• Alcoa – Let Me Tell You How The Good Guys Do It

    By • Sep 22nd, 2008 • Category: GE, Sarbanes-Oxley


    I was in San Francisco September 6-10 for the CFO.com Technology Conference. I’ve already told you the story of how this came to pass. Vinnie Mirchandani is not only smart and good at what he does, he’s a really nice guy.

    Only thing, Vinnie…Next time stick the GPS device on the dashboard. Watching the driver look down so often while tooling around a strange town is a little disconcerting to passengers.  Just kidding.  I’ll gladly put up with a few blown red lights and stop signs for a pick up from the airport and a super-lovely afternoon in Golden Gate State Park, the De Young Museum, and Sausalito.

    Go here for some of Vinnie’s impressions of Alcoa and the conference.

    I met Bill O’Rourke at the get-acquainted cocktail party the night before the conference opened. He was talking to Lori Calabro, the Conference Editorial Director.  I wanted to introduce myself to Lori, since I was not attending per the registration as media but as guest of Vinnie Mirchandani. But she knew who I was anyway, since both Vinnie and I had left messages with her, trying to get me on their panel on Social Networking.  It had been to no avail.

    Bill was warm, friendly, and very interested when I introduced myself as a blogger. Bill O’ Rourke is Alcoa’s CIO and responsible for their Global Business Services operation. He has had a long career at Alcoa and epitomizes the executive who grows, changes, and helps others adapt to change even while essentially working for one organization most of his career.

    What I didn’t know until doing some research for this post is that Bill joined Alcoa in 1975 as a patent attorney. He later left Alcoa for Joy Manufacturing Company where he held a variety of positions including corporate patent counsel, director of corporate administration, and general manager of a mining machinery parts business. He returned to Alcoa in 1988 and was named an assistant officer, Corporate Patent Counsel in 1992, and assistant general counsel in 1995. One year later, he was named to lead Alcoa’s environment, health and safety organization.

    In 1997 he became an Alcoa Vice President responsible for Business Support Services, a new position at Alcoa. In this role, he was responsible for various corporate groups that are focused on customer service, including procurement and transportation, financial shared services, environment, health and safety, human resource, and administrative services.

    In 2005, he was named President, Alcoa Russia, responsible for the substantial manufacturing assets Alcoa had recently acquired in Samara and Belaya Kalitva in the Russian Federation. He came back to the US after a couple of years as CIO and heads what is now called Global Business Services.

    Alcoa has a philosophy called “Parental Advantage.” The idea is that every business is worth more as part of Alcoa Corporation. Alcoa beefed up and brought Bill back “in from the cold” to run Global Business Services. The idea is to remove “distractions” from their Executive Council – which is focused on policy, strategy and major corporate initiatives; and remove distractions from the Business Units – which are focused on manufacturing, marketing, R&D and growth. All administrative and strategic support services are part of  the Global Business Services Group.

    Why do I think Alcoa is such a great example of a well run organization? Because business services, the ones that get cut, disregarded, squeezed and pushed aside at such “world class” organizations as GE, are being led by a guy like Bill O’ Rourke and being treated as a strategic , competitive advantage for the company.  

    Reminds me of another company, one Bill knew very well, that also never complained about Sarbanes-Oxley, never had any material weaknesses, implemented a standardization, centralization, one-platform strategy a few years back.  That company is Cemex.  Real world class companies don’t complain and whine and ask for bailouts.  They get guys like Bill to go out and get the job done, sometimes under difficult circumstances, sometimes in very chilly places, sometimes at great cost to their own personal lives.

    Alcoa’s goals for Global Business Services:
    Centralize: Regionally, then Globally.
    Standardize – processes, systems, organization
    Consolidate – e.g. Data Centers
    Stay in Control
    Outsource:
    % increased from 20% to 46%
    Move to Low Cost Countries:
    – % increased from 23% to 51%
    Customer Focus – drive by clear metrics

    Now, I may not always laud a company that has a stated goal to find the cheapest labor worldwide and then move operations there, especially for critical operations such as technology and accounting. But I will defend a global company’s right to locate their activities and operations in the country of their choice. As long as they aren’t fooled into believing that chasing cheaper labor is strategic. You end up chasing your tail. There’s always another Mexico or India and it’s called China, and another China and it’s called Viet Nam, and another Viet Nam and it’s called Cambodia, and on and on…

    What’s impressive to me about these goals is the focus on centralization and standardization. These are two of the most important components for insuring the kinds of required financial reporting integrity and compliance that is expected under Sarbanes-Oxley. In addition,  it helps to be centralized and standardized as a global organization, when it comes to controlling issues like Foreign Corrupt Practices Act and ethics compliance.

    What’s the most effective way to make centralization and standardization of key financial and operational processes happen for a global company? (Hint: Same way Cemex did.)

    Build your strategy on a common ERP solution. In Alcoa’s case, it’s Oracle. (At Cemex it’s SAP.) To Bill’s credit, he said it was the choice to standardize, with only CEO-approved minimal exceptions, rather the choice of Oracle over SAP, that made the decision the right one. It sounds to me like it’s the execution of the strategy that matters. Otherwise you’ll see the botched ERP implementations start causing even bigger problems than just costing a bundle . Senior executive sponsorship. Consistency. Strict project management and issues resolution. Global roll outs, done in phases and only started when the prior is deemed successful. These elements are key.

    Some additional benefits for Alcoa gleaned from this approach:

    Analytics Engines…Built on Common ERP solution
    Global Financial Analysis, Planning and Forecasting (FAST)
    Commodity & Vendor Spend (Procurement Business Intelligence)
    Customer, Product & Market Profitability Analytics. (SMART)

    Alcoa “Connect Anywhere” Infrastructure
    Standard PC’s, Standard configuration and standard Email and Personal Productivity Software has enabled Alcoa to build and deliver a solution for our mobile workforce that allows access & connection in any Alcoa location WW plus secure access in airports, hotels, etc

    AlcoaDirect External Portal
    Secure Access to Alcoa for Top Customers & Vendors.
    Facilitates On-Line Sales & Customer Service (Order Tracking, LME, Certifications & product quality info, etc.)
    Customer & Market Centric; Facilitates target marketing & cross selling

    As of 2008, mission accomplished without Alcoa IT ever having been called on a material weaknesses in internal control. How many global organizations that have rolled out new ERPs in the last 6 years can say the same?

    -1900+ Applications eliminated
    -44 Procurement Systems to 1; 40 Ledger Systems to 1
    -Several Business Processes & Applications Outsourced
    “Oracle is now the come-to position” for all Commercial Computing Applications
    -Applications Support Services Consolidated & Outsourced.
    -Roles moved from North America, Australia and Europe to India
    -Alcoa Management / Leadership Roles Eliminated / Consolidated
    -Business Units focus on Manufacturing and Product / Facility Oriented Applications
    -GBS focus on Global PMO (program management office), Corporate Applications & Common Applications – in Finance, Treasury, Credit, Human Resources, Procurement, Environment, Health & Safety

    From a financial accountability and control perspective Alcoa can say they have implemented best in class standards:

    -Common Financial Chart of Accounts
    -8 Hour Close Every Month, Every Quarter, Every Year
    -Common, Standard EBS Oracle Platform
    - Very Limited Localizations
    -Global Consolidation of Data Centers
    -Global Process Standardization across all Functions
    -Global Stewardship of Common Processes
    -Global Standardization of Internal Metrics
    -Outsourcing to Drive Flexibility / Adaptability
    -Global Sourcing / Right-Sourcing the Work
    -Global Data Warehouses to Enhance Information Value
    -Agile Management of Significant Acquisitions and Divestitures

    One of the most impressive part of Bill’s presentation, from my perspective and for the readers of the blog, came on slide 25:

    GBS is the most audited entity in Alcoa. In every audit we target an Audit Score of 4 (Good), an Alcoa Self Assessment (ASAT) Penetration Score of 5 (Excellent) & a Passing Score in Sarbanes-Oxley (SOX) Audits.  The Organization is highly in control and has demonstrated that over time.  Focus in 2008 is to maintain same level of control & drive productivity.

    Recall, Bill is an attorney who was out of the country until recently and is now a CIO. Not typically the kind of guy who focuses on Audit and Compliance. I don’t think this was window dressing just because he was talking to CFOs. I think the emphasis on all stakeholders in what he does comes from having been on the other side, responsible for a business unit, responsible for internal audit.

    Mark my words. Bill O’ Rourke will be CEO of Alcoa or another firm before he ends his exemplary career.

    Oh, and Bill also authors an internal blog. I live-Twittered his presentation. 

    Immediately after he finished speaking, he got a call from his corporate communications person asking him if he was aware there was a blogger in the room and if he was aware of what I was saying about the company. Wow. Lightening fast reactions from an investor relations perspective, too. They are on the ball all over the place at Alcoa.

    Alcoa’s auditor is PricewaterhouseCoopers.
    PwC, take a bow. You can be very proud of this client.

    Update: I received an update from Bill O’Rourke at Alcoa today. It seems my post coincided with an announcement of a big promotion for him.

    Bill O’Rourke will become Vice President for Sustainability and Environment, Health and Safety, reporting directly to Klaus Kleinfeld. In addition to the corporate EHS functions, Bill will also direct EHS shared services and the sustainability function. Rob Bear, Jeff Shockey, Bob James, and Kevin McKnight will report to Bill, along with the new Director of Sustainability, when that position is filled. On an interim basis, Bill will continue to supervise GBS and act as Chief Information Officer.

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    2 Responses »

    1. Well, look at the progress – 2 years ago I would have been fumbling with a printed set of Mapquest directions. 4 years ago as a man I would have bravely not looked at or asked for any directions:)

      My GPS is also my PDA (which means phone, camera, MP3 player, email device, modem, coffee maker all-in-one) and the form function on those devices today is driving smaller screens so putting on the dashboard would be worse. I should have handed over to my fellow passengers to help navigate – but they were busy jabbering about other more interesting things…

    2. How about AA’s lawsuit with the Bahrainian government regarding bribery and the ensuing DOJ FCPA investigation…not everything is tip top at AA…though Mr. O’Rourke sounds like he runs a tight ship for his part of the business.

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