Shared Service Center

Shared Service Centres

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Delivering value from more effectivefinance and business processes

ANDREW KRIS

MARTIN FAHY

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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: [email protected]

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: [email protected]

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


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


■ 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).


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


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


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


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


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,

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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


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


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


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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


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


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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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.


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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■ 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.


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

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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


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


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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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


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 (%)


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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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


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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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


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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■ 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:


■ 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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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.


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).

33

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

■

■

■

■

■

35

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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38


■ 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.


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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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.


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


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.


Fig. 3.2 Types of ERP systems used in SSCs (%)


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;

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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


■ 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


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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■ 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


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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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.


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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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.


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

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Server side Java

HTMLgeneration

Applicationserver

Internet

Timedevent

Databasechange

Incominge-mail

E-mailgeneration

Manualtrigger Netscape Explorer

52


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


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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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


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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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


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

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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


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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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.


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


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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■ 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


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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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


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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Fig. 4.2 North American SSC locations


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


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



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


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Kuala Lumpur

Singapore

Hong Kong

Manila

Perth

MelbourneSydney

Brisbane

Auckland

Bangkok


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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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■ 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


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’


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:


■ 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.


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.

81

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.


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).


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


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


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.


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


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


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.


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


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


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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■ 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.


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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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


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;


■ 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.


Fig. 8.1 The level of adoption of SLAs (%)


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)

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19

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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


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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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.


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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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


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 (%)


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

128


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


129

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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■

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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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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

140


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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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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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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■ 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.

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150


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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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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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;

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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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Shared Service Center