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More than 100 handpicked senior managers were summoned to a conference room at the Milford, Mass., headquarters of Waters Corp., a manufacturer of analytical instruments for the pharmaceutical and scientific industries.
They were mostly in the dark.
All they knew when they arrived on Monday, July 22, 2002, was that they had been selected to participate in a weeklong planning meeting. A handful of team leaders knew a bit more.
By 9:30 a.m., the secret was out. Micromass, which had been a high-flying subsidiary in Manchester, England, would no longer be allowed to run itself independently. All operations would be completely integrated into Waters.
In 99 days.
By Oct. 28, all sales, distribution and support functions of the company, which had sales offices in the U.S., Canada and Europe and operated globally through distributors and agents, would be unified. Micromass would become a Waters brand. New reporting structures and compensation would take effect. And all of Micromass methods of recording sales, compiling financial reports and other operations would be dropped. In just a little more than three months, the entire crew would have to adopt a wholly new set of information systems—and force-fit existing processes to work with the SAP software that was Waters existing platform.
“Some call it militaristic,” says Waters Chief Information Officer Paul Newton. “But when people are able to go back and do things the old way, they will. To the extent you pull that out from under them, they dont have a road home.”
The 99-day fixed march was a shock, because Micromass had been, as Waters financial officer John Ornell puts it, a “home run” for the company.
Boom to Bust
Boom to Bust
Go Back in Time to Sept. 25, 1997. Overnight, Waters had become the worlds leading provider of two technologies essential to the discovery of new drugs. First, there was high performance liquid chromatography, which waters had introduced in 1994. To that, it added mass spectrometry, which it acquired that day when it finalized the $188 million purchase of Micromass.
Even Ornell says Waters didnt realize how well the two would work together. The chromatography system was effective at separating mixtures into their components, using principles of absorbency to help determine the presence of proteins.
Using optics, spectrometry could then analyze the molecular structure of those proteins. This allowed more rapid testing of protein combinations for possible new drugs. As investment in life sciences boomed in the late 1990s, the Micromass business would triple in size to $300 million a year.
All was well at Waters from 1996, when company revenues were $346 million, to 2000, when the Micromass acquisition helped push annual revenues to $795 million, for an annual compounded growth rate of 23 percent.
But the rosy picture was soon shattered. In June 2001, Waters warned that second-quarter earnings could drop by four cents per share, as big customers held off on purchases of spectrometry products while they evaluated new products from competitors. Ten months later, three of those rivals—MDS, Applera and Perkin-Elmer Sciex Instruments—won a $47.5 million judgement against Waters for patent infringement. Waters executives and employees were stunned.
The company restated financials for 2001 and 2002, setting aside $75 million before taxes to cover costs related to the court decision. It also pulled several Micromass product lines—worth 2.5 percent of its $859.2 million revenue in 2001—off the U.S. market.
To their dismay, Waters managers found they had acquired the disputed technology along with Micromass. “We didnt have enough resources looking at their pre-existing intellectual property,” Ornell says. “We needed to do better.”
In part, this spurred the 99-day transfer campaign. One problem, Newton now says, was that Micromass still functioned like a “mom-and-pop” business, even though it generated hundreds of millions of dollars in revenue each year.
Micromass, for instance, couldnt definitively say which customers had purchased which of its products. Customers could—and did—request hardware and prices to fit their desires. Just about every system that went out the door was unique, which meant Micromass engineers had to go around the world to handle tech support. In some cases, Waters and Micromass salespeople even competed for the same customers.
The Gamble
The Gamble
The July meeting kicked off the makeover of Micromass. Part of the plan: Fix the business in the summer months, when the impact would be lessened. The gamble: Launching the new Micromass in one big bang, at the end of October. No state-by-state, country-by-country, or region-by-region rollout. All systems would have to work, at once, without the loss of a single order or customer.
The only way to make that happen—on time—would be to use existing software, with almost no alteration. Waters previously had spent over $8 million to convert its operations and customer service to SAPs R/3 and other enterprise-planning software. Micromass would just have to fall in line.
Newton had led Waters to install SAP back in 1994, when Waters itself was sold off to an investor group by Millipore, a biosciences company, and had to operate on its own.
The software now gave Waters a single view of each customer in most areas of the world, unifying records of orders, payments and purchasing history across many brands. By adding Micromass products and customers into the mix, Waters could also sell and service systems that combined chromatography and spectrometry, one of its reasons for buying Micromass in the first place.
In consultation with Newton, executives picked 99 as a reasonable number of days to accomplish the changeover. The managers who assembled on July 22 would figure out how much of Micromass operations the SAP system could handle without alteration; what “gaps in functionality existed; and how those gaps could be bridged—either by using SAPs existing functions, or, as a last resort, writing new code.
People who work with Newton describe him as tough, charismatic and fair, but not always easy to work with. He is a man skilled at “painting a Nirvana scenario,” as Ornell puts it.
Newton persuaded Waters to transfer its entire information infrastructure—which included systems ranging from 3×5 file cards to Wang word processors to IBM AS/400 minicomputers—onto SAP, based on a Xerox copy inherited from Millipore. The software was first installed in Europe, where the absence of a major factory simplified distribution and limited the possibility for error. Then, Newton went back to executive management again and again to get each new region of the world approved.
Even SAP noted his thoroughness in preparing projects. “[SAP] consultants know that when Waters calls about something, [the company knows] as much about a particular product as we do,” says SAPs Stephen Brewer, who handles the Waters account.
Newtons also not afraid to make a subsidiary eat the cake he bakes. His eyes twinkle as he remembers that week in July. “We had been through [rapid deployments] many times, but a lot of new folks…didnt think it could be done,” he recalls. The finance department, for one, had never been through the process.
By the end of that first day, employees had been presented with the business case for integrating Micromass, and the roles they would play. Divided into teams—selling, operations, service, financials and human resources—they were told that by the end of the week, they had to find, document and rank the differences in critical business processes between Waters and Micromass. They would have to analyze the gaps.
Building a Ship While
Sailing”>
Building a Ship While Sailing
The only untouchable differences were aspects of Micromass business that met regulatory requirements or compellingly improved on Waters method.
For instance, since the Taiwanese government dictates how invoices there must appear, the SAP invoicing system would have to be altered. And it was clearly worth changing the system to accommodate Micromass practice of collecting 50% of each sale up front, something Waters itself did not do.
The real challenge would be getting the “gap” analysis honestly accomplished. Ornell remembers managers initial reactions to the meeting as “OK, here comes Corporate. Heres another complete burden coming my way.” But by Wednesday, as discussions turned to the nitty-gritty of sales territories and commissions, the nonchalance gave way to worry. Managers began questioning the fate of particular departments, projects and jobs.
Waters could offer no assurances.
“There were many times when I questioned, Can we pull this off?” recalls Yvonne Talon, Waters worldwide director of business systems.
Years of installing SAP software had given Waters a series of highly structured processes. By the end of the week, managers were shown the five-part plan. Preparation until August, alpha prototypes until September, full development until October, and then production. A steering committee would keep on top of completion dates. And the project teams would not be disbanded until after a quarterly financial report was completed without a significant hitch.
If the 99-day rush to judgment hadnt worked out, Waters was prepared to give the project until the end of December to finish the Micromass transformation. But on Oct. 28, Waters turned off the old order-entry systems and was able to take orders for the entire Micromass product line.
“There were no showstoppers,” Newton says. “And we never considered the fallback plan. Management never blinked.”
The 99 days did not pass without pain. Waters had to figure out how to build “configurable choices into the SAP system, to end Micromass practice of selling unique products to almost all comers. Converting all available data into a single view of products and customers required resolute determination.
“What is the best way to synchronize two files? Newton would ask later. “Eliminate one of them.”
In addition to running disparate systems, every country where Micromass did business had its own product codes and sold whatever it wanted. Duplicate part numbers kept emerging. “It wasnt possible to [fix this problem] programmatically,” Talon says. “You needed someone with product knowledge to sit down and say, Here is what this means. “
Not all Micromass employees completed the journey. About 30 jobs were eliminated. A few other employees left.
The practical travail was evident more than 99 days later. Closing the books on the 2002 fiscal year took weeks longer than expected because Waters underestimated the time required to reconcile Waters and Micromass data, Talon says.
Newton says the hardest part was keeping the rest of the business going—”building the ship while sailing,” as he puts it. Employees responsible for the Micromass integration still had to handle their regular jobs.
The Next Thousand Days
The Next Thousand Days
Waters may have managed the Micromass conversion within its tight time frame. But that does not guarantee that it can repeat the process effectively as it grows.
Giga analyst Byron Miller notes that he has yet to meet a company much larger than Waters that is capable of supporting a single global instance of ERP software, as Waters is trying to do. The complexity of defining the business processes required to handle different customers and product lines becomes overwhelming.
And the Micromass integration isnt over. To convert its manufacturing operations, Waters is putting employees from Micromass Manchester headquarters in leadership positions, something that did not happen in the first 99 days. “The idea is that we dont come to the table saying our idea is the right way, the best way, the only way,” Talon says.
Newton, meanwhile, keeps a bottle of champagne in his office for the day when Waters is finally done with integration projects. How long before he opens it? “Years and years,” he says, smiling. “Were really never done.”
Waters Corp
. Base Case”>
Waters Corp. Base Case
Headquarters: 34 Maple St., Milford, MA 01757
Phone: (508) 478-2000
Business: Worlds largest manufacturer of instruments for High Performance Liquid Chromatography, Mass Spectrometry and Thermal Analysis—used for analyzing chemical and physical properties of proteins and many other substances.
Chief Information Officer: Paul Newton
Financials in 2002: Net sales were $890 million in 2002, up 3.5% from $859.2 million in 2001. Net income was $147.7 million, up 22.5% from $114.5 million in 2001.
Challenge: Regain market leadership after loss of patent lawsuit by developing and selling integrated chromatography/spectrometry product systems.
Baseline Goals:
- Increase revenue growth, from 3.5% a year.
- Maintain and improve earnings growth of over 15% per year.
- Complete $400 million stock buyback to dispose of excess cash.