PharmaceutiCo's* IT functionality, technology and delivery model was experiencing gaps along several dimensions vis-à-vis best demonstrated practices for IT organizations.
- Major functionality gaps in terms of bar-coding/workflow, data warehouse and customer connectivity
- Complex technology
- OldSystem, the current technology platform, was starting to experience signs of architectural fragility
- Lack of alignment of IT resources with business priorities
- Limited economic benefit from IT investments
- Sub-optimal resource management and use of outsourcing
As a consequence, PharmaceutiCo's IT functionality was behind competitive benchmarks in areas critical to PharmaceutiCo's strategy.
Although PharmaceutiCo was pursuing a number of IT initiatives, these were unlikely to close the relevant gaps within the context of the current IT delivery model.
PharmaceutiCo asked the Bain team to advise on the following issues:
- How effective is PharmaceutiCo's IT group?
- How can the IT group best support the business strategy of achieving competitive parity on operational productivity and best-in-class performance on customer relationship management and retention?
- How can PharmaceutiCo accelerate existing IT projects?
- Which core application package should be used?
- Should PharmaceutiCo outsource any part of its application development or maintenance?
- How should PharmaceutiCo's IT function be organized?
Bain created a two-phased approach to determining business full potential and best practice benchmarks particularly around operational productivity, salesforce and customer service/relationships.
Bain recommended a number of improvements to the client's IT technology and delivery model.
IT diagnostic recommendations
- Create IT Steering and Operations Committees to serve as the connective tissue between IT and the rest of the organization
- Develop prioritization schemes to align IT projects with business priorities
- Utilize business and IT project plans to manage and track the economic benefit from IT investment
- Selectively use outsourcing to reduce costs, improve outcomes and accelerate the closing of IT functionality gaps
IT strategy recommendations
- Use NewSystem, new technology platform, which has more complete and advanced functionality than competing packages
- Do not outsource application development and maintenance on NewSystem during the migration as it will add additional complexity and implementation risk
- Simplify the current organization structure by reducing nine divisions to five divisions, combining similar functions and systems
- Develop IT organization performance measurement system
- Close critical hire gaps
We encouraged our client to begin implementation of a new ERP platform (NewSystem) for their facilities. At the beginning of the case, every member of the management team was convinced this was not the right answer, but the business case and process Bain facilitated persuaded them to begin pilots and pursue implementation. The expected annual run-rate benefits are 2% of revenue.
A range of other benefits were realized as part of the project. These include a $4 million one-time inventory reduction, $3 million in savings from generic product selection, improved customer service/retention and risk reduction, leading to fewer regulatory issues. Furthermore, operating efficiency was increased, performance metric reporting improved the establishment of an IT steering group help the business alignment/value assurance efforts.
* We take our clients' confidentiality seriously. While we've changed their names, the results are real.