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Shared Service Centres
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Shared Service Centres
Delivering value from more effectivefinance and business processes
ANDREW KRIS
MARTIN FAHY
PEARSON EDUCATION LIMITED
Head Office:Edinburgh GateHarlow CM20 2JETel: +44 (0)1279 623623Fax: +44 (0)1279 431059Website: www.briefingzone.com
First published in Great Britain in 2003
© Pearson Education Limited 2003
The rights of Martin Fahy and Andrew Kris to be identified as authors of this work have been asserted by them in accordancewith the Copyright, Designs and Patents Act 1988.
ISBN 0 273 66310 0
British Library Cataloguing in Publication DataA CIP catalogue record for this book can be obtained from the British Library.
All rights reserved; no part of this publication may be reproduced, storedin a retrieval system, or transmitted in any form or by any means, electronic,mechanical, photocopying, recording, or otherwise without either the priorwritten permission of the publishers or a licence permitting restricted copyingin the United Kingdom issued by the Copyright Licensing Agency Ltd,90 Tottenham Court Road, London W1T 4LP. This book may not be lent,resold, hired out or otherwise disposed of by way of trade in any formof binding or cover other than that in which it is published, without theprior consent of the publishers.
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v
About the authors
Andrew Kris is the founder of akris.com, the leading online source of independent
knowledge and advice on shared services and business process outsourcing (BPO)
and host of the Shared Services and BPO Association (SBPOA). Andrew is a sought
after head-hunter, business strategist and author in his own right. He is the co-
author of Shared Services: mining for corporate gold, published by Financial Times
Prentice Hall and recently reviewed as ‘the Michelin Guide of shared services’.
Andrew is a marketing graduate and INSEAD alumnus with over 25 years’
experience in the management of global corporations. Andrew’s experience includes
leadership positions on the management boards of business and regional units of
The Dow Chemical Company. Andrew now leads the team at Borderless Executive
Search, a transnational executive search firm, which he founded in 1997. Andrew
believes that organizational value stems from an in-depth understanding of markets
and an unflinching focus on customer service, a passion he extends to shared
services as a leading commentator in this field.
Andrew can be contacted at:
Borderless Executive Search
Rue de Bretagne 26
1200 Brussels
Belgium
Tel: +32 2 777 9680
Fax: +32 2 777 9699
Web site: www.besworld.com
E-mail: andrew@besworld.com
Martin Fahy is a senior lecturer in Accounting and Information Systems at National
University of Ireland, Galway. He is a chartered accountant and holds a PhD in
informatics from UCC. Prior to joining NUI, Galway he worked as a management
consultant with KPMG. In recent years he has been involved with such shared
services as Oracle IeBC, Xerox, Nortel as well as the SSC practices of KPMG and
Deloitte and Touche. He has also undertaken ACCA sponsored research on the
area. In addition to his work on shared services he has written extensively on the
areas of business information systems, ERP systems and emerging issues in finance.
He is currently an adjunct professor at the Université d’Auvergne in France and is
involved in research in the areas of shared service centres and strategic enterprise
management. His most recent books include ERP Levering the Benefits (a joint
vi
About the authors
venture with CIMA and PwC) and Strategic Enterprise Management Systems. He is
currently convenor of the CIMA SEM roundtable.
Martin can be contacted at:
Department of Accountancy and Finance
National University of Galway
Galway
Ireland
Tel: 353 91 512040
Fax: 353 91 750565
E-mail: martin.fahy@nuigalway.ie
vii
Contents
List of tables x
List of figures xi
Foreword xiii
Executive summary xv
Acknowledgements xvii
Introduction xix
Shared services: It’s not just about cost saving – it’s about value harvesting 1
The nature of SSCs 3Origins and rationale for SSCs 8Whirlpool – an early player in SSCs 15The aims and objectives of shared service centres 18Isn’t this like outsourcing? 19A good SSC takes time and resources to establish 20
Shared service activities 23
Introduction 25If the future looks like anything it looks like Oracle shared service centre 26Some lessons learned 31Conclusion 33
SSC – people, processes and systems 35
The need for strong foundations 37The importance of information technology 40The limits of IT – enterprise application integration 47Emerging best practice in SSCs 49Conclusion 56
1
2
3
viii
Contents
Location and migration 59
Why location matters 61Do I have to move? 61SSC locations – criteria for decision making 62The global geography of shared services today 66Conclusion 70
Business process outsourcing 71
Introduction 73Why outsource internal services? 73Tips for the outsourcing decision 76Managing the outsourcing relationship 78Conclusion 81
Change, leadership and stakeholder management 83
Introduction 85The nature of change in SSC environments 85Stages involved in migrating to the SSC model 87Lessons learned from SSC implementations 90Realizing benefits from the SSC implementation 96SSC management 97What to expect from the leader of shared services 101Coping with culture and distance 104Conclusion 105
What’s this thing called culture? 107
Introduction 109Culture and the SSC 110Areas where culture affects the SSC 111Culture shock and intercultural adaptation 114Conclusion 115
Performance monitoring and benchmarking 117
Introduction 119What business unit clients want from their SSC 119The role of SLA’s measurement and reporting 120The SSC scorecard 124
6
7
8
5
4
Contents
Comparing performance – the role of benchmarking 126Conclusion 129
E-shared services 131
Introduction 133How the web is transforming bean counting 134How the web is transforming shared services 136Challenges for e-shared services 151Lights-out processing: vision or hallucination 153Conclusion 154
Future directions 157
Trends for the future of SSCs 159Conclusion 164
ix
9
10
x
Tables
1.1 The top ten services typically provided by SSCs 4
1.2 The scope of shared services 11
1.3 Top four reasons for the growth in SSCs (%) 12
1.4 An SSC is different to centralization 19
3.1 Technology types and benefits 40
3.2 FSSC benefit analysis of three major areas 56
4.1 Top criteria when selecting a site for the SSC (%) 61
4.2 Criteria for site selection 63
4.3 SSC location criteria based on a review of the literature 65
4.4 Some emerging offshore options 67
5.1 Examples of SSC activities which might be outsourced 74
6.1 Sample job specification for an SSC director 103
7.1 Stages in adaptation 115
8.1 Examples of SSC measures by process 122
8.2 Four steps to SLA definition 123
9.1 How automation software improves service delivery and management 138
9.2 The costs of failing to automate 140
9.3 Lucent EMEA business services: level of provision 142
9.4 Lucent expense management tool: benefits and issues 143
9.5 Electronic procurement at Lucent 145
9.6 Electronic imaging and workflow at Lucent 146
9.7 Analysis of the implementation of main IS projects at Lucent FSSC 148
9.8 People-related critical success factors in IT implementations at Lucent 150
9.9 Process-related critical success factors in IT implementations at Lucent 150
xi
Figures
1.1 The SSC model 3
1.2 A continuum of shared services models 5
1.3 Savings from SSCs – planned and actual 10
1.4 The greatest risks in setting up an SSC (%) 21
2.1 The changing face of shared services 1980–2002 26
2.2 The path to shared services 28
3.1 Typical ERP architecture 41
3.2 Types of ERP systems used in SSCs (%) 43
3.3 Using data warehousing to meet analysis and reporting requirements 44
3.4 Web-based information delivery 51
4.1 Example of a comparison of different locations 66
4.2 North American SSC locations 68
4.3 EMEA SSC locations 68
4.4 Asia Pacific rim SSC locations 69
6.1 The Partners for Change approach to the shared services project
life cycle 91
7.1 The different cultures that may be at work in the SSC setting 111
8.1 The level of adoption of SLAs (%) 121
8.2 The nature of SSC benchmarking 126
8.3 Methods used for monitoring SSC performance (%) 127
8.4 Example of the benchmark from the KPMG SSC study 128
9.1 Advantages of task synchronization 139
10.1 Finance to business 161
10.2 Extending the reach and range of the SSC 162
xiii
Forewordby Robert Gunn, Founder, Gunn Partners
If imitation is the sincerest form of flattery, then irony is surely the highest form
of mockery. And what is ironic indeed is that European companies, existing in the
birthplace of shared services, are proving so reluctant to embark on the shared
service journey.
Culture and loss of control are the most frequently cited reasons for standing
pat. Today that option – doing nothing – sinks of its own weight. The odds on
reality is that the old ways result in administrative organizations that are two to
three times less productive than shared services; waste human talent on tasks that
are best performed using web technologies; create structural obstacles that
prevent organizations from being flexible and agile.
But culture is nothing more than the barnacle-encrusted assumptions and beliefs
that Ford began proving back in 1981 amount to nothing more than bits of
flotsam. As any leader knows, the ultimate loss of control is failing to implement
the obvious when circumstance permits success on one’s own terms.
The clock is ticking! Our global economic malaise is increasing the need for cost
reductions. Emerging outsourcing companies, such as Exult, will soon be
acknowledged as a credible alternative to in-house operations. Free market forces
are stripping the veil from inefficient organizations, ineffective processes and
underleveraged resources.
Spend the new few hours reading this book and then reflect on its many insights.
May you be inspired to begin taking those actions previously deferred.
xv
Executive summary
What’s the outlook for shared services?
You don’t need a crystal ball. Shared services and related BPO are set to generate
substantial future revenue streams for consulting and technology firms.
‘Lights-out processing’, ‘virtual shared services’ and ‘commercialization’ are in
the vocabulary of thought leaders; future shared services will certainly utilize
some of these concepts.
But this may be missing the point altogether.
Empirical data and the latest surveys from the Shared Services and Business
Process Outsourcing (SBPOA) support the view that at least 50 per cent of shared
services fail to meet their stated goals in cost reduction and quality improvement.
There are too many shared services operations that under-perform and if this
continues we are putting the future for shared services at risk.
Why do shared services under-perform?
Because too many shared services initiatives are nothing more than centralization
projects under another name.
Centralization is just one swing of the centralize/decentralize pendulum and
though savings do result, they are one time gains that are all too easily reversed
as the cycle continues.
Shared services breaks the cycle and locks in the benefits of consolidation,
building on it as part of a sustainable, competitive business strategy.
Real shared services is about creating an enterprise, internal or outsourced, that
applies the same economic discipline that all businesses need for success. The best
shared services deliver services that their customers value, to the extent they are
willing to pay for them time after time, at a cost, quality and timeliness that is
competitive with alternatives.
It would be a pity to lose the plot and forget to hammer home this simple
definition at a time when business crave organizational efficiency and the
opportunities to create shared services is rising rapidly, well beyond levels anyone
predicted just a few years ago. Most USD 500 million plus organizations of some
complexity of those with a growth by acquisitions strategy will turn to shared
services and its cousin BPO to achieve gains in efficiency and effectiveness. They
will need to do so simply to remain competitive.
xvi
Shared Service Centres
So what can we do to make sure that the future remains bright? Here are three
ideas:
1 Be rigorous in defining and talking about shared services – always stress it is
not simply about consolidation, it must be run as a business whether it is
internal to the organization or outsourced.
2 Encourage clients to step out of the old corporate function mode and ask – if
this was a stand alone business rather than a transformation project, what
would you do differently – why don’t you do it?
3 Focus on people not the technology. Assist the breaking down of cultural,
organization and political barriers that inevitably stand in the way of running
shared services as a business.
The purpose of this book is to ensure that the relatively straightforward
components of setting up a shared services centre – mainly concerning technology
– do not distract us from looking at the really vital aspects which can mean
success or failure: people issues.
The book covers some of the last progresses in shared services – virtual centres,
lights-out processing and the rest – but this should not stop executives from
understanding that change management and an approach carefully blending
culture of all business units involved in the process are the key factors.
The future may not be what it used to be, but we can all do a little to make sure
that it remains positive for shared services.
xvii
Acknowledgements
The authors have made every effort to contact all sources mentioned in this
briefing. They would like to thank the following people and organizations for
their contribution to this book, in no particular order:
■ Barbara Quinn, co-author of Shared Services – Mining for Corporate Gold.
Barbara is a founding partner of 22c Partners Inc., a consulting firm that
inspires organizations to have the courage and commitment to make changes
for the good of people and the growth of profits.
■ Robert Cooke, co-author of Shared Services – Mining for Corporate Gold, of
Intex Consulting Group Inc.
■ Robert Gunn, of Gunn Partners.
■ Peter Moller, of Deloitte & Touche.
■ KPMG.
■ Moran, Stahl & Boyer.
■ CFO.com
■ PricewaterhouseCoopers.
■ Partners for Change.
■ Borderless Executive Search (www.besworld.com).
■ Oracle.
■ Whirlpool.
■ The Shared Services and Business Process Outsourcing Association – SBPOA,
Brussels, Belgium (www.sharedxpertise.org).
xix
Introduction
AN IDEA WHOSE TIME HAS COME
As organizations struggle to create and sustain shareholder value, executives are
continually challenged to deliver effective business processes. In particular
organizations and CFOs are faced with the triple challenges of:
■ creating a finance and administration organization that adds value;
■ deploying consistent high quality global e-business processes;
■ providing business transaction processing at increasingly low unit costs
(typically at less than 0.5 per cent of total revenue).
The market in which multinational companies operate is characterized by
globalization, mergers, acquisitions and consolidation requiring companies to
standardize operations to stay competitive. An effective way of keeping costs down
and improving efficiency is by moving certain functions to one central location.
Centralization is only half the story. An increasingly popular and effective way to
meet this challenge and achieve sustainable benefits is for companies to set up a
shared service centre.
This book is the place to find out more about how to create, lead and develop
shared services to achieve and sustain dramatic improvements in business
performance. In the context of an increasingly competitive business environment,
we think it is time to turn administrative functions from inevitable overheads into
forms of internal enterprise. We believe that simple consolidation of duplicated
activities is not enough. An economically viable internal unit, operating on the
basis of competitive business economics and process driven to reduce transactional
costs, is the way to go for cost-effective, quality services. Shared services has
become the solution of choice for the effective, cost-efficient provision of
administration and support services for large, complex organizations worldwide in
both the private and public sectors. Shared services is increasingly considered an
option for mid-size firms seeking to achieve best-in-class economics for their
administrative functions.
Shared services is here to stay. It is notable that business process outsourcing
(BPO) firms also choose to utilize the shared services concept to deliver rapid
access to shared services economics and quality. As we know, the benefits are too
compelling to ignore. With real value going to the bottom line, CEOs all over the
world are waking up. Driven by economic realities and technological
development, shared services has become a sophisticated service business. The
challenges of the present demand that those who build shared services in the
xx
Introduction
future do so in ways that are much sharper and more intelligent. Shared services
will continue to work best when companies exploit its power as an intelligent
solution to growing overheads.
TRENDS INFLUENCING THE GROWTH OF
SHARED SERVICES
Shared services entered the corporate lexicon in the early 1990s as large decentralized
companies looked to combine basic transactional processes such as payroll,
purchasing and accounts payable, and sell back those services at cost to the individual
business units. As companies extend their presence across borders, it becomes
increasingly uneconomical to maintain a duplicate accounting infrastructure within
each country of operation.
■ According to recent estimates, 45 per cent of people costs in large organizations
is generated by employment within internal service units.
■ Internal service units are frequently perceived as too large, costly and inefficient.
■ They are often criticized for being unresponsive, monopoly suppliers.
■ Their existence is questioned by other parts of the organization that view
internal units as unproductive overhead.
■ Employee morale in internal service units is frequently lower than that of the
rest of the organization.
■ Few objective measures are used to assess the quality and performance of internal
services.
■ Restructuring, elimination and outsourcing of formerly ‘essential’ departments
is a reality.
WHAT THIS BOOK OFFERS
The level of interest in shared services has risen dramatically in recent years and
many Fortune 500 firms are currently deploying SSC architectures. Conferences,
seminars and briefings on the topic are well attended and previous works by the
authors have proved very popular among executives. Executives are looking for
focused yet independent advice on a variety of SSC issues. Faced with making
substantial investments in setting up SSCs, executives often feel impoverished in
terms of a reliable source of insight. The depth and format of the book will be
particularly attractive to those considering implementing SSCs as well as those
interested in revamping existing SSC operations.
Introduction
The book breaks new ground throughout, explaining how and why more and
more organizations are turning to shared services solutions with one eye on
operational excellence and the other on their bottom line. In a global economy
that has left behind the perpetual motion of centralization and decentralization,
more creative ways of reorganizing staff functions are needed. The book explains
how organizations can tap into the wealth of opportunities that shared services
provides by clearly outlining processes for evaluation, planning and
implementation. Because ‘shared services is a business whose services are bought
by its customers’, the book provides ample tips on building staff commitment
through good team dynamics. It looks at the structural diversity of shared service
centres and the role that good centre design plays in the quest for really effective
shared services. Andrew Kris and Martin Fahy consider the face of shared services
today and tomorrow – looking at the challenges posed by the marketplace,
increased outsourcing and the consulting boom.
The book includes expert advice, processes, tools and information on the design,
implementation, development and location of shared services and how to separate
corporate governance activities. The authors provide practical, experience driven
examples from all over the world and include sample presentations, tools and
templates for immediate use.
Specifically the book helps senior executives to:
■ understand the shared services approach and the rationale behind its emergence
in the past five years;
■ explore the strategic issues which influence or impact the SSC decision;
■ become familiar with the management, technological and process challenges
which SSCs present;
■ develop a unique methodology or framework to support SSC deployment in
their organization;
■ deploy a shared services architecture and culture which supports sustainable
value creation;
■ employ best practice processes and systems including performance monitoring
and compensation;
■ respond to the emerging opportunities for e-shared services and business process
outsourcing.
The book combines best practice advice and guidance with case studies from best-
in-class shared services. Its two authors provide a unique insight into the SSC
phenomenon and combine to provide pragmatic yet reflective guidance based on
their experiences of working with some of the world’s leading shared service centres.
xxi
xxii
Introduction
The Shared Service Centres book can benefit you if:
■ you want to improve the cost-effectiveness of your organization;
■ you would like to find out more about shared services or business process
outsourcing (BPO);
■ you are seeking the facts to help the executive team understand the issues and
assist its decision-making process;
■ you are considering outsourcing business processes to an external supplier;
■ you lead or work in an internal service or shared services team;
■ you regularly provide advice on shared services or BPO;
■ you are involved in activities related to shared services;
■ you would like to enhance your own knowledge and experience in this field;
■ you want to attract external customers for your internal unit’s services.
1Shared services: It’s not justabout cost saving – it’s aboutvalue harvesting
The nature of SSCs 3
Origins and rationale for SSCs 8
Whirlpool – an early player in SSCs 15
The aims and objective of shared service centres 18
Isn’t this like outsourcing? 19
A good SSC takes time and resources to establish 20
■
■
■
■
■
■
1
Shared services: It’s not just about cost saving
THE NATURE OF SSCs
Shared service centres (SSCs) began life in the US in the 1980s, typically to process
high volume, low value transactions for the finance function. Since then,
organizations worldwide have established national SSCs or overcome significant
geographical, cultural, linguistic, political and economic obstacles to implement
cross-border SSCs. They are referred to as shared services, because their activities
are shared by units across entire organizations, instead of similar services being
duplicated in each unit (see Figure 1.1). Typical services include finance, treasury,
human resources, information systems, legal, marketing, purchasing and R & D.
Fig. 1.1 The SSC model
The main aims of moving into a shared services environment are to:
■ enhance corporate value;
■ focus on partner service and support;
■ liberate business and operating units to focus on the strategic aspects of their
operations;
■ transfer business units’ non-core activities into shared services units;
■ create a motivated team that provides consistent, reliable, cost-effective support;
■ lower costs and raise service levels;
■ make the best use of investments in technology;
■ focus on continuous improvement;
3
Business‘A’
Business‘B’
Business‘C’
transactions
relationships Sharedservicecentres
Sharedservicecentres
Businessesin any country
relationships
Customersand
suppliers
4
Shared Service Centres
■ harmonize and standardize common business processes to reduce duplication;
■ facilitate integration post-merger or post-acquisition.
Shared services operate within organizations by providing services to internal
clients. They operate on business principles and provide services at a cost, quality
and timeliness that is acceptable to its clients when assessed against alternatives.
Some internal units generate revenues for the parent organization by selling services
and expertise to third parties. Businesses referred to as ‘outsourced’ shared services
also provide a range of common services, using similar processes and systems to
achieve economies of scale and by leveraging expertise through ‘sharing’.
As Table 1.1 indicates, finance transaction processing is the dominant activity
of most shared service centres. Research carried out by the Shared Services and
Business Process Outsourcing Association (SBPOA) suggests that while in many
cases firms will begin by moving structured transaction processing such as
accounts payable and travel expenses to the SSC, this will quickly give way to
more value added services such as statutory reporting, etc.
Table 1.1 The top ten services typically provided by SSCs
1. Accounts payable
2. Accounts receivable
3. Travel expenses
4. General ledger and consolidation
5. Payroll
6. Fixed assets
7. Cash management and treasury
8. Compensation and benefits
9. Credit and collection
10. Financial analysis and reporting
Source: Andersen/akris.com survey (2001)
A number of approaches to shared services are being adopted around the world.
They range from the most basic form of consolidation of transactional activities all
the way to creating an independent business set-up to provide shared services
internally and to sell shared services externally to multiple clients. There are choices
and decisions to be made and the models need to be seen as evolutionary over time
as the shared services organization has a chance to mature and evolve. Figure 1.2
illustrates the continuum of shared services models identified by Quinn et al. (2000).
Shared services: It’s not just about cost saving
Fig. 1.2 A continuum of shared services models
Source: Quinn et al. (2000)
At its most basic, the move to shared services involves the consolidation of
transactional processing and administrative work. Services such as payroll and
accounts payable are typically mandated services in that business units are not
allowed to go out and source their own payroll for example. This trend to
consolidation and away from decentralization is evident in global companies with
multisite operations.
According to Quinn et al. (2000), in basic shared services the predominant
drivers are cost reduction through economies of scale and the standardization of
processes, as well as a focus on client service. What differentiates shared services
from the simple consolidation of transactional services is the focus on the client.
Shared services must start from a client vision – of what benefits will accrue to the
client and what will satisfy them.
From the outset it is important to recognize that each organization will have to
discover its own route to an efficient shared services architecture. The idea of a
single best practice approach is at best naïve and at worst dangerous to the
organization’s health. What works for one firm will not necessarily work for others.
Consolidation at a single lower-cost location
While shared services consultants and writers are always keen to point out the
differences between centralization and shared services, for many organizations the
consolidation of dispersed finance activities is often a substantial achievement in
5
Basic
Mandatedservices
■ Consolidation of transactional/ administrative work■ Focus on economies of scale■ Services charged out to recover fully loaded costs■ Objective to reduce costs and standardize processes
Marketplace
Voluntaryservices
■ Includes professional and advisory services■ Separation of governance and service functions■ Services charged out to recover fully loaded costs■ Objective to reduce costs and improve service quality
marketplaceAdvanced
Voluntaryservices
■ Client choice of supplier■ Market-based pricing■ Possible external sales if surplus capacity■ Objective to provide client’s choice of most cost-effective supplier
businessIndependent
Voluntaryservices
■ Separate business entity■ Profit is retained■ Multiple organizations as clients■ Objective is to generate revenue and profits for service company
6
Shared Service Centres
itself. The purist shared service centre advocates may be offended by what they see
as a half-hearted approach, but those who understand the culture and dynamic of
organizations are well aware of the need for change to be sometimes iterative and
considered. The relocation of a finance staff from a large number of dispersed
locations is often the first step in the move towards a more conventional financial
shared service centre (FSSC) approach. In many cases expansion over time has led to
a dispersal of finance staff across a number of sites and this creates problems in terms
of co-ordination and communication. As an initial step, bringing staff involved in
finance activities together in a single location can be a major improvement. While this
approach is not strictly a shared services setting, elimination of the historical
fragmentation of staff and processes can be very valuable in itself. In addition, it is
an effective way of freeing up the expense of fixed assets/real estate in high-cost
metropolitan locations in favour of lower-cost more accessible locations.
Bringing staff from several different finance organizationstogether at a single location
This conventional approach to shared services involves taking staff from finance
functions across different sites/locations and putting them together at a single
location. This approach is usually modelled on the experience of multinational
corporations that bring finance staff from around a region such as Europe to a
single low-cost tax-efficient location. In the case of public sector organizations
shared services often involve bringing staff from functions from around the
country to a single location. Part of the FSSC processes are often reorganized or
redesigned to improve efficiency and new technology platforms are put in place.
In addition, the move to the SSC will typically involve the migration of finance
systems from a number of different legacy systems to a new enterprise resource
planning (ERP) platform. The main benefits of this approach are savings in terms
of staff costs, fixed assets and IT costs. Under this approach the SSC remains part
of the existing organizational structure and has limited independence. Costs are
typically allocated back to the client units. In many cases staff who previously
carried out the transaction processing are offered the opportunity to move to the
new location.
A new organizational entity with its own mission
The radical change model of finance services is often associated with a dramatic
restructuring of the underlying body it serves. In many cases the setting up of a new
unit or the amalgamation of a number of existing units provides the opportunity to
radically rethink the provision of supporting finance services. In these cases a new
Shared services: It’s not just about cost saving
location, new staff, new IT platforms and new processes such as e-fulfilment are
introduced in parallel with the new emerging organization. The SSC will typically
have a clear independent mandate of operation and will normally recruit a
substantial number of new staff.
The virtual shared service centre
The virtual shared service centre involves the use of ERP and other technologies to
connect staff in different locations and thus avoids the need to move staff to a central
location. While still the exception, the evidence from private sector organizations is
that virtual SSCs are difficult to operate in practice. In particular the absence of
regular face-to-face contact can lead to a lack of cohesiveness and problems of co-
ordination among staff at different locations. In addition, a number of organizations
have found that the enabling technologies such as intranets, video-conferencing and
so on have not lived up to expectations.
Though the virtual model conjures up images of technology-enabled knowledge
workers in different locations interacting in real time, in reality the virtual SSC is
often a compromise solution based on the reluctance or inability of the
organization to move to a new location.
Outsourcing
Under this approach a private contractor provides the services which were
previously provided in-house. Though traditionally associated with IT services,
the model is beginning to become popular in the area of financial processes and
there is no shortage of firms willing to take on public sector work.
Recent research (Andersen/akris.com survey, 2001) found a number of clear
trends in the type of shared services being set up.
■ North American parent companies still account for the highest proportion of
organizations involved in shared services – with 38 per cent of parent companies
but only 26 per cent of shared service centres located in North America.
■ There is a growing proportion of shared service centres in Asia Pacific (11 per
cent), South America (6 per cent) and eastern Europe (5 per cent) – with
increasing geographical distance from the parent companies’ region of origin.
■ While shared services is clearly on the up, most shared service centres are
comparatively young – only 41 per cent have over two years’ experience. We
can expect the number of shared service centres to continue rising, with a
healthy 23 per cent of the survey respondents now in the discussion or planning
stages and an additional 18 per cent in their first year.
7
8
Shared Service Centres
ORIGINS AND RATIONALE FOR SSCs
There is often much scepticism among European management that the potential
prize does not match the undertaking of major back office restructuring or
reengineering as the back office overhead is typically a relatively low proportion
of a company’s total base cost. This is, however, unjustified scepticism as the
opportunities for a sustainable reduction in an organization’s cost base can be
significant and wide reaching.
The most obvious opportunities for companies come from eliminating non-value
added activities such as multiple authorization processes and reconciliations. The
organization can gain economics of scale and improved productivity by consolidating
and centralizing repetitive or transaction-based activities. By leveraging of pan-
European or global purchasing powers and by redesigning processes, companies take
advantage of technologies and leading edge practices and focusing staff efforts on
providing a better quality of service to customers both external and internal.
Dispersed services are costly and inefficient and don’t work
By adopting a shared services policy, companies have demonstrated typical savings in
the 25–30 per cent range, rising to 50 per cent in some cases. But equally important
is the improvement in service to internal business units. The luxury of having
identical services in every business unit and operating company is a cost that most
companies simply cannot afford. For years, staff groups have vacillated between
centralization and decentralization. Business units unhappy with service from the
corporate centre have been duplicating services and functionality, in some cases just
to survive. So, corporations have ended up with multiple human resources, finance
and information technology functions which is costing the enterprise far more than
it should be spending, given little evidence of increased value. The myth of
decentralization is that service must be better. Maybe or maybe not.
A business case can be made to clearly demonstrate improved service levels, not
just reduced costs through a consolidated centre. Faced with the facts, individual
business units will still argue to retain control. This leads us to suggest that
objections are often motivated by the need for control. Most organizations cannot
sustain the duplication from distributed staff groups. It is folly unless an
organization has unlimited operating expenses. Operating companies believe they
get better service from their own staff groups even though there is no economic
rationale or demonstrated service improvement for the strategy.
Most staff functions spend a disproportionate amount of their time on routine
and transactional type activities such as paper processing and administration at a
time when technology and opportunities to leverage volume and scale abound.
This has been well studied in the finance function where it is well known that
Shared services: It’s not just about cost saving
most financial groups spend as much as 65 per cent of time and resources at the
transactional processing level. Transactions are budget consuming when you
consider the sheer volume of activities such as accounts payables, receivable,
travel and expense reporting, payroll, credit and collections, general and cost
accounting. Quinn et al. (2000) observe that these transactional activities are
often snidely referred to as low value added while risk management is seen as
strategic and value added.
The issue for chief financial officers, according to these authors, is rooted in the
need to do both the transactional and the strategic functions very well.
Transactional processing is key to a smooth running organization. Just see what
happens when pay cheques are not issued or suppliers are not paid on time! The
domination of transactional processing equally applies to other staff functions
such as human resources, information technology and supply chain functions. In
looking to the future, staff groups need to look closely at how best to deliver at
both the transactional and the strategic level. ‘Consolidation is a minimum to
capture benefits from economies of scale’, they say.
Shared services does work
The most important business driver for shared services is cost savings. And it
appears that most companies translate those savings into a significant return on
investment (ROI). In fact, research by the authors reported an average ROI of
more than 30 per cent. The average reported headcount reduction of 25 per cent
clearly helped to achieve these returns. In addition to a healthy ROI, companies
reported additional benefits from implementing shared services. Many cited a
significant improvement in customer satisfaction. One high-tech executive argued
that shared services gave his company greater flexibility and increased
responsiveness to support core business units and the increasing pace of change
those business units must face. Another executive went so far as to state that the
efficiency of his company’s shared services organization proved to be a key
strategic consideration in supporting a recent takeover bid. The research found
that ‘in addition to a healthy return on investment, companies reported additional
benefits from implementing shared services. Many cited a significant
improvement in customer satisfaction’. More recent research by akris.com
confirmed these findings (see Figure 1.3).
SSCs give internal clients choice
Establishing a shared services unit allows internal clients to choose the type, level
and quality of services they want at a price they are willing to pay. The service
providers, on the other hand, can charge an appropriate fee for their services,
9
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Shared Service Centres
building in all the associated costs including overheads. Internal clients pay the
true cost of the services they receive, just as they would if they had gone to an
external service provider. This means, however, that the shared services unit must
match external performance levels or at some point clients will exercise their right
to use alternative suppliers. Shared services needs to operate like any other
business, delivering services that clients need and are ready to pay for at a cost,
quality and timeliness that is competitive with alternatives. Employees of shared
services know that they are crucial to the overall success of the ‘team’ and its
business objectives, whereas before they may have been considered a ‘necessary
evil’ tagged on to each business unit.
Fig. 1.3 Savings from SSCs – planned and actual
Source: Andersen/akris.com survey (2001)
It works in not for profit organizations too
The concept is not restricted to the corporate world and is increasingly being put
into practice by forward-thinkers in the public sector. The principles of shared
services operations have been adopted for example in the health-care sector, to
reap the benefits in minimizing costs and avoiding duplication of activities.
Quinn et al. (2000) cite groups of independent hospitals, for example, which are
pooling common services, even though this requires an unprecedented level of
discipline, efficiency and co-ordination. Far-sighted administrators have recognized
Planned savings: SSCs not yet in operation (%)0–10%10–20%20–30%30–40%40–50%+50%
17
Savings: SSCs in operation (%)0–10%
10–20%
20–30%
30–40%
40–50%
+50%
11283136462686440
22431340
Shared services: It’s not just about cost saving
the economies of scale in pooling human resources, food services, laundry services,
accounting systems and lab services, for example. National and local government
organizations worldwide are also adopting shared services as a means of providing
greater value for money for tax dollars and increased accountability.
It works beyond finance
As Table 1.2 illustrates, the scope of shared services need not be confined to
accounting services.
Table 1.2 The scope of shared services
Transactional and administrative Professional and technical
Finance Accounts payable/receivable Financial analysisPayroll Business case supportCredit and collections Capital planningCustomer billing Business analysisTravel and expensesTax filing and reportingGeneral accountingExternal reporting
Human resources Benefits administration Labour relationsPension administration Organizational developmentSalary administration Training and developmentEmployee records Compensation and rewardsClaims Advisory servicesEmployee enquiries Health and safetyJob evaluation
Information Data centre operations Application developmenttechnology Network services Application architecture
Maintenance Software/hardware installationHelp desk Strategy and trainingData support Telecommunications
Supply or support Administrative support Purchasing and warehousing(includes: reception, clerical, Real estatesecretarial) Material managementTravel arrangements Logistics and distributionMail services Facilities managementMicrofilming Public affairsFleet Communications
Graphic servicesLegal servicesSecurity services
Source: Quinn et al. (2000)
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12
Shared Service Centres
Financial transactions still account for the majority of services provided by shared
service centres. However, IT, HR, legal and facilities transactions are increasingly
being processed in shared service centres too. The rise of e-procurement and
customer relationship management (CRM) is expected to have a big impact on the
centres’ services and technology. In particular, e-procurement is expected to offer
real opportunities to reduce back office costs.
It works because firms make it work
Research has identified other reasons for the growth in SSCs. The top four reasons
are given in Table 1.3.
Table 1.3 Top four reasons for the growth in SSCs (%)
Reduction in general and administrative costs 53
Better service quality, accuracy and timeliness 53
Standardization of business processes 48
Optimization of working capital 42
Source: Andersen/akris.com survey (2001)
SSCs provide a means to employ lower paid people who specialize in data entry
and transaction processing, to reduce the amount of management required to
deliver a quality service, to improve productivity and to standardize processes
across operating sites. While costs are often a key driver, the overriding priority is
normally to take the routine transaction processing away from local controllers
allowing them to focus on supporting the business.
The emergence of the Single European Market reinforces these savings by
providing strategic arguments in favour of a co-ordinated European structure. As
companies extend their presence across borders the European market is changing,
through mergers and acquisitions or organic growth. Through the convergence of
fiscal, legal and tax regulations and the introduction of the euro, Europe is
becoming more homogeneous. It is becoming increasingly illogical to maintain a
duplicate infrastructure within each country of operation and the improvements in
the functionality of IT software make geographic location irrelevant.
The SSC approach allows common standards to be applied across local markets
thus enabling the local finance function to concentrate on offering value added
support to the business.
With a decentralized accounting service, poor integration between systems or
inadequacy in current processes and systems usually results in a large number of
manual checks and spreadsheets. Under an SSC the opportunity exists to eliminate
Shared services: It’s not just about cost saving
these activities by redesigning operational processes and by introducing modern
integration systems which contain built-in checks and provide exception reporting
to bring discrepancies to management attention. Since new systems will often be
necessary to facilitate sharing or centralization of services, the elimination of these
activities can be an added bonus.
One of the main questions organizations ask when considering back office
restructuring concerns the legal and fiscal restrictions on processing accounting
transactions outside the country in which the transaction took place. In the past the
anti-centralization lobby put forward these restrictions as one of the main reasons
why shared services would not work. However, many organizations have put
pressure on governments and tax authorities to relax restrictions. The emergence of
the euro has provided further impetus in this area.
Some countries can limit the freedom to perform all accounting tasks outside the
country. However, precedents have been set for establishing shared service centres
and minimizing, if not eliminating, the flow of paperwork back and forth to the legal
entity. The savings from consolidation can be enormous. Local offices tend to have
generalized accounting staff performing both analytical and transactional tasks.
Through the SSC the opportunity exists to:
■ employ lower paid staff to specialize in data entry and transaction processing;
■ reduce the amount of management required to deliver a quality service;
■ improve productivity;
■ standardize processes across operating units and across countries;
■ obtain consistent and comparable information across operating units, countries
and business systems.
In addition to the operational savings, the potential tax savings can be considerable.
Some countries such as the Netherlands and Belgium have introduced specific tax
regimes to encourage shared services activities. Many firms are now using a
commissionaire structure to achieve these tax savings. Under this concept sales are
made by a central unit, which then pays the local sales organizations a commission.
With this structure it is possible to net off the group’s profits and losses, and to move
more of the profits to a low tax regime.
Furthermore, shared services allows greater connectivity across the organization
and throughout the supply chain. Limited labour pools and changing skill bases
no longer need to be a deterrent to entry either globally or domestically. The
organization does not have to worry about staffing business units already handled
by its shared service centre and can instead direct all of its attention to staffing the
core business functions critical to those business units.
As markets become more transparent and investor demand for information
increases, corporate performance measures become more important than ever. These
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Shared Service Centres
measures are often difficult to obtain enterprise-wide due to lack of standardization
across business units. An integral part of shared services is reliable, cost effective
performance metrics.
As in standardization, shared services seeks cost reduction and efficiency.
However, unlike standardization, cost reduction is not the only driving force.
Shared services involves a redesign of personnel, process and technology, and a
realignment of organizational structure. This is all done with the objective of
enhancing value and improving service levels while all the time reducing costs. It
is also an ideal springboard for implementing enterprise-wide software systems.
Shared services creates strategic value in two other ways besides capitalizing on
economics of scale. First, the information which is now captured through the internal
customer–supplier relationship can develop new ideas for services and products.
Practices constantly evolve as new technologies, ideas and ways of accomplishing
processes are developed. Second, shared services gives the organization the flexibility
to add new business units, assimilate acquisitions and expand geographically more
rapidly than ever before. As it is exclusively a support function, it frees business units
to focus solely on their core businesses and pursue new opportunities.
Shared services is a value added strategy at heart. In the short term it requires an
investment to enable its creation. However, this investment can pay off richly by:
■ freeing up capital for core business operations. By allowing companies to
minimize their investment in incremental infrastructure, it enables the redirection
of funds, which can foster expansion and growth of products and markets.
■ accelerating and renewing processes. By streamlining processes and locations,
companies can reduce business risk. Shared services allows companies to
bypass the infrastructure-related risks of operating in emerging markets.
■ hastening the delivery of services and products.
■ improving information flows and increasing the knowledge asset. It increases
knowledge through information standardization and connectivity all along the
value chain of an organization. The depth and quality of the data unleash
enormous possibilities for enhancing customer and supplier relationships and
interdependencies.
■ enabling quick market development and post-merger integration, even reaping
revenues from serving external clients.
■ freeing senior staff to focus on strategic and analytical functions.
■ leveraging shared infrastructure. This enables quick market development and post-
merger integration. Acquisitions become economical because with shared services
there is no need to pay for technologies and processes that may in the long term
be discarded. Organizations only pay for the core competencies they want as
reliable information and consistent performance measures are already in place.
Shared services: It’s not just about cost saving
WHIRLPOOL – AN EARLY PLAYER IN SSCs
Whirlpool Corporation is one of the world’s leading manufacturers and marketers
of major home appliances. Its headquarters are in Benton Harbour, Michigan in
the USA. Though now a global leader, the company began as a family-owned
machine shop located in a small town on the eastern shore of Lake Michigan. The
company manufactures in 12 countries, has over 30 000 employees and markets
products under ten major brand names in more than 140 countries. Annual sales
now surpass $8 billion and continue to grow as the company expands its current
lines of business and seeks opportunities in new ventures around the world.
In 1994, Whirlpool examined its finance strategy and realized that:
■ the dynamics of the major domestic appliance business in Europe had changed
dramatically;
■ the winners would only be those who are able to operate at a pan-European
level and who are able to provide business support at the lowest cost per unit.
Whirlpool’s response to this changing market was to announce that the new
organization would focus primarily on processes and not on local geography.
Finance and administration’s response to support this new organization was to:
■ create a finance and administration organization that would support and add
value to all areas of the business;
■ keep business planning and analysis close to the business;
■ outsource non-core activities such as payroll, travel and fleet management;
■ centralize at a single European location all transaction processing activities.
The main aim was to create competitive advantage both in services and cost for
the finance function. To meet these goals it needed to separate the basic cost
adding transaction processing from business planning and analysis, which is the
key value adding role for finance going forward. It also needed to enhance the
analytical skills of the business planners to more effectively support the business
and at the same time dramatically reduce the cost of the overall service. Finance
had to become better aligned to supporting the information needs of the business.
Issues to be resolved included:
■ volume of reports: too much data and too many reports;
■ clarity of information: data was being supplied, not information; recipient had
to interpret reports; data definitions were inconsistent;
■ variance analysis: a confusing morass of profit measures; full profit and loss
reports drowned the key variances;
■ exception reporting: multiple potentially contradictory benchmarks, which
performance benchmark to use, plan, forecast, prior year;
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Shared Service Centres
■ context of information: insufficient data to identify trends in performance;
■ future vision: concentrated on historical information with little future vision;
■ focus of information: did not pinpoint problems;
■ level of detail: too much unnecessary information with insufficient focus on
areas for concern and investigation.
Senior Whirlpool management agreed that there was a need to give the business
what it wanted – headline news with fewer pages, clear signposts to problems,
good news distinguished from bad, trend analysis, predictive data and timely
information. The future vision was that business planning analysis and control
will be the key value adding role in the support of the business. Whirlpool Europe
benchmarked itself against its counterpart in the USA, NAAG (North American
Appliance Group). The centralized NAAG finance and administration function
required 33 per cent fewer staff than the decentralized European structure. Based
on the above it was agreed that major savings could be derived in Europe by
consolidating and centralizing transaction accounting. It was also agreed that the
best companies were predominantly US multinationals operating in Europe.
Companies at the leading edge in finance are those with strategies towards shared
services, and in the area of shared services in Europe there was little to emulate.
One of the main benefits which Whirlpool derived from changing to a shared
services strategy was to realign its finance strategy. The centralized North American
Appliance Group (Whirlpool’s US operation) required around 20 per cent less
finance and administration staff than the decentralized Whirlpool Europe structure.
All additional staff in Whirlpool Europe were involved in the area of transaction
accounting. The business planning and analysis functions in the USA represented
around 40 per cent of the total finance and administration staff but only around 20
per cent in Europe. Whirlpool realized that as a US multinational in Europe it
encountered wide ranging threats and opportunities. Whirlpool believed the
additional benefits of moving to a single centre were greater than operating from a
series of regional centres. However, these benefits had also to be weighed against the
increased complexity and difficulties of implementation, as well as the political
considerations associated with the reduction in staff numbers and power in each of
the countries where those functions and activities were currently located.
After a period of meticulous planning, Whirlpool opened a shared service centre
in Dublin in September 1995 which took over work from 14 different finance
operations in western Europe. What made Whirlpool’s case particularly fascinating
is that it chose a big bang approach to reform transferring existing accounting and
finance practices to a single location in a relatively short space of time. This
challenged conventional wisdom which said that it is better to reform existing
finance practices at country level first before transferring them to a single centre,
otherwise organizations may end up centralizing bad habits as well as good ones.
Shared services: It’s not just about cost saving
The next step was to decide where to locate. Should it be in a place where the
firm already had an existing site or should it be a greenfield operation. In the end
the team opted for a greenfield site. It appointed Ernst & Young, the consultancy
firm, to assist in finding a location offering a pool of skilled labour, excellent
telecommunications infrastructure and suitably priced property. At the end of
March 1995 the project team pulled together all of the company’s financial
controllers and human resource representatives from across Europe for a
workshop to explain what the shared services project was all about. The
following month the team carried out a series of road shows across Europe to
explain to country heads the likely impact on their organizations and to enlist
their support for change. This exercise had two crucial goals:
■ to enlist local support. The co-operation of the national human resource staff
was needed in order to identify which local staff would have a job in the future
and which staff needed to be persuaded to stay at least for the transition period.
■ to manage expectations. Rather than selling the project as something that
would revolutionize the finance function overnight, the team simply promised
that, after migration of the relevant activities to the shared service centre, the
service provided would at least match that which the local country
organizations were used to and there would be no disruption to the business.
The main task now was to identify a site for the centre and enlist a recruitment
team to anticipate staffing requirements. They also drew up a timetable for
migrating the national finance operations to the shared service centre. Planning
and analysis and factory administration would remain local. For convenience this
schedule was identical to the IT department’s timetable for switching each
national Whirlpool organization to a new European-wide area network.
In June 1995, Ernst & Young proposed Dublin as a suitable location and this
choice was quickly endorsed by Whirlpool Europe’s senior management. Thirty
staff were hired to fill the most important positions. A lease was also signed on a
building, and in order to link the shared service centre to the rest of the
organization a local area network was set up. After the initial induction course in
Dublin which lasted four weeks, the centre’s new recruits, about half of them
Irish, were sent out to workshadow people whose jobs they were assuming.
In countries such as France and Germany, where the company had big
operations, they stayed up to five months to ensure that the company did not lose
essential local expertise. People said there was a risk of centralizing bad as well as
good practices. However, this was limited due to the fact that the centre was
structured on a functional and not a country basis, one group handles accounts
payable and this is further divided into processing and disbursements. One
handles the statutory and fiscal accounting, another the general ledger
management and the fourth fixed assets, intercompany and inventory. This allows
17
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Shared Service Centres
staff covering different countries to compare and identify best practices and
implement these companywide in the centre. As the company’s finance centre is
under one roof, it is easier to train and utilize the most up to date technology.
The main services which are covered in the Whirlpool SSC are:
■ general ledger accounting;
■ disbursements;
■ fixed assets/inventory accounting;
■ reporting consolidation;
■ VAT and intrastat;
■ statutory/fiscal accounting;
■ accounts payable processing.
THE AIMS AND OBJECTIVES OF SHARED
SERVICE CENTRES
There are a number of principles that are essential for shared services success. The
following are those that we usually recommend the leader seek endorsement for
at the beginning of implementation:
■ there will be no duplication of services in business units once the service is
designated as a shared service;
■ services will be charged at a rate to cover fully loaded costs;
■ governance-related activities will be paid for by the executive;
■ during an initial grace period (18–24 months) shared service functions will have
exclusive supplier status;
■ following the grace period, decisions to outsource services will be made in the
best interest of the corporation and will be based on a business case analysis;
■ business units have a joint accountability with the shared services organization
to reduce operating costs and ensure the success of shared services;
■ the shared services organization will benchmark its costs with external best
practices and will gather internal client satisfaction feedback;
■ the shared services organization will report annually to the corporate executive
committee on costs and satisfaction level;
■ line management accountability will shift.
It is important to recognize early on that the shared services approach is very
different to centralization. As Table 1.4 indicates, the role of shared services is to
provide products and services at a cost, quality and timeliness that meets the needs
Shared services: It’s not just about cost saving
of the internal client and is competitive with alternatives. As such, shared services
should enable the internal client to select services and service levels based on what
they want.
Table 1.4 An SSC is different to centralization
Attribute Shared service centre Centralization
Orientation and Business units Corporateaccountability
Key performance targets Service excellence and Cost reduction and centralcontinuous improvement control
Use of key performance Widespread Rareindicators, service levelagreements, service costings
Likely location Neutral location separate to Corporatecorporate business unit
Classification An independent unit Another corporate function
Run by An entrepreneur An accountant
Source: Andersen/akris.com survey (2001)
ISN’T THIS LIKE OUTSOURCING?
Outsourcing the administrative function is a realistic option at any time in the
process of establishing shared services. Some organizations may see outsourcing
as the only option as they do not possess the skills or resources to create effective
shared services in-house, or they wish to avoid the inevitable disruption
implementation can cause. In the context of existing shared services, outsourcing
can be viewed as the ‘third’ phase. Having decided to create internal shared
services (phase 1) and followed through by implementing best practices (phase 2),
some shared services operators realize that they will never be able to reach the
standards of world-class operations in certain of their activities. Outsourcing
parts of shared services operations becomes a viable alternative (phase 3).
The decision to outsource administrative and support activities is being taken by
forward-thinking managers who question how work has traditionally been
carried out and whether there is a better way of doing it. The availability of a new
breed of dedicated, third party suppliers and complementary information
technology (IT) makes outsourcing an increasingly attractive option for some.
Many companies now outsource non-core and/or non-strategic activities – such as
finance, human resources, legal and administrative processes – to third parties.
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20
Shared Service Centres
These operate their businesses along shared services lines to provide services
economically to several client organizations through sharing people and resources
and by implementing common processes and systems.
The conclusion many managers reach when they realize they need to trim
overheads and eliminate inefficient internal service units is to outsource. They see
moving the problem out of the organization as the most prudent and easiest
course of action to end interdepartmental disputes, poor service and
‘unreasonable’ costs. Even after more than a decade of restructuring, corporations
are still pursuing the gods of efficiency and ‘right-sizing’. The decision to
outsource can seem enticingly easy: just let someone else do it. Implementation
can be complex and always impacts people and strategy. But in many cases, it may
be the wisest alternative.
Business process outsourcing (BPO) is becoming a key element of many shared
service organizations. akris.com found that a substantial number of survey
respondents are either currently outsourcing a business process or will consider
outsourcing in the near future. Because many transaction-intensive business processes
– such as payroll, accounts payable and employee benefits – typically fall within the
scope of shared services, it is natural to consider outsourcing as a more efficient and
effective way of providing these functions. That said, outsourcing is best considered
after the shared services organization is operational and the data exists to support
objective decision-making capabilities. That’s why companies with relatively mature
shared services organizations are more likely to outsource business processes than
companies that have recently implemented shared services.
A GOOD SSC TAKES TIME AND RESOURCES
TO ESTABLISH
One of the key issues which firms must consider regarding the move to the SSC is
how fast or slow to proceed towards a fully centralized structure. The evidence to
date suggest that the speed of transition is very much contingent on the
organization in question. In particular, the number of sites involved, the level of
integration of the existing IT platforms and the climate for change are all factors
that must be taken into account when deciding the pace of change. What is clear,
however, is that the likelihood of a successful transition to the SSC model is
substantially improved when a structured transition/migration plan is put in place
before the project begins.
Cost is often a primary driver for establishing an SSC, but respondents to
research surveys rated service quality equal to cost reduction in the top reasons
for setting up SSCs. Experience shows that organizations focusing implementation
solely on cost reduction end up with poor service quality SSCs, which are more
Shared services: It’s not just about cost saving
expensive to operate than a higher service quality alternative. The cost of rework
is much higher in an environment where there is little focus on performance
measurement, service level agreements (SLAs) and service costing.
People do not enjoy working in an environment where there is little focus on
determining and meeting customer needs. The cost of hiring and training additional
staff in an SSC with high staff turnover again ensures that in the end it becomes a
very expensive option. As shown in Figure 1.4, respondents to an akris.com survey
voted the greatest implementation risk to be poor quality service (62 per cent).
Service concerns are closely followed by the risk of low employee support. This
reinforces the need for senior management commitment and effective change
management to increase employee buy-in and secure co-operation during and after
the creation of an SSC. Experience suggests it pays dividends to ensure maximum
support for the SSC project before design and implementation are started. This
may take a while, and may require the involvement of more people in the initial
stages of the project than may be felt necessary. But by involving people and
ensuring they have an opportunity to have their views heard, there is likely to be
much less resistance at the implementation stage and after ‘go-live’. The key critical
success factor is a clear vision, strategy and support from senior management.
Support from senior management is a must as this type of project cuts across the
power base of the organization and whenever one set of responsibilities is moved
to another location, there will be resistance. When this resistance comes there is a
need to have senior management support to ensure that the project moves forward.
Fig. 1.4 The greatest risks in setting up an SSC (%)
Source: Andersen/akris.com survey (2001)
In the next chapter we will explore how to build this vision and capability.
References
Quinn, B., Cooke, R. and Kris, A. (2000) Shared Services: Mining for Corporate
Gold, Harlow: Pearson Professional Education.
21
62Poor service quality58Low support by employees34Severe business disruption during implementation33IT problems31High implementation costs
2Shared service activities
Introduction 25
If the future looks like anything it looks like Oracle shared service centre 26
Some lessons learned 31
Conclusion 33
■
■
■
■
23
Shared service activities
INTRODUCTION
The choice of which processes or knowledge-based services a shared service centre
will support is dependent on a number of factors including the degree of
standardization of processes across the business units, the willingness or ability of
business units to ‘outsource’ processes to another part of the organization, and
how uniquely specialized the skills required to perform an activity are (see Table
1.2 on page 11).
Under the SSC approach the use of dedicated resources to operate key processes or
provide knowledge services enables increased efficiencies within the processes
through economies of scale and standardization. The concentration of these activities
also releases business unit managers to focus on more value added activities rather
than the management of administrative processes.
Research has identified three basic types of SSC activity.
■ Transaction oriented activity: An SSC could be defined by transaction (e.g. a
company could centralize all of the customer invoice processing to an SSC, but
could leave all of the rest of the transactions within that module in the local
country). In this example customer management, customer receipts and collection
transactions remain in the local country. In this type of implementation, the scope
of the SSC is clerical entry, and knowledge-based activities are done in a
decentralized fashion.
■ Functional area activity: An SSC could be defined by functional area or
application module (e.g. a company could centralize all of the accounts
receivable processing to an SSC, while leaving accounts payable and general
ledger in the local country). All of the transactions would be processed by the
SSC, with the other functions being carried out locally. In effect, the SSC
deliverable would be the journal entry at the end of each month.
■ Value chain activity: An SSC could be defined by value chain or process (e.g. a
company could centralize all of the transactions for a particular process,
perhaps order entry and accounts receivable modules, centralizing the order to
collection process). The advantage of this type of activity is that all transactions
for a particular process are carried out in one place, unlike the transaction-
oriented activity or functional area activity in which transactions will almost
certainly be in a different country or facility. In this type of implementation, the
focus of the SSC includes knowledge activities such as supplier negotiation,
open to buy management and financial analysis.
In the 1980s firms looked to the SSC model as a way of gaining efficiencies
through centralization at low-cost locations. Today firms are using SSCs to
redefine the way they do business (see Figure 2.1). In particular, firms such as
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Shared Service Centres
Oracle are using their shared services to redefine their core business processes to
create shareholder value through increased value to customers.
Fig. 2.1 The changing face of shared services, 1980–2002
IF THE FUTURE LOOKS LIKE ANYTHING IT LOOKS
LIKE ORACLE SHARED SERVICE CENTRE
Back in 1998, Oracle realized that it really didn’t have a global structure to its
operations:
■ there was no common price list;
■ marketing strategies differed and were reinvented country by country;
■ client-server business systems differed from one another and were supported by
inconsistent business processes – both customer-facing and those in the back
office;
■ information was fragmented and not shared from one business unit to another
resulting in significant duplication of work.
■ High cost, redundant technology■ Anecdotal customer service■ Poor productivity
■ Low cost
■ Measured productivity
■ Service orientated/client driven
■ Flexible client server technology
■ Not centralization but operates as a business
SS PlusShared services
1990s1980s 2000s
Profit centreautonomy
?
1988 – GM begins consolidation of100 sites into single Finance SSC
General Electric, Ford, BaxterHealthcare set up SSCs in the USA
1993 – Allied Signals achieves $40mannual savings from finance SSC
Launch of pan-European SSCsby Intel, Whirlpool and Allergan
Tenneco launches SSC forfinance, HR, MIS and payroll
Allergan incorporatescustomer services into itspan-European SSC
BP Amoco outsourcesentire HR function
Move to global SSC structure –American Express, Ciba-Geigy,Bristol Myers Squibb
2000 – Over 50% of Fortune500 now using SSCs
Shared service activities
As part of its global SSC strategy, Oracle established a network of three shared
services worldwide in Dublin, Sydney and Rocklin (California). The SSC in
Dublin serves 40 countries and provides a range of services.
The centre is truly international employing in excess of 320 staff from 25
countries. With its strong focus on knowledge intensive processes, graduates make
up almost 40 per cent of the headcount. As might be expected the centre makes full
use of the range of Oracle e-business applications in delivering service to the EMEA
region. The strong customer service orientation of the SSC is reflected in the matrix
structure around customer facing processes which SSC management team have put
in place.
Oracle chose to implement shared services not only for cost savings but also to
achieve globalization of business processes, improve internal controls and become
more competitive in support of the e-business strategies. Shared services was the
right decision for Oracle due to:
■ standardization of processes;
■ reduction in IT support and development costs through use of standard
applications and standard module set-up;
■ reduction in finance and administration costs through efficiency improvements;
■ faster assimilation of new technology;
■ consistent management reporting across countries;
■ adoption of the best practice across countries;
■ creation of one company approach – achieve business partner roles with
internal and external customers;
■ provision of a world-class reference site of Oracle financial applications;
■ achieve its vision of becoming a world-class finance organization.
One reason Oracle’s shared service centre, i.e. its three centralized back offices
servicing the Americas, Europe, the Middle East and Africa, and Asia Pacific, has
been so successful is that it is part of a much broader global strategy to move the
entire business into an e-business model. Therefore, it has been strategically directed,
masterminded and sanctioned from the very top of the organization. For Oracle
Shared Services the challenge was to move from multiple systems, processes,
locations and structures to a unified shared services structure (see Figure 2.2).
The Oracle SSC approach is unique in a number of aspects:
Standard processes
Oracle took the time to standardize its business processes. Each business process
had an executive (vice president) sponsor ensuring business acceptance. The
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Shared Service Centres
processes were built with the assistance of third party consultants who were
objective and brought a skill set not necessarily existent within Oracle. Andersen
were chosen not only because they were Oracle’s worldwide auditors at the time
but also because they were specialists in this area and could draw upon other
experiences which helped Oracle understand the appropriate design for
themselves. Users from all over the company spent months with the processes as
Oracle looked for a common global fit. Once Oracle agreed on the business
processes, it mapped these to the latest version of Oracle’s E-business suite. Nicky
Sheridan, of Oracle, describes what happened next.
Before rushing off to implement the pilot country, Hungary, Oracle
undertook four months of integration testing, i.e. they went back to all the
geographies and vice president sponsors involved in setting up the processes
and they used test packs (transaction examples) and scenarios from all over
the globe to ensure they had a sound global fit to the model solution. Oracle
believes that all companies should implement the product Vanilla, i.e.
without customizations, and this is one of our secrets to success.
Customizations are not only expensive to support and make upgrades more
difficult, they also move us away from the global standard process that
e-businesses rely upon to be successful.
Fig. 2.2 The path to shared services
Implementation dimensions
Multiple systems
Move to one system
Rationalize systems
Move to one database
Define processes
Commonize policies
Commonize processes
Multiple processes
Multiple locations
One location
Consolidate within region
Consolidate within country
One organization per process
Separate from business units
Multiple organizations
Sharedservices
Shared service activities
Oracle Hungary went live with all the related processes and system in June 1999.
Since then all of EMEA subsidiaries have been migrated to the SSC.
Self-service
The applications deployed in the SSC are not just Internet-friendly, requiring only a
browser to access them from anywhere, but they are also built around the self-service
concept. This allows Oracle to achieve significant benefits, since employees prepare
their own requisitions and expenses claims directly over the web. The HR database
knows exactly what approval limits exist and direct the requisition or claim up the
HR hierarchy to the person with the appropriate approval limit. Purchasing works
the same way with the catalogue of available goods and services all in the system so
purchasing is literally system-controlled and allowing purchasing departments in
countries to concentrate on leveraging strategic purchasing relationships.
Instead of asking HR administration departments to make themselves aware of
all employee details, including those that change such as their home addresses,
employees enter their own information. This is much more accurate since there is
no ‘noise’ in the communication.
Through Oracle iStore, customers and partners can order their own software
directly on the web. Suppliers too are web-enabled by having their sales
catalogues and price lists in the purchasing system. So customers, partners,
suppliers and employees are all linked to the standard Monaco system and can
enter and access information as Oracle sees fit. The model is extremely efficient
and has helped Oracle knock more than 30 per cent of its finance and
administrative cost base, and the number continues to rise.
Lights-out processing
While shared services have been traditionally used to maximize the efficiency of
repetitive transaction processing, Oracle SSC has used the move to the SSC approach
as an opportunity to eliminate and remove many manual tasks. Technology advances
in Oracle’s E-business suite, the development of Extensive Mark-up Language (XML)
and various associated protocols, and the relaxation of some legal requirements for
documentation have enabled the SSC not just to improve the efficiency of their
manual transaction processing but to eliminate some manual transactions altogether.
This approach has delivered a number of benefits including:
■ lowest possible transaction cost;
■ reduced overall function infrastructure costs;
■ zero error rates;
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Shared Service Centres
■ lights-out processing allowing 24/7 operation;
■ improved service levels.
Leadership and performance improvement
Selling the new shared service model to the business and all its employees is never
easy. Indeed people require more time and energy to agree the changes than to
make the changes to processes and technology, which is easy by contrast.
However, because Oracle’s changes have been driven by Larry Ellison, Founder,
President and CEO as well as the CFO Jeff Henley, people have accepted them
much more readily.
While finance and administrative savings of more than 30 per cent have been
enjoyed, the move to the new approach with its e-business model has much wider
benefits.
In order to continue to gain on tangible and intangible benefits, a shared
services organization has to operate as a stand-alone entity. Oracle shared service
centres are managed as follows in order to operate as a separate business:
■ resources are managed as a separate organization;
■ services provided are identified as the shared services products;
■ commitments are managed to comply with agreed service levels;
■ multiple partners or clients across the organization are serviced with a business
partner’s mentality.
SSC separate businesses are continually revisiting and improving their current
organizational structure, services and products provided as well as customer
satisfaction levels. Oracle shared services currently runs various initiatives on
performance evaluations. Shared service centres report a Balance Score Card by
which senior management can measure shared service centre operations against
the organization’s strategy and e-business.
Relationship management
Oracle shared services manages the relationships with subsidiaries post ‘go-live’ at
different levels. After a project implementation and during the first month end,
service calls are scheduled once a week with the subsidiary finance director and
shared services senior management, including customer service. In the following
months the calls are scheduled at least once a month.
The service call objectives of senior management are designed to:
Shared service activities
■ promote partnership between the shared services and the local organization;
■ prioritize pending processes and service levels issues from implementations and
after ‘go-live’.
After the first three to six months of transition to the shared service centre, the
call objectives change from dealing with issues/solutions looking backward to
looking forward to bring about continuous improvements.
After the six-month period, the SSC communicates goals achieved at this stage.
Key performance indicators are reviewed to demonstrate the adherence to the
service level agreements (SLAs). A review of the customer satisfaction surveys
demonstrates the commitment of the centre to its customers and determines areas
that require further attention and changes of customer requirements. The centre
continues to promote communication of the line of business with outside partners
such as customers and suppliers. This strengthens the business partnering
relationship in an e-business environment.
Building a team environment and business partnering, of both local and central
management, help with the resolution of issues and provide opportunities to view
and work on further steps to achieve efficiencies and effectiveness in an e-business
environment.
SOME LESSONS LEARNED
A senior manager within the SSC, points out that ‘Shared Service Centres require
major organizational changes which can take time to implement. They can be very
complex and often difficult. It is important to have a clear understanding of how a
company can move towards a SSC in an organized, efficient manner.’ Oracle has
some clear advice for those considering implementing an SSC.
SSC is a journey
Setting up an SSC can be compared to a journey. A key element is to implement
standard business processes across the organization for those services which will
be handled by the SSC. Once these processes are standardized, migration to
centralized processing can be accomplished. This facilitates moving forward with
the classic Oracle approach of ‘best practices and business processes’.
The second element involves centralizing identified processes for the types of
activity that will be handled by the SSC. This may depend on the type of SSC that
is desired (transaction, functional or value chain). In this stage, there is a central
location for the functional use of the systems. It should be noted that the key
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Shared Service Centres
feature of this stage is that the people staffing this solution can be located in a
central or virtual location.
The third element is common systems. In this stage, the same applications are used
for all business units serviced out of the SSC. Common front-end applications allow
batch entry of transactions across business units.
Common data structures allow the free movement of transactions across business
units. Although Oracle consider this an actual phase in the adoption of the SSC
concept, it may actually be a prerequisite for a centralized organization. Entire
enterprise visibility is a direct result of implementing common data structures.
Technology is an important enabler
Prior to establishing standard processes in shared service centres (and similar to
many multinational companies), Oracle’s information system infrastructure was
symbolized by:
■ dispersed technology;
■ fragmented data;
■ customized systems.
With e-business transformations, SSC and global processes in place, information
systems changes included:
■ centralizing and consolidating all IT
■ fewer, less complex data centres
■ a global single instance database.
Oracle has used its E-business suite and database solutions to provide strategic
advantage to the SSC. The centralization of the management of the applications,
while supporting the unique needs of the business, allows the SSC to recognize
economies of scale and thus reduce operational costs. The streamlining of business
processes encouraged by the concentrated system management supports the
creation of consistent management information leading to better informed
decision making. E-commerce and Internet trading bring both new opportunities
and new challenges for the SSC. To take advantage of the opportunities and to be
able to respond to the fast pace of business, Oracle needs to have instant access
to worldwide information in a consistent format to plan business from product
design through customer service.
By leveraging technologies like business intelligence systems, Oracle SSC can
obtain an enterprise-wide view utilizing integrated information across all
applications. Additionally, they have the ability to summarize data for key roles
in the organization and present information intuitively and simply.
Shared service activities
Training is essential
Training played an important role in implementing the shared services project.
Shared services and local countries organizations were trained in the following
aspects:
■ systems
■ processes
■ behaviour.
New users at the shared service centre are trained in the global standard processes
in conjunction with the utilization of recent applications. Customer service training
and team building in multicultural environments has been provided. Also, SSC
management conducted meetings with staff members to explain the SSC role and
how it affects Oracle’s vision and to ensure that Oracle has provided the skills and
behavioural knowledge to the SSC resources. At the local country level, process and
systems training has been provided by shared services and the divisional process
owners. Special importance has been given to the new business-partnering role of
local finance, in which training is provided by the regional organizations. In
addition the human resources group has provided change management support.
CONCLUSION
Shared services brings together strategy, technology, process and people. To succeed
in this area the organization must successfully harness all four together. The end
result has the potential to bring employees, customers, intermediaries, partners and
suppliers into a new relationship driven through e-business. For Oracle shared
services the journey is well underway. For other firms there are valuable lessons to
be learned from the innovative approach developed by Oracle, and for finance
professionals there is the challenge of creating a shared vision of the future.
Footnote
1 Organizations who wish to obtain further details on Oracle IeBC including
arranging site visits should visit www.oracle.com or contact (John F. Martin,
ORACLE, East Point Business Park, Clontarf, Dublin 3, Ireland).
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3SSC – people, processes and systems
The need for strong foundations 37
The importance of information technology 40
The limits of IT – enterprise application integration 47
Emerging best practice in SSCs 49
Conclusion 56
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SSC – people, processes and systems
THE NEED FOR STRONG FOUNDATIONS
The American and now the European experience of implementing shared services
demonstrates significant cost savings. Savings of up to 50 per cent have been
quoted in the USA, while a 35–40 per cent saving is commonly quoted in Europe
with an investment payback period of 18–24 months.
The number of shared service centres worldwide is increasing, as are their
responsibilities. Far beyond early attempts in the 1980s to centralize and streamline
finance functions, today’s SSCs provide diverse services for multiple business units,
including human resources (HR), information systems, legal, marketing, purchasing,
research and development and finance and treasury. SSCs often provide these services
across geographic, cultural and organizational boundaries.
At the same time, the Andersen/akris.com survey spotlights a distressing trend:
Nearly one-third of the survey respondents whose companies had constructed SSCs
reported actual cost savings of less than 10 per cent. Although further research is
needed to determine specifics, clues are provided in other findings from the survey:
■ nearly two-thirds of respondents believed poor service quality to be the greatest
risk to implementing an SSC;
■ 33 per cent of respondents felt that IT problems posed the greatest risk to
setting up an SSC.
These concerns, coupled with the poor performance of many SSCs, are surprising
given today’s increasingly networked economy. Many leading global companies
have already completed first and second waves of ERP system implementations
and web-enabled links between holding companies, their business units and their
suppliers. So why aren’t more companies enjoying the benefits promised by the
SSC approach?
The experience to date suggests that there are a large number of people, process
and technology factors which must be carefully addressed if the establishment of
SSCs is to be successful.
People and communication
The key people and communication challenges include the following:
■ Excellent communication is an imperative; there is a need to involve the local
finance and administration staff. During the workshadowing period, there
needs to be periodic assessment meetings between the SSC staff and the local
staff. Workshadowing is stressful and the need to maintain motivation is a
constant challenge.
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Shared Service Centres
■ It is important to create and build team spirit and to provide support to SSC
personnel working away from their home country for extended periods. As such
it is important for the local finance management to manage the workshadowing
process and to resolve issues.
■ Investments in organizational change management and technology, including
re-skilling and training of the finance function, will be required.
■ Implementation of new processes incorporating best practices during the
migration period is not always practical. There is an unacceptable risk that major
process reengineering concurrent with migration of the activities will undermine
the workshadowing. There is not sufficient time to train and educate process
partners in the new processes while workshadowing.
■ After the activities are moved to the SSC, there is still a need for support from
the key finance and administration manager to ensure the learning process is
continued.
Effective SSC processes
The key process features of a successful SSC include:
■ a customer focus including support service level agreements and the deterrence
of the emergence of shadow personnel;
■ the delivery of sustainable cost savings parallel to the communication of
requirements and expectations;
■ performance metrics which align SSC objectives with management actions
including cost driver-based metrics and a finance balanced scorecard as well as
a continuous improvement programme for all processes;
■ well-trained process team leaders supported by a conducive organizational
climate and effective change management;
■ client/customer-orientated process teams which understand the SSC philosophy
in a climate of organization learning which encourages continuous
improvement;
■ a commitment to quality and customer service and a willingness to embrace a
range of compensation and remuneration approaches;
■ a commitment to open and honest communication, evidenced by a willingness for
managers at all levels to participate explicitly in change management activities;
■ an explicit benefits realization programme to ensure that the SSC delivers the
planned impact supported by a willingness to expand beyond traditional SSC
services to new areas outside the finance area.
SSC – people, processes and systems
Effective and appropriate technologies
Arthur Andersen (1997) argued that up to date technology is required to support
the shared services concept and plays a key role in the cross-border consolidation
of information and financial systems.
Technology has an important enabling role to play in delivering services. The
move to a shared services culture will often involve an adjustment or extension of
an organization’s information technology (IT) arrangements, the two most helpful
applications of which are in ERP and call centre technology.
The aim is to combine the various (perhaps incompatible) systems operated by
different business units into a common system platform. It may not be possible to
switch from multiple systems to a single system overnight, but an initial target of
a reduction to no more than five systems should be achievable.
Any move to a shared services environment must incorporate a clear
understanding of an organization’s IT strategy. The shared services unit must not
only be able to interact with other business units’ IT systems, but also needs to be
in a position to take advantage of new IT solutions while carrying out its services,
which can lead to cost reductions and improved performance.
Some organizations will have already implemented ERP throughout their
operations, in which case it can be immediately incorporated within the shared
services unit. On the other hand, organizations that have yet to embrace ERP
should give thought to the dual benefits of establishing an ERP and shared
services environment simultaneously.
In addition, call centres have become a valuable resource in many organizations,
not only for (potential) customers to make contact with a view to purchasing
products and/or services, but also for internal use within the organization. Especially
when human resource activities are being incorporated into the shared services unit,
call centres can be used to support employee benefits and travel, accounts receivable
(credit and collection) management, and, in some cases, to support external
customers. For handling routine, standard enquiries call centre solutions may be
replaced by client ‘self-service’ facilities using browser-based, intranet technologies.
Success will typically come from:
■ a strong customer management capability built around effective call centre
technology;
■ well deployed ERP systems which reflect the unique requirements of the
organization;
■ effective use of intranet and other knowledge management technologies to
leverage staff time and experience;
■ an e-business strategy to allow key manual processes to be web-enabled over
the short term.
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Shared Service Centres
THE IMPORTANCE OF INFORMATION TECHNOLOGY
One reason SSCs fail to deliver promised benefits is because of IT systems. One
good example is a global consumer products company that has grown through
mergers and acquisitions to encompass nearly 30 business units. The company
implemented SSCs for finance, HR and procurement functions, but has yet to
realize the return on investment, operational efficiencies or service quality it
envisioned. An assessment of the situation by a third party revealed that many of
the company’s operating divisions were not yet linked with the SSCs because each
division employed different IT systems to the SSC’s. The organization was not
willing to invest in the implementation of replacement systems to meet the
standards set by the SSCs, so it was not taking advantage of the resulting
economies of scale and process efficiencies. Table 3.1 summarizes some of the
tools and technologies described and their benefits.
Table 3.1 Technology types and benefits
Type Benefits
ERP ■ Platform for e-tools
E-workflow management ■ Reduced manual intervention■ Cost reduction■ Higher speed of processing■ Activity independent of location
Information data warehouse ■ Cost reduction■ Increased usability■ Better decision making■ Desktop distribution
Enterprise application ■ Extends the life of existing ISsintegration ■ Facilitates seamless communication across ISs
E-procurement ■ Reduced purchase costs■ Higher speed of procurement■ Strategic purchasing
XML and B2B technologies ■ Replaces EDI restrictions in the exchange of documents■ Brings B2B application integration to new levels
Source: Deloitte & Touche
Recent advances in technology have enabled finance support processes to be
performed in remote locations with little if any reduction in service levels. Client server
technologies, electronic data interchange (EDI), data warehousing, document imaging
software and Internet applications are just a few examples of how technology can
support a world-class finance and administration function. Information technology
considerations play an important part in the implementation strategy.
SSC – people, processes and systems
Enterprise resource planning systems
The move to an SSC approach offers an ideal opportunity for porting finance
applications to the new ERP platforms. Vendors such as SAP, Oracle and JD
Edwards were quick to spot a market opportunity and have introduced specific
‘solution maps’ for the FSSC sector. These encompass not just the typical finance
processes but can also meet the unique requirements of the FSSC (see Figure 3.1).
Fig. 3.1 Typical ERP architecture
ERP systems require a significant investment in terms of IT architecture, staff, user
licences and so on. While the demand for ERP specialists has fallen off in the wake
of year 2000, acquiring and retaining high-quality ERP expertise is still an issue
for many SSCs. In particular, attracting project managers and functional area
specialists with SSC experience can be very difficult.
In addition, ERP implementation consultants, while often necessary, can represent
a significant drain on the project’s resources and many lack specific FSSC experience.
shared service centres need to carefully assess the resources available and ensure that
any investment made in IT up-skilling can be retained within the organization. They
also need to ensure that the consultants they retain have an understanding of the
unique requirements of the SSC sector and experience of the workings of SSCs.
41
Routing
Capacityplanning
Shop floorcontrol
Costaccounting
Payroll
Personnel
Masterproductionschedule
MRP
Purchasing/traffic-In
Accountspayable
Forecasting
Bill ofmaterials
Inventory/traffic-out
Journal/generalledger
Customerservice/
order entry
Invoicing
Qualityassurance
Salesanalysis
Accountsreceivable
Fixedassets
Trial balancehistory and
budgets
Financialreporting
Maintenance
ERP data flows
Machineutilization
Oper. Data
Plans
Plans
Plans
Plans On-order On-hand
Explosion
Shipments
Build plan
Orders
Orders
Orders
Orders
RMSs
Sales
InvoicesWage rates
Employeestatistics
Actualcosts
Actualcosts
On-order,receipts
Cash,memos
Sales
Checks,memos,invoices
COGSinventory
3-Waymatch
Depreciation
Released orders
Actuals
Materials
Labour andoverhead
Allocations
42
Shared Service Centres
The migration of data and users to the new ERP environment can be a
significant challenge. While these customized applications deliver a large amount
of the functionality required by the PSO shared service centre, a large number of
issues still remain to be addressed. The data models which emerge from the use of
structured approaches can alleviate many of the data integration issues which can
plague ERP migrations, but the problems associated with system change-over do
not disappear entirely. In particular, the detailed migration to the standardized
data model and processes incorporated in the ERP solution will often require a
significant restructuring of the data and can delay projects. In addition, the SSC
may be pulling together data from several different legacy systems. Users may find
the move to the new system difficult and it may take several months before staff
are comfortable with the look and feel of the new system.
Historically, business cases for ERP implementations at shared service centres had
as their ultimate goal the integration of the accounting processes of the different
functional departments (human resources, finance, procurement, inventory,
warehouse management, sales and distribution, etc.), thus rationalizing the
information systems used by the organization’s business units prior to the creation
of the SSC. These original ERP projects aimed at bringing mainly cost savings and
better and more accessible information.
The literature on the area suggests that most organizations did not deliver the
benefits expected, and that the return from base investment was unsatisfactory.
Some mistakes that have been identified regarding the failure to achieve the
expected ROI from the ERP implementations are:
■ failure to redesign processes and address business change;
■ failure to focus on benefit delivery;
■ focus on efficiency rather than on achieving competitive advantage;
■ markets growing too fast;
■ weak business cases;
■ year 2000 distortion.
Current research shows that present business cases for ERP implementation are
aiming at implementing an ERP platform which will form the backbone
infrastructure for a group of new e-oriented technologies (these technologies
being: data warehousing, workflow, CRM, knowledge management, extranet,
e-procurement, e-expenses, etc). In this new type of ERP project the focus and
expected benefits have changed, with many of the new web-enabled or electronic
tools having a direct impact in this change of focus. Research by akris.com on the
current state of play with respect to ERP and SSCs is shown in Figure 3.2.
SSC – people, processes and systems
Fig. 3.2 Types of ERP systems used in SSCs (%)
Source: Andersen/akris.com survey (2001)
Electronic workflow management technology
This technology is used at shared service centres as a vehicle for implementing
fundamental changes to business processes. Implementations typically cut across
a large area of the business enterprise; while this technology carries great promise
and some success stories to date, some consider it high risk.
Workflow management tools can typically contain details on the routing of
tasks throughout a business. Every single SSC business transaction from, for
example, ‘verifying an invoice for correctness’ or ‘creating a new vendor in the
master data records’ to ‘request credit note from vendor’ can become a task list.
In this way the SSC end user of this technology can process a task in an automated
fashion by using a business model, the task list and appropriate data for each task.
By combining this technology with electronic document imaging, and Internet/
intranet/extranet technology, SSC can achieve important efficiencies. Workflow
projects have the potential to become online operational decision-support and
process-controlling environments.
Key benefits of e-workflow technology are:
■ improved efficiency – automation of many business processes results in the
elimination of unnecessary and manual steps;
■ better process control – improved management of business processes achieved
through standardizing working methods and the availability of audit trails;
■ improved customer service – consistency in the processes leads to greater
predictability in levels of response to customers;
■ flexibility – software control over processes enables their redesign in line with
changing business needs;
43
44Single instance ERP system that covers samegeographical area as SSC26Do not have ERP system16Multiple instances of ERP systems withinthe shared services organization14Share use of a global single instance ERP system
44
Shared Service Centres
■ business process improvement – focus on business processes leads to their
streamlining and simplification.
Reporting tools – data warehousing
While technologies to support detailed transaction processing represent the most
significant IT investment, the question of reporting tools and data warehousing is
also an important issue. Timely and efficient reporting to its clients is critical to
the SSC’s success. In this regard the experience to date would indicate that most
SSCs adopt a ‘best of breed’ approach to the selection of reporting tools.
In many cases SSCs have found that the reporting tools which come as part of the
ERP application lack the flexibility and functionality needed. A growing trend
among SSCs is to use data warehousing technologies to provide a separate reporting
and analysis capability to the centre, as outlined in Figure 3.3. Under this approach
the core transaction processing takes place on the ERP platform with reporting and
analysis running on a separate read-only data warehousing platform. This allows
users to have easy access to detailed transaction data without compromising the
integrity of the data or affecting the response time of the transaction processing on
the ERP system. In addition, it supports the longer-term possibility of applying data
mining techniques to the underlying data in order to identify important trends.
Fig. 3.3 Using data warehousing to meet analysis and reporting requirements
Seniormanagement
Operative applications
Two-waycommunication
Data warehouse
Extract, transformand load
Source systems(internal and external)
BU1
BU2
BU3
SSC – people, processes and systems
Electronic procurement technology
This technology is typically used in multinational environments (including regional
or global shared services operations) as a web-based tool to handle the purchase of
indirect goods. Through these buy-side Internet applications, the procurement
group organizes, expedites and monitors the purchasing process, facilitating
communication within the company as well as with the company’s suppliers.
The most popular form of e-procurement involves the use of software acquired
from a third party vendor. In the classic case the buyer negotiates a contract with
each of its suppliers, agreeing to purchase certain indirect goods at discounted
prices, then loads digital versions of the suppliers’ product catalogues alongside
an e-procurement application such as Ariba Buyer or Commerce One Buysite.
Employees use their browsers to search the catalogues, choose what they need and
create requisitions. When a manager approves a requisition through a browser,
the e-procurement system creates a purchase order, which is streamed directly into
a supplier’s inventory application for processing. A third party can also host the
e-procurement application for the buyer. Sometimes the application is purchased
and operated by an e-marketplace, a website serving as intermediary between
multiple buyers and suppliers.
Whatever the scenario, the benefits of e-procurement are twofold:
■ it allows automated contract settlement, consolidation of suppliers, optimized
prices and increased supplier collaboration together with better information to
make more informed purchasing decisions;
■ the end-to-end procurement process becomes much more efficient when
requisitions and orders move around electronically instead of on paper, notes or
faxes, circumventing the time-consuming processes that drain firms’ corporate
assets.
Average organizations using e-procurement have routed about 3 per cent of their
spending through the tool; however, as shown in the list below, significant increases
in e-procurement spending are expected by organizations that have invested in these
technologies. E-procurement solutions offer significant cost reduction benefits to
buying organizations by means of:
■ reducing administrative costs by 60 per cent to as much as 95 per cent;
■ curbing maverick purchasing to up to 25 per cent of purchases from 40 per cent
of purchases (McKinsey, 1999);
■ transforming the purchasing organization that becomes more strategically
focused (Waltner, 1999);
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Shared Service Centres
■ reducing considerably error and dispute resolutions costs, with up to 30 per
cent of manual purchase orders requiring some sort of error-correcting rework;
■ bringing a high return on investment and satisfaction, providing the highest
ROI of any enterprise-wide application, paying for itself within a year, and with
up to 85 per cent of heavy system users being highly satisfied with the results
(Bonisteel, 1999).
According to Forrester Research, the success of this hands-off procurement tool
depends on three tightly linked assumptions:
■ procurement applications will help the firm to keep down the number of
suppliers and to draw up more favourable contracts;
■ all employees will use the installed e-procurement system, eliminating rogue
spending;
■ when all buyers and suppliers are online, the firm’s total spending on goods and
services will fall to a natural low.
Direct access to banking
In the early 1980s companies recognized that there were economies of scale and
improvements in control to be had in the regional consolidation of treasury and
banking functions into a separate, formal legal entity. The essence of the shared
service centre concept is a greater integration of the treasury function with other
key financial functions. Technological advancement has been a key factor in this
integration process. Treasury centres previously were characterized by a focus on
tax efficiency and worked in a stand-alone environment with little interface to
other parts of the company’s financial organization.
One example of advances in banking technology is the Bank of America
automated accounts payable system. Clients send a single file directly from their
accounts payable system containing payment instructions. On the date specified
in the file, the bank initiates payment in the format requested – cheque, wire or
automated clearing house. It has recently introduced a new payment enhancement
that enables a client’s accounts payable system to automatically generate wire
payment orders to the Bank of America.
The bank provides the client with the EDI file format so that the accounts payable
system can build the file of payment orders, including remittance information such
as invoice date. In order to protect the data, a security package is used. The system
then dials up the bank or uses the Internet to send the file. The bank validates the
file and sends the wire payment and remittance information to the appropriate
SSC – people, processes and systems
clearing system. A few minutes after receiving the wire request, the bank sends to
the company’s accounts payable system an EDI advice acknowledging the order.
XML: the new EDI
Electronic data interchange is the established standard for exchanging business
documents electronically today. It is limited by rigid definitions for specific
documents and lacks the flexibility to accommodate individual company or
industry needs. These limitations have led many to propose that XML will become
the next generation EDI, taking business-to-business application integration to new
levels (Brown and Cronin, 2001). The interactive database Internet language XML
promises to remove EDI’s restrictions, enabling ubiquitous sharing of business
information in a format that can be easily recognized and processed by business
applications. Extensive Mark-up Language is a powerful tool with the potential to
replace, extend and improve EDI’s capabilities. However, this view must be
tempered by the reality that for business-to-business application integration there
are no simple solutions. Initial XML pilots show great promise. However, the real
value of the technology must be proven by wide-scale and cross-industry rollout of
projects using XML.
THE LIMITS OF IT – ENTERPRISE
APPLICATION INTEGRATION
It is unlikely that a single ERP platform will meet all the information systems (IS)
requirements of the SSC. As a result many shared service centres find themselves
running a number of different applications. The question of integrating these to
provide effective service to the client organizations is often time consuming and
expensive. Immediately following the ‘go-live’ period when resources are stretched to
a maximum, SSCs often find themselves relying on manual integration using extract
programmes and spreadsheet tools to provide the necessary information. As a result
the neat technological architecture which may have been envisaged in the IS strategy
for the SSC may take several years to emerge. Careful consideration needs to be given
to planning the enterprise application integration (EAI) activities, particularly given
their increasing importance in the context of e-business and e-government.
Through EAI, a company can align its organization with its technical environment
regardless of the technology platform. Enterprise application integration tools enable
the truly seamless operation of business processes across a wide variety of legacy
systems, ERP systems and specialized applications.
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Shared Service Centres
There are other compelling reasons for deploying EAI solutions in SSCs, including:
■ efficient information sharing that leads to accelerated time-to-market and
improved business intelligence;
■ consistent, integrated and personalized customer service, enabled by up-to-the-
minute information and seamless service and knowledge;
■ flexible and extensible architecture that allows the freedom to choose best-of-
breed products and helps avoid the need for expensive or inflexible, customer-
built, point-to-point solutions;
■ zero-latency: real-time access to data that resides in disparate systems,
regardless of location;
■ integrated business processes that help reduce operational and inventory costs.
By leveraging EAI technology, companies can unlock all the benefits of an end-to-end
value chain. For example, development time for the interfaces between systems can
be greatly reduced.
Since fewer manual interventions are required to consolidate data from various
business units and their disparate systems, EAI tools also reduce the number of
costly errors while increasing productivity in the SSC and beyond. Moreover, EAI
tools can dramatically reduce IT maintenance costs. Most system upgrades,
enhancements and add-ons can be made at the centralized hub rather than at each
point of integration, saving significant time and labour. The number of remote IT
personnel required to maintain interfaces between systems is also reduced. Plus,
companies experience lower frequency and duration of service interruptions due
to maintenance activities.
Finally, the EAI solution can speed the integration of acquired companies into the
SSC environment. By creating a true ‘plug and play’ infrastructure, EAI enables
acquisitive companies to maximize operational cost reductions, knowledge sharing
and marketing synergies that mergers and acquisitions can provide.
Naturally, by taking on the integration challenge, companies face a number of
hurdles. Consider, for example, when a telecommunications company integrates
and consolidates its customer information into an SSC. In a simplified example,
customer information usually resides in at least five different places:
■ a customer relationship management system that contains sales history and
customer background information;
■ a billing system, in which resides tariff information related to billing;
■ a service management system that contains the customer’s service history;
■ a network management and provisioning system that provides details about the
customer’s physical service on the network;
■ a financial system that maintains payment history and credit information on
the customer.
SSC – people, processes and systems
None of these systems was designed to hold all of that information. So, currently,
when employees create new customer records or update existing records, they
probably have to access more than one of the five systems.
In order for the EAI solution to be effective in this scenario – to provide a ‘single
customer view’ – the integration team must define and construct business rules to
specify how the different elements of customer information in different systems
will relate to one another. For example, when the same customer record resides in
more than one system, a decision must be made about which system will become
the ‘master’ and which the ‘slave’. Any changes made to that piece of customer
information must be made to the master system, which then drives the change to
the slave systems.
Making this determination requires the integration team to identify what
business processes are being driven by the particular piece of customer information
and, based on that, which data source would logically become the master. Who is
responsible for the ultimate decision? Typically the project sponsor should be the
decision maker. But that person should empower a cross-functional team of all
affected parties to provide recommendations on what makes the best business
sense. Thus, the integration issue becomes a change management problem, in
which one functional area of the business must be persuaded to agree that this
piece of information on their system will actually be populated and driven by
information from another functional area.
Enterprise application integration is not a panacea that can fix every integration
issue a company will face when migrating to the SSC environment. In fact, by
choosing integration as a solution to broader business issues, companies create a
number of additional hurdles that must be overcome. Yet by addressing those
hurdles, companies can increase the overall value of their technology assets and
they can create business opportunities that did not exist before. For example, in
addition to adding functionality, a company can also reduce the maintenance of
the overall technology they have in the business by capturing the rules about the
different pieces of information relating to the newly integrated systems. More
importantly, they can also increase the overall flexibility of the technology
environment. This capability should allow them to release new products faster
and make business changes in a much more timely fashion than before when they
had so many disparate systems, where the processes were not well defined, and
where the handoffs between the different systems were not understood.
EMERGING BEST PRACTICE IN SSCs
A number of trends have emerged in recent years with regard to FSSCs. In
particular 2001–2 saw the emergence of so-called second-wave shared service
centres. These technology-enabled centres attempt to leverage web/Internet
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Shared Service Centres
technologies in order to dramatically improve SSC performance. Stephen Barr in
a recent article in CFO Magazine outlined some of the challenges and changes
facing the chief financial officer of the 21st century. In the years ahead the finance
function is faced with reinventing itself in the face of many challenges.
The biggest of these challenges is undoubtedly the challenge of e-business. In a
recent report entitled ‘E-Finance’ KPMG consulting suggest that the ‘finance
function must break out of its comfort zone and embrace e-business. The web
provides finance with the opportunity to get closer to the actual business rather
than having people and problems come to the finance department.’ In particular
they point out that e-finance will allow the CFO to:
■ eliminate transaction processing;
■ embed financial controls in technology;
■ empower decision makers;
■ explore new opportunities and relationships with stakeholders in order to
create value.
The emergence of e-business and the need to continue to attract work to the SSCs
has prompted a number of SSC managers to expand their activities beyond the
traditional accounting areas.
A growing volume of transaction data arising from e-business applications
With the move to e-government combined with the widespread use of the web for
procurement and service delivery, SSCs in the public sector will need to address a
range of data management issues. In particular, there is likely to be an increased
requirement for higher levels of data integrity since part of the e-government
process will involve data becoming externalized in the move to open systems.
Under the web-enabled SSC, high volumes of detailed data are captured and
processed automatically but exceptions may still occur. As a result, the role of the
SSC changes from processing transactions and applying internal controls, to one
in which the centre deals with processing exceptions while internal controls are
embedded in the web applications. From a technology perspective the SSC must
meet the challenge of dealing with the diverse technology platforms of the vendors
who supply the client organizations. As a result, EAI can be problematic.
Research indicates that web-enabled transaction processing reduces costs by up to
20 per cent, yet only 15 per cent of companies use the web for purchasing.
SSC – people, processes and systems
A growing move towards self-service finance transactions using the web
Using the web functionality provided by ERP vendors, SSCs are offering more and
more services directly over the web. These include not just traditional e-commerce
applications in the form of business-to-business procurement, but also services to
employees and the public – for example, employees can fill in expenses claims with
screen prompts highlighting invalid or excessive claims. Private sector organizations
such as Cisco have shown the effectiveness of web-based HR processes and this
functionality is now becoming standard from many ERP vendors.
Controls are becoming embedded in the processes, for example accounts
payable and fixed asset management are embedded in the supply chain process or
revenue management as part of the customer care process. In addition, intranets
allow suppliers to access internal organizational information to improve the
co-ordination of the supply chain.
Web-based distribution of information
Many SSCs have found that providing an easily navigable intranet is an effective
way of distributing large amounts of reports to dispersed users (see Figure 3.4).
Using web technologies can significantly reduce the number of telephone calls and
e-mails from client organizations.
Fig. 3.4 Web-based information delivery
51
Server side Java
HTMLgeneration
Applicationserver
Internet
Timedevent
Databasechange
Incominge-mail
E-mailgeneration
Manualtrigger Netscape Explorer
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Shared Service Centres
In presenting their financial and business data, some SSCs have used formats and
tools designed to assist the user in reviewing, analyzing and using the information.
For example, SSCs can incorporate formats or features in the web versions of their
reports that make them easier to use, such as:
■ linked table of contents;
■ hyperlinks that connect items to other relevant sections of the report and to
other relevant documents;
■ multiple file formats (for example, PDF and HTML).
In some web sites, a downloadable data feature allows the user to copy data into
the appropriate word processing application or a spreadsheet application. At least
one SSC familiar to the authors also provides analytic tools to assist its users in
summarizing and analyzing the financial data processed.
Other SSCs regularly monitor usage of their intranet/web site to identify ways
to improve site efficiency and increase usage. They not only monitor the total
number of hits, but also collect data indicating the usefulness of the different types
of information included on the web. In addition, those organizations often use
recurring information requests, informal feedback and a review of web site traffic
to identify data needs that can be better met through electronic distribution.
A notable recent development in the area of web-based distribution of information
is the emergence of eXtensible Business Reporting Language (XBRL). Sponsored by
the American Institute of Certified Public Accountants (AICPA), XBRL is an open
specification for the online publication of financial reporting information. It is
designed to improve the transparency and usability of all financial data published on
the web. While it is initially aimed at meeting the demands of investors and
shareholders, it will also have applications internally within organizations since it
provides a core XML-based specification for the presentation of financial
information over the web. (For a fuller discussion of XBRL see www.XBRL.org.)
These second wave web-enabled shared service centres are designed to meet the
unique information and transaction processing requirements of the business-to-
business and business-to-customer e-commerce environment. Under the e-centre
concept firms replace existing manual paper-based transaction processing with
streamlined e-commerce processes where processing volumes per full-time
equivalent staff increase by a factor of ten, thus allowing staff in the FSSC to focus
on higher value added analysis and reporting. Under the e-centre concept existing
processes such as the purchase to payments cycle are moved to the web, thus
eliminating time-consuming manual processes.
This move to web-enabled processes is facilitated by an emerging range of
enterprise systems from vendors such as Oracle, SAP and Peoplesoft. While these
firms were initially slow to respond to the potential of the Internet, they have all
recently made significant investments to ensure their core enterprise resource
SSC – people, processes and systems
planning systems are web compliant. The move towards the e-centre has also been
prompted by the realization among the profession that the techniques and
approaches of the 1990s will not serve them well in the web-enabled world of the
21st century, where changing business models and the pressure to create shareholder
value requires a change in mindset from the stewardship and control role to the
value creation perspective.
For the SSC director there is also the changing business architecture with the
increased emphasis on managing relationships with suppliers, customers, partners
and other stakeholders. Increasingly the organizational value chain encompasses a
complex world of online business-to-business markets and specialist industry online
exchanges fed by a global supply chain. These industry driven e-enabled supply
chains are already visible in the automotive and chemical sectors and are likely to
become pervasive by 2005. While these vertical exchanges reduce the complexity of
the procurement process, they often add an additional layer of systems complexity
as SSCs are faced with integrating their existing ERP system with newer software
systems such as Commerce One, Sterling and i2i. In some cases firms may be
participating in several different procurement exchanges each with their own
preferred system platform. The promise of ERP with single system, single data
instance is rapidly been undermined by the business-to-business explosion.
Increasingly firms are outsourcing more and more activities and moving
non-core support activities to the shared service environment. If the business of
the future resembles anything it will look like CISCO, where the key activities are
building brands and ideas. This so-called weightless manufacturer has tried to
outsource and web-enable as much as possible. Its success in doing this is reflected
in its market capitalization. In the virtual world of the web-enabled shared service
centre, the core competency will become one of establishing and maintaining
relationships based on a reengineered business model.
Case study 3.1
Exel: Optimizing through shared services – a successful partnership
Exel operates freight services on behalf of other companies, relying on a network of
suppliers in 15 European countries. These activities generate more than 1 million invoices
a year. With the evolution of e-mail and other digital technologies, Exel realized that it could
make use of shared services to centralize and automate its accounts payable processes,
thus cutting costs and improving efficiency.
In 1999, Exel realized that it had a problem. Fifteen dispersed accounts payable offices
were doing the same job. The resulting communication problems and overlap in invoicing
tasks led to inefficiencies, delays and unnecessary expenses. Following a radical rethink of
its operations, Exel opted to transform its accounts payable operation. Rather than
operating dispersed offices, the company consolidated its accounts payable department
under one roof by opening a shared service centre in Dublin. In order to further streamline
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Shared Service Centres
the processing of invoices, Exel incorporated new technology that enabled employees to
index and track paper invoices electronically. In addition to increasing the company’s overall
efficiency, these moves saved the company £500,000 in one year.
For Exel, a pan-European supply chain firm, dispersed accounting offices meant dealing
with currencies, mail, phones, different procedures for each department and a whole lot of
other administrative headaches, including co-ordinating 15 accounts payable departments
scattered across different countries and regions. Needless to say, these headaches cost
time and money. But back in 1999, that was just how things were done. Invoices and
purchase orders were processed at local offices and few standard procedures were in place
to track problem invoices or accounting errors.
Shared services and the right technology
To consolidate its processes, Exel moved all accounts payable activities to one location, and
implemented Tranmit’s Sprinter applications to manage and process the flow of electronic
images. Rather than operating from 15 different accounting offices, Exel now routes all its
accounts payable through one accounting centre in Dublin. By doing so, the company resolved
innumerable problems and inconsistencies that reared their ugly heads when the accounts
payable offices were scattered across Europe. Tranmit’s Shane Hussain explains: ‘Before we
came into the picture, Exel used to process invoices within the countries themselves. The
suppliers would send the invoices to the accounts payable offices in each country.’
The old system: fraught with inefficiencies
Exel’s old, distributed way of processing accounts was fraught with inherent inefficiencies.
Over and above the mere logistics of communicating between international offices, the old
system was subject to endless delays and frustration. Communication between regional
offices was slow and expensive.
Multiple offices meant multiple discrepancies
When Exel delivered goods, employees had to match invoices received in the countries
involved with the purchase order before Exel could pay suppliers. Employees often failed to
follow order procedures. As a result, invoices frequently lacked information, making it
difficult for employees to locate the corresponding purchase order.
Exel had no universal process in place for resolving queries or authorizing payments. When
accounting inaccuracies occurred, Exel staff had to manually identify, investigate and track
discrepancies. Regional offices cost the company time and money in simply communicating
with each other in order to resolve invoicing inaccuracies.
The move to shared services
In 1999, Exel management resolved that the company should become more efficient in
processing international invoices. It became apparent that, in order to remain competitive,
the company needed to redesign its invoice approval process, automate delays, establish
an audit trail – and centralize its accounts payable operations. Exel began looking for a
solution that would work with its present procurement system. The technology needed to
increase productivity and improve the reliability and control of the company’s cash flow. ‘Exel
decided that they would collapse all of these localized accounts payable finance areas and
actually set up a shared service centre in Dublin,’ Hussain said. ‘The Tranmit Sprinter system
SSC – people, processes and systems
was the appropriate tool to facilitate the invoice approval workflow of the shared service
centre in Dublin.’
Compacting 15 offices into one
Exel centralized its operations and integrated Tranmit’s Sprinter application with its existing
procurement technology. The new technology incorporated all of Exel’s accounts payable
procedures, thus ensuring that the process was transparent and auditable. By moving
operations to one central shared service centre, Exel streamlined its accounts payable
system, and by doing so increased efficiency. By providing fast, accurate accounting and
payment, Exel also improved its relationships with its clients and suppliers.
‘Exel wanted to make sure that the service levels they were providing to the customers
and the suppliers were indeed significantly better than when the invoice processing was
local,’ added Hussain.
Now that the Dublin-based European services centre has replaced Exel’s network of
accounts payable offices, 40 employees process the company’s European invoices. When
invoices arrive at the Dublin centre, they are scanned and indexed into a central system for
processing. Within 24 hours of an invoice arriving at the Dublin centre, employees have
matched the invoice to its corresponding purchase order. Within another 24 hours, the
Dublin employees have distributed unmatched invoices to be investigated. When there is a
discrepancy, the centre’s Sprinter application kicks in, and begins following traceable steps
such as contacting the supplier and e-mailing the originator of the order in order to find the
source of the problem.
Because all documents are processed electronically and reside on a central system, Exel
can track the path of each transaction. When a problem arises, employees can follow a
defined, documented path rather than engaging in a time-consuming paper chase.
Streamlining … and saving money
By moving dispersed regional offices into a centralized shared services facility, Exel estimates
that it has saved £500 000 per year. The company has removed duplicate tasks from its
accounts payable process, improved customer service, strengthened its relationships with
vendors, and saved money on telecom bills. Additionally, Exel’s more streamlined and
centralized accounts payable process means that, although the work is being done by fewer
staff, anomalies are decreasing, and all processes can be tracked and audited. In the long
term, Exel estimates that by centralizing its accounts payable department the company will
cut queries to 10 per cent.
Well worth the effort
Exel realized that, despite the effort involved, shifting internationally dispersed accounts
payable offices to one shared service centre was an essential step in the company’s growth
and development. By processing invoices and purchase orders all under one roof, the
company has been able to streamline tasks that were previously carried out in duplicate at
the company’s regional offices.
‘Setting up a shared service centre is complicated because you have to overcome the
issue of local accounts payable areas and to an extent the finance area without losing
elements of control,’ Hussain concluded. ‘The key is to make sure that what you have as a
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Shared Service Centres
part of an overall setting up of a shared service centre is also a mechanism that actually
provides visibility of all the transactions.’
Shared services optimized Exel’s accounts payable by:
■ shortening the time between receiving an invoice and paying the supplier;
■ saving £500 000 per year;
■ cutting back on phone, mail and fax expenses;
■ using less office space;
■ improving customer service;
■ saving money on labour;
■ processing invoices faster, with fewer inaccuracies;
■ providing an audit trail of all processes;
■ scanning all invoices and purchase orders and making them available online.
CONCLUSION
The decision to move to a financial shared service environment brings in the need
for enabling people, processes and IT resources. Benefits from the shared service
approach will typically come from three major areas:
■ people-related benefits derived from reduced headcount and operational costs
among others;
■ process-related benefits such as economies of scale, reduced process costs and
deployment of best practices;
■ technology-related benefits such as reduced operating costs and global technology
deployments and as well as better and faster access to information.
Table 3.2 summarizes the main benefits for each area.
Table 3.2 SSC benefit analysis of three major areas
People ■ Reduced headcount and operational costs■ Improved spans of control■ Higher customer focus■ Improved quality of service■ Improved skills profiles
Process ■ Reduced costs■ Increased productivity■ Economies of scale■ Improved standards and stress on the deployment of best practices■ Reliable and easily available information■ BU partnering focus
SSC – people, processes and systems
Technology ■ Organizational-wide technology deployment■ Platform scalability■ Reduced operating costs■ Better available information■ Faster access to information■ Common and consistent data models
Source: KPMG report on packaged software
The challenge for the SSC is to create value added through a comparative advantage
in information and knowledge-based processes. The shared services organization
must become web compliant at all levels and processes and develop a culture of
global citizenship where the focus is on managing the complex and changing
relationships which make up the value chain. To do this, shared services experts will
need to develop their change management expertise as well as their systems
integration and communications skills.
References
Arthur Andersen (1997) ‘Insights on European Shares Services Operations’
Bonisteel, S. (1999) ‘Electronic Purchasing brings business savings’, Newsbytes
news network, 10 November
Brown, C. and Cronin, T. (2001) ‘XML: the new EDI’, White Paper,
http://www.itpapers.com, February
Derfler, F. jr (2000) ‘E-Procurement and B2B marketplace: Smart Business
Buying’, PC Magazine, 19 (13), 275, 22 June
McKinsey & Company (1999) ‘B-to-B Buying Communities’, Business 2.0,
December
Waltner, C. (1999) ‘Procurement pays off: companies are finding that
procurement software comes with a quick ROI’, Information Week, 26 July
57
4Location and migration
Why location matters 61
Do I have to move? 61
SSC locations – criteria for decision making 62
The global geography of shared services today 66
Conclusion 70
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Location and migration
WHY LOCATION MATTERS
The search for the best location for the shared services organization ranges from a
simple decision to locate in available space or within current facilities to the
international search for the best new ‘greenfield’ site. The key decisions in site selection
are whether to locate close to current operations or at a more remote site, whether to
have single or multiple sites, and whether to co-locate with clients or to stand alone.
In these days of high-speed communication, with combined voice and data
networks, the location of a shared service centre might seem almost irrelevant,
apart from the need for sufficient quality labour and cost considerations. As Table
4.1 illustrates, organizations believe that there are other factors to be taken into
consideration.
Table 4.1 Top criteria when selecting a site for the SSC (%)
Labour: availability of skilled people, new skills 74
Communications/infrastructure: telecommunications, transport, etc. 48
Operational presence of the organization/proximity to customers of shared services 36
Proximity to corporate/regional headquarters 25
Office space: availability of office space, etc. 23
Labour costs 20
Source: Andersen/akris.com survey (2001)
An appropriate location is most difficult to decide for organizations that operate
on a global level. In many cases, these organizations opt for multiple locations, or
‘hubs’, that serve specific regions (such as Europe, the Middle East, Africa, Asia,
South and Central America, and/or North America). This helps when you
consider the number of languages (and, until 2002, currencies) in Europe and the
different stages of development in African and Asian countries, for example. In all
cases, the prime consideration should be the ability to provide the best level of
designated services. Following this, it really is a balancing act between the ability
to recruit highly skilled management personnel, the extent to which at some
future point virtual organizations or even ‘lights-out’ processing may become a
reality, and all of the other cost-reduction factors involved.
DO I HAVE TO MOVE?
Often moving to a new location is not a choice. Whatever may be the attractiveness
of moving to a new, independent location, the threat of losing key people, the cost
of training new employees and many other factors can rule out a move. More
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Shared Service Centres
frequently the corporate will may simply not be there and the temptation to keep
the SSC close to the corporate centre, or in an existing location where some unused
space has ‘just become available’, can override logical argument for relocation to a
site that is neutral and visibly free from undesirable biases.
For a purely domestic organization, with business units in several locations, it is
often sensible to choose either an existing or new location central to all of the
business units, or to benchmark the existing business unit which carries out the
shared services unit’s activities most effectively and establish it there. If transaction
processing is the foremost consideration, the location should provide access to well-
educated employees at reasonable cost and tax levels, as well as room for expansion.
Moving to an independent location immediately endows the shared service centre
with the image of an entirely new business unit within an organization, rather than
one that has been cobbled together from parts of the existing business units. A fresh
start, so to speak. Having said this, it may be helpful to be physically close to the
organization’s other business units, since proximity helps the unit identify with
clients and in turn, clients may be reassured by having services ‘close-at-hand’.
Whatever your objective, setting up a shared services unit in a new location
could become one of the most important decisions you make as you strive for
excellence in shared services. There are several reasons why organizations choose
a new or different location:
■ to abandon the mindset and culture of the old organization;
■ to build a new service-oriented culture with new people;
■ to leave behind redundant labour;
■ to access lower-cost labour;
■ to access special skills, such as foreign languages and IT;
■ to benefit from more flexible employment conditions;
■ to move closer to the epicentre of the client base;
■ to access lower-cost accommodation;
■ to access higher-quality infrastructure, such as telecommunications;
■ to benefit from more favourable fiscal arrangements.
SSC LOCATIONS – CRITERIA FOR DECISION MAKING
The criteria for selecting a location are consistent across most organizations that
are looking for a place to put their shared service centre. Moran, Stahl & Boyer
is a consulting firm based in Atlanta, Georgia that specializes in site selection.
Location and migration
They have defined a list of considerations, illustrated in Table 4.2, which range
from labour availability and costs to local community support and image.
Table 4.2 Criteria for site selection
Labour availability Business taxes
Labour cost Power reliability
Facility costs Communications
Access to company facilities Infrastructure
Labour quality Incentives
Quality of life Community image
Air access Community support for business
Source: Quinn et al. (2000)
There are one-time costs of setting up a new location as well as ongoing cost and
non-cost considerations. The one-time costs of setting up a new centre location as
those related to employee relocation and the separation costs for those leaving the
organization. There are also one-time costs for moving office furniture, fixtures
and equipment, and for moving and setting up technology hardware. Recurring
costs for consideration are employee salaries and benefits, ongoing facilities costs,
rent, operations and maintenance. Non-cost issues are those related to how far
people have to travel on a daily basis to come to work and the quality of life that
employees can have in the new community. These recurring and longer-term cost
and non-cost considerations will have the greatest impact on the sustained success
and performance of the shared services organization.
Key site selection criteria
Research on shared services in Europe identified a more comprehensive list of
factors which firms typically need to take into account. The key site selection
criteria identified in the literature include the following.
Cost/benefit
■ What is the assessment of the site’s equipment network and support capabilities
and current utilization – current equipment capacity, network capability and
utilization, hardware/platform configurations and staff to maintain new capacity?
■ What is the assessment of the site’s wage scales and incentives, establishment of
common job descriptions and job levels, local government and company
allowances and make up of fringe benefit rate?
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Shared Service Centres
■ What is the assessment of the site’s tax and duty requirements – specific site tax
and duty advantages and disadvantages, tax holiday and incentive schemes,
general permanent residency status and taxation, i.e. to sign cheques? If work
is being done for another country will this allow taxation?
■ What is the assessment of the site in total start-up costs – initial expenses for
people, technology and equipment, government grants and assistance, and if work
is moved to another country, relocation or training grants for new employees?
■ What is the assessment of the site with regard to the total closing costs if a
shared service centre is not established – restructuring and investments that
have been made locally and disadvantages if presence is not established?
■ What is the assessment of the site’s overall working local environment for a
shared service centre – the political climate, stability or otherwise, regulatory
and compliance issues on general company data and/or personal data, the ability
to exchange data within and outside the country, and time zones among clients?
Tax/treasury/legal
■ What is the assessment of the site on government regulation or information
in/out of countries, regulations regarding data processing, paper invoicing,
record retention and edifact rules, exchange control in/out of the country,
requirements on location of the company’s books, confidentiality rules (i.e. can
one country review the books processed for another country) and intercompany
invoicing practices and processes?
■ What is the assessment of the site on specific cultural issues, cultural norms,
practices which will impact business, language, historical and political practice,
and norms?
■ What is the assessment of the site regarding infrastructures to support the
centre, roads, telecommunications and utilities?
Client/business support
■ What is the assessment of the site regarding current and future client and
business support by finance, the role of total finance (the non-shared service
centre work at the local business unit), quantitative factors, e.g. knowledge of
client business, ability to accommodate unique business practices, ability to
assimilate common practices/programmes, awareness of who and where clients
are, and the knowledge of the needs of clients?
Human resources
■ What is the assessment of the site’s total population and skills levels, shared
service centres staff, non-shared service centre staff remaining at the local
Location and migration
business unit, continuance of client support by job rotation, language (can
English and the local language be supported), and international accounting
knowledge within the multi-entity, multicurrency environment?
■ What is the assessment of the site on government barriers/assistance when
relocating workers, workers’ councils and unions, and limitations of human
resource movement across legal entities?
Other considerations
Table 4.3 SSC location criteria based on a review of the literature
Cost benefits ■ Wage scales and incentives, local government and company allowances, fringe benefits
■ Tax and duty requirements, tax holidays and incentive schemes, requirements for taxation status
■ Government grants and assistance■ Relocation or training grants for new employees■ Closure costs of existing sites, etc.
Local environment ■ Political climate, stability or otherwise■ Regulatory and compliance issues on general company data
and/or personal data■ The ability to exchange data within and outside the country,
time zones among clients■ Roads, infrastructure, telecommunications, utilities■ Specific cultural issues, cultural norms and practices, language
Tax/treasury/legal ■ Access to banking system■ Government regulation on information in/out of countries,
consider regulations regarding data processing, paper invoicing, record retention and edifact rules
■ Exchange control in/out of the country, requirements on location of the company’s books, confidentiality rules
Human Resource ■ Total skill pool and skills levels■ Language skills■ International accounting knowledge within the multi-entity,
multicurrency environment
In identifying and selecting an appropriate location, many firms will engage
consultants to offer advice on the different potential sites. While this is a useful
starting point, there is no substitute for ‘gut feeling’ and two or three extensive and
well-planned visits by the CFO, project leader and others to the short-listed sites.
In applying these types of criteria to sites, firms will often try to rank locations on
the basis of a cumulative score across the various factors (see Figure 4.1).
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Shared Service Centres
Fig. 4.1 Example of a comparison of different locations
THE GLOBAL GEOGRAPHY OF SHARED SERVICES TODAY
While shared services took root across the USA as early as the 1980s, the concept
of pan-European shared services has proved to be the Holy Grail for many
companies. Historically expensive in terms of labour costs, the Netherlands and
Belgium, especially Flanders, stand out as popular locations in Europe for new
shared services units. Geographically in reach of most major western European
markets and with a history of being outward focused due to relatively small internal
markets, they have a high percentage of multilingual inhabitants and a flexibility
and work ethic that results in high levels of productivity. The Netherlands, which
according to Vanderwicken’s Financial Digest claims to have attracted 400 US
companies to establish centralized administrative operations between 1999 and
2002, emphasizes its multilingual labour pools, modern infrastructures and
sometimes tax breaks too. Shared service centres are now likely to move to locations
further from Dublin as the labour pool begins to come under strain and special skills
such as foreign languages become more difficult to find.
As Table 4.4 illustrates, many firms are now looking to more far-flung locations
which come with their pros and cons. The global trend remains regional centres
in North America, Europe or Asia Pacific but there is a growing interest in Latin
America. However, for many firms some countries will still need to be mostly
served by national centres.
6.2
Brisb
ane
5.1Be
ijing
5.0Gu
angz
hou
5.0
Shan
ghai
5.2
Bang
alore
5.2
Chen
nai
5.1
Hyde
raba
d
5.3
Mum
bai
5.3
New D
elhi
5.0
Pune
5.4
Kuala
Lum
pur
4.9
Cebu
5.4
Man
ila
5.4
Taipe
i
5.2
Bang
kok
4.5
Ho C
hi M
inh C
ity
6.1
Sing
apor
e
6.1
Auck
land
6.2
Perth
6.7
Melb
ourn
e
6.8Sy
dney
Taxation and incentivesAccessibility/infrastructureAttractiveness for international staffLabour flexibilityLanguage skillsLocal staff availabilityGeneral business environment
Overall weighted quality score
Location and migration
Table 4.4 Some emerging offshore options
India
Pros Cons
■ 12-hour time difference from USA ■ Distance from USA limits ease of site ■ East coast ideal for round-the- visits/training
clock work ■ Some problems with physical ■ Huge labour pool infrastructure, particularly power■ Excellent education system■ English-speaking
Philippines
Pros Cons
■ ‘American’-speaking ■ Some political instability■ Excellent education system ■ Some physical infrastructure shortcomings■ Stable workforce
Russia
Pros Cons
■ Overbuilt, redundant infrastructure ■ Labour pool has little or no business ■ Inexpensive labour pool training■ High number of PhDs and engineering ■ High rate of business fraud
degrees ■ Asset risk
Ireland
Pros Cons
■ EU member ■ Victim of its own popularity, with rising ■ Business-friendly government labour and overhead costs■ Corporate tax rate of 12.5% to be ■ Intense competition for skilled labour
phased in by 2003 ■ Relatively small labour pool■ High rate of multilingualism■ Excellent education system■ English-speaking
Source: PricewaterhouseCoopers
North America
In North America the traditional locations for shared services have included San
Francisco, Salt Lake City, Phoenix, Denver and Raleigh. In recent years, however,
locations such as Albuquerque, Dallas, San Antonio, Tampa and Kansas City have
begun to emerge as locations (see Figure 4.2).
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Shared Service Centres
Fig. 4.2 North American SSC locations
Source: PricewaterhouseCoopers
Europe, the Middle East and Africa
In EMEA, Dublin and Amsterdam have long been popular with firms such as
Philips, Microsoft, Oracle and so on. In recent years, however, Lisbon, Madrid
and Budapest have emerged as locations of choice, and in the future firms
envisage exploring locations such as Krakow in Poland (see Figure 4.3).
Fig. 4.3 EMEA SSC locations
Source: PricewaterhouseCoopers
Salt Lake City
DenverKansas City
Raleigh
TampaDallasSan Antonio
Albuquerque
Phoenix
San Francisco
Traditional locationsCurrent popular locationsEmerging locations
Dublin
Glasgow
Manchester
LondonAmsterdam
MaastrichPoznan
Danzig
Warsaw
Krakow
Vilnius
Riga
Tallinn
Prague
Budapest
BarcelonaMadrid
Lisbon
Traditional locationsCurrent popular locationsEmerging locations
Location and migration
India
In India, Delhi, Mumbai and Bangalore have been the traditional locations for
Global Fortune 500 firms to set up SSCs. However, recent arrivals in India are
looking further afield to cities such as Pune, Hyderabad and Chennai.
South America
South America is a relatively new and emerging player in the SSC location game.
The size of the collective consumer market, however, makes it almost certain that
cities such as San José, S~ao Paulo and Santiago will continue to attract regional
shared services activity. Already firms such as Carrefour are exploring their South
American options as past of their move to a global network of shared services.
Asia Pacific rim
While the Asia Pacific rim has long been a preferred location for low-cost
manufacturing, it is only in recent years that firms have looked to the region as a
potential location for shared services. As Figure 4.4 illustrates, the geography of
Asia makes places such as Manila, Brisbane, Perth, Auckland, Bangkok, Hong Kong
and Kuala Lumpur suitable locations.
Fig. 4.4 Asia Pacific rim SSC locations
Source: PricewaterhouseCoopers
69
Kuala Lumpur
Singapore
Hong Kong
Manila
Perth
MelbourneSydney
Brisbane
Auckland
Bangkok
Traditional locationsCurrent popular locationsEmerging locations
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Shared Service Centres
CONCLUSION
One of the significant findings from a recent akris.com survey is the growing
proportion of shared services that are operated in Asia Pacific (11 per cent), South
America (6 per cent) and eastern Europe (5 per cent), rather than the region of origin
of the parent company. This is likely to be a reflection of the more favourable wage
rates and lower operating costs in those countries. It also shows that organizations
are finding ways of overcoming the geographical, cultural, linguistic, political and
economic obstacles to the implementation of SSCs in these regions.
In coming years, we expect American-based companies to make increasing use
of Central and South America, European companies to utilize Hungary, Poland
and the Czech Republic, and global companies with several hundred people in
their back office to establish SSCs in low-cost countries such as India.
Indeed, we are now seeing some large organizations setting up a four-tiered
approach to support services:
■ local: some services – for example the business partnering side of finance and
various field sales force processes – are best left at the local business unit site;
■ national: activities such as payroll, which differ greatly from one country to
another, are typically hosted more efficiently and effectively at a national level
– a payroll function is not necessary at every site but one might well be needed
in every country;
■ regional: it may be best to consolidate at a regional level those activities that
can be taken out of the country but still require language skills and time zone
proximity, for example billings and receivables;
■ global: this may constitute an SSC located in India for processes that do not
demand proximity to the local business unit or strong language skills, such as
intercompany or supplier payments.
In the future location choice will require a contingency-based approach which
matches the unique needs of firms with the relative comparative advantage of
different locations.
References
Quinn, B., Cooke, R. and Kris, A. (2000) PricewaterhouseCoopers presentation.
5Business process outsourcing
Introduction 73
Why outsource internal services? 73
Tips for the outsourcing decision 76
Managing the outsourcing relationship 78
Conclusion 81
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Business process outsourcing
INTRODUCTION
With the growing trend toward focusing on core business capabilities, many
companies are outsourcing selected business functions to expert partners who can
perform them more efficiently and cost effectively. A step beyond IT outsourcing,
business process outsourcing includes such functions as cash collection, claims
processing, invoicing, payroll and customer support.
Outsourcing administrative functions is a realistic option at any time in the process
of establishing shared services. Some organizations may see outsourcing as the only
option as they do not possess the skills or resources to create effective shared services
in-house, or they wish to avoid the inevitable disruption implementation can cause.
In the context of existing shared services, outsourcing can be viewed as the ‘third’
phase. Having decided to create internal shared services (phase 1) and followed
through by implementing best practices (phase 2), some shared services operators
realize that they will never be able to reach the standards of world-class operations
in certain of their activities. Outsourcing parts of shared services operations becomes
a viable alternative (phase 3).
The decision to outsource administrative and support activities is being taken by
forward-thinking managers who question how work has traditionally been carried out
and whether there is a better way of doing it. The availability of a new breed of third
party suppliers and complementary IT makes outsourcing an increasingly attractive
option for some. Many companies now outsource non-core and/or non-strategic
activities – such as finance, human resources, legal and administrative processes – to
third parties. These operate their businesses along shared services lines to provide
services economically to several client organizations through sharing people and
resources and by implementing common processes and systems.
WHY OUTSOURCE INTERNAL SERVICES?
The conclusion many managers reach when they realize they need to trim
overheads and eliminate inefficient internal service units is to outsource. They see
moving the problem out of the organization as the most prudent and easiest course
of action to end interdepartmental disputes, poor service and ‘unreasonable’ costs.
Implementation can be complex and always impacts people and strategy. But in
many cases, it may be the wisest alternative.
Table 5.1 gives examples of SSC activities which might be outsourced. There are
a number of specific reasons why firms may choose to outsource some or all of
their shared services activities. These include:
■ cost reduction;
■ poor internal performance;
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Shared Service Centres
■ capabilities needed for some activities not core to strategy;
■ a better, cheaper, more effective alternative;
■ insufficient expertise available to upgrade;
■ potential loss of control not an issue;
■ service no longer relevant;
■ previous experience with successful outsourcing;
■ too disruptive to make the changes internally.
Table 5.1 Examples of SSC activities which might be outsourced
Administration
1. Administrative information systems2. Copy centre management and copy production3. Consulting and training4. Data capture5. Desktop publishing6. Mailroom7. Printing and reprographics8. Records management9. Secretarial and clerical
10. General
Human resources
1. Human resources information systems2. Benefits3. Consulting and training4. Placement and outplacement5. Recruitment and staffing6. Relocation7. Workers’ compensation8. Forms processing
Finance
1. Financial information systems2. Consulting and training3. Financial reporting and analysis4. General accounting5. Internal audit6. Investment accounting and analysis7. Payroll processing8. Purchasing9. Taxes
10. Transaction processing11. Treasury12. General
Business process outsourcing
Table 5.1 continued
Sales and marketing
1. CRM information systems
2. Advertising
3. Consulting and training
4. Direct mail
5. Field sales
6. Market research and strategy
7. General
Real estate and facilities management
1. Construction management
2. Copy room management
3. Engineering
4. Facilities maintenance
5. Facilities management – general
6. Facilities operations
7. Food and cafeteria
8. Mail handling
9. Process administration
10. Real estate and plant information systems
11. Reception
12. Reservations
13. Security
14. Stockroom and supplies
The outsourcing issue should be part of a larger one regarding how the function
or functions being evaluated for outsourcing fit into the organization. As part of
the outsourcing evaluation, questions like the following should be answered:
■ What are the organization’s core competencies?
■ Which services or corporate support functions are not integral to or close to the
core competencies?
■ What are the barriers raised by the corporate culture?
■ What is the cross-functional impact?
■ Can the organization fix itself internally before considering outsourcing?
■ What might be better accomplished by an outside vendor?
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■ What are the goals the organization wants to achieve from outsourcing?
■ What kind of relationship with a vendor is most appropriate?
■ How does the organization deal with the people issues?
Case study 5.1
Algar and PricewaterhouseCoopers BPO in Brazil
Algar, one of the leading companies in Brazil, is outsourcing a number of its back office
functions to the Business Process Outsourcing (BPO) division of PricewaterhouseCoopers in
a seven-year deal. This is the first comprehensive business process outsourcing agreement
to be signed in the Brazilian market. The long-term contracting of these business processes
to PricewaterhouseCoopers BPO will enable Algar management to focus on their core
business. The result will be increased efficiency, reduced costs and a flexible and responsive
back office, all contributing to improved shareholder value for Algar.
As one of the earliest examples of a comprehensive back office outsourcing deal, this
pioneering transaction will deliver substantial benefits for Algar. Under the terms of the
contract, PwC BPO will take responsibility for finance and accounting, human resources
administration, procurement and legal support services, as well as the IT required to provide
these services. Currently all these functions are operated from 18 different business unit
locations. In the future, these services will be delivered out of a purpose-built centre of
excellence to be located in Uberlandia, Brazil. Approximately 250 people were transferred
to the employment of PricewaterhouseCoopers during the second half of 2001.
TIPS FOR THE OUTSOURCING DECISION
Some shared services units may find it impossible to compete with external suppliers,
or may be unwilling to invest in the resources, technology and expertise to carry out
certain services internally. If you have done the best you can to improve the
performance of your internal service unit and have concluded that the potential
benefits from outsourcing are greater than the downside risks, the following eight tips
should help you develop a case and get the best from outsourcing:
■ competitive advantages and the business environment: develop a clear
understanding of the strategy of the business the unit serves. Consider potential
changes that may alter competitive forces and require a change in strategy.
Consider the implications of outsourcing on the achievement of a business
strategy, including cost, quality, flexibility and timeliness. Question capacity
utilization of in-house services if demand is variable.
■ Cost: recognize the scale of cost and potential savings. Ensure a clear definition
of services to be outsourced, and their value, including such aspects as ‘free’
Business process outsourcing
advice and flexibility. Include all costs – alternative revenue from redeploying
staff and releasing facilities and social costs of termination. Use appropriate
activity-based cost measures. Avoid developing cost penalties for activities that
remain through increasing cost allocations or loss of economies of scale.
■ use a methodical approach: the process of deciding whether outsourcing is
warranted involves numerous steps or phases. These are: identifying requirements;
preparing and distributing a request for proposal (RFP); examining proposals;
evaluating vendors; negotiating contracts; and implementing outsourcing. Adopt a
methodology that describes the various steps to be performed and lays out the
project plan necessary for a thorough evaluation. Just as applications development
activities should be guided by a written, explicit methodology, the effort to
consider and possibly implement outsourcing should be systematically conducted
and documented.
■ core activities: protect and retain core capabilities and those where integration
with other activities is vital. Outsource to enable the organization to focus on
core capabilities. Don’t release proprietary information on key technologies or
customers, which may fuel the competition.
■ assess suppliers: identify the number of viable suppliers. Ensure there is
effective future competition between them. Consider switching suppliers if
necessary. Avoid the creation of a monopoly supplier.
■ develop supply relationships: select by evaluating supplier capability, culture
and fit. Explicitly state and agree expectations on service levels and future
developments. Ensure key individuals and groups understand the rationale and
support the relationship. Specify and communicate expected performance from
each partner and how it will be measured and compensated. Consider how
disputes will be settled. Aim for a simple contract, with scope to develop the
relationship. Monitor performance frequently and avoid managing the
supplier’s assets or accepting responsibility for their output. Restrain use of
power and aim to develop trust and commitment.
■ technology: use in-house technology sparingly and anticipate changes that may
require different technologies. Question the use of old technologies that may
not meet future needs. Scan potential suppliers of new technologies. Outsource
when the internal unit does not have the capability to keep up with changes.
■ revising the sourcing decision: be ready to review, revise and develop sourcing
arrangements and make sure your contract permits changes. Review the
potential cost of change in the context of changing business needs. Ensure you
maintain the ability to understand changing technologies and whether your
partner is keeping up. Do this yourself if you can, or through a third party.
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Case study 5.2
National Australia Bank
National Australia Bank has awarded a landmark global real estate outsourcing contract to
the Business Process Outsourcing (BPO) group at PricewaterhouseCoopers, the world’s
largest professional services organization, to manage its diverse 3.5 million square-metre
portfolio. The agreement expands PricewaterhouseCoopers’ existing contract with the
National for corporate real estate services in Australia, which was awarded in 1998, to
include bank properties in the UK and the Republic of Ireland. The umbrella agreement, with
an initial three-year term, is believed to be the first private sector, multicountry real estate
outsourcing contract. It is also the second major global real estate process outsourcing
contract to be announced by PricewaterhouseCoopers’ BPO group, which currently manages
the Australian Government’s $2.5 billion property portfolio spanning 60 countries.
In the UK, for example, PwC will mirror the service delivery standards already established
for the National in Australia, so that a common global performance framework can be
established. The National has a significant property portfolio, comprising some 2500 leased
and owned properties and sites, including 400 revenue tenants. The diverse portfolio
throughout Australia, New Zealand, the UK and the Republic of Ireland includes commercial
office and retail space, data centres, automatic teller machine sites, and some industrial
and residential components.
MANAGING THE OUTSOURCING RELATIONSHIP
In its work with clients in the area of process sourcing, PA Consulting have found
that major corporations around the world are not obtaining the benefits from
outsourcing that they had expected. This global disappointment is usually the
result of two fundamental errors: first, the initial approach to outsourcing is
tactical rather than strategic; second, the management of the contract is adversarial
rather than co-operative. How can corporations realize the benefits they initially
expected from outsourcing?
In PA’s recent research, they examined the most successful outsourcers and
concluded that they manage their relationships better. They invest in building the
relationship right from the very start. The most successful outsourcers have strong
relationships with their suppliers, hold high level strategic reviews, and have an
effective process for continual improvement that is underpinned by performance
measures and end user satisfaction measures. When organizations follow these
steps, they achieve higher levels of benefit and greater cost savings than those who
follow a more traditional approach.
Based on this work PA have identified four key factors that are the hallmarks of
successful relationship management:
Business process outsourcing
■ create a shared vision for the outsourcing and reflect this vision in the contractual
arrangements;
■ include effective performance measures that motivate the contractor to ensure
that its actions serve the client’s business objectives;
■ establish clear communication mechanisms;
■ develop a clear contingency plan and exit strategy.
Create a shared vision
A shared vision is the first step to managing an outsourcing relationship. In the early
days, cost or head-count reduction were the most common reasons to outsource. In
today’s world the drivers are often more strategic, and focus on carrying out core
value adding activities in-house. These strategic objectives mean that outsourcing
initiatives must come from the top. Executive management must articulate the goals
and objectives of the outsourcing initiative and communicate how the process will
benefit the organization. The goals of the outsourcing initiative have profound
implications for the selection of the partner and the future management of the
relationship. The vision permeates every stage of the process, from the earliest
establishment of goals through the writing and monitoring of the contract.
In a shared vision, both partners contribute. A specialized provider can help define
realistic requirements and added benefits. Major investment in getting to know and
understand each other is essential. This is often started through preliminary
discussions on an informal basis to learn about each other, and to obtain views on
the scope of the contract. (Interestingly, the growing complexity of the services
required has meant that in many cases nobody in the market has the necessary mix
of expertise or geographical coverage, and this has resulted in a move towards
suppliers working together to form consortia and joint ventures to provide the
required services.)
Contractual failures may arise when requirements are specified too tightly, leaving
little scope for innovation, or even more importantly little opportunity for the
supplier to be able to respond to business needs as they inevitably evolve. The added
complexity of outsourced services requires greater flexibility than before, often with
a genuine risk/reward sharing mechanism that motivates optimal performance.
Include effective performance measures
Performance measures are an effective tool for motivating performance.
Requirements should be specified in terms of outcomes rather than inputs and a
service standard attached against which to measure performance. Though it is
difficult to set performance standards, they are an extremely effective way to
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ensure high quality service, particularly when incentives and penalties are attached
for over- or under-performance. Performance standards must be realistic if they are
to be effective. In our experience, there is a tendency to overspecify requirements:
are turnround times for payables of 48 hours required if the approach process
takes seven days? In addition, the standards need to evolve over time, and normally
become progressively tighter.
Establish clear communication mechanisms
The approach to communication between the partners will reflect the spirit of the
outsourcing contract and the complexity of the services being delivered. Simple, well-
specified services, such as cleaning, catering or fleet management, will require day-to-
day operational contacts and formal performance reporting and invoicing. However,
as the services increase in complexity, more active communication is essential. In
particular, this may include joint planning of service delivery and problem resolution,
discussion of proposed innovations or changes in approach, consultation on staffing
changes and so on. This will be supplemented by regular monthly reporting showing
performance against standards, pricing and problems encountered.
Senior management must stay involved during the implementation of the contract.
Not only should there be a clearly defined escalation procedure, but senior
management should meet at appropriate intervals to discuss how the relationship is
working. Meetings should be held at the operational level to address the workings of
the outsourcing contract in practice, to identify and resolve any problems that have
been encountered, and to agree on changes to ensure continued satisfaction.
Develop a clear contingency plan and exit strategy
Despite robust communication mechanisms, the relationship between two parties
can break down, and a well-defined contingency plan is essential to address
separation or divorce.
Where essential services are provided externally, continuity must be guaranteed at
all times. Imagine a bank that is unable to process cheques, a major manufacturer
that is unable to transport goods, an airport that is unable to unload baggage or a
public service organization that is unable to process enquiries. These are clearly
unacceptable scenarios, and while the objective of a contingency plan is not for it to
be used, it is clear that it must be in place before any contract is awarded. The main
components of any contingency plan centre on people. The expertise that is required
to deliver the services rests with the people who deliver the service, and it is
particularly important to be able to pull back the key group of staff that manage
day-to-day operations. Great care is needed in this area both to address any labour
law issues and, more importantly, to ensure that staff are motivated.
Business process outsourcing
The most successful outsourcers have more mechanisms in place after outsourcing.
In today’s world of increasingly complex outsourcing, success will depend on
investing in and managing the relationship. As Heather Smith of PA Consulting says,
‘this process requires vigilance and hard work, but we have seen over and over that
the rewards to the committed outsourcer are well worth the effort.’
CONCLUSION
Business process outsourcing will undoubtedly remain a permanent fixture of the
corporate shared services landscape in the future. The cost savings are too
compelling to ignore for both the private and public sector. Driven by economic
realities and technological development, BPO is increasingly becoming more than
a co-operative notion. Capturing synergies is not just about brainstorming how
we might work well together. Those who engage in BPO in the future must do so
in ways that are much sharper and more intelligent. Business process outsourcing
already has real sticking power today and it will continue to work best when
companies are poised for explosive growth as an intelligent alternative to growing
overheads in a misguided effort to meet demand. While BPO is definitely a
permanent fixture, its form is changing rapidly. The akris.com surveys revealed
that the scope of BPO will expand radically to encompass new processes such a
e-HR, order to cash and facilities management.
The driving force behind the decision to outsource is the ability to focus on core
competencies. But what is the true value proposition outsourcing brings to an
organization? Plain and simple – outsourcing allows organizations to be more
efficient, more effective, and to reduce costs. Outsourcing enables organizations to
improve operational effectiveness and gives them access to top-level professionals in
non-core areas, state of the art technology and industry defined best practices.
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6Change, leadership andstakeholder management
Introduction 85
The nature of change in SSC environments 85
Stages involved in migrating to the SSC model 87
Lessons learned from SSC implementations 90
Realizing benefits from the SSC implementation 96
SSC management 97
What to expect from the leader of shared services 101
Coping with culture and distance 104
Conclusion 105
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Change, leadership and stakeholder management
INTRODUCTION
The business case for investment in shared services is clear. The benefits that can
be derived from better integration, better quality data and the standardization of
business processes can be significant. But there is evidence to suggest that many
companies investing in shared services have not achieved the benefits that the
business case indicates are available. There are many reasons for this, but there is
no doubt that poor SSC leadership and the absence of a coherent change
management programme are often to blame.
The management of SSC implementations in organizations is intrinsically bound up
with change. The SSC literature has many examples of change projects that have gone
wrong, some disastrously so. Effective change management lies at the heart of
successful SSC implementation. However, effective change management is not easy
and demands a substantial organizational commitment and top management support.
It means helping the organization get information on its current position. It
means helping it make sense of what success means for it and putting this into a
new framework. It means creating a structure to manage the transition between
the decentralized existing approach and the new SSC and setting up that structure
in a way that maximizes its chance of success.
Skilful steering of the process is required, including knowing how to manage
resistance to change in an appropriate way. In this chapter we grapple with these
issues and the management of change arising from SSC implementation.
THE NATURE OF CHANGE IN SSC ENVIRONMENTS
The experience of ‘first wave’ SSC implementations now shows that the failure of
organizations to capitalize fully on the benefits of SSCs was often due to weaknesses
not in the SSC concept but in its execution. In particular, change management was
often viewed in unsuccessful implementations as a discretionary cost and therefore
dispensable as cost pressure increased. The reality is that this was a false economy.
Poor change management often results in longer programmes, higher implementation
costs and extended periods of stabilization after go-live, as the ‘people’ issues ignored
during the implementation emerge later. As a result, there is a growing
acknowledgement of the need to address change management issues as an integral
part of programmes to implement shared services and, in particular, the need to
manage change effectively.
In its broadest sense, change management refers to all the non-technological
activities that are required during and after the SSC implementation to achieve the
desired business benefits. They include: stakeholder management; communications;
education and training; benefits management (particularly of the ‘intangible’, non-
quantifiable benefits); culture and organizational change; and resource management.
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The list below provides some examples of change management risks and issues
that have been observed in previous implementations, and serves to illustrate the
range of possible pitfalls:
■ a lack of consistent understanding of the objectives of the business change
programme that could undermine ‘buy in’ and active support;
■ a failure to fully support and commit to the programme by the most senior
managers;
■ a difference in the levels of commitment between the SCC-based managers and
those in other countries;
■ a possible change in corporate direction that could reduce senior management
support or weaken day-to-day programme management activities;
■ perceived weakness in project management skills in some functions.
It is now recognized that most SSCs experience a ‘dip’ in performance immediately
after ‘go-live’. Change management processes during and after roll-out and cutover
have a key role to play in minimizing this ‘dip’, by:
■ engendering a smooth ‘go-live’;
■ minimizing the effect on normal business operations;
■ achieving rapid stabilization after ‘go-live’.
There are a series of key components to the change management process:
■ readiness assessments: these should be used to understand the programme
‘terrain’ before embarking on any change management work. Other initiatives,
the history of change and the change skills already present in the organization
will influence the capacity of the business to implement SSC-related change.
■ impact of change assessments: these will identify exactly what will be different
as a result of the SSC implementation. Focusing on the big changes and on
those business communities with the most change to manage will help direct
resources to where they are most needed.
■ change planning: this will bring together the readiness and impact assessments for
each affected community and determine the appropriate package of interventions
needed to get the business ready for the system. Interventions for each affected
business community vary from some training and development for those
experiencing little impact to extensive business participation and involvement for
those fundamentally affected. There is a need for particular focus on those who are
key to the success of the programme. The change management plan would
normally consist of a package of interventions including education,
communication, training, business operating procedures, definition of roles and
responsibilities, skills assessments and detailed transition planning for individuals.
Change, leadership and stakeholder management
The whole transition will be much easier to manage if the business case and the
impact of change are clearly communicated at the outset.
■ Business implementation: Ensuring effective business participation in certain
stages of the implementation will make a significant difference to the quality
and acceptability of the system and new processes. This will complement the
change management activity described above. In particular cutover should be
planned in detail to ensure there is no discontinuity in business operations.
Problems arising from poor cutover often take a long time to rectify and divert
the business from the more important task of getting back to stable operations.
When there has been inadequate participation from the business, the quality of
the solution is often poor. It is usually too theoretical and doesn’t work in
practice, causing people to work ‘around’ the system rather than with it. In
order to get people to take ownership of the solution it is important to get the
right people from the business involved from the start. If they have an input to
the design, they will be more supportive post ‘go-live’ thus reducing the dip in
productivity. If they are not involved, there may be a prolonged period of
reduced productivity with detrimental effects on the business.
STAGES INVOLVED IN MIGRATING TO THE SSC MODEL
One of the key issues which firms must make regarding the move to the SSC is
how fast or slow to proceed towards the full centralized structure. The evidence
to date suggests that the speed of transition is very much contingent on the
organization in question. In particular, factors such as the number of sites
involved, the level of integration of the existing IT platforms and the climate for
change must all be taken into account when deciding the pace of change. What is
clear, however, is that the likelihood of a successful transition to the SSC model is
substantially improved when a structured transition/migration plan is put in place
before the project begins. Typically firms will take the following steps when
moving to the SSC structure.
Phase I Establishing the business case
The focus in the initial stages is on raising awareness of the SSC concept and on
securing executive sponsorship and buy-in at CFO and board level. This will
typically involve briefings to executives on the SSC concept and information
gathering. Attendance at seminars/conferences, short sessions with consultants and
discussions with firms that have made the move to an SSC are often helpful at this
stage. The primary objective at this point is to achieve a shared understanding on
the following issues:
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■ the nature of SSCs
■ the limitations of the SSC
■ likely timescales, benefits, drawbacks and critical success factors.
It is vitally important at this stage that expectations are carefully managed to avoid
loss of executive support later on in the project. Once the firm has a clear
understanding of the issues involved it can begin to assess the business case in detail.
This will typically involve a cost benefit analysis under the main headings of People,
Process, Technology and facilities. The question of likely locations and issues such
as greenfield versus brownfield versus existing locations will begin to be addressed.
Useful cost and other comparative data is often available from groups such as
consultants, government bodies, recruitment specialists and educational institutions
(particularly with respect to graduate/staff availability). All of the large consulting
firms now have service offerings in this area and this can help short-circuit what is
often a time-consuming data gathering process. Some managers that the author has
interviewed, however, feel that the data gathering process was an essential part of
building up a model of the decision process and were uncomfortable about relying
on consultants. As part of the initial assessment, firms will often examine the degree
of standardization in the existing processes to determine the opportunities for
process consolidation or reengineering. This is a useful exercise even if the ultimate
decision is not to proceed to the SSC.
Phase II Designing and configuring the SSC model
Once the business case has been established and the final choice of location made,
the detailed operating structure and configuration of the SSC needs to be
addressed. This will involve deciding what activities of services to perform in the
SSC. The choice of services moved to the SSC will have implications for staffing,
structure and process design. Discussions with experienced staff as well as with
managers from successful SSCs can help in configuring an effective centre.
There is some evidence to suggest that reengineering of processes should be
postponed until after the setting up of the new SSC as it is difficult to introduce new
processes at local sites and then migrate the relatively new process to the SSC.
Service level agreements and cost recovery/pricing are important issues to be
addressed at this stage. In most cases, however, service quality is achieved through
developing a customer-focused approach rather than through strict application of
SLAs. In the initial set-up the SSC will require significant co-operation from local
and corporate IT staff and this needs to be planned for well in advance. Additional
configuration decisions usually involve choices about structures (number of levels)
and processes (by country or by accounting service).
Change, leadership and stakeholder management
Phase III Rollout and implementation
The rollout of the SSC involves the project team working closely with local
controllers over several months. Good communication is essential and many firms
will use a workshop approach to enlist the support of local controllers and HR
managers in workshadowing and migration. The purpose of the workshops is to
explain to country heads the likely impact on their organizations and to enlist
their support for change. This exercise has two crucial goals:
■ to enlist local support – the co-operation of the national human resource staff
is needed in order to identify which local staff would have a job in the future
and which staff need to be persuaded to stay at least for the transition period;
■ to manage expectations – rather than selling the project as something that will
revolutionize the finance function overnight, the team should simply point out
that after migration of the relevant activities to the shared service centre the
service provided would at least match that which the local country organization
was used to and there would be no disruption to the business.
One of the key factors in the whole process is workshadowing of the activities which
are to be carried out eventually in the shared service centre. The main objectives of
this is to understand and learn the local accounting and reporting practices. This
involves understanding the local chart of accounts, US GAAP accounts, periodic
external reporting, month end processes, reconciliation processes and liaison with
the local organization. In countries such as France and Germany, a company may
have extensive operations, which necessitate stays of up to five months to ensure
that the firm does not lose essential local expertise. Any SSC staff involved in
extended periods of workshadowing away from home need to be supported and
should not feel isolated.
As tasks are migrated to the shared service centre there is the inevitable loss of
jobs in the local organization. Some staff members may be able to move to
another business unit. However, for the majority this is not an option as they may
not have the required skill set and the costs of retraining may be higher than the
cost savings generated by the move to a shared services strategy. Many of these
local staff are sources of critical knowledge and this knowledge is lost to the
organization for ever.
Phase IV Extending and expanding
Once the SSC is up and running, the challenge is to create value added and ensure
a continuous improvement in the key metrics of process quality, costs and time. In
this regard benchmarking or performance metrics can be useful. It is always
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worthwhile revisiting the original business case to see if the SSC is meeting
expectations. In particular, fine-tuning of processes and systems can lead to
significant savings in the post-implementation period. It is critical in the post-
implementation period that firms avoid an extended dis-improvement in the process
performance. In common with IT systems implementation, SSC implementations
often give rise to a decrease in the quality of the process for a period after the
migration. While it appears almost impossible to avoid this problem, steps should
be made to minimize the duration of the decline in process quality and local
controllers should be alerted well in advance to the potential hiccup.
As the SSC becomes an established part of the organization’s support activities
it should:
■ focus on finance as a value added activity instead of a cost centre;
■ adapt a continuous improvement strategy;
■ recognize that SSCs are a business within a business and in the future will get
external pressure from other sites that may offer to do the accounting for the
organization at a cheaper price than the organization’s internal SSC can do it;
■ be flexible in terms of how the SSC and its business is defined – in the future,
due to economies of scale there may be a need to take on activities for other
organizations.
Other approaches
The literature on shared services contains many examples of the different stages
involved in the transition to shared services. As an example, Figure 6.1 shows the
approach recommended by Partners for Change. While different approaches will
have their adherents, it is important for firms to be comfortable with the approach
adopted and firms need to avoid blindly adopting the approach recommended by
outside advisers.
LESSONS LEARNED FROM SSC IMPLEMENTATIONS
Partners for Change consultants, who have helped a number of firms implement
SSCs, have highlighted some key lessons for those considering implementing
shared services. They point out that the move to an SSC represents a highly
symbolic change of status for the management of national companies in a
multinational organization. These managers of what were major corporations are
having to adapt to no longer owning the full value chain and are effectively being
asked to run a local selling service. If they see the move to an SSC as the first stone
Change, leadership and stakeholder management
to be removed from their foundations, they will resist the process from the start.
In order to avoid this, Partners for Change suggest the following.
Develop a clear strategy and a clear business case
By developing a strategic view of shared services benefits realization you will
ensure that the focus of your programme is on delivering results and getting a long-
term return on investment. The individual projects which make up the SSC
implementation should be approved and scheduled into the programme on the
basis of sound business cases. The risk in most SSC projects is that the business case
and the mandate both sit at HQ and are of little comfort or inspiration to those
working locally who are directly affected. The business case must work at a
number of levels and those involved have to feel that they have some control over
their own destiny and that the remaining jobs will be of a higher quality and
greater value to the organization. There is no real ‘win’ for those who are likely to
lose their jobs and they must be given the necessary counselling and outplacement
support. Their reactions to the plans have to be managed and directed so that they
are not angry with those coming in to take their jobs, thus hindering the exchange
of knowledge. It is essential to allow enough time to manage the human impact and
to get engagement locally as far as possible.
Fig. 6.1 The Partners for Change approach to the shared servicesproject life cycle
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Support the process throughhigh level business case,process benchmarking, reviewor structural options
■ Determine business model■ Define structures■ Design new processes■ Design new technology
■ Design new organization■ Recruitment approach■ Design organizational principles for shared service centre
■ Build shared service centre■ Implement new processes on existing or new systems platforms
■ Recruit new staff■ Manage loss of existing staff
■ Move from project to operations■ Business case becomes budget■ Quick wins
■ Performance measurement■ Organization development
■ Service scope changes■ Service ownership changes
■ Service system platform changes■ Service relationship changes
■ Virtual shared service centres
Strategy
Design
Implementation
Operation
Enhancement
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Business cases should encompass:
■ scope
■ benefits
■ costs
■ business impact and barriers
■ implementation outline.
The major issues in developing the business case tend to be in the definition of
benefits and assessment of business impact. The definition of costs often misses
out the internal implementation costs associated with the participation of the
business in the project. It also often omits the buy-in process which is a critical
step in preparing the ground for successful implementation. Benefits are difficult
to define. The business needs to focus not only on the benefits that are tangible
and measurable, but also on those that are hard to measure and intangible.
Gaining clarity about the full range of potential benefits and attaching value to
them will help demonstrate the full value of the investment to the business.
Manage sponsors and internal stakeholders effectively
What makes or breaks an SSC strategy is not the systems themselves, but the
support and buy-in at a local level. This is where endorsement by the CEO is vital.
If they do not position the SSC as part of a move to a European or regional
business and deal with resistance at the outset, then it will fail. The business as a
whole must see the SSC as congruent with its approach to the market and key to
its future survival. One way to overcome resistance is to marry shared services to
employee bonuses, i.e. to link compensation plans to common strategic objectives.
Before setting up an SSC, business managers need to take a long hard look at the
culture of the company and to ensure that staff appreciate the importance of
corporate goals. It will then be much easier to get employees to pull together and
buy into any planned restructuring.
At the outset of the project there is a need to map the stakeholder territory, i.e.
to ascertain who will be affected and to what extent. If the whole company is
affected then it has to be the CEO who sponsors the project. Changes in
individual functions will need to be sponsored in turn by the functional heads.
Other key stakeholders need to be identified and managed throughout the project.
The best way to engage them is to give them clear accountability for project
delivery and meaningful roles in the project.
The sponsor and key stakeholders need to understand what influence they have,
how to exert it and how to get involved. In reality, the sponsors and key
stakeholders will have many priorities. They will buy into the project at the
Change, leadership and stakeholder management
outset, but then get distracted, which will result in inconsistent messages being
given out. Employees will get the impression they can drop the project as it is not
a priority.
Sponsorship skills need to be developed and sustained and support needs to be
provided to help people fulfil these difficult and often underestimated roles. It is
also important to establish benefit delivery mechanisms and to make sure that all
stakeholders are committed to delivering the agreed benefits.
SSC managers do not always have the skills and experience to drive projects.
They need support, training and development in order to play an effective role.
Allocate accountability
It is essential to decide early on whom to make accountable for the achievement
of the SSC objectives. This decision will be informed by the definition of key
stakeholders and who has been identified as having influence over impacted
communities. At the end of the project these people will be held accountable for
achieving their department’s objectives so they will need to be the people who will
actually get staff to do things differently and who are in a position to make the
tough decisions that will lead to improved performance. Accountability needs to
be made explicit, for example by putting measurable targets into performance
appraisal objectives, by offering an incentive such as a bonus for achievement of
targets and by building them into budgets. Having made people accountable, it is
important to get them involved in the project in a meaningful way so that they can
influence it.
Plan and manage for the ‘dip’
As the project approaches ‘go-live’, it is necessary to create more specific measures
to help manage the inevitable performance dip that occurs immediately after
‘go-live’. In the longer term, sustaining mechanisms are needed in order to
establish a period of continuous improvement. These need to be embedded into
the fabric of the business allowing it to be monitored regularly. Eventually these
will be adopted as a key component of the management information provided to
managers and incorporated into annual performance appraisals.
Use consultants judiciously and develop in-house capability
One option is to use an implementation partner for your SSC implementation
requirements. They will take some of the risk and often provide a turnkey SSC
solution. This is an expensive option and one that leaves the organization dependent
on the partner for further development work. When using an outside consultant
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they provide most of the skills you lack, but also acquire a substantial amount of
knowledge about your organization. When they go you are left with very little
capacity to repeat the process for yourselves, which means that when you approach
the next project you have to buy in those skills and that knowledge again.
On the other hand, you could build your own in-house capability. This requires
considerably more management and may lead to the company being left with
surplus skills after the first implementation. This solution is more cost effective,
but it is often hard to find the appropriate skills.
A third, very cost-effective solution is to leverage your own in-house resources
by bringing in external consultants to work alongside internal staff. In this way
there can be skills and knowledge transfer and the company can use the
implementation as a means of building its own internal competence centre. The
key is to structure the project in such a way that internal staff take responsibility,
learn the skills and diminish reliance on the external partner.
New staff will need to be recruited
Only a small proportion of the existing staff are likely to relocate regionally or
internationally for what is often clerical work. There is therefore a need to design
the new organization, to recruit new staff and to decide what to do with those who
are left. In Europe this requires close co-operation with works councils or unions
who may have to be consulted on appropriate management decisions and will
require those changes which affect employees to be co-ordinated for minimum
impact. In many European countries there is a requirement to create a social plan
for any major reorganization. This identifies those who will be most affected by the
changes and helps prioritize those who are to remain employed according to their
social need, redeploying staff where possible. Close co-operation between
management and the works council will ensure that the needs of the business and
the employees are satisfied. This is an area where expert advice is essential.
Break the news early and clearly
It is essential to communicate plans openly and early in consultation with the
works council and unions. Uncertainty breeds concern and quickly affects morale,
productivity, customer service and ultimately share value. There is a need to make
clear who will be affected, to give them the right information and to start
planning. Changes impacting the same group of staff need to be co-ordinated and
planned on an integrated basis. It is important to face the managers as early on in
the process as possible and take on board their concerns so that they can be
handled. This is why there is a tendency to design an SSC strategy by process but
to implement it by country.
Change, leadership and stakeholder management
Communicate, communicate and communicate again
The fundamental objectives of communications management during the SSC
implementation are to:
■ ensure that sufficient information is available to allow effective decision
making;
■ maximize commitment to the programme from stakeholders and involve them
as required;
■ provide inspiration within the programme;
■ inform stakeholders on progress.
It follows that the risks of poor communication include the following:
■ managers are unprepared to deal with internal and external discussions, or the
unexpected;
■ work is duplicated or omitted;
■ interdependencies within the programme or with other business initiatives are
not identified, resulting in waste and delay;
■ programme leaders are unaware of risks or issues.
It is not possible to set up shared services overnight
A typical SSC project can take from 12 months to three years depending on
whether new ERP systems have to be built. Each project will go through a number
of stages and the programme should be stepped giving the organization time to
stabilize after each major change. The design phase can be time consuming but is
essential to the success of the project. It is unlikely that a process can simply be
imposed on each country without consultation. It is usually necessary for someone
to spend time with local managers finding out how things happen now in order
to be confident that the SSC model is going to work.
Specialist knowledge can help
Much of the upheaval and pain involved in the move to an SSC can undoubtedly
be avoided by drawing on the experience of someone who has been through the
process before. They can help you navigate through the various challenges and
manage the large number of detailed actions on various fronts. The complexity of
a shared services project is in the number of people, processes and functions
affected and the need to enlist the support of all stakeholders. There are a number
of areas, particularly around the major change levers, where a specialist can
provide valuable support:
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■ programme management: this includes not just the project office activities but
the preparation of an overall route map to get to the end point of an SSC. It
would also involve management of the business case, i.e. periodically revisiting
the original strategy to ensure that the SSC is meeting agreed objectives.
■ systems: enabling the business to accept new systems and looking at the
implications for the organization. One or more consultants may also be needed
to provide the systems build capability.
■ facilities management: to help you decide on the location of the SSC and then
to equip and support it as a new business entity, for example managing the
installation of telecoms solutions.
■ organization: agreeing organizational models, job profile design, recruitment
requirements, etc.
■ ongoing organizational development: recruiting and managing a team of
experts to the SSC whose core function is to provide the service rather than
supporting the main business.
■ process redesign: extracting, capturing and transferring existing knowledge to
new staff; producing the design required for a change of location (which could
involve simply transferring existing processes or a major process redesign).
■ people: relocation, retraining or outplacement of existing staff; redesign of jobs;
recruitment, induction and training of new staff; knowledge transfer from
existing to new staff.
■ legal and fiscal: obtaining the approval of the relevant authorities for new
organizational structures, i.e. audit, tax, legal.
■ enabling technology: selecting and managing the installation of the appropriate
technology, for example, scanning, printing, workflow, e-commerce.
■ change management: communicating with all stakeholders who may be affected
by the move to the SSC, i.e. staff, customers, suppliers. This may also involve
training and development.
REALIZING BENEFITS FROM THE SSC IMPLEMENTATION
Historically, organizations that have invested in SSCs have been motivated by
either operational or efficiency reasons. SSC benefits realization needs to be done
in a careful and systematic way. Benefits identified should be measurable and
quantifiable so that organizations have a basis for prioritization. Opportunities for
benefit need to be filtered to determine where the best value can be obtained.
Business cases need to be articulated for every benefit opportunity, identifying
Change, leadership and stakeholder management
whether they are strategic or tactical, quantifiable or intangible, and should include
the logical timescale for implementation.
The success of any SSC programme will be measured by its ability to deliver
significant business benefit to the organization. A benefits management process is
needed to keep all those in the programme focused on delivering the identified
business benefits. Benefits that are not tracked are less likely to be realized. It is
often a key role of the SSC leadership to introduce a ‘good practice’ approach to
benefits management for individual projects.
Organizations need to adopt a structured approach and ask some basic questions:
■ What was the initial business case and did we deliver the expected benefit?
■ Would the potential of shared services have been applicable to our business case?
■ How can we leverage the SSC infrastructure we have established to deliver
more benefits?
A range of opportunities will emerge from the answers to these questions that will
tend to fall into three main categories:
■ quick wins: these are benefits that are readily available from the current SSC
system, but are not yet realized. Normally these benefits can be achieved relatively
easily with minimal effort. Their value is partly in allowing the organization to
start to recoup some of the programme cost fairly soon after the start. Perhaps
more important, however, is that the gains should help to build credibility in the
programme and perhaps bolster the case for continued investment.
■ medium-term wins: these are benefits that are available from changes to current
SSC configurations, but are not yet realized. They are different from quick wins
in that they would require investment in time and resources, with benefits being
delivered through small or medium-sized projects.
■ new benefits: these are the benefits that would add value to the organization, but
are available only through additional investment in more functionality and/or
complementary software packages to provide capability in CRM, e-commerce,
HR or data warehousing, for example. Larger or more complex projects may be
necessary to deliver these additional benefits.
SSC MANAGEMENT
Leading shared services is essentially about people and how they perceive and
experience their respective roles in the shared services enterprise. Shared services
operations, like businesses, rely on good planning control and execution. More
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importantly, the business plan for shared services needs to be owned and driven
by those who run the shared services operation. If shared services really is like any
other business, those who lead and implement shared services must have clarity of
purpose and process, as well as a genuine understanding of the client’s needs.
Shared services has moved on from the functional, administrative model we all
know. Today’s shared services operation delivers services that are high quality,
cost effective and timely.
It’s not about accounting skills it’s about attitude
You don’t need to be a financial expert or a tax wizard to be a good SSC leader.
Indeed some of the most effective shared service leaders do not have a background
in finance. But you do need drive, intelligence and flexibility. You need to be a
savvy communicator who can relate to people and a consummate politician who
can deal with ambiguity. Most of all, you need to understand what it takes to
operate a successful business. You need to be fundamentally driven by the need to
deliver a service and do something that people value to the extent that they are
willing to pay you for it. That is the essence of being a shared services leader.
Having knowledge and experience in a particular field is the least important
requirement. It’s attitude and leadership skills that make the difference between
success and failure.
Being able to bring together the right people is crucial. The people you select
need, first and foremost, the right attitude and an inherent talent for shared
services work. Second, they need to be able to co-operate with others. Having
knowledge and experience in a particular field is the least important requirement.
In short, hire for attitude and train for skills. Skills you can teach – attitudes and
character are inherent.
James Lawrence became CFO of General Mills in 1998. His challenge was to
transform the 83-year-old US $7 billion cereal giant into a well-oiled machine.
General Mills was plagued by a hierarchical and inefficient finance department.
Employees were dispersed across the company’s various departments – and
administrators spent more of their time gathering data than finding out what it
all meant.
During the summer of 1999, Lawrence put together a task force charged with
improving the performance of General Mills’ finance department. Members of the
task force spoke with unit managers, examined the results of a recent internal
survey, and opted to move the finance department into a shared service centre.
The task channelled General Mills’ dispersed finance department into three
divisions. They then moved the company’s 65 transaction processing division
employees from isolated departments into one new unit. Employees at the shared
Change, leadership and stakeholder management
services unit set their own hours, are self-directed and work in close conjunction
with the company’s various business units.
Two years after moving its finance department to a shared service centre, the
General Mills finance team spends less than a quarter of its time gathering data.
Professional staff turnover has dropped drastically. In recognition of his efforts,
Lawrence earned the 2001 Excellence Award for Finance Leadership, Development
and Training.
Straight talking always helps
Shared services leaders need to remember that rewards and incentives are essential
for retaining staff, reducing turnover and running a successful shared services
operation. There is more than one way to compensate and motivate an employee,
whatever HR orthodoxy says. As Andrew Kris says, ‘Treat employees as people,
not balance sheet items. No mother ever gave birth to a resource. I am nobody’s
resource and neither are you!’ We are all people and most of us appreciate open
communication, honesty and clarity. Talk to your people – frequently. Tell them
what you know – openly. Speak about change – honestly. And remember that
there is nothing you can hide from your people that they haven’t figured out for
themselves already. These are the basic tenets of good communication that all
successful shared services leaders understand and act upon.
Don’t forget to prepare for planned departures – including your own. You are
an employee too and it’s easy to overlook the possibility that your boss may show
you the door within the next fortnight, although they might do it nicely and give
you a nice package. Don’t be deceived by the golden handcuffs. They’re probably
made of copper rather than gold. There are many organizations that refuse to
consider ways of offering financial incentives in order to retain people as a matter
of principle. Most golden handcuffs are attached mainly to the advantage of the
employer and not the employed.
Richard Brown came into the CEO position at EDS with a clear mandate: to
break out of the old way of doing things. In January 1999, EDS was not thriving.
Brown determined that the real problems with EDS involved the company’s
outmoded, cumbersome structure. EDS operated 48 self-sufficient units that
neither communicated, nor co-operated. It turned out that the units were
duplicating one another’s efforts instead of working together.
Brown put together a working group and devised a new business model that
compressed the 48 units into four departments, cutting duplication and
introducing a shared services model. By July 2001, EDS had increased quarterly
profits by 17 per cent and raised revenue by 7.5 per cent.
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It’s about working smarter
Moving to a shared services model can, if properly deployed, accomplish three
key objectives: it can streamline operations, thus cutting costs by optimizing
administrative tasks; it can, through automation, minimize manual activities,
leading to more precision and better documentation; and shared services can
ensure better communications and co-ordination between corporate departments.
By initiating the move and overseeing the implementation of shared services, an
executive officer becomes the hub of communication between management and
administration. By providing his or her vision throughout the shift to shared
services, the corporate leader can maintain the alignment between corporate
objectives, implementation and results.
Former Western Union CFO Kim Patmore launched a quiet revolution
following the merger of payment services firms First Data and Western Union. In
1996, she was given the task of merging finance and accounting staff from both
companies into a First Data shared service centre.
Moving into her role as CFO of First Data, Patmore set about motivating
employees to focus on process improvement, partnerships and other initiatives.
She achieved her objective through a mentoring programme that matched
experienced, senior employees with their junior counterparts, encouraging them
to impart knowledge, and in the process, improve productivity.
The result? Over and above the usual benefits of operating a shared service
centre, Patmore’s mentoring programme reduced training costs, improved
productivity, drastically shrunk claims for overtime pay and reduced turnover
rates from 12 to 8 per cent. As a result of her innovation, Patmore earned the
2000 CFO Excellence Award for Training/Building a Finance Team.
As usual, people make the difference
Most companies with or planning shared service centres have access to the same
resources to achieve those goals, e.g. technology is readily available to all, facilities
can be purchased or built, organization structures can be designed and
implemented, SLAs can be negotiated and approved. However, the most significant
resource that can make the difference between an acceptable result and a ‘hit’ is the
quality of individual members of the centre. Recruiting and retaining the best
players is not an accident. Companies such as Kraft Foods (San Antonio, TX, USA)
and Georgia Pacific (Jacksonville, FL, USA) have expended a significant amount of
effort in the development of an employee profile for their centres. The immediate
result of this effort was 16 auditions for every position filled, and the longer-term
result has been a workforce that understands their individual and team role in the
centre, their clients’ needs and the impact of the centre on the business.
Change, leadership and stakeholder management
The objective of these centres is to hire team members that understand and exhibit
team behaviour, i.e. the well-being of the team is equal to or greater than their
personal well-being. Even with perfect recruiting, this behaviour must be reinforced
with an environment that defines expected outcomes, measures and compensates on
those expectations, and encourages the ownership of the factors that affect the
realization of those outcomes. This environment nurtures commitment by team
members to the company, centre, process and each other. It provides a stage for
players to display passion and excitement about their work, rather than just going
through the motions.
WHAT TO EXPECT FROM THE LEADER OF
SHARED SERVICES
Ideal candidates for the role of shared services leader need to be decisive and to be
willing and competent to make difficult decisions. The ability to think strategically
and create a service-oriented culture for the unit is essential. The best shared services
leaders stand out as strong communicators, able to manage through influence and
to create and motivate teams that are firmly focused on results that matter to clients.
At heart, they are strong leaders with substantial general management skills.
Selecting a shared services unit leader from outside a company enables someone
with experience to be brought in. However, the person will need time to understand
the business and gain the confidence of the team. The alternative is to select
someone from within the organization. This person will probably not have
experience of the shared services environment and may be seen as partisan in
approach. Someone with the experience and confidence of having already led one
or more shared services units is likely to rapidly gain the confidence of a new team.
In addition, the shared services unit will benefit from a fresh, external perspective
and will be more likely to rapidly overcome obstacles based on culture and history
that are an inevitable feature of the early stages of implementation.
Whether recruiting internally or externally, the selection criteria and leadership
profile should be very clear. The following guidelines help to define what a shared
services leader should be capable of doing:
■ defining what the unit stands for, for example, ‘the most efficient provider of
transactional services’.
■ stating the shared service unit’s purpose, for example, ‘ensure clients get best
practice accounting services at costs competitive with alternatives that enable
their businesses to grow efficiently at lower cost’.
■ being clear about what to do and how to do it, for example ‘identify best
practices in HR, work with clients to identify their customers’ needs, assist them
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in drawing up people practices, and provide a range of services to support
implementation and develop key people’.
■ understanding the client’s needs. This will be a primary source of competitive
advantage. Understand the business; get to know personalities, politics and
how the organization actually gets things done.
■ segmenting the client base into groups with similar needs that can be met
economically. Not all clients need or value the same services. Providing those
precise services that people value to the extent they are prepared to pay for
them – not more not less – is the key.
■ being precise about what the unit offers. Define products and practices using
terms that clients use and make them easy to understand.
■ marketing services as effectively as clients market their products. Segment the
client-base into groups with like needs or behaviours. Appoint a person to act
as product manager and prepare a marketing plan. Make promotion part of
every service provider’s job.
■ pricing competitively compared to third parties. Remember, services are only
worth as much as an external supplier would charge for work of equivalent
quality and timeliness. Offer the same services outside the company, if policies
allow, confirming the value of services and generating an additional source of
revenue.
■ measuring and invoicing activities. Calculate the value of every service and tell
clients. If clients can’t see what services are worth, as best the service will be
undervalued, and at worst it will be deemed worthless.
■ stressing that service is people – never compromise on quality. Don’t tolerate
poor performers, hire the best and make sure everyone earns their keep. Ensure
time is set aside for maintaining competence and for keeping up with new
developments in each discipline.
■ organizing to encourage appropriate behaviours and define success. Encourage
everyone to think of the service as their own business. Create a set of
interdependencies between individuals that cause them to work together and
rely on each other. Define success in terms of clients repeatedly coming back for
more, or when billable activity targets are met.
■ rewarding appropriate behaviour and success. Develop compensation and
variable pay schemes that are consistent with how success is defined.
These guidelines and the expectations of the shared services leader should form the
basis of an internal or external search. The guidelines will assist in briefing the
consultant responsible for an executive search assignment, if such a course of action
is chosen. Table 6.1 outlines a sample job specification for a shared services leader.
This description applies generally to running any shared services operation. It is not
Change, leadership and stakeholder management
specifically aimed at running a financial transactional centre or a professional and
advisory centre. There are specific leadership skills that are different, however, for
leading these two different types of shared services organizations and this is one of
the reasons why we advocate the separation of transactional processing from
professional and advisory services.
Whether you are evaluating shared services or outsourcing as an option, the
people issue remains central. Outsourcing rubbish means you only get slightly
better rubbish back – very expensively.
Table 6.1 Sample job specification for an SCC director
The position
The Director of Shared Services Europe is expected to provide leadership for the continuingsmooth operation of the unit and to manage its continuing development.
As the Director is unlikely to possess the functional expertise required for every service,leadership skills and a profound understanding of what it takes to manage a service-oriented administrative organization are the keys to success.
The ability to establish a close working relationship with client units and with functionalheads is essential to understand client needs and to put effective resources in place tomeet them. Experience of operating in a large, complex, US-based corporate environmentis important.
The function of Director, Shared Services has three major dimensions: strategy andorganizational development; active, hands-on involvement leading a shared servicesorganization; and development of future service offerings.
The main tasks of the Director of Shared Services will be:
■ To define and gain approval for the shared services strategy in Europe, its budgets andits implementation.
■ To lead and motivate an effective service organization.
■ To rapidly establish personal credibility as the unit’s leader.
■ To take an active, hands-on role in key relationships with key business leaders.
■ To ensure the unit continues to provide effective, efficient services.
■ To seek and ensure implementation of improvements in service delivery.
■ To expand the range of services, to grow the business.
■ To manage the operating budget from X million to X plus million.
■ To lead the specification and implementation of IT systems that support business unitsand the centre’s activities.
The ideal candidate
The ideal candidate is someone with a thorough understanding of corporate strategy,business needs and the European economic and political environment, as well asexceptional people management skills which will drive these activities. The Director needsthe ability to persuade business leaders that opportunities to reduce cost and raiseeffectiveness can be realized through sharing services with other business units and sitesand through standardization and implementing common systems.
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Table 6.1 continued
The ideal candidate has the maturity to work effectively in a multifunctional environment and the ability to handle ambiguity. The following personal characteristics are consideredto be essential:
Leadership Open, flexible, and with a down-to-earth manner that gains therespect of colleagues and delivers on service.
Interpersonal A team player whose energy and communication skills make thisperson a persuasive negotiator and relationship builder.
Handles complexity Able to handle ambiguity that arises in a service environment in acomplex, diverse and geographically widespread organization.
Thinker/Doer A clear thinker, able to translate knowledge and understanding of the business, economic and political environment intoactionable strategies and willing to make decisions independentlyin pursuit of the strategy.
COPING WITH CULTURE AND DISTANCE
Differences of opinion will arise, for example between the SSC team and the
operating sites in the different locations. Some of the factors to be considered are:
■ consensual versus authoritarian management styles: these vary widely between
individuals. However, there are also patterns of acceptable behaviour that are
embedded in countries’ cultures. For example, a directive, authoritarian style of
management is likely to be far more acceptable to most American employees
than to Japanese ones.
■ risk taking or risk-averse behaviour: managers in some countries are more
likely to make decisions without reference to higher authority, and to accept the
consequences of those decisions. In Japan, consensus is the aim.
■ social proprieties: in some countries and cultures it is easy to inadvertently give
offence to the host. For example, in some cultures it is considered abrupt to
raise the business purpose at the first meeting; welcomes and social exchanges
only are expected. The consequence, clearly, is that the pace of conducting
business can be much slower.
■ when ‘yes’ means ‘no’ or ‘perhaps not’: it is not acceptable in some cultures to
be put in the position of admitting a failure – failure to understand; to have
authority to make a decision; to be able to carry forward an action.
There are also some guiding principles for effective team behaviour that extend
beyond cultural or physical boundaries. These include mutual respect for team
members’ cultures and working practices, and a focus on solutions rather than
Change, leadership and stakeholder management
problems and no recriminations (‘finger pointing’) when things go wrong. While
a detailed discussion of these issues is beyond the scope of this section, it is clear
that SSC implementation requires a wider understanding of change management
and cultural issues than many practitioners have demonstrated to date.
CONCLUSION
To date many SSC implementations have been treated as finance projects and not
business-driven transformations. Approaching the implementation from a purely
finance perspective often leads to attempts to try to tie down all of the major
requirements at an early stage with large disincentives for changing these at a later
stage. As a result, many firms have found themselves trapped in a process/
technological straitjacket solution that ignores the dynamic, evolutionary nature of
SSC implementations and the business environment.
An SCC needs to be implemented in a business-driven, cost-effective fashion
where the focus is on driving out real long-term benefits in pursuit of shareholder
value. If long-term value from an SSC is to be achieved, it requires the ongoing
commitment of senior executives to the project. The failure of senior project
sponsors to remain involved in a project will result in the project team losing sight
of the business nature of the implementation and allow it to become a finance
project. Project sponsors/champions must not only provide the resources for the
implementation but must also take an active role in leading change. In particular,
they must create the emotional climate for change and be proactive in building
co-operation among the diverse groups on the implementation team and
throughout the organization, often across national boundaries.
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7What’s this thing called culture?
Introduction 109
Culture and the SSC 110
Areas where culture affects the SSC 111
Culture shock and intercultural adaptation 114
Conclusion 115
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What’s this thing called culture?
INTRODUCTION
The increasingly internationalized nature of the SSC environment has led to a
growing recognition of the importance of cultural issues. The SSC setting is
unique in that, unlike traditional multinational settings where we perhaps have to
deal with the clash of just two cultures (the firm’s home culture and the host
country culture), in the SSC we can be dealing with up to 20 different multilingual
and multicultural teams/actors.
Unfortunately for finance professionals the largely monocultural nature of their
professional training leaves many of them poorly equipped to meet the challenges
of operating across diverse cultural contexts. The anecdotal evidence to date would
suggest that the response of some shared services directors to the overwhelming
complexities of managing cross-cultural teams is to drive out the differences by
trying to institutionalize their familiar monocultural work practices and routines
across the shared service centre. Under this narrow view the organizational and
national culture of the multinational corporation (MNC) trumps all other cultures
and people are expected to leave their ethnic or national cultural identities on the
pavement before entering the building each morning.
The stereotypical image of a plethora of socially challenged accountants may seem
extreme but the reality is that the professional accounting formation leaves many of
them poorly equipped for the multicultural MNC environment. In their case, the
professional accounting training places a premium on quantitative and analytical
skills and little or no attention is given to the softer skills of communication and
change management. The heavy bias in the profession towards the province of
reason, abstraction and objectivity and the suspicion of the emotional forces them
to import a set of values, beliefs, cultural norms and cultural practices.
Research by the author suggests that misunderstood national cultural differences
may be the most important cause of many of the workplace tensions found in SSCs.
In addition, discussions with the country teams reveal a growing need for SSC
management to urgently address the issue of culture. In particular SSC management
needs to:
■ possess a cosmopolitan mindset which is capable of operating comfortably in a
multicultural environment;
■ be culturally sensitive and understand the cultural integration challenges of the
SSC setting;
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Chapter 7 was written by Sophie Cacciaguidi.
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Shared Service Centres
■ be able to adjust to the norms of new cultures as countries are migrated to the SSC;
■ understand the importance of intercultural communication issues in the SSC as
a source of difficulties.
In the more enlightened SSCs, the response to cultural differences has been to
engage in cultural sensitization through culture specific training seminars. In
addition, firms will often employ consultants and firms offering customized
international organization services which centre primarily on hand-holding in the
areas of relocation, repatriation and retention of ‘foreign’ staff as well as more
exclusive executive programmes aimed at ‘cultivating an international perspective
and positive attitude to culture’.
CULTURE AND THE SSC
To some, culture is a combination of norms, values, feelings, thinking, roles, rules,
behaviour, beliefs, attitudes, expectations, meanings and so on. To others, culture
is a way of life of a people, i.e. their interpersonal relations and their behaviours
as well as their attitudes. Some managers would like to believe that their SSC is
‘culture free’ and as such they argue that competitive forces in the form of
markets, industrialization and new technology override differences in national
context. However, our research suggests that SSCs are very much culture bound
and are heavily influenced by their location and cultural setting.
In the SSC setting staff may be affected by a number of different types of culture
as outlined in Figure 7.1. It is clear that national culture affects a person in a
number of ways ranging from the deeply underlying to the readily apparent:
values, cognitive schema, demeanour and language. These nationality-derived
qualities in turn affect a person’s behaviour, as well as how the person is perceived
in a group or environment made up of a number of different nationalities. In some
cases it appears that the cultural diversity brings positive benefits to the group,
while in other cases the diversity can create great difficulties.
For the SSC it is important to appreciate that:
■ culture is complex and is made up of different elements such as values, beliefs,
attitudes, etc.;
■ culture is dynamic and evolutionary and is constantly changing;
■ culture is acquired and learned and is part of the socialization process;
■ culture is everywhere and while we see evidence of it everywhere in the SSC, it’s
very difficult to tie down.
What’s this thing called culture?
Fig. 7.1 The different cultures that may be at work in the SSC setting
AREAS WHERE CULTURE AFFECTS THE SSC
The impact of culture on the SSC can be seen in a number of key areas.
The deployment of standardized processes
Research suggests that differences in processes across cultures mitigate against
employing standardized technologies and can lead to difficulties in enforcing
common standards of service quality. In particular, local controllers tend to
continually modify the SSCs recommended approach and, as a result, firms can
end up with multiple process versions across Europe. This is a source of particular
difficulty when the SSC wants to implement a standardized corporate-wide ERP
system. In the case of one UK-based SSC, the director argued that as a US MNC
the firm felt the need to roll out the corporate approach to business processes
across Europe and to eliminate, as he termed it, ‘costly national differences in
approaches to basic accounting processes’. Requests by French controllers to
maintain a separate French chart of accounts were overruled.
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Organization corporateculture
Industrial culture– industry or market sectors
Functional cultureprofessional – vocational group
Ethnic culture within regionsor across national states
National culture in which it operatesor employees come from
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Shared Service Centres
The loss of face-to-face service
Before shared services the local organization could just ‘go across the corridor’ to
find information. Under the SSC approach this direct contact is lost and staff must
rely instead on phone and e-mail contact. In some cases firms feel the need to leave
customer-facing activities at the local site.
The role of US GAAP
The move to the SSC often brings the role of local GAAP and US or International
Accounting Standards (IAS) GAAP into conflict. The overriding dominance of
US/UK GAAP can be an issue for some staff in the SSC setting. In some cases local
controllers will make strenuous efforts to prevent the move to standardize on US
accounting procedures within local charts of accounts. Sites may resort to citing
national legislation and fiscal controls to prevent the move towards standardization.
In other cases the attempts to frustrate the move to a single GAAP approach at the
SSC are more subtle and involve, as one SSC director put it, ‘socializing us to death’
during visits to the local sites.
Face to face with culture for the first time
Many SSCs involve the centralization of pan-European operations to a single
location. The resulting single multilingual locations are not without problems.
Many accountants find themselves for the first time faced with multicultural staff
and language intensive processes. The shortage/lack of language skills and the lack
of experience in handling cultural conflict are quickly apparent. Research by the
author found that accountants in many cases feel poorly equipped to handle the
cultural challenges involved in managing 100 plus staff from 15 different
countries. Sadly in some cases the response has been to try to force staff to operate
in a US MNC monoculture.
The price of diversity
Diverse national culture, as we have seen, can increase process diversity, complexity
and costs. Combined with the shortage of language skills, this has led some firms to
begin removing the language element from the process. This was perceived as the
best way to eliminate cultural tensions but it also allows the firm to become more
efficient and achieve better economic returns. Through the introduction of
technology and through the redesign of processes some managers hope to make the
SSCs monolingual by driving out the foreign language element and thus minimizing
intercultural communication problems. This approach may backfire in the long
What’s this thing called culture?
term by depriving the SSC of the creativity and flexibility which diversity can so
often bring, particularly when struggling to redesign customer-facing processes.
The choice of location
The location of the shared services organization is a key strategic decision that
commits the path that the shared services organization will take. Emotionally
most people are committed to a preferred place. Some SSC directors will approach
the decision with biases against locations or a very set short list of locations. It is
important that the cultural preferences or biases of any one individual are not
allowed to excessively influence the location decision. It is also important that a
great deal of thought and critical analysis be placed on this decision since once the
decision is made, most organizations are committed for a long period of time. It
had better be the right decision.
Staff turnover
In ACCA sponsored research on SSCs over 70 per cent of respondents said that
staff turnover was a major drawback in the implementation of the SSC strategy.
Attracting and retaining a large number of multilingual staff in what is often
considered remote locations is a common problem for firms in this study. Staff
turnover among non-nationals and difficulties in retaining staff beyond 18 months
were reported by a large number of firms. SSC managers need to be continually
looking for ways of reducing the sense of isolation and loneliness that many
expatriates feel. This should include specific initiatives in the areas of weekend
social events, etc.
Tensions ‘in-country’
As tasks are migrated to the shared service centre, there is the inevitable loss of
jobs in the local organization. Some staff members may be able to move to
another business unit. However, for the majority this is not an option as they may
not have the required skill set and the costs of retraining may be higher than the
cost savings generated by the move to a shared services strategy. Many of these
local staff are sources of critical knowledge and this knowledge is lost to the
organization for ever. As part of the migration to the FSSC, staff from the centre
will often spend up to three months workshadowing their colleagues in the
different sites around Europe.
In the case of one SSC a large team completed the migration of all of the
financial accounting operations from Italy (Milan) back to Dublin. As part of the
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migration the team spent three months learning how local staff carried out
various processes. In nearly all cases those being shadowed were effectively being
replaced in the organization by the shadowers. This was a particularly difficult
task and one that required a lot of management time and several interventions. In
the case of one firm, staff were flown back to the SSC each weekend because of
the feeling of isolation they felt at the local site and the hostile nature of the
relationship between the SSC staff and local accounting staff. On a more bizarre
note, the turmoil of migration appears to hold a certain attraction for some staff.
We found evidence of nomadic accountants who specialized in helping firms
migrate to shared service centres. These self-appointed enforcers seem to relish the
cultural challenges of moving established processes to new centres. Within the
industry they are highly prized for the migration period of the SSC but tend to be
disruptive for the organization in the longer term.
CULTURE SHOCK AND INTERCULTURAL ADAPTATION
Differences in expectations regarding cultural and communication norms gave rise
to frequent misunderstandings. Staff arriving in the SSC from different countries
will typically experience culture shock in the form of:
■ frustration and fatigue from language difficulties;
■ anxiety in the face of cultural differences;
■ stress or feeling of impotence for being unable to cope with tasks;
■ pressure and strain that comes from trying to conform;
■ social alienation in the loss of friends, family and social status;
■ financial difficulties;
■ interpersonal conflict;
■ loneliness, homesickness, isolation and disorientation.
The process of adaptation is one that is well documented with staff typically going
through four main phases as outlined in Table 7.1.
Managers in the SSC setting can support cultural adaptation and better
intercultural relations in a number of ways including:
■ cultivating an environment in which all employees can demonstrate their ability
and value to the organization regardless of race, culture or gender;
■ putting in place appraisal systems that focus on performance and outcomes;
■ matching people and jobs to ensure full utilization of skills;
■ supporting diverse work styles and life needs;
What’s this thing called culture?
■ putting in place intercultural sensitivity and training programmes to increase
awareness of culture, develop communication skills and lessen likelihood of
misunderstanding;
■ encouraging and rewarding behavioural flexibility.
Table 7.1 Stages in adaptation
Initial euphoria Excitement and fascination of new culture and new experiences. Curiosity and willingness to overlookdifferences.
Frustration and hostility Facing the challenges of the new culture on a day-to-daybasis. Confusion and disintegration and challenge to beliefs,values, behaviours, etc.
Adjustment and coping Learning responses and adapting to new environment.Following social and cultural norms. Growing personalflexibility.
Integration Cultivated understanding of host culture. Recovered fromsymptoms of culture shock. Freedom and capacity for dualor multiple cultural identities.
CONCLUSION
The major causes of difficulty in SSC implementation are not legal and technical
but more often in the realm of organizational culture, language and change
management. Complexities of language and culture are frequently used as reasons
not to implement shared services. Genuine, well-intentioned arguments for service
excellence frequently mask delaying tactics by would-be resisters. It is important
to deal sensitively with issues of culture and language. In particular, differences in
expectations regarding cultural and communication norms give rise to frequent
misunderstandings and a need to continually modify accepted ‘Anglo-Saxon’
work practices to the European environment.
It is vital that SSC practitioners become acquainted with the notion of cultural
fluency for their transnational and transcultural work in Europe and elsewhere.
While language fluency in a number of tongues may be highly desirable, cultural
fluency is downright indispensable for SSC managers. Careful planning and
selective hiring or transfer of the right skills is necessary. The scale provided by
shared service centres makes these issues easier to deal with, and the cost
reductions and general improvement in service quality more than compensate for
the effort involved.
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8Performance monitoring and benchmarking
Introduction 119
What business unit clients want from their SSC 119
The role of SLA’s measurement and reporting 120
The SSC scorecard 124
Comparing performance – the role of benchmarking 126
Conclusion 129
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Performance monitoring and benchmarking
INTRODUCTION
The leadership of internal shared services organizations today is under a
tremendous, contradictory pressure: to do more with less. You must reduce costs
– and improve customer satisfaction levels at the same time – to remain
competitive with outsource service providers. The best run internal service
organizations are coping with these new demands by aligning their service
offerings with corporate strategy and placing their internal customers at the centre
of their service priorities. In essence, they achieve excellence by operating as an
‘internal services company’ (ISCO). The ISCO model balances the forces of supply
and demand and market efficiency, thereby enabling the services organization not
only to attract internal paying customers with services they really need, but also
to optimize internal and external delivery resources and demonstrate the value
delivered in a tangible way.
Measuring the value of shared services is essential, as it provides the burden of
proof. Measurement demonstrates that a case for action resulted in the correct
decision; that a strategy has added value to an organization. It is necessary to
prove, beyond doubt, that the shift to a shared services environment has resulted
in cost-saving and efficiency improvements. Since the shared services unit will be
required to continually justify its existence, it will also need to commit itself to the
ongoing measurement of results.
The dilemma is in choosing what kind of measures, how many measures and
what kind of processes to measure. It is an accepted truism that what gets
measured, gets done, so companies need to be careful that what they are
measuring is what they want done. The most common measurement error is to
focus on costs and adherence to a budget, sometimes at the expense of other
opportunities. The fact is that any one measure is unlikely to be sufficient.
WHAT BUSINESS UNIT CLIENTS WANT FROM THEIR SSC
Clients primarily look for availability of and access to shared services. Some of
these clients will work outside what the unit may think of as normal office hours
and may be located in different countries to the shared services unit. One way to
satisfy their needs is to introduce flexible working arrangements, or to have a rota
of standby operatives, aided by paging/messaging technology.
A second important client requirement is accuracy. When clients receive
information that is inaccurate or incorrect, they begin to mistrust the unit as a whole
and will try to find ways to go around it. As well as flexible working hours, some
shared services units will need to demonstrate adaptability in meeting clients’ diverse
cultural needs and expectations. In addition, the usability of products and services
supplied is a key factor in achieving positive or negative client feedback.
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From processes, we move on to relationships. Clients look for the empathy,
courtesy and commitment that they feel is lacking from centralized, bureaucratic
departments. An unhelpful attitude is apparent from the moment a client call is
answered, and first impressions last. Once staff show that they are willing to be
helpful, they also need to display credibility in their ability to provide assistance.
Training and sometimes bringing in the necessary expertise go a long way towards
achieving a professional image.
‘You’re only as good as your last performance’ is certainly true of the shared
services environment. You may have spent months concentrating on providing a
first-class service, but this can all be undone with one failure. Dependability is,
therefore, of crucial importance in maintaining a high level of service and client
satisfaction. Finally, a staff member’s responsiveness to a client request will shape
the client’s perception of the whole unit. This does not mean agreeing to
unreasonable client demands, but working through the specific problem or
situation with the client.
THE ROLE OF SLA’S MEASUREMENT AND REPORTING
Successful SSCs provide their clients/customers with detailed performance reports on
a regular basis. Along with SLAs these reports help to ensure that targets are agreed
and that expectations are met. Some SSCs have formal SLAs which define the
relationship between the centre and the client organizations. The SSC and the local
business units it serves must clearly understand and agree on issues such as service
expectations, performance measurement and dispute resolution arrangements. Any
informal agreements that are in place must engender a similar level of understanding
and awareness of responsibilities and expectations.
As shown in Figure 8.1 just under half (46 per cent) of the respondents in the
Andersen/akris.com 2001 survey use formal contracts, such as an SLA that describes
the services to be provided, when they are to be provided and at what level of
quality and cost; 19 per cent use a contract that simply outlines the services to be
provided. A significant 23 per cent do not have a formal agreement between the SSC
and its customers, while a further 12 per cent use some other type of agreement.
This represents a worrying trend away from the use of formal service
agreements: in this survey 65 per cent of respondents used a contract to establish
the relationship between shared services and internal clients. This compares to 75
per cent of respondents in the 1999 survey.
Service level agreements were originally conceived as an ‘insurance policy’ to
safeguard future quality of service. Shared service centres must be held accountable to
their internal clients, with a clear view of who their customers are and how to improve
performance. Otherwise, what’s being delivered is centralization in SSC clothing.
Performance monitoring and benchmarking
Fig. 8.1 The level of adoption of SLAs (%)
Source: Andersen/akris.com survey (2001)
An SLA is the contract that defines the relationship between the shared services
supplier and a client. These contracts need to be simple and clear; they are not in
place to define the resolution of every conceivable circumstance that could arise in
the course of doing business. The advice that is provided consistently over time by
shared services organizations is ‘make them simple’. It is essential not to create a
bureaucratic infrastructure with complicated SLAs that include pages of legalistic
boilerplate and ‘what ifs’. This simply won’t work and will add enormous costs to
the shared services organization. Therefore there has to be a principle for simplicity
up front.
In organizations where there is low trust and low mutual respect, business units
have been known to press for more complexity than need be. This is where business
units will want endless standards spelled out like legal service contracts with
external suppliers. In this case, it is critical to try and accommodate their needs.
Ideally SLAs are about one to two pages in length and spell out the description of
services and the standards of service such as response time or quality. For example,
do you commit to providing an accuracy rate of 100 per cent or a response time on
the help desk of within half an hour?
While ideally the SLA should be a short concise document, it must also cover
the following areas:
■ what the client expects;
■ what the supplier will supply or deliver;
■ how frequently it will be supplied;
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SLA contract (describes services, quality and cost)
12
19
23
46
No agreementsSLA contract (describes services only)Other types of agreement
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■ to what quality standard;
■ what the client’s obligations are;
■ what happens if the supplier doesn’t meet these expectations;
■ what happens if the client doesn’t meet their obligations;
■ what recourse both have if there is failure on both sides;
■ a description of the services to be provided, including end products to be delivered;
■ skills that the supplier must possess, and levels of service to be provided;
■ pricing and billing, including charges for services provided and the charging
method;
■ service standards, including deadlines, timescales, response times and other specific
performance indicators.
Research by the authors indicates that the majority of organizations use measures
based on volumes, timeliness and quality of services as the basis for their SLAs
(see Table 8.1). Reporting of performance measures will typically be done on a
monthly basis or in some cases quarterly. A key part of the SLA will usually be
customer/client satisfaction surveys. These are a useful way of highlighting
problem areas and can be used to direct problem resolution at regular meetings
between SSC management and the client organizations.
Table 8.1 Examples of SSC measures by process
Travel and expenses (T&E) General ledger/Consolidation
T&E reports per full-time equivalent (FTE) Number of days to closeCost per T&E report FTE days for close
Materiality cut-offs
Accounts receivable Accounts payable
Cost of remittance Cost per accounts payable invoiceRemittance per FTE Accounts payable invoices per FTEDays outstanding Percentage of payments automatchedCredit checks per FTE Volume of Internet and online purchasesCustomers per FTEIncorrect invoices
Fixed assets Cash and bank
Cost per fixed asset Percentage of FTE paymentsFixed assets per FTE Idle cash balances
Kaiser Permanente describes four steps to the development of an SLA. The steps,
illustrated in Table 8.2, start with an initial identification of what services are being
Performance monitoring and benchmarking
considered for which client and generally how the relationship will be defined
between the players. The second step involves defining the responsibilities of both
the shared services provider and the business unit client. This step also includes a
description of how the services will flow to the client. Once these basics are defined
and agreed, the specifics of what services will be provided, at what cost and within
what standards of performance are negotiated. This step also includes agreement
on what consequences, positive and negative, there will be for performance above
or below the agreed performance standard. The final step describes the review
process necessary to ensure the required levels of performance and client
satisfaction are achieved.
Table 8.2 Four steps to SLA definition
1. Identify 2. Define 3. Negotiate 4. Review
Scope: What are Responsibilities: Responsiveness: Performance: Did the the services What is the What are the shared service centre provided by the delineation of agreed service meet its targets?shared service responsibility levels?centre? between the Compliance: Did each
shared service Costs: What will the party comply with the Participants: centre and the client pay for the defined agreement?Which business business unit? services provided?units are involved? Satisfaction: Are both
Requirements: Measures: How parties satisfied with Relationships: How What capabilities will the parties the results?are service centres are required by measure related to each the business units? responsiveness Scope: Are there other? How is and accuracy? other products or each service centre Interfaces: How services that must be related to each will information Consequences: included in the next business unit? and services flow What are each agreement?
between the service party’s incentives, centre and the bonuses and business unit? penalties?
Source: Kaiser Permanente
One key issue with SLAs is at what level they are signed. It is recommended that
SLAs be signed at the senior executive level of the business unit. Generally, this
agreement should cover the core products and services. The rationale for one major
SLA per business unit is to avoid middle management wheeling and dealing, cherry
picking services as they see fit. One major SLA gives overall agreement on the core
suite of products and services as well as an estimate of how much discretionary
service they plan on purchasing.
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Shared Service Centres
In the first year of shared services operation, it is essential to get a good handle
on the expectations for service volumes and level. Service level agreements are a
way of doing this. The other advantage of SLAs is that they provide a useful vehicle
for educating clients in informal ways about how and why rates are the way they
are, and what is done on their behalf. This is frequently the first time that clients
develop an understanding of what services are provided and what goes into the
provision. They may find out, for example, that it costs them money when
corporate and internal units double check inputs from the business units.
There should be an annual reporting back to the CEO, CFO and executive
group on the results and outcomes of the shared services past operating year. This
is a good business practice and one that is an effective method for holding shared
services accountable for progress. The reporting out needs to include the target
and the actual rate of recovery of fully loaded costs. In addition to the financials,
there should be an overview of the internal client feedback, pointing out the
biggest areas of strength and the areas for improvement. There needs to be an
accompanying action plan for addressing the areas requiring improvement.
At this time, it would be wise for shared services to make any recommendations
on changes in the principles and to give any advice on services that should be
outsourced. In other words, the outsourcing decision should ultimately be left up
to the CEO and executive. This annual reporting time is a taking stock of the past
year with a nod to the future. For example, if the past year has shown that in one
area of service, the costs are still too high compared to external vendors and the
client satisfaction is low, this is an obvious choice for outsourcing. The executive
may still choose to retain this service in-house even though the data is compelling,
but will ask the shared services group to work harder at either lowering costs or
improving satisfaction. After all, this is not a simple mathematical formula.
THE SSC SCORECARD
The balanced scorecard approach directly connects a shared services unit to the
company’s overall corporate or organizational direction, providing consistency to
performance measures. It provides a strategic focus for performance measurement
that goes beyond the traditional focus on financial data. In the context of shared
services, four measurement criteria are used:
■ the way internal clients and customers evaluate the services;
■ the extent to which the shared services unit is able to demonstrate innovation
and value;
■ the ultimate financial returns;
■ internal productivity in running the unit.
Performance monitoring and benchmarking
These four measurements provide a comprehensive picture of how the shared
services unit is operating and can also be used as a basis for dialogue with clients
about future improvements. The shared services unit must be committed to acting
upon the data, however, if it is to lend any long-term credibility to the process.
Innovation and value
Shared services units must demonstrate a commitment to the continual development
of new skills and capabilities, aimed at enhancing service quality and operational
efficiency. This is very difficult to measure precisely and to attempt to do so would
be missing the point. The important thing is to ensure that the shared services unit
looks beyond the traditional measures of quality, cost and client satisfaction, and
continually tries to improve its value to the organization as a whole.
Financial returns
Like any other business unit, shared services needs to compare costs against revenue.
If costs exceed revenue, two options are available to redress the balance: reduce costs
or raise the price of services. Since the latter will affect the unit’s competitiveness, it
is usually seen as a last resort. The unit should already have processes in place to
reduce costs and a further examination of these is the best way forward.
Internal productivity
Every business unit has its own internal set of measurement criteria, which relate to
its unique processes, products and services. Detailed process-based measurements
enable shared services units to predict potential areas of decreasing or increasing
productivity. These, in turn, form the basis for decisions on process improvements
or alternative cost-reduction strategies.
Customers and markets
Experience shows that there are few jobs tougher than marketing services as an
internal service provider. Selling services to colleagues is a challenge – those
colleagues may know you and respect your abilities, but they’ll compare you with
external service providers who have the image and credibility that you as an
internal provider may not yet have attained. External providers have proven their
ability to do the job – they’ve found customers who are willing to pay for their
advice. And it’s advice that doesn’t come loaded with any of the political baggage
that you, as a fellow employee, may carry.
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Shared Service Centres
A well-implemented business plan provides a rational, economic basis for
operating internal services. It’s the basis for ensuring that every member of the
service team is dedicated to meeting clients’ needs, by providing services of a quality,
timeliness and cost that meet clients’ expectations and are competitive. We refer to
internal customers of shared services as ‘clients’, in order to distinguish them from
the organization’s customers. It starts with understanding your clients’ needs and
ends with consistently delivering services they value. You’ll judge success by the
extent that clients repeatedly choose to work with you. Even if they don’t appear to
have a choice, your clients will find ways of letting you know when you’re not
delivering value.
COMPARING PERFORMANCE – THE ROLE
OF BENCHMARKING
Benchmarking involves the comparison of internal service costs with those of
external service providers, or others that may be considered ‘best in class’ (see
Figure 8.2).
Fig. 8.2 The nature of SSC benchmarking
Benchmarking data, like any other statistical comparison, is highly susceptible to
interpretation. Great care must be taken to ensure that the services being
compared are similar and that cost comparisons are relevant and reliable. Internal
Benchmarking helps set goalsand strategy for how to closethe gap
Best-in-classperformance
Benchmarking maintainsthe stimulus for continuousimprovement
Benchmarking helps to measuresuccess in closing the gap
Performance
Gap
Time
Currentperformance
Benchmarking identifiesand calibrates the gap
Performance monitoring and benchmarking
service costs should include all costs associated with the delivery of that service,
including asset depreciation, for example. It is only valid to compare fully loaded
internal service costs to those charged by external suppliers. This may go some
way to explaining the low level of adoption of external benchmarking by SSCs as
shown in the akris.com survey for 2001 (see Figure 8.3).
Fig. 8.3 Methods used for monitoring SSC performance (%)
Source: Andersen/akris.com survey (2001)
In recent years a number of SSC industry interest groups have carried out
benchmarking initiatives. Many of these, however, have lacked robustness and
have failed to deliver the longitudinal data required by SSC managers.
One of the more successful benchmarking projects in Europe was the KPMG
best practice club. This measured a variety of processes across European finance
operations both within the SSC setting and in traditional finance departments (see
example in Figure 8.4).
Benchmarking against similar services supplied by other internal shared services
units often provides a more transparent and valid performance comparison. This
can be extremely useful in defining targets for the new unit, not only for service
costs but also for staffing and customer satisfaction levels. When it is impossible to
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2Benchmarking with units that do nothave shared services2Benchmarking with other shared servicesin the organization10Benchmarking cost, quality and timeliness ofservices with external suppliers10Benchmarking with shared services inother organizations33Regular meetings between shared servicesand internal clients35Monthly reporting of actual performance versus target
9Other methods are used
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make direct cost comparisons, a comparison of ratios is often a useful alternative
(the number of employees for which one member of the human resources
department is responsible, or the cost of processing one financial transaction).
It is important to step back regularly and remind yourself of the reasons behind
the benchmarking exercise. Ask yourself what the results will tell you about your
business. When benchmarking training expenditure per employee, for example, is
a high or low number preferable? Depending on your viewpoint, a high number
can indicate either inefficiency or a stronger commitment to training. A high
percentage of employees receiving training could demonstrate either a well-trained
workforce or a lack of strategic training allocation. Similarly, the number of days’
training each employee receives is also open to interpretation. A high number can
indicate a greater commitment to training, but by the same token a low number
could indicate more efficient and effective workplace-based training.
Fig. 8.4 Example of the benchmark from the KPMG SSC study
Benchmarking can be an extremely valuable tool, especially during the first year
of a new shared services unit’s operation. It should, however, be approached
cautiously and open-mindedly. Only valid comparisons provide valid information
and determining a comparison’s validity is often the hardest part of the exercise.
Finally, social and institutional networks in the form of FSSC benchmarking
clubs and even simple social get-togethers of FSSC managers provide a useful
forum for getting what the head of Black and Decker’s FSSC calls ‘tips and tricks’.
These are the useful insights which other FSSC managers have to offer and which
are often more valuable than all the texts and benchmarking put together.
All
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
90 000
1st quartile10th percentile
Remittance advices processedper FTE (all companies)
Median 3rd quartile
SSCs
Performance monitoring and benchmarking
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CONCLUSION
Defining the principles of operating, and designing the scorecards and SLAs all
contribute to the transformation of an SSC into a business. They are important
tools; they are the mechanics of shared services implementation. They are not the
whole story though. The real key to implementing shared services successfully is
the ability to shift the culture away from bureaucracy to a service mindset. There
are many questions and dilemmas that will arise in the performance measurement
process. The very process of performance measurement is what will start to
change the culture for the shared services organization. It is an essential tool for
change. For the leaders of shared services, the performance metrics are a key part
of conversations with staff and with clients and it is these conversations which
ultimately lead to action and improvements in service quality.
9E-shared services
Introduction 133
How the web is transforming bean counting 134
How the web is transforming shared services 136
Challenges for e-shared services 151
Lights-out processing: vision or hallucination 153
Conclusion 154
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E-shared services
INTRODUCTION
New technologies play a key role in the cross-border consolidation of information
and financial systems. Information technology enables and facilitates activity
consolidation as part of a shared services operation. Linking with the overall
company’s IT strategy, the shared services must ‘capitalize on and match the available
enabling technology’ (Schulman et al. 1999). One of the major revolutions in the
business world today is the increasing automation of shared services delivery, with
companies installing dedicated software to manage the process. In this chapter we
take a closer look at the nature of e-shared services and explore how IT platforms
can improve both productivity and latency.
Most of the services that companies provide are recurring services that are well
suited to automation and management by a software platform. Many companies
initially install automation software to handle financial transactions, but it is
clear that HR is also ripe for automation. Philip King, director of shared services
at KPMG Consulting, has first-hand knowledge of the way automation is
developing today. ‘It really started in finance’, he says. ‘Many of our clients were
working with transforming their finance organization but, increasingly, the same
principles are being adopted in HR, purchasing, IT, facilities management and
other support organizations’.
For now, though, the bedrock of most shared service centres is finance
transaction processing: order to cash, purchase to pay and account to report. King
says that in the early days of shared services, there was a large reliance on ERP
(Enterprise Resource Planning) systems. ‘ERP systems were fundamental to
achieving a true end-to-end process redesign, of which shared services was a part.
Unfortunately, the initial ERP implementations were tough-going and ERP systems
themselves weren’t so user-friendly. They didn’t really give a great customer service
experience.’ Now, King says, vendors are responding with upgrades to these
systems that are web-enabled, truly user-friendly, and have a better self-service
capability. ‘We’re seeing the introduction of more sophisticated document-imaging
technology. These technologies weren’t available until the last year or two.’
King explains, ‘We’ve set up, at our Enterprise Technology Centre in Watford,
an e-finance capability that aims to have 95 per cent of transactions going through
a purchase to pay process automatically – an integrated suite application that
includes e-procurement and web-enabled expenses integrated with ERP. The
shared service centre can monitor the process performance itself. We also have a
document imaging system installed which can automatically read any paper
invoices that arrive and post them directly into accounts payable. The purchase to
pay is a classic example of processes that can be fully automated.’
Alex McInnes, Director, BPO Poland at PricewaterhouseCoopers, also sees
accounts payable as particularly ripe for automation. ‘If you look at a web-enabled
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solution in accounts payable, you have a number of portals now coming online. The
vendors, suppliers and clients could literally carry out transactions on a virtual basis
without the need for a service vendor in the future. These are the vendor–client
relationships that bring real opportunities for the future.’
King sees an interesting evolution in shared services. In his view, shared services
has gone through a life cycle that is similar to manufacturing. ‘In the same way,
shared services skills today need to move more towards process controllers than
process administrators and transaction processors. That’s a key aspect that
companies need to look at when they’re implementing the technology. What we
envisage is that shared services will move towards more of a control room
environment. As processes are automated, more functionality will come into
shared services, such as data management, help desks and self-service
applications. The shared service centres are likely to be global. You don’t need
many people to administer web-enabled expenses. But the skills in the shared
service centres need to change, and we need more hybrid-type people with IT and
process skills.’
It’s not just finance processes which are moving online. Exult, a provider of web-
enabled, integrated services designed to manage the human resources function for
Global Fortune 500 corporations, opened its new Glasgow, Scotland client service
centre and uses the latest internet-enabled interactive technology. The centre is
devoted to managing human resource functions for major global corporations.
These functions include payroll processing, benefits administration, organization
of training, and the related IT support and maintenance. Maintenance of key
systems and technology such as call/case management, imaging and workflow, and
HR application software and databases also fall under the responsibility of the new
centre. One of the primary roles of the e-HR services centre is the support of
Exult’s ‘myHR’, a browser-based, personalized web portal that promotes and
enables employee self-service for key HR functions. ‘myHR’ is a customizable HR
tool that creates a dynamic communications network among employees, employer,
managers and their peers, and enables employees to self-manage various aspects of
their professional lives.
HOW THE WEB IS TRANSFORMING BEAN COUNTING
The days of bean counting are over for many finance professionals. The concept of
e-finance is closer to reality than could have been anticipated two years ago, claims
a new report, ‘eFinance@work’, by KPMG Consulting. In 1998, the firm predicted
that due to changing business and operational models driven by Internet
technologies, ‘accountants could go the way of coal miners’ if they did not adapt
to the new environment within ten years. However, developments in e-business
E-shared services
have been so rapid that these predictions have already been realized and companies
need to make immediate changes to their finance departments to avoid the role of
finance becoming sidelined.
Scott Parker, consultant at KPMG Consulting, commented: ‘The role of the
finance function within companies is changing dramatically. From now on,
finance departments will drive, rather than measure, financial performance. While
the traditional responsibilities of finance departments – forecasting, budgeting
and financial control – will remain, many of the processes associated with these
have been automated, freeing finance to become a strategic partner to the
business.’ The report highlights the finance department’s role as an integrator and
provider of information. This will involve liaising with external parties, such as
suppliers and partners, and pulling together information from marketing, logistics
and other departments in order to challenge decisions and business directions.
This transition will require wholesale change within finance departments, both
culturally and operationally. Up-skilling staff will be vital and there will be major
change for finance directors themselves, who will move away from the traditional
finance role to become more of a strategic consultant. The report explores the
four key themes that will drive the new role of the finance department:
■ eliminate many of the traditional roles of the finance function: manual tasks –
such as processing expense forms – are being automated and replaced with
web-enabled systems. This could reduce processing costs by 20 per cent,
although some companies achieve much more. As companies automate their
processes and link directly with customers and suppliers, there will no longer
be a need for large accounting factories in a single location. Before long, the
shared service centres will essentially become control rooms monitoring
performance, managing processes and tracking exceptions to the rule. In
addition, organizations are finding that application service providers (ASPs)
offer a solution. Companies can outsource IT to an ASP – servicing a number
of businesses simultaneously – at one off-site location. It is expected that ASPs
will be a popular option for many organizations.
■ embed financial controls and risk management in technology: as increased access
to information delivers greater decision-making power across an organization,
the potential risks for the organization also increase. However, new technology
allows consistent procedures, tools and templates to be easily implemented.
Cisco, for example, has adopted a web-based expenses system that enables the
company to capture individual corporate credit card transactions online and
employees to input other expenses on a daily basis, while flagging up consistent
overspending on expenses, or the use of an unauthorized airline or hotel.
■ empower decision makers: chief executives have always wanted finance directors
to deliver the Holy Grail of finance: making the finance function a strategic
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business partner. The Internet facilitates this role by allowing real-time,
customized management information to be delivered through a web browser to
employees on an anytime, anywhere basis. The performance management portal
effectively provides a single and instant version of the truth, allowing the whole
organization to manage performance against clear strategic priorities. Motorola,
for example, uses a system which not only enables all its employees to have daily
access to marketing and manufacturing information, but also incorporates
paging technology to ensure that employees who are not near a PC can access
the information they need, or be alerted to new developments with a two-minute
response time.
■ Explore new opportunities: The specialist skills typically found in finance – tax,
treasury, investor relations and corporate finance – are being profoundly
affected by the Internet. This is having an impact both on the way these skills
are delivered (common tax and treasury questions can now be answered over
an intranet or Internet) and on the skills that are required, for example in
co-ordinating a cross-border transaction. Finance will become much more
project-based and finance professionals must develop and revamp the skills to
meet this challenge. Chris Gant, partner responsible for e-finance at KPMG
Consulting, commented:
The back office revolution is already happening. However, while leading
organizations such as Cisco, Virgin, Whitbread and Motorola are
implementing the necessary changes already, many firms still have
substantial ground to make up. Customers and suppliers are ultimately
forcing all companies to meet the e-business challenge and there is no time
to delay. The traditional finance department will not survive – finance
must either adapt to the pace of change or risk becoming sidelined within
an organization.
HOW THE WEB IS TRANSFORMING SHARED SERVICES
Automation of the business mode to deliver end-to-end servicechain automation
Companies cannot reduce their costs by outsourcing or recentralizing shared
services unless they have an automation platform that improves services. Service
automation platforms have the potential to reduce service costs within enterprises
by up to 30 per cent. In enterprises with 10 per cent margins that spend 3–5 per
E-shared services
cent of revenues on services, this amounts to a profit increase of 10–15 per cent.
Clearly, these are savings that fall directly to the bottom line.
With the right software shared services can automate their entire service delivery
chain with one fully integrated web-based system. Using self-service ordering,
employees can request complex services as easily as ordering books on the
Internet. One example of such software is RequestCentre by newScale of the USA.
The software enables companies to define and publish service offerings, design
and implement delivery processes and offer a central online portal for configuring
and making service requests. They can flexibly define purchase authorization
processes to meet their particular needs, manage business processes for procuring
and deploying equipment and services, and effectively collaborate with
outsourced service providers. The software also tracks performance and provides
IT service organizations with the tools to connect to other corporate data sources.
Improved co-ordination
Delivering shared services requires close co-ordination between those requesting the
service and those providing it. With a dedicated software platform, companies are
able to improve co-ordination on many different levels. Co-ordination goes far
beyond pure interpersonal communication and e-mail. It involves the structuring,
sequencing and synchronizing of people’s activities for efficient service delivery. With
the right software in place, co-ordination is what results when service consumers and
providers are clearly informed of all aspects of a service. This includes everything
from defining people’s roles to obtaining equipment.
Eliminating call-backs
The most tangible result of improved co-ordination is the elimination of call-backs
(the phone calls or e-mails from service providers and consumers who need
reconfirmation or clarification). Call-backs tend to increase in number as companies
expand and service delivery becomes more complicated. By using a good services
management platform, companies can eliminate call-backs at all three stages of
delivery (see Table 9.1).
A menu of clearly specified packages means there is no longer any ambiguity when
customers are requesting a service. At the approval stage, management or
departmental sign-offs can be mapped into the process so that everyone involved
knows what is being requested and what has been approved. Co-ordination is also
improved at the delivery stage thanks to a central bulletin board on which all
relevant information is posted. All those involved can check what jobs are pending
and how close each task is to completion. They can see, at a glance, what people’s
roles actually are.
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Shared Service Centres
Table 9.1 How automation software improves service delivery and management
Co-ordination factors Effects
Service ordering Customers can clearly Call-backs and intermediaries communicate their requests. eliminated.
Service delivery Clear details available about Co-ordination of people’s roles people’s roles and delivery tasks. and the supply of equipment. Task status is visible to all Service delivery can be parties. decentralized.
Service Centralized management. Improved co-ordination in management Service activities visible at performance monitoring, billing,
macro (overall) and micro publishing of costs and charging.(per job) levels. Report cards can be generated.Details available about internal and external teams and all jobs, including those that are pending.
Synchronizing activities
Service delivery is often hampered by a lack of synchronization. Some tasks have to be
performed in sequence, but others can be done in parallel. For efficient service delivery,
all these tasks need to be managed in a well-organized fashion – the more tasks that
can be dealt with in parallel, the quicker a job can be completed (see Figure 9.1).
Streamlined ordering
Automation software reduces costs by streamlining the ordering, delivery and
management of shared services. It not only enables companies to synchronize
parallel activities and eliminate call-backs, but also provides service managers
with the data they need to assess and improve services and establish fair charges.
Everyone involved is able to track the progression of each task and the whole
process is simplified. Service offerings are packaged into a catalogue, service
delivery personnel have a well-organized workflow and monitoring is easier to
carry out. It becomes easier for managers to assess delivery performance and audit
the impact of shared services on company finances.
Empowering shared services managers
Over and above the evident process improvements, automation helps to empower
shared services managers. With automation, shared services managers are no longer
perceived as the bad cops all the time. Instead, they can focus on becoming
E-shared services
operationally efficient – every request has a price and therefore a profit. Shared
services managers can say, ‘I’m now going to increase efficiency this way’, and
newScale provides the dashboards that can make it happen. That’s very empowering
for them and it’s one of the attractive features of automation. Automation allows
shared services managers to become an operational showcase, a best-of-breed
professional who has optimized service delivery in the organization.
Fig. 9.1 Advantages of task synchronization
Cutting costs
Companies that automate their shared services management make both direct and
indirect savings. First, fewer personnel are required to support the same level of
service so labour costs are reduced. Second, improvements in latency lead to a
significant reduction in opportunity costs. Opportunity costs include the sales
opportunities that companies miss when they are slow to market new products and
the buffer inventories they are obliged to carry out because their activities are
unco-ordinated. Time and money are also lost when otherwise productive workers
are left idle because a task needs completing (see Table 9.2 for further examples).
139
Tasks fulfilled in rigidsequenceTask AJo
b X
Task B
Task C
Difference in time-to-completion due to parallel
fulfilment of tasks
Tasks fulfilled inparallel
Time
Task
s, s
ervi
ce jo
bs
Task AJob
Y
Task B
Task C
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Table 9.2 The costs of failing to automate
Opportunity costs Cost to the company
Unnecessary use of contract labour Expenditure on contract labour and and outsourcing outsourcing
Time to market with new products Lost sales
Productivity of service customers Lost added value (employee revenue (company employees) minus cost)
‘Just-in-case’ inventories of equipment, Expenditure on inventories and cost supplies and/or raw materials of capital
Lost customer loyalty and repeat sales Lost salesdue to poor service
Time lost when opening new facilities Daily cost of capital multiplied by thenumber of lost days
Case study 9.1
Lucent e-shared services in action
Lucent Technologies, headquartered in Murray Hill, New Jersey, USA, with over 60 000
personnel in more than 90 countries, designs and delivers networks for the world’s largest
communications service providers. Backed by the research and development activities of
Bell Labs, Lucent relies on its strengths in mobility, optical, data and voice networking
technologies as well as software and services to develop next-generation networks. Lucent
Technologies was established as a result of the restructuring of AT&T in 1995. The
company’s roots date back to Alexander Bell and his invention of the telephone in 1876.
Lucent Technologies has been listed on the Stock Exchange since 30 April 1996.
Lucent Technologies uses a central shared services model for its financial organization.
Transaction intensive activities such as invoicing, accounts payable, payroll, cost accounting,
accounts receivable and inventory accounting are done by the Global Financial Services
organization. The Global Financial Services (GFS) organization operates as the centre of
excellence for all GFS transaction processing. Each of the regional shared service centres
aims at aligning closely with their regional controller as well as with the financial systems and
processes team to deliver end-to-end process improvements.
The main GFS activities cover the following areas:
■ day-to-day management of financial processes;
■ tax compliance and statutory results;
■ acquisition integration;
■ spin off business;
■ new process introduction;
E-shared services
■ migrating existing countries;
■ process ownership.
The finance mission is to add value to decision making at the best cost to the firm and to
become an invaluable strategic business partner to the business. This mission includes the
challenge of revamping systems and processes in order to make total finance costs to the
corporation no more than 1 per cent of revenue. This cost reduction led to the creation of
a dual FSSC solution in the EMEA region which is to provide centralized accounting services
to all Lucent business units in the region and become a centre for excellence. In particular
the shared service centre is tasked with:
■ reducing finance expense to less than 1 per cent of total revenue;
■ increasing partner satisfaction: more value added services/more time spent on client
support;
■ establishing common processes, financial language and improved processing time;
■ delivering fast integration of new acquisitions;
■ improving finance process quality.
With this in mind, during the second quarter of 1998, the two scheduled European shared
service centres initiated their start-up phase with the UK as the first country to be migrated
into the shared services hubs. From here the shared service centres have moved to support
the Netherlands, Germany, France, Poland, UK, Ireland, Portugal and Italy.
While the Dutch FSSC hub carries out the general ledger, statutory accounting, project
accounting, inventory and cash operations functions, the Irish hub is responsible for the
accounts payable, inter-entity, accounts receivable/collection, cash application, fixed assets
and employee expenses functions. Billing and payroll functions are run in-country with a
trend towards outsourcing payroll functions.
At present, activities at both SSC locations are structured by process. Table 9.3 summarizes
the services provided at Lucent (whether at SSC, individually in-country, outsourced, etc.) and
their characteristics.
The ultimate goal for the GFS organization is to become a recognized strategic partner
within the overall Lucent organization and to perform work that is truly relevant to the
business needs. In this strategy, global process owners set the global processes first and
the regional shared service centres implement the common processes, tailoring the strategy
to the local environment. This search for best practices in financial processes with a final
view to adopt them in all Lucent locations is enabled by technologically-based solutions
such as the ones described in the next section. Some of the main technological enablers
at Lucent Technologies’ shared services operations are outlined below.
XMS: Lucent Technologies global expense management tool
Since fiscal year 2000, Lucent has dramatically changed the expense management process.
The new process, currently being implemented worldwide, utilizes a software package known
as XMS (eXpense Management Solution) developed by Concur Technologies that replaces
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Shared Service Centres
multiple legacy expense management systems. XMS is a web-based application for
submission, approval and payment of business expenses that enables Lucent to:
■ improve the visibility and management of the travel and expense process;
■ standardize the preparation of financial reports;
■ develop a more productive financial reporting;
■ embed Lucent corporate travel policies within the expense management process solution.
These and other benefits, as well as the challenges faced during implementation, are shown
in detail in Table 9.4.
Table 9.3 Lucent EMEA business services: level of provision
Services Provided (in-country, outsourced,regionally, globally)
Accounts receivable and payable SSC regionallyCredit and collection SSC regionallyBilling In-countryGeneral ledger SSC regionallyFinancial analysis/reporting In-countryConsolidation Globally Accounts payable SSC regionallyCash management SSC regionallyTreasury SSC regionallyTravel and expenses SSC regionallyProcurement strategy GloballyProcurement operations In-countryCost accounting In-countryManagement of IT operations SSC regionallyIT development OutsourcedPayroll In-country outsourcedFacilities management In-countryHealth and safety In-countryExternal statutory and reporting In-countryLegal services and facilities management OutsourcedCompensation and benefits In-country
With XMS, the process starts with the receipt of employees’ American Express credit card
statements into the web-based system. Instead of completing per trip vouchers, Lucent
employees process monthly expense reports by reconciling online American Express
statement activity.
The implementation in the EMEA region has been the responsibility of the Dublin shared
service centre, and, after a period of requirements elicitation and analysis, which highlighted
different tax policies, travel corporate policies, currency and language issues (among
others), the business requirements were documented and agreed upon.
E-shared services
Table 9.4 Lucent expense management tool: benefits and issues
Benefits Issues
■ Improved process visibility ■ Implementation required higher than ■ Process standardization and reduction expected level of support
in T&E voucher processing time ■ Reporting became a very important ■ Legacy systems being decommissioned aspect during implementation■ Online submittal and approval of
expense reports■ Duplication of effort eliminated (no
rekeying necessary)■ Non-compliant expenses reporting■ Improved management and
procurement decision making regarding travel expenses (potential savings of 8% of T&E spend)
■ VAT on expenses becomes reclaimable
The solution was then customized to support the business requirements identified. Extensive
work followed in order to reengineer the back office expense process at the Lucent FSSC
before the implementation could start. A three-month pilot period was chosen initially for
the UK activities, which started in March 2001. Full implementation for the UK took place
in June 2001 followed by the deployment of XMS platform to all EMEA countries, while at
the same time looking closely at the EMEA travel and expense policies and processes in the
region in an attempt to minimize Lucent’s exposure to risk.
Scorpion: Lucent regional procurement card programme for EMEA
With accounts payable being the biggest process area servicing Lucent subsidiaries in the
EMEA region from the Dublin FSSC, senior management at Lucent realized the lack of
automation in the SSC-run process and through a process review they triggered the start of
a procurement card project, aiming at:
■ improving efficiency by automating the processing of low value, non-inventory business
purchases of products and services (with effects on the whole end-to-end procurement
cycle);
■ reducing processing costs through eliminating manual invoice processing, purchase order
creation, vendor set-up and maintenance, etc.;
■ improving strategic vendor relationships.
The key business driver identified was the need to automate the processing of low value
purchases, simplifying the process to reduce costs and the manual content. This analysis
concluded that business benefits and the payback period of a year were attainable. The
required solution would have to allow the deployment of a card programme over the EMEA
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Shared Service Centres
region countries. Business requirements were gathered, followed by a comprehensive market
analysis. The solution chosen was Deecal’s ‘Scorpion’, due to this vendor’s relationship with
HSBC, a bank that has an important presence in Europe (chosen against Deecal’s US
competitor product, Procard, which doesn’t have a presence in Europe or adequate bank
relationships). The project then moved to develop the Deecal technical solution using a pilot
implementation within the UK Lucent market, followed by a regional EMEA rollout.
The project needed to be implemented in a very short timeframe, and the Deecal solution
was successfully implemented in less than two months. The software vendor expertise and
knowledge in implementing global commercial card programmes proved to be very
important to the success of the project.
During the implementation phase, business requirements were gathered for the project
and the technical solution was built and presented, with a consultant carrying out the
implementation. The database required was built in three weeks, during which several
requirements changed. The final solution was successfully implemented on a local server
with a multi-user system. Full training for the system users was given and then the solution
went into production immediately with daily delivery. The UK went live initially, followed by
Ireland and France. Lucent took over from the vendor the responsibility for updating the
software to suit each new implementation. It has been running successfully for 18 months
in the UK, Ireland, the Netherlands and France.
EZBuy: Lucent global e-procurement solution
In 2000 Lucent commenced the execution of a global e-procurement project, called EZBuy,
which utilizes the ARIBA Buyer solution, an online buying system for indirect procurement
through a strategic set of suppliers. In October 2000, Lucent finalized an agreement with
Alliente Inc., a business service provider. This agreement stated that Alliente would host and
manage the implementation of the Lucent e-procurement solution, a single global system
for indirect procurement.
Lucent goals in the procurement area are:
■ to leverage spending with strategic suppliers;
■ to become IT-enabled through a web-based tool that, once it becomes integrated across
Lucent, will enable a reduction of costs and cycle times;
■ to shift focus to core competencies and business critical areas;
■ to reduce the number of indirect suppliers and increase the visibility towards spend.
Through the ARIBA Buyer solution, Lucent can purchases:
■ office supplies/books;
■ capital equipment;
■ stationary and logo merchandise;
■ business and professional services;
■ industrial supplies and equipment;
■ computer hardware;
E-shared services
■ software;
■ other items requiring approvals through internal business processes.
During fiscal year 2001, Lucent deployed this solution globally for both catalogue and non-
catalogue orders. Table 9.5 shows the key drivers, the objectives of the project and the
characteristics of the solution implemented.
Table 9.5 Electronic procurement at Lucent
Key drivers Project objectives Solution implemented
1. Buyer fragmentation: Improve supplier Connects buyers and sellers internal Lucent personnel management electronically: fewer suppliers use multiple ways to buy Improve access to and automation of
2. Low customer satisfaction: suppliers transaction processingslowness, lack of tracking, Reduce processing costs Gives controlled access to maverick buying Reduce order cycle time all employees
3. Lack of strategic Quick implementation capability: lack of focus (using third party on strategic sourcing company expertise)
4. Expensive process: high Achieve process cost in purchase order improvements, reducing processing maverick buying and
5. Supplier fragmentation: manual reconciliationslow buying power Online requisition approval
After initial stage the project will aim at inventory goods
Alliente has brought into the project their knowledge gained through previous customer
implementations and their international presence, which has allowed homogeneous and
parallel implementation in all regions. Lucent employees use their browsers to search the
digital catalogues negotiated with selected vendors, and these catalogues contain
discounted prices agreed beforehand. EZBuy enhancements brought in in August 2001
allow the placement of non-catalogue orders via EZBuy as well as the possibility to create
and change orders, and to cancel requisitions. EZBuy has been deployed globally in the USA
and in 29 other countries. Within the EMEA region, the countries in which the solution has
been deployed include the UK, France, the Netherlands, Spain, Italy, Portugal and Ireland.
Key implementation issues included:
■ resistance to change on the side of the procurement organization and requesters at
Lucent. Users are encouraged to access the web-based, self-paced training modules with
easy to follow instructions and tips on navigating through the EZBuy system; Alliente’s
Operations Centre is available for questions and comments; Lucent’s Supply Chain
Networks group has a support web site regarding EZBuy.
■ Leading e-procurement applications are evolving (e.g. cross-border purchases issues). The
Ariba solution is one of the best overall solutions available in the area of e-procurement.
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Shared Service Centres
■ suppliers’ readiness is the main challenge. Suppliers’ catalogue content is on some
occasions inadequate with technical errors, obsolete products, poor descriptions. Suppliers
in many countries are unable to provide an Ariba catalogue dedicated to Lucent (e.g.
suppliers using different tools than Ariba).
■ clumsy processes linking Lucent to suppliers: lack of influence when advising suppliers of
the type of technology required for e-procurement.
EZFlow: Lucent regional imaging and document approval system
With a complex financial architecture and a number of ERP systems (SAP, Oracle, MFGPro)
due to multiple business acquisitions, the accounts payable activities carried out in the
Dublin FSSC presented many challenges. They process more than 350 000 invoices per
year for subsidiaries in Germany, the Netherlands, the UK, Poland, France, Ireland, Portugal
and Belgium in the EMEA region. The level of purchase order bypass was considerably high
(on average, around 60 per cent of the invoices). In addition to encouraging the organization
to raise purchase orders, obtaining approval for these invoices has been difficult and the
whole activity was clearly inefficient and cumbersome.
At the same time, there was a requirement for certification when the so-called service
purchase orders where used. This meant that service certification was then necessary for
many charges that had been approved originally through a purchase order.
The tool chosen to address the issues above was EZFlow (see Table 9.6). The original
implementation, focused on the Netherlands accounts payable group, went live in October
2000 as a pilot with basic functionality for a few key approvers. The pilot moved to full
implementation (again for the Netherlands accounts payable group) in March 2001 with
new improved functionality before being rolled out to the rest of EMEA, for both the inter-
entity and third party accounts payable processes.
Table 9.6 Electronic imaging and workflow at Lucent
Key drivers Project objectives Solution implemented
1. Regional document Implement an efficient An electronic imaging and archiving and approval scanning and invoice workflow information system process approval process that gives the accounts
2. Visibility and control of Enable visibility of issues payable function real time invoice approval, Cost reduction visibility over the invoice purchase order Visibility of non-conformist approval systembypassing, etc. issues within the approval process Tool that enables the
3. Automation and accounts payable process to simplification of process, produce internal efficienciesthus reducing costs by minimizing manual content in the accounts payable process
E-shared services
This tool brings important benefits to internal and external partners in the region, due to the
fact that it enables both in-country partners and Lucent staff in the Dublin FSSC to process
a range of transactions electronically. In addition, SSC and other staff regionally or globally
can access scanned images of invoices for analysis or process and send for online approval,
and in-country requestors/approvers can, using an online link, view the documents and
approve/reject them via a standard web interface.
Critical success factors, risks and drivers
Table 9.7 summarizes the main technological enablers at Lucent FSSC, the drivers
incorporated into the business case, the factors that proved critical for their implementation
and the specific risks that were introduced.
Tools and technologies deployed in the EMEA region (FSSC driven) include ERP, data
warehousing, data analysis and reporting tools, EDI, intranet and electronic procurement.
Tools in which investment is deemed as necessary are, among others, automatic payment
allocation tools, EDI, EAI technologies and extranet.
A common view across Lucent is that the main priority for investment within the FSSC is
people related, and within this area, the main challenges have to do with providing growth
opportunities and automation tools, retaining key resources and employee recognition, as
well as hiring the right talent for the FSSC.
Challenges in the process area (second priority for investment) relate to the standardization
of processes, reengineering the end-to-end processes before building automation (increasing
the integration between billing, procurement, accounts payable and cash management
functions) and dealing with change management issues.
Finally, the challenges in the IT strategy at the FSSC (third priority for investment) are
achieving an IT strategy in line with the SSC strategy, the deployment of an ERP and the
decommissioning of legacy systems with the aim of having a unique IT platform.
While recognizing the need for new IT systems, management at Lucent realized that no
successful IT implementation could be achieved without a global vision in which the human
and process elements play a pivotal role. Recruiting the right people, implementing the SSC
IT strategy and building around core processes became the stepping-stones towards
bringing the finance organization into alignment with the overall corporate strategy.
Traditional views of the processes were abandoned and a change in mindset started to take
place: from viewing the organization as a conglomerate of business functions (purchasing,
production, logistics, finance, etc.) to viewing the end-to-end processes, the value-chain
perspective, in which activities are chained together and different business and corporate
units are related more closely in the process. Business process owners become key to
improving processes and bringing a new perspective to the organization.
Within EMEA the challenge consisted of:
■ bringing together a non-homogeneous internal market into an SSC model (regarding
processes, systems, procurement environment, taxes, schedules of authorization, currency
issues, etc.);
■ managing change and internal customer expectations throughout;
■ facing inefficiencies in the processes/activities migrated.
147
Tabl
e 9
.7An
alys
is o
f th
e im
plem
enta
tion
of m
ain
IS p
roje
cts
at L
ucen
t FS
SC
Proj
ect
Criti
cal s
ucce
ss fa
ctor
sR
isks
Driv
ers
e-ex
pens
eD
efin
ition
and
agr
eem
ent
on t
he s
trat
egy
Res
truc
turin
gR
educ
tion
in h
eadc
ount
and
sett
ing
of o
bjec
tives
Res
ista
nce
to c
hang
ePr
ocur
emen
t le
vera
geEn
gage
men
t of
tar
get
grou
ps,
i.e.
empl
oyee
sLo
cal p
erce
ptio
ns o
f ‘re
quire
d’ d
iffer
ence
s In
crem
enta
l rec
over
y of
VAT
vers
us la
rge
scop
e U
nder
stan
d/ad
dres
s lo
cal r
equi
rem
ents
C
onso
lidat
e to
one
glo
bal p
roce
ss p
olic
y fo
r an
d cu
ltura
l diff
eren
ces
trav
el a
nd e
xpen
ses
Adeq
uate
res
ourc
e pl
anni
ng;
reso
urce
s Eu
ro c
ompl
ianc
ew
ith r
ight
ski
ll se
ts:
chan
ge m
anag
emen
t an
d sy
stem
s co
nsul
tant
sS
yste
ms
deco
mm
issi
onin
g
Bui
ld p
roje
ct p
lan
in p
artn
ersh
ip w
ith A
MEX
Purc
hasi
ng c
ard
Enga
gem
ent
of b
usin
ess
part
ners
, O
rgan
izat
iona
l cul
ture
of
non-
com
plia
nce
Reg
iona
l pol
icy
and
proc
ess
prog
ram
me
part
icul
arly
the
Sup
ply
Cha
in N
etw
orks
so
lutio
n fo
r lo
w v
alue
pur
chas
esor
gani
zatio
nN
o pr
ocur
emen
t ca
rd p
rogr
amm
e in
pl
ace
in s
ome
coun
trie
sU
se o
f pr
efer
red
supp
liers
Alig
nmen
t of
ven
dors
Ong
oing
com
mun
icat
ion
to r
einf
orce
VA
T ac
cred
itatio
n ne
eds
to b
e ac
quire
d po
licy
and
proc
ess
in a
ll Eu
rope
an c
ount
ries
Ris
k of
dup
licat
e pa
ymen
t to
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dors
C
hang
e m
anag
er p
ayin
g pa
rtic
ular
vi
a di
ffere
nt p
roce
sses
atte
ntio
n to
new
pro
cess
es
Tabl
e 9
.7co
ntin
ued
Proj
ect
Criti
cal s
ucce
ss fa
ctor
sR
isks
Driv
ers
Reg
iona
l par
tner
ship
with
cre
dit
card
pr
ovid
er/b
ank
Goo
d co
ntro
l pro
cess
rel
ated
to
the
appr
oval
of
spen
d an
d co
mpl
ianc
e in
re
turn
ing
invo
ices
to
enab
le V
AT r
ecla
im
e-pr
ocur
emen
tS
take
hold
er b
uy-in
Obt
aini
ng c
omm
on p
roce
sses
acr
oss
Leve
rage
pur
chas
ing
spen
d on
a g
loba
l bas
isbo
rder
s to
sup
port
a g
loba
l rol
lout
Sen
ior
man
agem
ent
spon
sors
hip
Red
uce
proc
ess
cost
sO
ngoi
ng c
omm
unic
atio
n to
rei
nfor
ce
Cle
ar c
omm
unic
atio
n on
ben
efits
polic
y an
d pr
oces
sU
se o
f pr
efer
red
supp
liers
/Elim
inat
e pu
rcha
se
orde
r by
pass
e-w
orkf
low
Sta
keho
lder
buy
-inIm
plem
enta
tion
cost
s es
cala
tion
Effic
ient
reg
iona
l ele
ctro
nic
arch
ivin
g an
d ap
prov
al p
roce
ss f
or p
ayab
les
Freq
uent
com
mun
icat
ion
on o
bjec
tives
In
volv
ing
mul
tiple
typ
e of
use
rs:
chan
ge
and
prog
ress
man
agem
ent
issu
es,
resi
stan
ceC
ost
redu
ctio
n
Visi
bilit
y/co
ntro
l ove
r th
e pu
rcha
sing
pro
cess
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Shared Service Centres
In pursuit of the overall vision of achieving an integrated process, an integrated business
solution that could leverage the technology available was sought. The business drivers included:
■ the need for new efficient, streamlined and simplified processes which would minimize
the non-value added activities;
■ increased span of control: higher visibility and control of issues;
■ process automation;
■ the need for global processes and global systems;
■ the need to leverage purchasing spend.
Tables 9.8 and 9.9 summarize the critical success factors in the people and process areas
associated with implementing new information systems at Lucent.
Table 9.8 People-related critical success factors in IT implementationsat Lucent
Critical success factors – People
■ Senior management commitment
■ Buy-in at all levels of management
■ Engagement of employees and key process partners
■ Education and training programme for employees
■ Implementation team with out-of-the-box view, flexible mindset and problem resolution skills
■ Continuously communicating, understanding and managing change (within theimplementation plan)
■ Partnership with the human resource organization regarding SSC staffing
Table 9.9 Process-related critical success factors in IT implementationsat Lucent
Critical success factor – Process
■ Global processes
■ Process ownership (and process owners)
■ Accounting processes and local requirements focus
■ Accurate reporting
■ Management of process partners though KPIs, SLAs and balanced score card
■ Processes to support the business and add value to the organization
■ Process simplification
■ Alignment of processes and systems
■ Benefits realization
■ Communication on results, performance, changes, etc., as per process, to all key people
E-shared services
Lessons learned
Lucent FSSC management is aware of the need to make use of the electronic business
challenge in order to get closer to the business units. In an attempt to exploit e-SSC
technologies Lucent has learned a number of valuable lessons including the following:
■ finance function goals (cost savings and efficiencies, process standardization, efficient
global end-to-end processes, better visibility of information) require the implementation
of electronic enablers in the form of new technologies such as ERP, data warehousing,
data analysis and reporting tools, EDI, intranet, e-procurement, automatic payment
allocation tools, EAI, extranet, etc.;
■ the implementation of new information systems brings major challenges to different
areas: to people, where automation tools and growth opportunities interfere with work
practices; to processes, with standardization and reengineering being the main issues
that must be addressed; in the IT area where the trend is towards decommissioning
legacy systems and towards a unique IT platform (ERP) and an IT strategy aligned with
the SSC strategy;
■ Analyses of current and past implementations indicate the need for careful change
management methodology to be in place regarding IS/IT implementations, in particular:
– frequent communication on objectives and progress at all stages during the IS/IT
implementation;
– careful selection of the solutions required and comprehensive vendor analysis (to
avoid clumsy processes linking Lucent to suppliers or business partners);
– project assessment and planning to ensure that the SSC has the resources and is
ready to undergo the necessary changes (e.g. supplier readiness, leadership support,
organizational and cultural readiness);
– addressing resistance to change by business partner organizations and SSC staff
(communication, training, etc.);
– developing a project management methodology and strong project management skills
within the implementation teams (to maintain involvement and meet deadlines);
– managing business expectations and business requirements throughout the projects;
– involving/engaging users in target groups from the earliest stages of the projects.
In the future Lucent will continue to extend the reach and range of its e-SSC technologies
to leverage long-term comparative advantage.
CHALLENGES FOR E-SHARED SERVICES
Finding the right solution – single-instance software
Disagreement between different sites is often the main factor that has slowed down
the automation of shared services. It takes time to find suitable solutions for
companies that have operations in many different countries, all of which may be
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Shared Service Centres
using different software. These are not pure systems barriers – it can depend very
much on the culture of the company and how they could actually drive change
within the company. Peter Moller of Deloitte and Touche argues that a major factor
is the advent of a single instance of ERP. He cites the example of Oracle, who turned
to Andersen for help in building a shared service centre. To outsiders, Moller says,
Oracle appeared to run on the same software throughout Europe, but the software
was not, in fact, the same everywhere. ‘What they have now done is to move on to
a single instance of their software worldwide, so that all of the countries effectively
access the same database. Single-instance software is a tremendous enabler for
internal integration within business units. No one was doing that ten years ago.
They just didn’t have the capability to have the single instance of software that
everyone could use around the world. Now most software companies are moving
towards that goal.’
Deploying self-service software using the web
Another factor, according to Moller, is the advent of ‘self-service software’.
Employees can now process their own expense claims and make their own changes
to personnel administration records. They can process a purchase order and have it
approved online. All this, Moller says, has been hugely enabled by the Internet and
workflow software. ‘We’re replacing paper chases around the organization and
invoices being lost in in-trays and out-trays. It’s all going online and people now have
e-mail alerts telling them they need to authorize something. In a couple of clicks,
they’ve authorized it. It automatically goes through and gets processed.’
Effective interfacing between applications
While automation is simple in an organization that has one business unit, one type
of customer and supplier, things become much more complicated for a company that
needs to interface with a multitude of different business units and different locations,
customers and suppliers, all of whom are using slightly different technologies. The
problem then is one of integration.
The advent of much better EAI, or middleware, is extremely important. Rather
than having to take information from one system and rekey it into another, EAI
creates automated links between many systems. Five or six legacy systems and
manual interfaces between each of them are difficult to maintain and update, as
well as confusing to operate. With EAI software firms can create a new hub, then
interface all of the legacy systems into that hub. The hub will use a new messaging
format that understands all of the old messaging formats, and can use that for
transaction processes in some instances. Externally, organizations are already
beginning to interface with each other much more effectively than they used to.
E-shared services
Moving to the marketplace mindset
The leadership of internal shared services organizations today is under a
tremendous, contradictory pressure: to do more with less. They are continually
challenged to reduce costs – and improve customer satisfaction levels at the same
time – to remain competitive with outsource service providers. The best-run
internal service organizations are coping with these new demands by aligning their
service offerings with corporate strategy and placing their internal customers at
the centre of their service priorities.
In essence, they achieve operating excellence by running what the Gartner Group
refers to as an ISCO. The ISCO model balances the forces of supply and demand
and market efficiency – thereby enabling the service organization not only to attract
internal paying customers with services they really need, but also to optimize
internal and external delivery resources and demonstrate the value delivered in a
tangible way. Internal service organizations that operate like a business require:
■ insightful customer-oriented service design and cataloguing;
■ more aggressive service marketing and simplified ordering;
■ rigorous delivery process optimization;
■ actionable, closed-loop feedback of knowledge about the service business.
For Peter Moller of Deloitte and Touche, automating shared services is all part of
the move to the market, or the networked economy, in which companies focus on
what they do best and deliver a quality service to clients. Providing services that
people need and are willing to pay for, at a cost, quality and timeliness competitive
with alternatives, is the only way to survive – principles that apply to all shared
enterprise services, whether or not they are set up as business units in their own
right. The advent of software solutions that are specifically designed to effectively
manage shared enterprise services is an important trend.
LIGHTS-OUT PROCESSING: VISION OR HALLUCINATION
A great deal has been said about ‘lights-out processing’ and how it will shape the
future of shared services. Both the concept and the terminology are seductive, but
what is it exactly and how will it benefit organizations that use shared services?
In essence ‘lights-out’ processing is a ‘nirvana state’, a vision that back offices are
aiming towards. It actually means that transaction processing is automated to
such an extent that firms can process transactions over night with the lights out.
That is to say, human intervention more or less drops out of the picture!
There are a number of trends that are at the root of the move towards lights-out
processing. Web-enabled service applications are pushing data entry from back
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office transaction processes out to suppliers, customers and employees. Historically,
firms would be keying in invoice information and expense claims as they came in.
Today, this simply doesn’t happen anymore. For example, if you have a web invoice,
an EDI invoice, an XML invoice, or an invoice that needs to be scanned for
character recognition, you don’t need to key in supplier invoices when you receive
them – everything is automated and comes in digitally. Similarly, if employees are
processing their own expense claims and filling in electronic time forms, you don’t
need to key that information in again. With self-service applications integration is
much improved, both within the organization and between organizations. Within
the organization integration is improved – information is only typed in once and
from there the technology takes over. Between organizations (and this is where EDI,
XML and optical character recognition (OCR) come in) suppliers and customers are
inputting orders or invoice information electronically. The back office sits back and
allows the transactions to get processed.
In reality, however, no one is quite there yet because there are still occasions
when EDI invoices that come in don’t match with the orders (either because the
quantity is different or the price has changed). Similar problems can arise with
XML if everything is automated from the technology perspective but there’s a
fundamental error in the price or the fulfilment.
It is important to understand that a virtual shared service centre is not one
where you have lights-out processing and no people at all. People will still be in
charge of analysis in the back office. The aim has always been to get the
transaction processes automated and working at low cost, and then do more
business partnering and analysis.
Some of this analysis can be best performed in the shared services environment
where the data is corrected, the information generated and the reporting tools
exist. In fact, a fair amount of business analysis and planning can be performed in
shared service centres. Moreover, some employees, partners, suppliers or customers
will always have trouble getting online effectively. These are the ‘off-liners’. These
people will always have to have some kind of specific back office as a support.
CONCLUSION
The e-SSC are designed to meet the unique information and transaction
processing requirements of the business-to-business and business-to-customer
e-commerce environment. Firms building an e-SSC replace existing manual paper-
based transaction processing with streamlined e-commerce processes (processing
volumes per full-time equivalent staff increase substantially allowing staff in the
SSC to focus on higher value added analysis and reporting).
Under the e-SSC, existing processes such as the purchase to payments cycle are
moved to the web thus eliminating time-consuming manual processes. This move
E-shared services
to web-enabled processes is facilitated by a range of enterprise systems from
vendors such as Oracle, SAP and Peoplesoft, who have all made significant
investments to ensure their core ERP systems are web compliant.
The move towards the e-FSSC is being prompted by the realization among the
accounting and management profession that the techniques and approaches of the
1990s will not serve them well in the web-enabled world of the 21st century, where
changing business models and the pressure to create shareholder value requires a
change in mindset from the stewardship and control role to the value creation
perspective. This change has created a need for the e-FSSC director to effectively
manage relationships with suppliers, customers, partners and other stakeholders.
Increasingly the organizational value chain encompasses a complex world of
online business-to-business markets and specialist industry online exchanges fed
by a global supply chain. Industry driven e-enabled supply chains already visible
in the automotive and chemical sectors are likely to become pervasive by 2005.
While these vertical exchanges reduce the complexity of the procurement process,
they often add an additional layer of systems complexity as e-FSSCs are faced
with integrating their existing ERP system with newer software systems. In some
cases firms may be participating in several different procurement exchanges each
with their own preferred system platform.
Increasingly firms are outsourcing activities and moving non-core support
activities to the shared services environment. The e-SSC of the future must build
brands and ideas on key activities. By successfully outsourcing and implementing
web-enabled technologies, it will positively affect its market capitalization. In the
virtual world of the web-enabled shared service centre the core competency will
become one of establishing and maintaining relationships based on a reengineered
business model.
The increasing knowledge content and complexity of the tasks carried out as
part of shared services operations force SSC directors to deal with a number of
challenges including the following:
■ the building of virtual shared services with integrated supplier, customer and
internal systems, where data entry becomes the customer, supplier or employee
responsibility, signifies a move to a very different environment (maximum
automation and minimal intervention in back office processes);
■ IS/IT integration at e-FSSCs will include integration with business-to-business
exchanges and markets;
■ e-FSSCs will work in creating greater value to added reporting (peer reporting,
balanced scorecard measures, etc.), using the web and intranets for distribution;
■ the organization and structure of the e-FSSC will serve a diverse range of
cultures, stakeholders and customers; it can potentially become the catalyst for
cultural change within the organization;
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■ service expectations, performance measurement and dispute resolution must be
agreed upon through formal contracts such as SLAs; accountability remains key
for the survival of the shared services organization;
■ the extension of the e-FSSC concept will include factory accounting, the
processing of e-commerce transactions, e-tax and e-compliance reporting; the
e-FSSC will reengineer the business processes and the business model to take
advantage of the e-commerce challenge;
■ the current FSSC will move towards 24/7 web-enabled financial reporting and
towards the convergence of management reporting and shareholder reporting;
■ there will be constant challenges from low labour cost locations while building
the virtual office;
■ a reduction in the number of legal/statutory or legal entities will take place, as well
as a move to UK/US GAAP and less local compliance reporting; some level of tax
and legal reporting simplification will occur, as well as shorter reporting cycles;
■ the adoption of new technologies such as VRS (Voice Recognition Software)
and OCR will reduce current dependencies in language skills;
■ second wave ERP – new systems will be implemented including ASP, wireless
and mobile commerce;
■ the adoption of global banking (offering comprehensive cross-border banking
services) will allow for greater streamlining of operations, less complexity in the
banking processes and reduced banking charges;
■ CRM technology employs workflow technology and is set to become
increasingly significant.
The challenge for the e-SSC is to create value added through a comparative
advantage in information and knowledge-based processes. The shared services
organization must become web compliant at all levels and processes and develop
a culture of global citizenship where the focus is on managing the complex and
changing relationships which make up the value chain. To do this, shared services
directors need to develop their change management expertise as well as their
systems integration and communications skills. They will need to be much more
entrepreneurial and proactive in redesigning the business model.
References
Schulman, D. S., Harmer, M. J., Dunleavy, J. R. and Lusk, J. S. (1999) Shared
Services: Adding Value to the Business Units. Winchester: John Wiley & Sons.
10Future directions
Trends for the future of SSCs 159
Conclusion 164
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■
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Future directions
TRENDS FOR THE FUTURE OF SSCs
Thought leadership in the field of shared services has in the past concerned itself
primarily with identifying ‘hot’ new locations for SSCs. In this section we attempt
to bring our own experience and views to the question of the future direction of
shared services.
Shared service centres will become a permanent feature on thebusiness landscape
Shared services will undoubtedly remain a permanent fixture in the future. The
costs are too compelling to ignore for both the private and public sector where
CEOs and CFOs are waking up and demanding that their staff adopt a code of
permanent and ruthless cost reduction and value creation. A sizeable number of
established Fortune 500 firms have yet to embrace shared services and these will
undoubtedly do so before 2005. In addition, so-called ‘new economy’ firms which
have rapidly grown into global players are already recognizing the role of shared
services in delivering the vision for finance and administration in the global
networked organization. Relatively new firms such as Siebel systems have gone
directly to the SSC model in Europe and have bypassed the controllers in every
country model associated with more traditional firms.
The use of business process outsourcing will continue to grow and expand
Established SSCs as well as non ‘SSC-ed’ firms are realizing the potential savings
from BPO. In particular, the success of firms such as BP in the areas of finance and
HR and National Australia Bank in the areas of facilities management have
resolved many of the reservations which large firms had about outsourcing. In the
future we will see more and more activities outsourced and also more multipartner
BPO arrangements. This will involve firms with different skill sets and core
competencies coming together to meet the needs of clients. Increasingly firms are
outsourcing more than in the past and moving non-core support activities to the
shared services environment. If the business of the future resembles something, it is
likely to look like the CISCO of today, where the key activities are building brands
and ideas. This so-called weightless manufacturer has tried to outsource and web-
enable as much as possible. In the virtual world of the web-enabled shared service
centre the core competency will become one of establishing and maintaining
relationships based on a reengineered business model.
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E-centres will become the norm
Web-enabled shared service centres are designed to meet the unique information
and transaction processing requirements of the business-to-business and business-
to-customer e-commerce environment. Under the e-centre concept more firms will
replace existing manual paper-based transaction processing with streamlined e-
commerce processes where processing volumes per full-time equivalent staff
increase by a factor of ten, thus allowing staff in the FSSC to focus on higher value
added analysis and reporting. Under the e-centre existing processes such as the
purchase to payments cycle are moved to the web, thus eliminating time-
consuming manual processes. This move to e-web-enabled processes is facilitated
by an emerging range of enterprise systems from vendors such as Oracle. In
addition to e-procurement and e-fulfilment we feel the real growth will be in the
areas of e-HR, e-government and e-compliance with such agencies as the
Securities and Exchange Commission and Financial Services Authority.
Bob Gunn argues that the concept of shared services is now fully evolved and
the current S-curve is going to reach maturity soon. The next S-curve is going to
be about dot-com-ing the infrastructure and really turning shared services on its
head. It puts both the initiation and the value of administrative work back in the
hands of the line managers so they can do the administration themselves rather
than having somebody else do it for them. It gives them access to information so
they can make decisions and it allows them to execute a transaction gracefully.
This transition is the next big mountain to climb.
Shared services will be a key part of the finance-to-business model
The emerging finance-to-business model places finance in a clear and unambiguous
value creation and value protection role. Under this finance is charged with
meeting a number of demands:
■ delivering value to shareholders;
■ challenging and supporting decision makers in areas ranging from strategy
formulation to business execution;
■ delivering effective control and risk management;
■ providing effective transaction and event processing across the extended value
chain from suppliers through to customers and regulators;
■ supporting and meeting governance and regulatory requirements.
As Figure 10.1 illustrates, the SSC will play a key role in meeting these requirements
by providing the environment in which transactions are processed, controls
enforced and information delivered to the point of decision making.
Future directions
Fig. 10.1 Finance to business
The reach and range of shared services will continue to grow
The number of SSCs will continue to grow as will the demand for accountants
with experience of pan-European financial reporting. In addition, these
accountants will be expected to address a range of change management issues
associated with the move to SSCs. The emergence of e-business and the need to
continue to attract work to the SSCs has prompted a number of FSSC managers
to expand their activities beyond the traditional accounting areas. In particular,
the authors have found evidence of SSCs carrying out the following activities:
■ e-business hubs business-to-business processing;
■ environmental compliance reporting;
■ health and safety reporting;
■ routine legal work including claims processing;
■ estate and property management;
■ risk assessment and insurance;
■ HR systems management;
■ shareholder relationship management.
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E-tax and treasury
Asset controland security
Environmental
Safeguarding assetslegal, insurance, risk
Logistics and fulfilmentSupply chain management
Site accounting
24/7 Financial reporting
Web consolidation
Relationships managementpartners, suppliers, customers
Business-to-businessprocessing and reporting
Financeto
business
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Shared Service Centres
The Andersen/akris.com shared services survey has revealed that the scope of shared
service centres will expand radically to encompass processes like sales and marketing.
However, many of these will be outsourced to external suppliers of shared services.
The emergence of e-organizations will also have a major impact on how shared
services is implemented everywhere. At the same time, the extent to which shared
services is operated as a business will need to develop in the future. Today, only 12
per cent of shared services are sold to clients outside the organization, while 88 per
cent of shared services are for internal clients alone.
As Figure 10.2 illustrates, the European SSC of 2006 is faced with two tasks:
extending the range of activities carried out at the SSC and also increasing the
number of countries served by the SSC.
Fig. 10.2 Extending the reach and range of the SSC
In this setting, with the increasing knowledge content and complexity of the tasks
carried out, SSC directors will be faced with a number of challenges including:
■ how to organize and structure an SSC which serves such a diverse range of
cultures, stakeholders and customers;
■ how to extend the SSC concept to include the processing of e-commerce
transactions;
Reach
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■ R
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■ P
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■ F
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■ L
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■ F
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■ In
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■ L
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■ P
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Future directions
■ greater value added reporting on sites including peer reporting balanced score
card measures and other types of information;
■ web-based distribution of reports and information to sites using intranets;
■ reduction in number of legal/statutory or legal entities and move to UK/US
GAAP and less local compliance reporting.
Enterprise application integration will continue to be a headache
Increasingly the organizational value chain encompasses a complex world of
online business-to-business markets and specialist industry online exchanges fed
by a global supply chain. These industry-driven e-enabled supply chains are
already visible in the automotive and chemical sectors and are likely to become
pervasive by 2005. While these vertical exchanges reduce the complexity of the
procurement process, they often add an additional layer of systems complexity as
SSCs are faced with integrating their existing ERP system with newer software
systems such as Commerce One, ARIBA and i2i. In some cases firms may be
participating in several different procurement exchanges each with their own
preferred system platform. The promise of ERP with single system, single data
instance is rapidly being undermined by the business-to-business explosion.
The model is global
Bob Gunn, who as one of the ‘fathers’ of shared services has a right to have an
opinion on what’s to come, believes that the future model of SSCs is the global
model, not even regional. He talks about three regional capacities – Europe, the
western hemisphere and Asia. From the customer’s viewpoint it doesn’t matter
where the work gets done. At American Express, Hewlett-Packard, Dow and GE,
who is doing the work and where it’s being done is irrelevant. It is totally
transparent to the customer of the administrative work. Europe is ten years
behind in comparison with the USA. The killer is that the whole concept of shared
services started in Europe, back in 1981. So the Europeans who say that it can’t
be done are wrong – the fact of the matter is that Ford started this in Europe. Five
or six years later they were doing cross-border transactions and were not being
impeded by the regulatory environment. What impedes things is not the
regulatory environment, but internal resistance. With the capital markets going
global, the Europeans cannot afford – and they know it – to remain two to three
times less efficient in administrative areas than the USA.
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Going virtual is fine in theory but difficult in practice
Peter Moller, a leading adviser with Deloitte and Touche, points out that the virtual
approach is attractive in theory. ‘With the benefits of a single instance of
technology (Oracle or SAP, for example), you have the benefits of standard
processes as well as a country-specific understanding of local cultures. You don’t
have the disruption of moving, firing or redeploying people. However, just because
you put in a single instance of the technology doesn’t necessarily mean that you’ll
get standard processes.’ In the past many companies put in SAP across Europe and
assumed they would have fantastic standard processes, only to find people are
doing things completely differently in each country. A physical shared service
centre is the easiest way to get a standard process – and a world-class one at that.
There are a number of reasons why going virtual is difficult:
■ technology alone doesn’t drive the process;
■ implementation and maintenance of the process is very difficult;
■ you can even have poor spans of control in each country, with several payables
clerks working under several supervisors in different countries;
■ it’s very difficult to introduce a service culture in many different locations – if
you leave people where they are, you cannot very easily change their attitudes.
All of these suggest that while virtual shared services has its advantages, it also
some very significant disadvantages. Moller argues that ‘unless you can fully
automate the lights-out processing, then I consider that physical shared services is
still the name of the game. What I’m advising clients to do is follow a two-fold
strategy: build your shared service centre and then get rid of it because unless you
build it you can’t get the standard processes that you need; unless you build it you
can’t get the service culture and you won’t find it as easy to move to lights-out.’
CONCLUSION
The challenges of the present demand that those who build shared services in the
future do so in ways that are much sharper and more intelligent. Shared services
already has real sticking power, and it will continue to work best when companies
are poised for explosive growth as an intelligent alternative to growing overheads
in a misguided effort to meet demand.
The challenge for the e-centre is to create value added through a comparative
advantage in information and knowledge-based processes. This will require the
SSC to become e-compliant at all levels and processes. In addition the e-centre
needs to develop a culture of global citizenship where the focus is on managing the
complex and changing relationships that make up the value chain. To do this, SSC
Future directions
directors will need to develop their change management expertise as well as their
systems integration and communications skills. As such the successful e-centre will
require finance professionals to abandon their traditional role as controllers in
favour of being much more entrepreneurial and proactive in redesigning the
business model.
Finally a word of caution! If finance professionals fail to meet the challenge of
the emerging finance-to-business world then the worst-case scenario looks rather
unappealing. In this accountant’s nightmare the CFO ends up sharing a secretary
with the in-house counsel and they have a total of five staff (between them). All
the strategic decision support is delivered by two former McKinsey consultants
and a former investment banker from Goldman Sachs. Internal audit is provided
by a fat-four accounting firm while Munich Re provides risk management.
Finally, the former finance director for EMEA now heads up the e-SSC of the BPO
firm which provides the firm with transaction processing from a very low-cost but
somewhat humid remote location and spends most of the day wondering where it
all went wrong!
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