CASE 1 Royal DSM N.v. Group ITStalwarts-Final

ROYAL DSM N.V.Group 2: IT StalwartsBalaji KannanCarlos SalvadorGary KwangKathleen OjoKurtis Franklin

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Royal DSM N.V IT Stalwarts

OUTLINE General Issues Main Stakeholders Theory and Concepts Symptoms and Problems Alternatives & Evaluation Criteria Best Solution & Implementation Plan Evaluation and Review Current Status Update

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GENERAL ISSUESFacts Royal DSM N.V. was founded in Netherlands in early 1902 as a coal

mining company. Mined coal from 1906 to 1973. First produced coke oven gas in 1921.

In 1930s expanded into plastics and started Caprolactam production in the 1950’s; polyethylene and melamine in the 1960s.

Started restructuring and diversifying in the 1980’s into specialty chemicals.

1990’s saw DSM transforming into petrochemicals, life sciences and performance materials.

DSM saw opportunity to merge spin-off units in life sciences, performance materials that resulted from large mergers during the 1990’s (Exxon-Mobil, BP-Amoco-ARCO)

Vision 2005 program initiated in 2000. Successfully merged DNP [earlier Roche Vitamins]

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GENERAL ISSUESChallenges: Choice between highly competitive low-margin petrochemicals or specialization in

performance materials, life science products. How to resolve issues in IT at DSM [DSM had a fractured and disjoint IT operations

during the 1990s because of vertical silos in its operations]? How to standardize technology infrastructure across departments and business units?

Acquisition and disposal: Consolidation of pharmaceutical and food industries led to spin-offs of smaller companies

that attracted DSM to acquire because of stable earnings. DSM acquired Andeno, Gist Brocades, Deretil, and Chemie Linz, and Catlytica, in the

pharmaceutical and food ingredients industries. DSM divested and sold its petrochemicals business to SABIC in 2002, for 2.25 billion

euros. Immediately, DSM acquired the Vitamins & Fine Chemicals Division from Roche, which

doubled the size of DSM’s life sciences business. DSM purchased NeoResins in 2005.

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Employees, Management, Board Members

MAIN STAKEHOLDERS

DSM

Stockholders

Financial Institutions

Customers

Suppliers Government

Acquired Companies

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THEORY AND CONCEPTS

Concept•Divest in petrochemicals and increase foothold in life science products and performance materials industries.•Decentralize ICT

Value•Diversify portfolio for long term growth and sustainability.•ICT has a cross-industry outlook that is able to support innovation processes.

Capabilities•Decentralized ICT is able to adapt to a changing business environment.•Small reliable supply base.•“One-jump” strategy allows for immediate transition and integration.•EVITA program brought immediate attention and resolutions to problems.

Business Model:- Goals & Objectives

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SYMPTOMS AND PROBLEMSSymptoms Problem Decision Criteria

Lack of information flow and control

Differences in IT infrastructure among business units

What part of the infrastructure needs to be standard and what should be determined by the business unit?

By 1929, the market for coke-oven gas began to shrink

Newer and cheaper products in the market

Realign business by acquisition or invest in current business to grow ?Is there opportunity to grow in the current business?

During the 1990’s several global trends started to change and technological advances

DSM can lose market share

Shift attention to global industry consolidation?React to price pressure or change approach to divestment/acquisition?

Additional growth in petrochemicals would require massive capital expenditures

DSM could stay in Europe or decide to expand globally.

DSM launched Vision 2005: Focus and Value. Objective was to focus the company on growth opportunities.

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SYMPTOMS AND PROBLEMSSymptoms Problem Decision CriteriaSymptoms Problem Decision Criteria

Resistance and Change to new implementations or strategies

Cultural differences between DSM and acquired businesses

Is resistance widespread or in specific employees?Assimilate or trench employees resisting change?

Increasing cost of IT implementations

Disconnected IT implementation at various business units

Will standardization hinder or improve the communication?What level of customization is required at the business unit?

Poor ROI from business Inefficient management and operational processes

Can merged business contribute to change in other areas of DSM?Can other areas of DSM improve the newly merged business?

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ALTERNATIVES & EVALUATION CRITERIAAlternatives Pro Cons

Stay non-centralized and non-standardized

• Least disruption to the status quo

• Allows business units to define ICT strategies and solutions

• Costly• Least conducive to M&A

growth or divestiture• No economies of scale

Slow integration over time of new M&A businesses

• Easier to hit deadlines• Less chance for

encountering pitfalls along the way

• Allows for business process integration to occur sooner

• Loss of momentum post acquisition

• Increases time necessary to full integrate new M&A businesses

• Costly to run different non-standard systems to support M&A business

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ALTERNATIVES & EVALUATION CRITERIAAlternatives Pro Cons

Quick “single-jump” integration

• Keeps momentum following purchase

• Allows the business processes to benefit from the M&A faster using single ICT platform

• Potential for spectacular failure if every pitfall and deadline isn’t defined and planned for

• Rarely used with success by others

Keep new M&A business separate

• Eases disentanglement by not introducing the need for integration with the new parent company

• No business efficiencies by utilizing common business systems

• No unified reporting and purchasing power

• Increased complexity with less standardization

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BEST SOLUTION & IMPLEMENTATION PLAN

Best solution is to do a “single jump” integration strategy with company-wide standardization

Acquisition IT System integration/replacement within 18 months following purchase

Each location to receive a 23-week plan “Cookbooks” for daily tasks lists to keep location on 23-week schedule

Focus on standardization of hardware, network, systems, and support infrastructure

Implement unified standard at each location around standard

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IMPLEMENTATION

Vision 2005 Project Gantt Chart

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EVALUATION AND REVIEW OF THE CASE As the CIO charged with consolidation and revitalization of the ICT, Jo van den

Hanenberg introduced and directed many programs to achieve strategic goals of divestures of old businesses and acquisition of new companies. The programs VITAL, eVita were instrumental in successfully integrating DSM Nutritional Products (earlier Roche Vitamins).

Vision 2005 goals were met. The factors leading to its success were Installation of a Program Support Office to oversee individual projects in eVita Program Overcame organizational differences and make it a lean and powerful machine in 15-18 months Business groups had no influence on infrastructural decisions leading to a close alignment with core

DSM ICT serving as the backbone for the transformation

Success at Vision 2005 allowed the organization to set a more ambitious Vision 2010. Increased presence in Emerging Markets and decentralizing ICT services to satellite

locations. Project Apollo led to operational excellence due to enhanced clarity around business

operations.

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Based on Annual Report for 2010 published in December 2010, some key statistics

As of 30 Sep. 2011, DSM has completed acquisition of majority share (91.75 %) in China-based UHMWPE fiber manufacturer.

Earlier this year, in July 2011, DSM acquired 51% stake in AGI corporation of Taiwan. DSM inks a strategic partnership in July 2011 with KuibyshevAzot of Russia. DSM ranked as #1 in Dow Jones Sustainability Index in 2011 for the third consecutive

year.UHMWPE – Ultra High Molecular Weight PolyEthylene

Item Value (€ millions)

± 2009 figures

Net Sales 8,176 1,451China Sales 1,631 513Net Profit 507 170Market Cap 7,730 1,478EBITDA 1,161 327

CURRENT STATUS

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FUTURE PLANS

DSM has set ambitious targets for the near future (2013) Increase EBITDA to €1.6 billion Increase ROCE to more than 15 %

Sales Target Growth for 2015 Organic Sales Growth : 5-7 % growth annually China Sales: From USD 1.5 bn to USD 3 bn High Growth Economies Sales: from ~ 32% of sales towards 50% of sales Innovation Sales: from ~12 % of sales to 20 % of sales.

Aspiration regarding emerging business areas for 2020 EBA Sales: > €1 billion

High growth economies: Russia, China, India, Brazil

Ref: DSM in motion: driving focused growth – A letter from the Chairman Feike Sijbesma

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FUTURE PLANS

DSM will combine a stronger regional infrastructure with clear board level accountability for regional growth. Over the next two years DSM intends to: establish a dual desk for members of the Managing Board responsible for regional

growth in Asia and the United States; relocate the headquarters of the business groups DSM Fibre Intermediates, DSM

Engineering Plastics and DSM Anti-Infectives to Asia; relocate the DSM Biomedical business headquarters to the United States; relocate the biofuel business, a part of DSM Bio-based Products & Services

(formerly named DSM White Biotechnology), to the United States; establish new Innovation Centers in China and India; expand the existing Innovation Centers in the US and Japan; strengthen regional capabilities, infrastructure and management to provide regional

insights to the business and support growth and innovation in the regions.

Ref: DSM in motion: driving focused growth – A letter from the Chairman Feike Sijbesma

CASE 1 Royal DSM N.v. Group ITStalwarts-Final

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