There is often a defining project in the career of every chief information officer as they ascend through their profession. Such a project is usually a program of work of gargantuan proportions with the potential to make or break their reputation and determine the future of their organisation. For Peter Mahler it came in the form of a five-and-a-half-year IT-based business transformation at Coles Myer.
The project was the highest profile technology transformation in the country. It completely reshaped the organisation and created numerous headlines during a tumultuous period for the retail group, before its acquisition by Wesfarmers in late 2007.
Mahler's execution of the project was the subject of hearty praise and of public derision during his tenure and became the forerunner to the system overhaul sagas unfolding at Telstra and Optus, as well as in three of the Big Four banks.
Now, more than two years later, he has a reputation as a visionary leader, whose experiences have been turned into a textbook case study by three experts from the University of Melbourne and the London School of Economics.
The academics, Peter Seddon and Peter Reynolds of the University of Melbourne and Leslie Willcocks of the LSE wrote in a research paper shared with MIS Australia that the project offered a host of lessons and ideas for other CIOs who may be asked to lead similar transformations.
And - with the dust settled on the project - these are lessons that Mahler is also happy to discuss.
The story began in March 2002, when Coles Myer chief executive officer John Fletcher announced a five-year strategic plan designed to deliver significantly improved financial performance. He wanted to unify a business that was split along entrenched divisional boundaries, with brands such as Coles supermarkets, Coles Liquor, Coles Express, Kmart, Target, Myer and Officeworks all running their own shows.
From a technology perspective, the plan included an overhaul of antiquated systems to allow integration of the merchandising process, supply-chain optimisation and shared services.
Fletcher publicly bandied about ambitious annualised savings targets of $425 million, in a project with an initial price tag of $650 million.
As the company's first-ever CIO, Mahler walked into the blaze of a glaring spotlight and an organisation full of long-standing executives who would need some convincing about the merits of changing their ways.
"I was very comfortable with the expectations," he says. "If you take on a gig like that, it's high profile and high pressure and you know what you're walking into.
"As a CIO I thrive on pressure and adrenaline, so I probably wouldn't have taken the job if it was aimed at maintaining the status quo and keeping things running."
Mahler says that when he arrived, he was immediately aware of the need for an urgent technology refresh. He says rival retailers, such as David Jones, updated point-of-sales systems every six years, yet the system at Myer was a quarter of a century old.
On top of this, the IT application portfolio was fragmented and out of date. In early 2003, there were more than 600 applications, with extensive duplication. He was faced with aged and inflexible systems that meant cross-branding and company-wide collaboration was not feasible.
He therefore made a decision that would set change in motion, making him unpopular with some high-ranking colleagues - but leaving him in a position to start driving through improvements: he centralised the group's technology provision.
"For a transformation project, regardless of industry, you have to centralise it," he says. "You have to bring all of the experts together. It's the fastest and least expensive way.
"Once you've done the transformation, you can go back into a federated model, but to modernise the IT systems and get the processes streamlined, it needs to be centralised - and it's a big challenge."
He was faced with a business comprising 12 different organisations with 12 different managing directors who ran their businesses separately.
He says his mandate and strong public backing from the CEO was crucial in his numerous meetings to convince the managing directors to allow their IT staff to be removed into a centralised function.
After a period of what he describes as "subtle arm-twisting", he says senior management was willing to back the ambitious technology change program. Perhaps surprisingly, the strongest resistance to change came from within the IT ranks he had been brought in to lead.
"Until I came along, Coles was building all its own software [and] the team was a bunch of programmers," he says. "Very early on I had to make it clear that from then on we would buy or outsource - not build."
Understandably, staff feared for their jobs. But Mahler says he quickly moved to calm fears and organise retraining. He told staff the business would still need high-level systems programmers and sought to galvanise his team for a career-changing experience.
The landscape of applications across the group required a complete facelift, and one of the first tasks was to build a new data centre and replace almost all of the creaking IT infrastructure.
Mahler and his team then drew up a list of seven principles that had to be kept in mind for the program to be successful (see Stick to your principles, above).
In order to get the right team in place, all staff in the top three levels of IT management under Mahler were asked to apply for new jobs. All applications and interviews were co-ordinated impartially through a personnel consulting firm and by March 2003, the CIO had chosen his eight direct reports, six external and two from within the existing IT function.
Through the next year, preparations for the transformation gathered pace, and a large part of Mahler's role was to build the foundations for change by getting the message out about what he had been brought in to achieve.
He presented frequently to the board and also to the company's top 200 executives and sharemarket analysts, hammering home his point that the game had changed. Unless it reduced its IT complexity, Coles would no longer be in a position to compete with its more advanced rivals.
A new governance structure was put in place (see "How it was done: the governance structure", facing page) as Mahler needed to keep command of 135 continuing projects. Failure to manage the portfolio effectively would have led to the program spinning expensively out of control. "It was a massive number of projects and project leaders, so it was very important that we had a strong and disciplined project management office," he says. "There was one project that was worth $175 million and others that were just $1 million or $2 million and we had them going on in parallel."
The core merchandising system replacement, for example, had four separate phases, which began in 2003 and was completed in three-and-a-half years with a big new release each year. Hanging off the side of the core system were a series of other upgrade initiatives, which in themselves would have kept most CIOs busy. These included a replacement enterprise resource planning financial system and supply chain systems all staggered around the larger program.
Mahler was keen to land projects regularly to keep up momentum. By September 2003, the new system had gone live with SAP's R/3 ERP merchandising system at Officeworks. Also, it was decided to adopt Retek software for merchandising and Manhattan for supply chain for the food, liquor and fuel (FLF) division transformation.
The next year included the adoption planning for these products along with the roll-out of a broadband network to 2100 sites. Coles also invested in a data warehouse from Oracle aimed at providing a single view of the customer as they traversed the group's different brands.
Within a few years, all customer information from credit and loyalty cards and purchases from Coles stores all over the country were to be funnelled into the system.
With thousands of hours spent in planning, Mahler says, 2005 was the year of making things happen.
During the financial year 2004-05, 42 different projects, including 13 major initiatives, were delivered and most work focused on the supermarkets division.
But despite the clear results and well-defined goals, he says it was far from easy to keep staff and executive peers on track. He admits it became apparent that despite frequent requests from IT at many levels, some management staff underestimated the magnitude and pace of the change they were facing.
The FLF division work suffered as project staff became immersed in the transformation and lost contact with the divisional leadership and day-to-day requirements of their business unit. "Looking back, the big thing I'd do differently is that I'd have tried to get the business to lead more," he says. "To get them to have more ownership of it, that was always a hard one.
"For a retailer, anything more than two weeks is long term. They're worried about what's on the store shelf in the next few days. So keeping people motivated and avoiding burn-out was tough."
He introduced a program of recognition and reward, which included both prestige (in the form of a "star performer of the month" award) and financial (through bonuses that were worth as much as 40 per cent of an employee's annual salary).
This helped things kick along through 2006-07, which was a year characterised by project delivery.
Simultaneously, supply-chain projects involving the warehouse, yard and transport management systems for the new distribution centres and business-to-business receipt and settlement were delivered.
This was one of the first implementations of a warehouse management system using voice picking and it significantly simplified distribution-picking operations.
In January 2006, the merchandising system for the Myer brand was at the peak of its design, configuration and testing phase. One of Coles' biggest IT challenges was managing the Retek resources between the Myer and FLF programs.
Then in June 2006, the Myer brand was sold. It was an early sign that the end stages of the project would be played out in the midst of corporate upheaval. Coles' IT group continued to support Myer's IT services for a further 18 months.
In July 2007, the Coles board agreed to support a Wesfarmers takeover offer, which was accepted by Coles' shareholders in November that year.
During this time some areas of the transformation slowed but by August 2007, more than 120 projects had been completed. Most of the IT systems envisaged in the 2003 plan were implemented and the remaining projects were on track. The IT infrastructure had been modernised, the main core systems such as merchandising, the supply chain and financials had been modernised, and the data warehouse was collecting huge volumes of customer loyalty data.
Mahler says the overhaul was complete when all the new systems were in place and new payroll, financial, merchandising and point-of-sale systems were functioning.
"Once it was over in 2007, and we were starting to downsize, some people were really sad it was all over and I told them they had to look at it as a unique experience," he says. "They'd probably never again experience a transformation as good and as successful as what they had done."
One of Wesfarmers' first moves was to demand that IT move back to a federated model. However, Mahler says this did not mean ripping up all the work that had gone before. In fact, successful federation was made possible by the vastly improved back-end systems.
He says front-end systems for the now separated Coles divisions are different, but all run off the unified back-end systems put in place during the transformation.
"Many people have asked me whether it was bitter sweet to see the centralised team broken up, but you have to be philosophical about those things," he says. "It's a circle. People will centralise then decentralise and then suddenly after five years things change and they centralise again. We modernised what had to be done. We did an IT transformation and landed it very successfully."
Indeed, the success of such a mammoth task is not in question in CIO circles and the project shaped the careers of many of Australia's current leading lights.
Optus chief information officer Lawrie Turner, Healthscope CIO Dougall McBurnie, National Australia Bank general manager of technology, David England, Newcrest Mining program director Steve Pearson and PricewaterhouseCoopers director Paul Queeney all worked under Mahler on the transformation.
It is therefore surprising that Mahler left Coles under a bit of a media cloud after criticism of a deferred
stock ordering and replenishment system upgrade. Problems led to gaps on the shelves at some stores - noticeably Bi-Lo.
Mahler acknowledges the problems existed, but says that they centred more on a relative failure to have sufficient staff capable of using the new system in some areas of the business, rather than a
"There were empty shelves, let's not kid ourselves," he says. "But that's an example of where you have to bring users along on the journey. It sounds harsh, a bit like saying 'the operation was a success but the patient died'.
"We didn't have educated users, and Wesfarmers is now bringing in educated users who can use the systems."
A sign of the project's success is that very little investment in technology has been needed at Coles since Mahler left.
He describes the project as the highlight of his career, and the best of the three major transformation programs he has run.
However, after a couple of years of consultancy, he believes there is still one big CIO role left in him.
"I'm working with about eight different companies across a number of sectors, mentoring a number of CIOs and having good fun," he says.
"But once the right CIO position comes along, I'll probably take it."
Stick to your principles
1. Shift from a brand focus to a process focus.
2. Simplify. Cut out diversity, complexity and duplication of IT systems.
3. Channel IT investment towards consolidation and renewal of both the IT infrastructure and application portfolio.
4. Buy, not build: "We're not building software any more; we're buying software."
5. Two-vendor policy: "For each major area, for example, systems integrators, we will work with the two best vendors. This provides focus without making us totally reliant on any one vendor."
6. Transparency and accountability: "Clear, open governance is expected. Individuals are accountable for achieving goals and providing early notice of difficulties."
7. The project manager is king: "Success in IT depends on delivering projects. The key to success in projects is that the project manager is king."How it was done: the governance structure
Resource Allocation Committee chaired by CFO
* Approved all IT capital expenditure over $250,000.
* Membership: CFO, CIO, three senior IT general managers, two finance managers.
* Brought discipline to the business units. Previously there had been no formal process for IT capital expenditure approval.
* Projects over $5 million required CEO approval and over $15 million board approval.
Enterprise Architecture Review Group
* Membership: Enterprise architects and key IT and business representatives.
* Responsible for the overall enterprise architecture.
* Solution architects were to be "joined at the hip" to the project leader for each project.
Risk Management Group
* Membership: CIO and four IT general managers.
* Met monthly to review progress on each of the 150 projects.
* Reviewed four to five projects, each for about one hour.
* Program office would review the status of all projects monthly and grade them according to a colour system as red, yellow, or green.
* Mahler personally reviewed those with a red status.
Project Audits (Health Checks)
* Independent external project audits, for example, by leading local consulting firms.
* Accounted for more than 1 per cent of the total project cost.
* Identified many problems before they spun out of control. MIS Australia
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