna is a highly decentralized manufacturing company. The decentralized operating model, which runs about 300 plants around the world, has been very successful for our business and has allowed us to enter new markets very rapidly and grow aggressively over the years.

We are a $35 billion company, but we operate more like 300 $100 million companies. Up until a few years ago, those hundreds of plants ran completely independent of each other, with IT resources in every one. As general manager of a plant, you had almost complete operational autonomy as long as you were making money and meeting certain controls.

The unintended consequence of this highly successful decentralized model, has been an absence of IT standards and enterprise systems. You can imagine what IT looked like here. We had a huge array of business systems, IT people in every plant, and no central design authority.

Two years ago, the executive committee decided to make a change. They realized that there was a significant disadvantage, in terms of costs and capabilities, to a completely decentralized IT organization. These came in three forms:

1. Security. A fully decentralized IT environment is extremely difficult to secure.
2. Costs. Modern IT is all about scale. When you have no commonality, you have no operational or procurement scale so you cannot optimize your costs.
3. Information. Hardly any enterprise systems means no master data, and very limited analytics.

To rectify the situation, senior management knew that they needed a comprehensive IT strategy to address these challenges in a company where centralization will always be a dirty word. And they needed a leader to develop that strategy and lead a global IT organization.

If the culture will always be decentralized, how do you solve the problems of security, scale and master data?

I have a two pronged approach.

The first is to gain economies of scale by building a utility platform to handle the commodity services that we are providing in IT. My job is to identify those opportunities and build the business case for centralizing them and to demonstrate that the platform will not compromise Magna’s decentralized operating model.

Email is a perfect example. When I became CIO of Magna, we had half of the company on Lotus Notes and the other half on three different versions of Exchange. Email is classic commodity where we can upgrade everyone to Office 365, lower our costs, enjoy better functionality, and not disrupt the decentralized operating model.

SAP is another example. Right now we have over 40 different templates for SAP. We won’t ever get that number down to one, but we can have fewer than we do now, with attendant-cost and speed-to-market benefits.

The second prong is to take that utility platform and begin to enable some value-add capabilities on top of it that we really should have at the enterprise level. For example, consider procurement. Magna has a loosely affiliated procurement function. We have different people doing procurement around the globe, and because we are so decentralized, the procurement managers aren’t enabled to leverage many global procurement economies.

So, in IT, we started collecting transactions from the decentralized divisions and put them in a database. We normalized the data and then gave it back to the procurement people so that they could see who was buying what from whom. They were very happy to have the information, which was really the company’s first taste of analytics.

What was involved in building that database?

First, we looked at every single division’s ERP system, because that’s where the procurement is transacted, and we brought the records back from the divisions. We did not have a data warehouse, so we built our first one.

The project of building a database for procurement took us a year, but in the end, it was an important victory. It paid for itself with one enterprise procurement deal, and it was our first step in architecture and analytics. It was a baby step but got us the street credibility to do more.

What advice do you have for someone about to drive a transformation as major as this one?

First, go read five books on change management, because there is a science to it. I have a strong background in advisory consulting (at Ernst & Young and IBM), which had practices around organizational change management because it goes hand-in-hand with transformation. In fact, there’s a basic rule that says you should be spending at least 10 percent of your budget for any transformational effort on change management.

Second, find a simple way to help people to see the way forward. The house may be on fire, but take a look at this better house; here is how we are going to build it and move you in.

What set of skills do you personally rely on to lead this effort?

I’m sixty years old, and three quarters of my career has been as a CIO in retail and the other quarter has been in IT strategy at consulting firms. I believe I am the right executive for this job at this critical time, because my experience is a mile wide and three feet deep. I know a lot about processes, organization, strategy and architecture. But I’m not an expert in any of it. I just know what the big picture looks like, why we need it, and how it all fits together. I guess I am relying on my comprehensiveness to make this all work.

About Paul Bellack

Paul Bellack joined Magna International in January 2015. He was previously an executive director or IT transformation and performance improvement for Ernst & Young, and he formerly held roles at IBM and Karabus Management. Belleck received both a Bachelor of Science in Industrial Engineering and an MBA from the University of Toronto.