The Subsidiary Sandwich

CIOs in subsidiary offices of global corporations often report to both the local CEO and the international CIO. Serving two masters can be liberating or a liability. A look at the chance and challenge of running a subsidiary’s IT

For most CIOs the buck stops with them when it comes to delivering appropriate, robust information services for the business. But for the CIOs of subsidiaries of multinationals, many IT decisions and deals are nutted out overseas by global CIOs. Subsidiary CIOs are left to execute and operate. It can be liberating to have someone else select technology and negotiate international procurement arrangements, freeing up a subsidiary CIO to concentrate on developing information systems to support the local business. However, it can be a liability too if the global CIO fails to grasp that what might make good sense in Seattle does not hold water in Sydney, where support and skills might be different.

Even where most of the key decisions are taken overseas, there is no abdicating the responsibility of running a subsidiary IT group. The buck still rests with the local CIO even if it is a decision taken thousands of miles away that is at fault. As one subsidiary CIO pointed out, "General managers still want warm blood they can throttle", if something goes amiss.

Although Australia remained fairly small in the Unilever empire, the IT function was fairly well advanced and in some areas Bartlett was able to take a lead regional role

Currently the GM of IT at executive recruiter Hudson, Sue Bartlett sat in the CIO chair for three years at Unilever Australia. Bartlett spent many years in different Unilever subsidiaries and on reflection believes that there were both advantages and disadvantages in being a subsidiary CIO.

The challenge was to maximize one and manage the other.

After joining the company as an information analyst in London, she travelled around the world working in Unilever IT departments in Europe, Japan, Indonesia and Australia. Appointed Australia's CIO in 2002, Bartlett says that she reported to the CFO of Unilever Australia with some dotted line responsibility to the regional CIO who was based in Singapore. Within the region, although Australia remained fairly small in the Unilever empire, the IT function was fairly well advanced and in some areas Bartlett was able to take a lead regional role. For example, with the regional implementation of Siebel, "we took the lead position and then rolled it out to less developed countries", says Bartlett.

Although she feels that when she was Unilever CIO she ran her "own show", Bartlett acknowledges there were peculiarities about being a cog in a much larger international machine. Some were advantageous: for example, there were regional synergies, with the infrastructure management centre being run out of Singapore, which ran Unilever Australia's ERP system. "I was able to have access to a higher spec machine than I could afford and a better level of disaster recovery than I could have done. The infrastructure is a lot easier than having to worry about it all yourself. And while I paid a fee to the region it was less than if I had my own data centre."

Also on the positive side, Bartlett had access to the "global buying power of a company like Unilever, which was different from the buying power of Unilever in South-East Asia, which was only equivalent to a medium enterprise. So I could get much more attractive rates from companies like Accenture." Having a big parent, she believes, let her punch above her weight. "I was talking to IBM at one time and I was able to access their thought leadership in the US because I was part of Unilever globally. IBM in Australia did not directly benefit but it was part of developing the global relationship between IBM and Unilever.

Page Break

"The door was more open to the CIO of Unilever than the CIO of Joe Bloggs and Company, which would have been the same size in Australia."

She also had on occasion access to specific technical skills in Unilever's network and having Singapore providing the ERP grunt freed her to spend more time on how to help the business to grow. "But there was very much a flip side. For example, I was running Compaq machines and the rest of the region was purely an IBM shop. I needed monitoring tools and at that stage Tivoli did not support Compaq.

"If I'd followed the global policy I would have had to buy a product which had no local support and no localized office and would cost $200,000, which was a large chunk of my IT budget. I had to go through hoops to buy a different tool — which I eventually did for $20,000."

Bartlett says she felt sometimes that head office did not understand the difference between the environment in Australia and that in the UK. "Having worked in the UK I know that they do look at this and pay lip service to it by getting vendors to tick the box to say yes they have an Australian presence. But then you find out they've only got someone who sends out brochures. I'm exaggerating — but that's what it was like."

A further downside was the sometimes glacial pace at which decisions were reached. "Because every decision affects every country around the world it can take a long time. We all know that we have to react quickly — and more quickly than is made easy by being part of a global company," Bartlett says. The due diligence that had to go into every IT decision inevitably slowed the process down, which sometimes led to Bartlett having to make local decisions ahead of global policy. For example, the company locally had identified a need for a business information system and decided to install a Cognos solution ahead of the rest of Unilever. Sometime later, Unilever announced it was standardizing internationally on Business Objects.

"What do you do? Well, you have to migrate across and then slow everything down. That was a local decision we had to make in the absence of a global policy or wait for a decision."

Putting You In Control

Like Bartlett, Charlie Macdonald, the IT manager of DHL Oceania, has experienced both light and shade as a subsidiary CIO. Macdonald has been in Australia for 18 months after a six-year stint working for the freight giant's IT operations in Malaysia. "What is refreshing about a large organization is that you don't have to worry about what product to go and buy," Macdonald says. "If we need to update our financials we don't have to waste time researching the market. We implement the global standard and pay the global rate", already identified and negotiated by the global firm for its operations in 220 countries.

"Our decision making is streamlined and that saves time. The strengths of this are that we do have a number of standards and best practice in our organization. We don't have to reinvent the network."

Underpinning the information services used by DHL are the three large IT shared service centres in the Czech Republic, Arizona and Malaysia, which provide many core applications, including e-mail. Macdonald has a direct reporting line to the senior vice president of Oceania and dotted line reporting to the regional CIO in Singapore, who in turn reports to the US-based global CIO.

The IT infrastructure is largely provided by one of the three global IT centres, with semi commercial arrangements and service level agreements between them and the subsidiaries. While responsibility for the provision of those services lies with whichever of the global centres provides the services, the accountability regarding those services rests with Macdonald. This he believes is important because general managers need a senior manager on their local team who owns every aspect of the delivery of the IT service.

Page Break

Having most of the infrastructure decisions taken offshore "liberates" Macdonald's role to where he can "add value at the touch points with customers". He believes having much of the infrastructure and standards centrally provided and global procurement deals in place leaves him able to be agile and flexible at the touch points with the local customers or authorities.

For instance, he and his team were able to concentrate on preparing the Australian operations for the implementation of the Australian Customs Service's CMR system late last year, rather than fit it around running the day-to-day IT operations. "It was a traumatic time but we were prepared," Macdonald says of the fraught introduction of Customs' new system.

However he, like Bartlett, acknowledges that the challenge comes if you need to "change the machine". "We want innovation close to the customers. There's the dilemma because you want repeatable standard business procedures but with intimate flexibility," Macdonald says. Where a fundamental change is identified as required, then the subsidiary CIOs have to negotiate the bureaucratic procedures that surround the governance of any change. "Those that use it well can get their changes through but there are a lot of competing priorities. And while we could all be rampant innovators, in our business our customer is asking for a standard, reliable service."

According to Macdonald, in global organizations such as DHL, which rely on repeatable transaction-based IT, good governance is paramount but not at the expense of speed. "You have to have a clear process for decision making and if the decision is negative you've got to have that decision made relatively quickly."

Both Unilever and DHL are information intensive businesses. In other organizations, where IT plays more of a support role, many subsidiary CIOs are left more to their own devices.

Timely Decisions

Marketing and service is the name of the game at the Australian subsidiary of Japanese watchmaker Seiko. The company needs information systems but they are not the primary focus of the company. Consequently, while the Japanese parent is quite clear about how the Australian subsidiary goes about marketing or product servicing, it leaves the IT function largely to its own devices, according to IT manager Bruce Weber. Weber and his team of four are "extremely autonomous"; they get almost no direction from the parent company. So autonomous that when the local subsidiary decided to create a local spare parts trade Web site, head office only suggested that the local IT group create a similar "ambience" to the Japan site, and instructed Weber that he should not just mimic the Japanese site. However, brand, public image and the interface with the customer through the corporate Web site is tightly controlled by Japan.

In 18 years at the company, Weber has spoken to his IT counterparts in the UK and visited the Hong Kong operations but confirms "we very much run this on our own", and cites an example of how much autonomy each division has. "In 1990 we had a Wang system and a custom application, but we were looking to upgrade. Seiko UK had Oracle financials and Japan said 'please consider'. A little while after that Japan went SAP." Seiko Australia, meanwhile, went ahead and developed its own in-house systems, Weber says.

While he appreciates the autonomy, Weber says he has in the past approached head office about attempting to broker larger group discounts from vendors and there is now a purchasing agreement with Microsoft that cuts costs slightly. "Still, I've always wondered why we haven't taken more advantage of our buying power," he says. "But we are a marketing and manufacturing company. That's where our focus is — IT is just seen as a support function."

Page Break

No Longer Shelling Out for a CIO

It is far more than that at oil giant Shell. Yet the firm no longer has a CIO in Australia. "We don't have anyone any more," a company spokesperson says. "We operate a lockdown system out of the Netherlands. There is no decision making done here."

The spokesperson adds that there was a local IT manager who reported to the firm's Houston (US) office. She says Shell broadly operates with global reporting lines and strategies that are implemented locally by local managers based on its overall global business strategy, which is "more upstream, profitable downstream". Having the fundamental platform delivered globally frees up local managers to tap into new and different ideas, which could then be replicated internationally.

However, Shell was not willing to have its IT manager discuss what those were. This is another area of control for many subsidiary CIOs who feel bound by international corporate policy regarding public disclosure. Sometimes that lingers even after they have left.

An international financial institution with operations in more than 100 countries has tightly controlled public affairs policies, which led to the CIO only agreeing to discuss the topic if he or she and the institution were not identified. Despite the controls on public commentary, the CIO says that in the institution, global IT had only begun to scratch at the surface in terms of liberating the real value in having an international IT community. "We are pretty fragmented and run as a sort of loose federation. The headquarters IT group does set some standards on structure and has negotiated some good global procurement deals, which allows me to focus on local commercial issues.

"Where that comes a slight cropper is where the people in HQ don't always take a commercial view of things. For instance with security, they would not necessarily look at the commercial pressure. Recently they said that there was to be no e-mailing business-related information unless it was encrypted. It would have cost us millions and restricted the business.

"Now we were not just going to ignore it, so we explained why it wouldn't work," and the constraint was lifted, says the CIO. While the CIO acknowledges that there are benefits from having some issues tackled at international level, there are concerns that people in headquarters IT are too far removed and detached from the business to always make the best commercially focused decisions.

However, the CIO says that in the past year, "the tone of that group has changed from being the corporate police to being a group that adds value". The CIO says that there is now a recognition that value will come from sharing more applications and know-how and developing a technology blueprint to steer the business by, and allow virtual teams of IT workers to be established wherever they are based. "That could realize some significant value," and also ensure that the IT people nearest the business take more key decisions.

"The collaboration could change from a hub-and-spoke arrangement to more of a peer-to-peer arrangement but still controlled by headquarters. That model would get us closer to a common reality and deliver better output." Although the company has started down the track, the CIO believes it would take some time to achieve the sort of global technology blueprint that underpins global giants such as Accenture and Citigroup. For some there never will be that level of global control and conformity, and that is particularly the case in global franchises.

Page Break

Systems on the Move

Scott Allen is CIO for rental car business Europcar Asia Pacific. The company is the master franchisee for Paris-based Europcar, and as such a completely separate entity. Allen has a good relationship with Europcar's global CIO but it is very much arms-length. Although being a franchisee means that some information systems are non-negotiable — customer-facing front ends and online branding, for example — the back-office systems can be quite different. That is largely due to the radically different economics and markets at play in different parts of the world.

Europcar Asia Pacific was bought by a venture capital firm in late 2004, and shortly after that Allen visited Europcar head office to see whether its information systems could be transposed to Australia. If he had adopted the system used in Paris his business would have been 100 percent integrated. "But we didn't go that route," he says. "partly because of cost, and also because they are in a very different position in the market. They are very corporate oriented customer-wise, while we are very leisure oriented. There would be a benefit from sharing more, but the cost of providing robust access to their information systems with industrial strength delivery was just too high."

It is something that Allen believes he will revisit in the next 18 to 24 months as business grows in this region, but for the present a third-party car rental application running on computers in Melbourne underpins the regional information needs of Europcar. "Our application is rather simple compared with that in Europe," he acknowledges.

It also has to be considerably less expensive. So for example where Europe may run parallel information systems and hot site recovery, in Australia, "multiple site redundancy is to a large degree overhead until the building burns down". It is a question of horses for courses, and it makes more sense for Allen to make such decisions given his understanding of the local market, rather than be dictated to by the Paris-based Europcar CIO.

However, he believes that as far as the information systems of the regional sub-franchisees are concerned, it is better if he does dictate what they use. Again it is a question of economics and access to skills.

Allen says sub-franchisees will be provided with telnet access to the Australian host information system, which will keep their costs low and help ensure the integrity of the information system. "The biggest strength of our system is that the booking is confirmed on the spot and therefore you need a centralized or heavily integrated multiple-node environment," which is currently out of the economic reach of fledgling sub-franchisees.

All CIOs interviewed for this article stressed the need to take account of local conditions — rather than impose what might be inappropriate technology — is paramount in international organizations.

They confirm significant advantages if the grunt work of selecting technologies and nutting out procurement deals is centralized, as long as the technologies selected make sense for the local business conditions. And not having to manage day-to-day operations can be liberating, freeing subsidiary CIOs to focus on locally strategic IT, as long as global head office allows them the necessary freedoms. The lot of the subsidiary CIO remains a curate's egg.

Page Break

Sidebar: IT Under the Yum-Yum Tree

Master of His Fate

Yum Restaurants International, based in Dallas, Texas, runs brands such as KFC, Pizza Hut, Taco Bell and Long John Silver's. Patrick Teh is the CIO of Yum Australia and has a direct line of report to the company's chief executive in the South Pacific and a dotted line report to the vice-president of IT in Dallas. It is an arrangement that provides Teh with considerable — if not complete autonomy — and that, he believes, works best. "Certain standards have been predefined by corporate office, mainly infrastructure such as networks or wireless standards. They have a team of people who do all the research and then prescribe to you. I don't have a problem with that. It means you can have a truly global enterprise; you can package up a PC anywhere and, bang, you're up and running beyond the infrastructure."

The key to allowing this plug-and-run strategy is having a robust global financials and ERP system. "A general ledger system is a general ledger system but you can gain synergies if you're purchasing and negotiating, and also if most processing is carried out centrally," Teh says.

That is the theory anyway. Although most of Yum's international operations do share information infrastructure and use Oracle's Oneworld, an accident of history has left the Australian operations running on JD Edwards. Teh says that at present it simply does not make sense to spend the $1 million or so to bring Australia into line with the global operations, although he acknowledges that from a Sarbanes-Oxley compliance point of view, running different information systems around the world does create some challenges in terms of providing a single view of the company financials at any point in time.

"When Oracle releases the Fusion product it may make sense for us to change," Teh says.

The fact that head office has not laid down the law and required Australia to migrate is important, according to Teh. "From our business view in the casual dining industry it makes sense for corporate to provide guidance regarding the point of sales or back of house systems. Where problems can arise is where they are too prescriptive, because not every market is the same." As Teh points out, not every product is supported in every country and access to local skills may also prove a hurdle for overly prescriptive multinationals.

That's where Yum's loosely coupled model works best. Teh says corporate IT has tried to work with the markets over the years — generally by creating a framework and guidance with regard to system selection. Mature markets may be granted more flexibility if they have the IT skills to support alternative technologies, while emerging markets may be more closely controlled.

"In a mature market they [Dallas IT] tend to relax; they know we will make it work." Teh says the more mature markets are left alone, "as long as we don't play Russian roulette and opt for a solution that is not built on contemporary architecture or is run by a one-man band. That's good governance in my view".

However, Teh does not have carte blanche. "I do have to do quite a bit of articulation if I waiver from their choices."

Page Break

SIDEBAR: Over and Over and Over — and Out

After 10 years in the catbird seat, this Kiwi flew the coop

Kerry Holling was a serial subsidiary CIO for a decade. Initially CIO of Digital Equipment in Australia, he stayed in the CIO seat at Compaq, and then Hewlett-Packard as each bought out their competitors. In June last year he left.

Holling's leaving was voluntary during the early days of a sweeping global reorganization of the HP's IT operations by the company's global CIO, Randy Mott.

Currently the CIO at NSW Department of Community Services (DoCS), Holling says he raised his hand to go when he realized that he was at a point in his life where it was easier for him to shoulder a change than it was for others in his department. I felt I had to lead by example, he says. After a career at WalMart and Dell, Mott was brought in to overhaul HP's information systems and last May announced the company would replace its 85 data centres worldwide with just six — two each in Austin, Atlanta and Houston. Instead of 120 IT operations around the world, Mott would retain just 20, and none in Australia.

"It was a bold new IT strategy," Holling says, "and in terms of truly globalizing our IT operations, Randy was taking it very quickly to the end game."

Holling is sanguine about the change. "If HP pulls this off every global multinational will want to do the same thing — and we'll know that in a couple of years."

He says that HP's shift toward IT globalization has been a work in progress for the past decade. Ten years ago though, when he was first appointed CIO of Digital, Holling pretty much ran the Australian IT operations without international intervention. "I was responsible for IT soup to nuts," he says

The successive acquisitions saw more and more IT decisions being made at the international level, which resulted in the gradual eroding the local IT operations autonomy. While there were benefits — such as the global licensing agreement signed with Microsoft in 1999 that "took costs out of the local subsidiary" — there were challenges as well.

First there was less willingness to focus on market differentiation in diverse geographies; "Rolling out a global CRM vanilla version out of the US can create a few traps," Holling says. There was also a reduced ability to develop bespoke systems tailored for the business in different geographies and economies. "For example in Australia the market is very channel focused and it operates differently to the US. We developed the HP Rewards system which was like a frequent flyer program for the channel that awards points."

Underpinning that program was some home-grown software which Holling admits was developed as a skunk works project. "Now with this focus on globalization, at the time I left the company there was a lack of recognition that this needed to be retained." Although HP Rewards was valuable to HP's position in the Australian channels "The IT strategy could undermine it," he says.

Holling was also concerned that while the global tools were being rolled out there was less focus on the process realignment needed in the business. "It is one thing to impose the system, but it's another to change the business processes. If the change element is missing then it just becomes tool deployment."

While acknowledging there needed to be an overhaul of HP's international IT strategy, and believing that many of Mott's decisions make sense Holling remains concerned. "What could be optimal for the corporation could be sub-optimal for the [Australia]. That is the balance you have to consider when you are planning these things."