Legacy Firm Morphing Into E-Biz Wiz

MORRISTOWN, N.J. (06/26/2000) - Tucked in a corner of Honeywell Inc.'s corporate campus is a building renovation project that symbolizes how this the Old Economy aircraft and automotive parts manufacturer is transforming itself into an Internet venture.

Forget cubicle and corner offices. Honeywell's e-Business Caf‚ will feature Starbucks Coffee Co. coffee, Ping-Pong tables and personal gardening plots when it opens in September.

The walls will be multicolored, and the furniture movable. The cafe will be the newfangled workspace for a team of Web developers creating MyHoneywell.com, a portal for Honeywell's 120,000 employees.

The cafe's goal is to attract high-tech talent that might otherwise find Silicon Valley or Seattle preferable to this leafy, well-to-do New Jersey suburb.

"We want to have a Web-centric culture internally," says Bask Iyer, who oversees My Honeywell.com as the vice president of e-business for Honeywell's Global Business Services group. "Even the architectural designs for the cafe are helping us recruit the right kind of people."

Welcome to the New Honeywell, which has come a long way from its pocketprotector past. In the past year, the US$24 billion electronic equipment maker has embarked on a dramatic and far-reaching plan to convert to an e-business model even as it closed a merger with AlliedSignal.

Honeywell's e-business strategy has three components:

Electronic trading hubs - MyPlant.com, MyAircraft.com and MyFacilities.com - that offer products and services from Honeywell and other vendors to key industrial customers.

MyHoneywell.com, a self-service Web portal for employees with information on pension plans, 401 (k) savings plans and other benefits.

A massive integration effort that links customer and employee Web sites with back-end finance, manufacturing and engineering systems.

Central to this e-business strategy is an ongoing network upgrade that includes increased bandwidth at key data centers, a new security infrastructure at all 400 locations worldwide and a fully redundant architecture that incorporates more than a dozen ISPs around the globe.

"The minute you show My Honeywell.com to people they want to jump on it, and the infrastructure gets hit," Iyer says, adding that all the company's e-business efforts increase network traffic. "People want to do RealAudio broadcasts and video. All of that will have an infrastructure impact."

So far, Honeywell's reinvention efforts appear successful. Prudential Securities ranks the company second of nine multi-industry global manufacturers, trailing only General Electric, in terms of its adoption of e-business methods.

Honeywell is "in the lead in their whole effort to convert their operations over to an e-business company," says Nick Heymann, a senior analyst with Prudential Securities. "They're working very hard to put their whole global supply-chain management strategy in place. Purchasing is pretty much done. And marketing and sales are well under way. This company is going to be a Web-centric corporation by the first half of next year."

MyPlant.com, in particular, has done phenomenally well. With more than 40,000 visitors each month and 300 corporate partners on board, the 1-year-old portal for manufacturing plant managers is on target to contribute $500 million in incremental revenue by 2003. That's why it attracted the interest of Microsoft, which made an equity investment in February - one of the software giant's first forays into the business-to-business e-commerce arena.

"Honeywell is taking existing applications and moving to a hosted model to allow knowledge workers to do different things through this Web access," says Rebecca Kaske, director of product industries in Microsoft's Business Solutions Group. "Microsoft hopes to provide the underlying platform that runs this exchange and also horizontal services to complement the application functionality."

E-hubs take center stage

To spearhead its e-business initiatives, Honeywell in December tapped Russel McMeekin for the temporary post of corporate e-business president. With a skeleton crew of six people, McMeekin is responsible for launching the three e-hubs and integrating them with back-office systems.

He's also in charge of educating Honeywell's business unit presidents on how to make e-business central to their long-term planning.

"We have in excess of 800 e-business type of activities going on within the company," says McMeekin, who describes himself as a venture capitalist and an evangelist. "We're trying to understand what those projects are to help define the really good ones and to give them the financial or mental support they need to be successful."

The projects that are getting the most money and attention are the e-hubs, which are independent businesses that will cost Honeywell more than $100 million this year.

The most successful e-hub is MyPlant.com, which already generates hundreds of thousands of dollars in revenue per month. MyPlant.com was the first Web site for manufacturing plant managers and is considered an innovator, with its mix of products, services and Internet-based monitoring and diagnostic solutions.

MyAircraft.com, which will offer online ordering of aircraft parts, is expected to launch in August. The Web site is a joint venture owned by Honeywell, United Technologies and i2 Technologies.

My Aircraft.com faces challenges from a competing aerospace industry exchange led by Boeing and regulatory hurdles overseas. Nonetheless, Honeywell expects My Aircraft.com to be the first to market in the competitive aerospace sector.

Meanwhile, MyFacilities. com went online June 14 with information for people who manage commercial office buildings.

A full-featured site is due by September and will be modeled after MyPlant.com.

If everything goes as planned with the e-hubs, McMeekin hopes to close his office and disband his staff early next year. "The strategy is that Honeywell will be an e-business company, not that there will be a department within Honeywell that is called e-business," McMeekin says.

Employee portal tackles culture

While the e-hubs are targeted at Honeywell's industrial customers, MyHoney well.com is designed to make the firm's employees more productive and satisfied. The Web portal will offer one-stop, around-the-clock shopping for 75-plus benefits when it goes online in July.

Built on an Oracle database engine and Enterprise Java Beans, MyHoneywell.com ties together intranet projects that were scattered across Honeywell and AlliedSignal prior to the merger. The initial version of the site will offer integration with human resources, travel and financial systems as well as some customization features. Full-fledged personalization will be available when the site is updated in the fall.

Honeywell would not release how much money it is spending on MyHoneywell. com, but company officials expect it will pay for itself quickly.

"We are being very conservative by estimating we'll see three to fourfold improvements in productivity due to self-sufficiency in such areas as benefits, employee savings plans and new hires," Iyer says. "That's where you get killed by manual processes."

Honeywell also hopes to boost productivity by encouraging employees to access the Web site from home on off-hours. In fact, the company hopes to announce soon an employee PC purchase plan that will provide low-cost home PCs with Internet access.

But the main reason for building MyHoneywell.com is for the company to internalize its e-business strategy. Company officials see the Web site as a major weapon in its battle to change the corporate culture to be more like a dot-com company.

"We are perceived as e-business leaders externally, but we want to be e-business leaders internally, too," Iyer says.

Back-end integration proves tricky

The least sexy but most important component of Honeywell's e-business strategy is integration of the new Web sites with back-end systems that are being upgraded to take advantage of the Internet's power. These process improvement and integration efforts will let Honeywell save $375 million this year, McMeekin estimates.

Honeywell's Global Business Services group is linking the e-hubs, which are hosted off-site by GTE, with legacy systems and new enterprise resource planning software from SAP, Oracle and others. This integration effort is the top priority of Honeywell's IT organization, which includes 3,000 people around the world.

"We can't neglect the back-end systems," says Jack Arnold, a vice president responsible for corporatewide applications. "We need to know what we're manufacturing and what our inventory is in order to support a sale online."

Arnold says Honeywell's IT staff is working closely with the business units to reengineer processes to take advantage of the Internet. In addition to the e-hubs, many Honeywell business units are creating Web sites for particular customers that require supply-chain automation and process improvements.

"The IT organization is not only working with e-business leaders to define strategy and select the technology, but is, in many cases, actually implementing the solution or managing the implementation by a third party," Arnold says.

One reason Honeywell's IT organization moved so quickly on e-business initiatives is that it decided years ago to farm out day-to-day operations of the IT infrastructure. IBM operates and maintains the company's data processing centers, AT&T handles the networks, and a separate division of Honeywell takes care of desktop support. Honeywell's Global Business Services group retains overall responsibility for the IT infrastructure and plots strategy.

Even with the support of outside vendors, Arnold says that it's a challenge for Honeywell's IT staff to keep up with the demands of e-business initiatives.

"E-business has upped the priority of everything we're doing," he says.

Customer-facing applications, supply-chain automation, back-end integration have all gotten more important, he adds. "Now the name of the game is speed."

Network upgrade drives e-business plans

Honeywell's e-business initiatives would not be possible without a network infrastructure that has been upgraded regularly over the past five years.

Buildings were rewired, new hubs and routers purchased and bandwidth added to provide a solid communications platform for the corporation prior to the launch of the e-hubs.

Now Honeywell is overhauling its network security infrastructure to support a growing number of customer transactions over the Web. During the next six months, the company will introduce firewall software from Check Point Software running on Sun servers and a private-key infrastructure from Nortel Networks at all its locations.

"Eventually, as we are done with the security infrastructure, we'll have many transactions coming in from customers that are authenticated, encrypted and protected from outside hackers," says Ernie Park, chief information officer of Honeywell's Global Business Services group. "That is a key requirement for e-business."

Park says the new firewall architecture also lets employees conduct more activities from home, particularly in support of MyHoneywell. com. In the past, employees had to access Honeywell's networks via dial-up connections. Soon they will be able to access the site directly from their ISP, which will be faster.

Park declined to say how much money the new network security equipment costs, but he admits that Honeywell is "spending multimillions upgrading our network infrastructure to prepare for explosive growth."

The next challenge for Park's group is bandwidth capacity management. Honeywell has already increased its network bandwidth significantly over the past 18 months, upping the connection at its main data center in Tempe, Ariz. 24-fold by replacing a T-1 line with a T-3. Other connections range from 256K bit/sec to T-1 lines. Honeywell is analyzing traffic patterns and redesigning its network architecture to use these connections most efficiently.

"We will end up with 16 [separate ISPs] around the world," Park says. "We'll have redundancy and disaster recovery, and we'll be able to deliver faster response times to customers coming in to our network."

Further out is the need to upgrade Honeywell's LANs, which range from 10M bit/sec Ethernet to 100M bit/sec Fast Ethernet. Park would like to migrate to Gigabit Ethernet, but he doesn't have funding approved yet.

"If MyHoneywell.com wants to distribute video on demand, such as a CEO presentation to all of our employees, we'll have to have Gigabit Ethernet," Park says.

MyHoneywell.com isn't the only e-business initiative to increase Honeywell's network traffic.

Even the e-hubs, which are outsourced, are sending more information to and from Honeywell's back-end systems.

"E-business puts a tremendous burden on the entire infrastructure,'' Park says.

"We are trying to get ahead of the cycle, but that's not always that easy. Our traffic demands grow at an exponential rate."

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