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Category: INFORMATION/KNOWLEDGE MANAGEMENT By piecing together a cohesive information reporting system, AMP has been able to fufill its global ambitions.
Joseph McCafferty, CFO Magazine
September 1, 1998
When Robert Ripp came to AMP Inc. in 1994 as the first CFO hired from outside the Harrisburg, Pennsylvania-based company, he was given two challenges rarely trusted to the head of finance: help AMP run as one cohesive, global unit, and make it more customer focused.
To achieve these goals, the 57-year-old Ripp spearheaded the development of an ambitious information management system that ties together 300 million summary-level P&Ls with multidimensional views by customer, industry, product, and country. And, ironically, after spending more than three years developing the system, he has become its ultimate end-user: earlier this year, Ripp was promoted to executive vice president of global businesses at the world's largest supplier of electric and electronic connectors and connection systems.
Certainly the promotion is a testament to Ripp's achievements as CFO. But it comes at a difficult time for AMP, which had $5.7 billion in revenues in 1997. The company has been hard hit by the financial crisis in Asia, where it does 20 percent of its business. It has also experienced slowdowns in some key industries, such as cellular phones, as well as pricing pressure in its bread-and-butter business, personal computers. The financial feedback system Ripp engineered, though, has helped AMP respond. "It has significantly changed the way we view the company," he says. Over the past year and a half, AMP, buoyed by its internal information, has moved to globalize procurement and sourcing activities, moved production to low-cost regions, discontinued or raised prices on some low-volume parts, and implemented consolidation, all in an attempt to grow revenue and improve margins.
It was the move to global operations, in fact, that initially led to the overhaul of the information management systems. The company had a history of autonomous decentralized operations with a command-and-control leadership style. But the model was incompatible with the global market AMP pursued. Customers wanted a cohesive supplier with integrated services, and president and CEO Bill Hudson aimed to deliver. To refocus, though, the organization would have to be structured as a matrix, and managers would have to understand the global implications of day-to-day transactions. "AMP needed information that would facilitate faster, smarter decisions with a global perspective," says Hudson, who tapped Ripp, a former controller at IBM Corp., for the task.
Ripp's first question was, "Where's our team of financial analysts?" But in 1994, the information system AMP had to facilitate financial decision making was almost nonexistent. The company had consolidated financial statements by geographical regions, but very little beyond that. There was nothing to gauge the profitability of different industries, products, or customer segmentations. "We needed to look at the financial returns of each industry [AMP supplies to] to make decisions about where we should be investing more resources," says Ripp. But he couldn't. What AMP did have was a handful of people who constructed consolidated financial summaries of 16 customers and 19 product groups on a quarterly basis, often two months after the books were closed. For a company with 90,000 customers and 100,000 individual part numbers, the analysis was barely skin deep.
The Lowest Level of Detail
Under Ripp's leadership, AMP invested in a PC- based client/server infrastructure while moving its financial reporting away from a mainframe focus. Ripp assembled a team from IS and finance and arranged funding for the project. "The price tag [$2 million over three years] wasn't that big, considering the scope of the project," says Ripp.
Then, AMP selected Arbor Software Corp.'s Essbase to bring multidimensional reporting to the desktop in a production environment. But to make the data worthwhile, AMP needed to determine the lowest level of detail that could be summarized with a good level of accuracy. The sales statistics submitted by the local AMP companies, which summarized monthly part-number shipments to a customer's location, provided the required granularity.
From there, local AMP companies were required to begin supplying data feeds to headquarters for centralized processing of sales, cost, and customer statistics. Worldwide networks and data warehouses were built. Process reengineering using SAP's R/3 system as a framework was launched. Next, global coding structures were developed to consistently identify customers to global industry segments, and global product lines were established to consistently identify part numbers to global product segments.
Rather than wait for a complete solution, Ripp began to implement the system right away, with continuous improvement as the goal. "It wasn't a perfect system in the beginning," Ripp admits. "But we knew we had to get it off the ground and make the necessary modifications later on or we'd still be trying to figure out how to do an accurate P&L down on the part- number level."
By 1997, the process had improved enough to allow AMP to collect country-supplied rates for all global product lines as part of the monthly-close process. One barrier that still remained, though, was the inconsistencies in the approaches companies used to assign expenses to products. "In 1998, we improved the process further by centralizing the generation of country statistics," says Bill Urkiel, corporate vice president and CFO. "Today, we bring in country-supplied sales and standard cost at the part-number and customer-location level. And we apply expense numbers to the appropriate products with global standard allocation routines to ensure consistency. We closed the loop, which was one of the original requirements of our internal financial customers."
For 1998, the Business Model P&L System is a closed process that stores 12 million records and provides monthly financial results from a single database. "We wanted to build a resource to get the company to focus not so much on data, but on information to facilitate decision making that is customer-focused instead of exclusively product-focused," says Ripp. Going forward, AMP, which is currently weighing a $9.8 billion unsolicited bid from AlliedSignal Inc., believes the financial feedback system will help it navigate a difficult business environment. And in the longer term, it should make it a more responsive company. Ripp states simply: "What we say at AMP is, 'Let the computers do all the heavy lifting.'"