Strategic Planning: GM's Spinoff Grows Its IT from the Ground Up

READER ROI

* Learn how strategy evolves when an established business is spun off and faces life on its own

* Hear why Delphi’s IT team wants to build unity by creating common systems

* Find out how process information officers match IT solutions with user needs

Delphi automotive systems ceo j.t. battenberg III rang the opening bell at the New York Stock Exchange on Feb. 5, 1999. This marked the symbolic beginning of Delphi’s transformation into an independent entity. The newly spun-off auto parts division of General Motors already had a 100-year history but until then had little incentive to be price-competitive. The company would have to start wooing

new customers--instead of relying on a single captive customer who topped the Fortune 500. Delphi now had its own stockholders watching the bottom line. To cope with these sweeping changes, the company needed to build a separate identity that was nimble enough to survive hard times in Detroit.

The IT team was ready to help, but it wasn’t going to be easy. Until 1996, GM’s IT department--and by extension Delphi’s IT department--was under the thumb of an outsourcer: Plano, Texas-based Electronic Data Systems (EDS). For more than a decade, says Delphi CIO and Vice President Peter Janak, "EDS provided what their individual customers asked them to provide, and we became a very fragmented company as a result. We ended up with no IT strategy, really, just technical solutions."

While that was already changing, Janak knew he had to continue the strategic planning processes begun under GM. At the same time, his department needed to plunge into Delphi’s primary goals--common and improved business processes that would build unity, save money and pave the way for rapid global acquisitions and divestitures. Janak is pleased with the results thus far, but there’s plenty of work ahead.

Identity Crisis

Once a small part of its $185 billion parent, today the Troy, Mich.-based Delphi is a $29 billion company that makes everything from ignition systems to onboard multimedia devices. "When you’re part of GM, you don’t feel like you’re very big," says Bette Walker, CIO of Delphi’s energy and chassis division, which generates 40 percent of Delphi’s revenue. "But when you’re independent, all of the sudden you realize--whoa."

Auto industry pundits, who are divided on whether Delphi’s parentage is a blessing or a curse, haven’t helped these identity problems. "I don’t want to say they’re too big, but the size of [Delphi] could be a challenge," says Richard Hilgert, vice president of auto research at the First of Michigan division of Fahnestock & Co. in Detroit. Large or small, old-line manufacturing companies aren’t exactly known for their agility.

GM’s official rationale for the spin-off was to increase shareholder value and make both companies more competitive and focused, but some wondered whether the Detroit-based automaker was casting off an underperforming division. Meanwhile, rival Ford Motor Co. was facing a similar end to its history of vertical integration. Visteon Corp., spun off from Ford in June 2000, is now an independent auto parts company second only to Delphi.

The IT department itself was also in flux. GM CIO Ralph Szygenda was hired in 1996 to regain control. A year later, Szygenda and Delphi’s CEO hired Janak to build a focused IT group for the auto parts division. Janak immediately started expanding his staff of CIOs. Delphi now has seven divisional CIOs and four regional CIOs, all of whom jointly report to Janak and a divisional or regional president. Janak also created positions for two additional process information officers (PIOs)--a role established by Szygenda that straddles IT and business functions to ensure IT solutions meet user needs. Delphi’s hierarchy now includes PIOs of engineering, business systems and supply chain. Each process information officer reports jointly to Janak and to the functional business executive equivalent. (See "A Functional Relationship: The PIO," Page 108.)

Sowing The Seeds Of Strategy

These CIOs and PIOs, along with a CTO and a manager of global programs, form the strategic IT planning team that bridges what the business needs done and what the IT department is actually doing. Led by Janak, the Information Management Task Team (IMTT), meets on the third Tuesday and Wednesday of each month at a traveling meeting. Those who can’t attend in person teleconference in and follow the presentations with Microsoft’s Netmeeting.

This structure has increased the quality and quantity of communication, which is a refreshing change. When Delphi was part of GM, team members didn’t know how to communicate. "It was just like, I would say, ’Do you walk to school?’ and they would say, ’No, I carry my lunch,’" divisional CIO Walker says.

These days, the members act more like a team. "We get into arguments, we discuss things, we have a good time, we laugh a lot," says CTO Gary Robertson, who sets the agenda and keeps the meetings on track. "It’s a pretty high-energy day."

The business strategies established by Delphi’s executive board are the IMTT’s commandments, and the vision statement for the team is focused on Delphi’s newfound customers. Every IMTT initiative must directly support one or more of Delphi’s business strategies, with "improved and common business processes" topping the list. The IMTT has thus far focused on three global initiatives: an ERP system members hope will standardize processes and reduce staffing needs; a global engineering system that will standardize the desktop tools used by every engineer around the world and feed into the ERP system for manufacturing purposes; and a new network that has connected 95 percent of Delphi’s 40,000 desktops to one intranet. All this, the IMTT believes, will lower costs through economies of scale, help the company’s far-flung units behave like one company, and help Delphi be a price-competitive and efficient choice for its customers.

Theirs isn’t the only team working toward these goals. From the IMTT level, look up or down Delphi Automotive Systems’ hierarchy and you’ll see the same type of structure, like some bureaucratic hall of mirrors. The IMTT is the middle level of a three-tier process. Look up and see the Delphi strategy board, the executive-level group to which the IMTT and eight other Task Teams report, all with their divisional, regional and functional representatives. Look down and see Janak’s CIOs fanning out and getting their hands dirty, with their own organizations modeled after that of central IT. It may seem like a color-coded maze of double-headed reporting relationships and acronymed committees and subcommittees, but it’s no more dizzying than the thought of supporting 211,000 employees in 42 countries.

Janak’s staff communicates strategy right down to frontline IT employees taking care of the most nitty-gritty details. At least that’s the theoretical approach, Janak says. This is something Delphi continues to work on. To that end, about 150 IS managers worldwide attended a conference last year to discuss major strategies and look for new ways to solve problems. Janak also plans to make strategic information available on the company’s intranet.

Harvard Business School professor Robert S. Kaplan says the difficulty of communicating strategy throughout an organization is often a major challenge to making that strategy work. "In the automobile industry--which comes from a 100-year heritage of scientific management--employees were not expected to think; they were expected to do," says the coauthor of The Strategy-Focused Organization (Harvard Business School Press, 2001). "That’s no longer sufficient. We need people in the front lines of shared service groups to do their jobs differently and better." Kaplan says creative, entrepreneurial employees can be tremendously valuable--but only when they know their organization’s strategic objectives. (See the excerpt of his and David P. Norton’s book in CIO’s Reading Room at www.cio.com/books.)

Next Agenda Item

Delphi’s strategic planning isn’t perfect, janak admits, pointing out what he calls the pimples in the process. For example, having the IMTT involved in an e-business pilot program avoids expensive redundancies that might confuse the customer, but it also raises questions about funding. Walker jokes to Janak that if other divisions use a system her division developed and paid for, maybe she should see some payback. For the most part, individual divisions fund their own projects and global programs are paid for based on the proportion of sales, users, employees, plants or other factors.

Other problems involve juggling what’s best for an individual business unit versus what’s best for the company as a whole. The IMTT is the forum where these things get sorted out, Janak says, noting that "all the members of the IMTT are Delphi people first." Bonuses and stock value are tied to the company’s overall performance. Besides, the only alternative to compromise is taking the disagreement to the Delphi executive strategy board. Characteristically, Walker puts it bluntly: "Who the hell would want to do that?"

As the IMTT works out the kinks in its planning processes, team members are moving on to the next major items on the strategic hit list: facilitating global expansion, and expediting acquisitions and divestitures. Growing parts of the business that are the most profitable--and selling parts that aren’t--is critical to Delphi’s business strategy.

When Delphi can quickly integrate a new unit, it doesn’t have to buy temporary IT services from the divesting company. When Delphi can quickly divest a unit, it doesn’t have to spend time providing IT services during the transition. Joint partnerships are also common. For instance, Delphi might form a joint venture with the Chinese government to create a product for the Chinese auto market. In such cases, the controlling partner typically sets up a temporary IT system.

Automotive industry analyst Hilgert points out that making the right investment decisions is as critical for Delphi as for any large business, and Janak knows that being able to immediately turn IT solutions on or off is something his division needs to develop. "We haven’t quite figured out how to do that," Janak says. "We’ve got to get more commonality in our own systems." In this regard, he expects ERP to pay off in spades, despite all the woes that continually make headlines. In three to five years, when Delphi has fully deployed a version of SAP, he’s optimistic the company will be able to more easily add or subtract parts of its business.

A Tough Road Ahead

As much as anything, though, this move toward common systems is motivated by cost. "If you have one way of doing things, it’s less expensive and less hassle and takes fewer people to run," says Doug Schafer, PIO for engineering. Excess production capacity and overstock within the industry is causing fierce price competition, say Janak and other industry watchers. These are somber days at GM. Exxon Mobil Corp. recently ousted the automaker from its number-one spot on the Hoover’s 500 (a list of the largest U.S. enterprises that’s updated more often than the annual Fortune 500).

Hilgert thinks Delphi is where it needs to be in its efforts to cultivate non-GM deals. GM made up 69.8 percent of Delphi’s business in the fourth quarter of 2000, compared with 78.3 percent in the first quarter of 1999. That shrinking percentage makes only the headlines about other Detroit-area automakers (with stories of plant closings, layoffs and lawsuits) all the more gripping. Janak is confident of IT’s role in helping Delphi stay on top, but when asked how he measures what the IMTT has already accomplished, there’s a pause. "It varies and could be better," he says. "If you’re putting in something like a new communications network, and cost or service level is a consideration, you can measure those pretty directly.... What gets difficult is measuring productivity." That may sound backward, but Janak says it’s difficult to demonstrate when a new ERP desktop, for instance, results in the same number of employees doing more work.

Nevertheless, team members are amazed at what they’ve been able to accomplish thus far. They’re focused on the tasks ahead--not the fact that Delphi’s stock price is hovering around $15, after opening at $18.44 in 1999. "We did learn a lot," Walker says, reflecting on everything the IMTT has gone through since Delphi was spun off. "We got a lot done, but you know, we always could have done better. It’s easy to sit out there and be a Monday-morning quarterback."

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Copyright © 2001 IDG Communications, Inc.

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