The Digital Transformation Process of a Traditional Shipbuilder: The Story of Damen Shipyards
Damen Shipyards recently 3D printed the world’s first propellor for one of its vessels! Who would have thought this in 1968 when Damen was founded? Damen is on a well-defined path to transform the organization from a traditional Shipbuilder to a Maritime Solution Provider. Based on the webinar with the IT leaders of the company on June 8 2021 (https://www.itsvalue.com/webinars/) and personal conversations, please find their story below.
Damen, known for its activities in many shipbuilding sectors, has gained over the years a prominent and trusted standing throughout the world. With a global workforce numbering more than 12.000, Damen builds a wide variety of standard hulls for stock at dedicated shipyards in strategic locations. Production capacity is up to 180 vessels per year. But Damen does more than building ships – it also has an international network of lifecycle support services that includes maintenance and repair & conversion facilities.
With 70 operating companies and a global drive to transform the company from traditional shipbuilder to a Maritime Solution Provider the company focuses on 3 pillars:
- Operational Excellence
All three pillars are key to accelerate growth and make the company ready for the future. Operational Excellence focusses on continuous improvements to reduce the cost price. Sustainability is key because the company wants to make a difference here considering the big targets the maritime industry has in this area. And third, Digitalization is an obvious one for any organization looking at the constantly evolving technological innovations in general and especially around ships, from lead to decommissioning 30 years later.
The shipbuilding industry is a complex industry. The transition from a traditional shipbuilder to a Maritime Solution Provider is therefore a complex transformation. For IT, the strategy was chosen to transform from the legacy platforms to new digital platforms. There are four digital platforms and corresponding objectives defined:
- Enterprise Platform: One global ERP and PLM (product lifecycle management), with the goal of bringing the different platforms for managing the organization, such as the ERP systems, Engineering system, and HR systems under one umbrella under the OneDamen philosophy.
- Customer Experience Platform, or Customer Journey: Here the organization has deep interaction with their customers and they provide customers with an experience from lead to decommissioning 30 years later.
- Eco System Platform: Connected co-systems, integrating the supply chain throughout the company, to connect suppliers and partners in the market to build together the right products for the customers.
- IoT Platform: Connected vessel platform through IoT, and transforming data into information. You can imagine that an average vessel with more than 15.000 sensors generates a lot of data! Consequently that gives a lot of opportunities related to maintenance, remote services, etc
At the core of the platform strategy is the Data, Integration & Analytics platform, which brings the real value of the what IT is delivering.
You can imagine that this transformation is a big investment, the choice was made to fund it from the IT budget. Aart Rupert (CIO, Damen Shipyards Group): “as the CIO I took the initiative and I discussed it with the other Board members. We made it a Group wide program, because I saw we have more than 600 applications. In this complex landscape, our real IT costs were becoming higher and higher and the Business needed to be part of this program to realize simplification and reduction. With the present initiatives and budget, there was no room for new digital investments. I introduced the Cost Optimization Program to free IT budget to fund new digital initiatives”.
The Cost Optimization program, introduced two years ago, is defined by 4 layers:
Level 1: IT Procurement Savings: This first layer is about saving money with the IT procurement contracts: Realize price reductions, better contracts, reduce waste and license optimization. We all know that companies with the size and complexity of Damen have a lot of contracts with suppliers, who often are also partners. This level is about how to create savings here.
Level 2: IT Cost Savings: This level is about cost savings within IT: data consolidation, application rationalization, infrastructure and IT process optimization
Level 3: Joint IT and Business Savings: This layer is about on-, offboarding processes, reducing organization complexity, change for improvements, business process optimization, prioritization, reduction of IT services / IT service catalogue, licenses utilization, project rationalization and also application rationalization.
Level 4: Business Restructuring & Innovation: This layer is about implementing new (digital) business models, executing & measuring, and gives the real savings in the business process optimizations. It is more complex than the previous levels, but the value is also higher.
The objective of this Cost Optimization program is to make it possible to free-up funds and to re-invest it in the digital strategy.
Within Damen the word optimization is used instead of cost cutting. Cost cutting is not the way forward for IT, Digitalization and Technology, as it refers to immediate, direct one-time actions to reduce expense levels. Optimization is about defining continuous effort to drive spending and cost reduction, while maximizing business value.
Pieter Paul Weijer (Manager IT Cost Optimization Program, Damen Shipyards Group): “This Cost Optimization Program is not just a program, it is actually something that we need to establish as a discipline. And the reason is that we have constantly changing markets and circumstances. Look for instance at the Covid period.
With the approach of the 4 different layers we wanted to take a sharper look at all the different elements that we as IT, but also as Business, could influence to reduce spending and expenses.
First of all we started the program with the levels 1 and 2. These levels are within the IT responsibility and we could act fast with short lines to quickly achieve results. But there is a limit to the amount of costs you can save in this layer. You can only renegotiate contracts and have a sharper look at your licenses, IT processes and your infrastructure to a certain limit. In the end, the real cost optimizations are on the crossroads between Business and IT, and within the Business itself. Restructuring and optimizing processes and mapping those towards the application landscape is the area were a lot of savings can be made.
In order to enable optimizing costs, one needs to have transparency of and visibility into the IT spend in granular detail. We always had difficulty to translate our budget to all our IT activities, and to translate those towards the IT Services we deliver. It has been difficult to have a sharper look at which Damen divisions, our business customers, were actually consuming these IT services. That struggle, that lack of transparency, made us take the decision to have a look into how we could bring transparency in place.”
In 2019 we took the decision to start with Apptio and to adopt Technology Business Management (TBM) to help us achieve transparency of our IT and Technology costs. With the standardized approach of TBM we were able to translate a lot of data, partly structured and partly unstructured, towards the standard overviews, structures and taxonomy provided by TBM.
When we started with Apptio we did the standard implementation project on our own within the Damen IT department. At first it was going well. A lot of different data sources including our General Ledger were uploaded into the system. But the complex organizational structure of Damen gave us a lot of struggle to translate that data into value in Apptio. Also within the project team we were working most of the time off-site. That should normally not be a problem, but there was within the project a lack of availability to take this approach forward in a more Agile way. In the end we were facing the situation that we could extract too little value from the project. So, during the implementation in 2019 we came to the conclusion that we needed to make a change, knowing what the potential and promise of Apptio and TBM was. Instead of the waterfall approach we took before, we needed a more Agile approach. And to do so we also wanted to have a partner available who actually could help us unlock the value of Apptio and TBM.
We learned that It’s Value as an Apptio partner was also based in the Netherlands and we approached them with the question if they could help us create value with an Agile approach. Also we ascertained if It’s Value had the IT-Financial and TBM/Apptio knowledge required for the project, an understanding of our specific needs, the knowledge and experience to design custom solutions, and experience with implementations in large and complex organizations such as Damen. It’s Value showed an impressive track record since their start in 2009 with several comparable cases.
By working in short sprints with It’s Value we made a lot of progress, and achieved a successful implementation of Apptio Cost Transparency and IT Planning at the summer of 2020.
But surely enough we soon had a need for more functionality within Apptio. So together with Its Value we determined a list of use cases and we made a plan for 2020 with an Agile approach to implement those to enhance and expand the TBM scope and Apptio implementation.
We wanted to have the Cost Optimization program visible in Apptio, to have several insights:
– An overview of all optimization subjects
– The planned and actual costs involved to realize the optimization
– The planned and actual savings per subject
– Discover potential new savings opportunities
With the support of It’s Value we created a set of reports, which showed the desired insights. We were able to identify savings on different layers within different cost centres. The functionality gave us the possibility to map which savings were realistic to put in a forecast of opportunities. With these opportunities identified, we had a sharper look at what we could actually deliver regarding those opportunities. In a later stage we were also tracking the actual savings on those opportunities. We were doing that on different levels, on cost centre level, on the categories etc.
Due to the transparency created, we saw that we realized a lot of savings on Level 1 and Level 2, mainly within the IT responsibility. There were less savings on Level 3, which is joint Business and IT. And on Level 4, purely Business, we did not identify any real savings at all. This was caused by the complexity of realising those savings. It became clear we needed to work more closely together with the Business to realize savings in the Level 4 area. We had to have full focus and commitment to engage with the Business, but at the same time these savings can only be realized more in the long-term due to the complexity.
To start with the Level 3 savings, we identified we needed to take a sharper look at our IT Services Catalogue. Translating IT budget to IT Services and to make that visible towards the Business was the first step. After realising this, we are able to make visible to the Business what they are actually consuming and we can start a dialogue with the Business about ‘does this make sense? Do you need all these IT services? Could you do it in a different way?’. Based on the cost transparency created with the Apptio system, we now have a transparent IT Services Catalogue.
Within Apptio we have set-up our IT services catalogue in 3 layers. Our main category is the Service Type, with 3 Service Types: Business Services, End User Services and Infrastructure Services. Under these Service Types are our Service Categories configured and the third layer is the actual delivered Services.
We have come a long way and we are making good progress on the Level 3 layer. But there were still a number of things on our wish list, such as bringing more transparency to our IT activities. Together with It’s Value we had identified new use cases at the start of 2021 and some of those use cases are mentioned and finished in the mean term, such as the IT Service Catalogue, the Cloud Spend, and also the Cost of Optimization integration. Next step is to bring transparency into IT spend that is not in our IT budget, but is within the budget of the Divisions. We still have IT spend within certain divisions that is not visible to us. It’s not our aim to control that IT spend, but we want to make it visible to show what the total IT spend is within the Damen Group and how and where savings opportunities can be made.
We started the integration of other business GL’s of different Damen entities into Apptio for further analysis on IT and Technology cost savings potential. One goal is to bring more transparency in our application TCO and a second goal is to have a clear overview of our Project Portfolio financials. Our IT Improvement projects still need to be mapped more transparently in Apptio: We are currently at the available program level, but not yet on the specific project and detail level.
Next, we want to have a clear look at our vendors, the contracts coming along with it, and all our possibilities for cost optimization within that area.
At some point in 2020 we also had a need to manage the increase of Cloud spend, to have our Cloud spend mapped in a more structured way and to also integrate Cloud spend within our IT financials. We made the decision to start with Apptio Cloudability. Cloudability had a short implementation cycle and business case validation period of 3 months in the first quarter of 2021. Within this timeframe we were able to implement Cloudability and have value for money. The ownership of that Apptio module is not within the IT-Finance team, but lies within the Infrastructure teams. They took ownership and were part of the implementation. Now it is within their control to maintain the tagging and extract further value from it.”
To summarize, Damen achieved the following as a result of partnering with It’s Value in the first 18 months.
- Clear view on cost drivers / substantial expansion of service details
To give business units and IT management more control over and insight into their IT costs, a more detailed service catalogue and underlying cost allocation model was needed.
In an iterative process a new service and cost allocation model was developed. The already existing service catalogue was refined from 10 to over 50 services and allocation strategies were improved
The Apptio Cost Transparency module supports the data (transformation) functionality and modelling functionality needed for this, as well as the reporting tools to visualise the outcomes.
The implementation has resulted in:
- Traceable cost allocation to over 50 services
- Clear insights into cost drivers per service
- Insights into the interdependency between services sharing the same resources/semi-finished products.
- Automation of management reporting
Management reporting was previously done by Excel, combining multiple data sources for the management dashboard. The process was very labour intensive and questions on financial figures required separate analysis.
Data from relevant sources (general ledger, budget, HR and vendor systems) is now loaded into Apptio Cost Transparency. The Apptio out-of-the-box KPI’s and reports, with some custom reports added, fulfil Damen’s reporting demand to give them the insights they requested.
The management reporting dashboard has many advantages:
- 1 version of the truth: The reports can be used cross functionally (finance/it-management/ purchasing) all based on the same data.
- Quick: Reports are available within 1 day after month-end closing.
- Flexible: The same reports are used to analyse data from multiple dimensions (department, vendor, cost saving initiatives, etc.).
- Transparent: Drill down to actual source data is now possible.
- Analytics: the automation frees resources to give business control more time to analyse and advise management.
- Automation of budget and forecasting process
The goal was a less labour intensive planning process (both budget and forecasting), delivering more insights into planned labour and vendor spend.
Implementing the planning processes in Apptio IT Planning gave possibility to allocate budget lines directly to IT services or semi-finished products.
The result has a number of advantages:
- Multiple planning dimensions: next to department/account group also on the dimensions vendors, contracts and labour roles
- Comparison: plans (and actuals) can be easily compared to other plan(version)s in the standard available reports
- Monthly rolling Forecast: because of the time saving process automation, forecasts are made on a monthly basis
Aart Rupert (CIO, Damen Shipyards Group): “Did we achieve funding for our digital transformation? Obviously it is still work in progress, but we have made a very good start in 2020. Last year’s savings based in our efforts in Level 1 and Level 2 alone was 2.2. million. This year (2021) we hope we can achieve more. There is much more to achieve and we know how to do it. We need to engage more with the Business, engage in dialogues how we can work together in this Cost Optimization program. But the fundamentals to engage with the Business are there: Transparent Cost Data, Analytical functionality and the Reports.”
The Damen Shipyards Group is a Dutch defence, shipbuilding, and engineering conglomerate, based in Gorinchem, the Netherlands. Damen Shipyards Group operates 36 shipbuilding and repair yards, employing over 12,000 people worldwide. Damen has delivered more than 6,500 vessels in more than 100 countries and delivers some 180 vessels annually to customers worldwide. Based on its unique, standardised ship-design concept Damen is able to guarantee consistent quality. https://www.damen.com/
It’s Value is the TBM expert in Europe. It’s Value has implemented ITFM and TBM processes and improvement projects at multiple companies and industries in Europe since 2009. It’s Value is a long-term Apptio partner and member of the TBM Council (tbmcouncil.org)
For more information about Technology Business Management, please visit the website of It’s Value – www.itsvalue.com
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