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Part 2 - Does Size Matter When Considering Shared Services and/or BPO

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Phil Searle, Managing Director & David O'Sullivan, Partner, Chazey Partners …

Phil Searle, Managing Director & David O'Sullivan, Partner, Chazey Partners

Part 2 - Does Size Matter When Considering Shared Services and/or BPO

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  • 1. European Shared Services & 10.45 am : 11.30 am Wednesday 26th May,Outsourcing Week 2010 Edinburgh 2010Does size matter when considering Shared Services and/or BPO? Phil Searle
  • 2. What We Will Cover With Shared Services and Outsourcing as potential service delivery solutions becoming a hot topic for the "mid market" as well as for large enterprises, how important is scale to success? What is Shared Services? Critical Success Factors for Shared Services Is Scale Critical to Success? The Potential Role of Outsourcing Some Tips and Tricks And Relevance to Scale Appendix: Some Case Studies 2
  • 3. What is “Shared Services”? 3
  • 4. What is Shared Services? Shared Services Defined …is the organisation that provides non-core Services to the business, employing a specialist team, geographically unconstrained, and focusing on the requirements of the customer. This involves a philosophy and approach totally unlike traditional Corporate-driven centralisation. The goal of Shared Services is to provide high quality, non-core, but mission critical, services (which can include both repetitive common processes and more specialised professional services) to the business at lower cost and more efficiently than the business could otherwise provide for itself. Shared Services achieves cost savings and higher quality of service by leveraging organisational re-alignment, economies of scale and skill, technology, lower cost locations, standardised end-to- end processes, best practice and continuous improvement. 4
  • 5. Why is it different to centralisation? Attribute Shared Services Centralisation Accountability Business unit Corporate Key Performance Service excellence and Cost reduction and central Targets continuous improvement control Service Partnership Widespread Rare Agreements Classification An independent unit Another corporate function Responsibility Partnership Demarcation 5
  • 6. Critical Success Factors for Shared Services 6
  • 7. Critical Success Factors for Shared Services Processes documented Act independently Standardized, controlled & Service orientation in place repeatable activity Rule driven but flexible way of Recharging methodology dealing with customers Benchmarking capability – Customer satisfaction levels understood Customers internal/external Metrics: SLAs in place (i) Control Based Reality versus perception (ii) Efficiency & Effectiveness Account management Critical Technology Success Processes Factors ERP implemented Document Scanning Solution Workflow Automated Payments People Elimination of Side Systems Self services tools Skilled Leadership in place – do not compromise on competencies Automated Score Cards Team shape & stability – process shaped/spans of control/staff – perm v temps Team members – culture, values & behavioral competencies assessed Team morale, reward & retention Working environment conducive to team working 7
  • 8. Is Scale Critical to Success? 8
  • 9. Is Scale Critical to Success? “Centralisation” can result in standard processes and benefiting from economies of sale, enabling more to be done with less - at least at the centre! But “scale” is also a relative matter And “scale” can also be achieved in a number of ways And Shared Services is not all about centralisation. Many of these are not “scale dependent”. Technology has allowed SSOs to be less centralised than in the past There can also be significant diseconomies of scale in larger organisations that actually make successful Shared Services less likely. 9
  • 10. The Potential Role of Outsourcing 10
  • 11. Is Outsourcing Worth Considering? The provision of BPO services has been a rapidly expanding market But “Selective Outsourcing” has been around for decades Any “non-core” service can in theory be considered for outsourcing Can achieve short term “quick win” in terms of “solving a problem” and reducing costs quickly, but be careful of losing control and giving away future margin potential to a third party. BPO providers can offer “scale” plus also lower labour cost arbitrage benefits to “smaller” companies. But be careful in contract negotiation. 11
  • 12. Some Tips and Tricks for Shared ServicesSorted by Critical Success Factor 12
  • 13. Tips & Tricks for Successful Shared Services Customer 1. Identify who the “customer” is. For example, for the P2P process, customers include external suppliers, internal buyers, purchase requisitioners, approvers, AP team members, regulatory authorities, etc 2. Make sure that business requirements are clearly understood. Then map these to the ERP system’s configurable processes. Do not simply replicate current state processes. Be requirements-focused and stick to best practice. 3. Introduce Service Partnership Agreements (SPAs) along the end-to-end processes so that commitments, requirements, timelines, contacts, escalation procedures and targets are agreed and understood. 4. Remember that training is key. Not just to show users how to use the new tools but to make them feel more comfortable with the new technology. 5. Make sure the team includes regional and local expertise and be prepared to travel to meet and work with users. 5. Introduce a customer-centric “account management” framework. 6. Remember that the project does not end with “go live”. There needs to be adequate support post go-live and also continual training and re-training. 13
  • 14. Tips & Tricks for Successful Shared Services Processes 1. Understand process requirements. Do not spend too much time documenting “as is” processes but instead focus on user requirements and gaps between current processes, process output requirements and the desired “end state.” 2. Identify duplication, non value adding activity, hand-offs and unnecessary loop backs in processes. 3. Investigate sign off and authorization requirements and work with Controllership to make these practical, standardized and enforceable. 4. Try to cleanse the data as much as possible before each main cut-over. The quality and volume of data should be worked on early in the project and not left to the last minute. 5. Introduce a metric driven environment, supported by technology automation and analytics. 6. Strive to eliminate “defects” entering the processes. Automation that is “user friendly” and intuitive but is based on standard, yet flexible, rule driven process requirements will help this. 14
  • 15. Tips & Tricks for Successful Shared Services People 1. Senior level Executive sponsorship is key. Make sure that key executives understand and support the automation initiative. 2. Do not underestimate the change management required for such an initiative. 3. Assign your best resources and people to the project. 4. Engage targeted expert outside help. 5. Introduce a service delivery framework across so that the team becomes customer-centric and outward looking, motivated and accountable for performance and quality. 6. Have regular, meaningful Steering Committee meetings of key stakeholders. This should be an active Committee and not just a chore to get through unscathed every couple of weeks. 15
  • 16. Tips & Tricks for Successful Shared Services Technology 1. Remember, an ERP system is an Enterprise system for use by the business. It is not a technology solution owned, or to be used exclusively, by the IT department. 2. Evaluate infrastructure and security requirements 3. As far as possible implement solutions that “naturally” integrate as far as possible with your core ERP solution, sometimes referred to as “inside” solutions. 4. Introduce self service, web enabled technologies and “friendly” user interfaces. This empowers the user and also enables standardization of processes and eliminates the need for manual intervention. 5. Alongside ERP, most powerful enablers are workflow and supporting document management , integrated with email. 16
  • 17. Appendix: Some Case Studies 17
  • 18. Case StudyDigital Media Company 18
  • 19. Company Overview Digital media company (editing, storage, distribution) Market leader Media companies and broadcasters, often state-funded US-owned, subsidiaries in Europe and Asia Turnover approx $900m WW, $400M in Europe 19
  • 20. Context Strong revenue growth in Europe Developing new lines of business Back-office fragmented and outdated Company history of partial integration (e.g. of acquisitions) Front end of the business fixed => time to address the back end 20
  • 21. Situation Analysis Fragmented finance organisation 7 processing sites, 28 active companies in 14 countries Replicated, different processes, no cover between teams Approx. 100 finance staff across the region Focussed on transactions, not strategy & business support Inability to react to change inside or outside the organisation Cost of finance a multiple of “best in class” at 2.82% 21
  • 22. Results Achieved Re-organized Finance into key value driving roles Implemented SAP ERP Standardized processes Significantly downsized Finance More streamlined and agile Finance team Cost of Finance reduced by >30% Success has led to other Functions following suit 22
  • 23. Case Study3Com Corporation 23
  • 24. Company Overview High Tech Computer Networking Company US-owned, subsidiaries across the globe 4 Main Business Units (plus Palm until 2000) Turnover $1billion to $2 billion in 2001/2/3, then increased again after JV with Huawei 24
  • 25. Finance & Accounting Services in 3Com Corporate Services Business Services Shared Services • Governance • Financial and operational planning, • Credit • Internal Audit budgeting & forecasting • Collections • Treasury (securing financing) • Supply Chain Accounting • General Ledger • Tax planning • Sales quotas and comp plans • Fixed Assets • Trade Compliance • Discount approvals, pricing analysis, • Accounts Payable • External/SEC reporting and approval of rebates or other claims • Field Finance Accounting • Consolidations & Intercompany programs • Corporate Purchasing • GAAP Accounting/Financial • Ownership of BU master data hierarchy • Travel guidelines (profit centers, cost centers, etc) • Revenue Accounting • Standard margin and profitability • Sales Reporting analysis • Sales Data Management • Support for strategic & other decisions • Claims Processing • Payroll • Expense Claim Processing • Commission Calculation & Processing • Stock Administration • Indirect Tax/VAT Administration Functions highlighted in red were all the responsibility of the SAS team. 25
  • 26. 3Com Shared Accounting Service Centers EUROPE APR AMERICAS Full - UK, Ireland, Germany, Full - Singapore, Malaysia, North America Australia, New Zealand, Full - US, Canada France, Belgium, Holland, Japan, India, Korea, Hong Norway, Denmark, Sweden, Kong, China, Taiwan Finland, Italy, Spain, Latin America Switzerland Full - Mexico, Brazil, Argentina Partial - Dubai, South Africa, Partial - Thailand, Philippines, Partial - Venezuela, Costa Israel, Austria, Bulgaria, Indonesia Rica, Chile, Colombia Czech Republic, Egypt, Greece, Hungary, Morocco, Poland, Russia, Saudi Arabia, Slovakia, Slovenia, Turkey 26
  • 27. 3Com Shared Accounting Service Centers Hemel Santa Clara Hempstead Singapore Buenos Aires 27
  • 28. Going Global at 3Com The following “transaction based” functions were moved to one global centre in Singapore covering the following key areas: – Worldwide Credit Memo Claims Processing – Worldwide Production Accounts Payable – English Speaking Non-Production Accounts Payable – Worldwide Vendor Master Maintenance – Worldwide Fixed Asset Accounting – English Speaking Expense Claim Processing and Reimbursement The following “higher risk” areas remained in the North America Shared Service Centre : – Worldwide Commission Processing and Payment – Worldwide Stock Administration – Worldwide Sales Reporting and Sales Data Management – Worldwide Consolidation – Worldwide Inter-company Accounting – Group External Reporting 28
  • 29. Going Global at 3Com The following areas remained in-region due to complexity or risk – Regional General Ledger – Regional Revenue Accounting – Local Field Finance Accounting – Regional and Local Payroll – Regional and Local VAT/GST Compliance and Reporting – Limited Customer Support for AP/CP/Expenses 29
  • 30. Case StudyHigh Tech Security Software Company Late 1990s 30
  • 31. High Tech Security Software Case Study Small US based High Tech Software and Consulting Business High growth trajectory Revenue grew from $5m to over $10m per quarter 1996 to late 1997. Went public in late 1990s Transformed European Finance function, introduced controls and procedures in and across Europe Established new Shared Services support for Finance for European operations including AP, AR, GL, Sales Commissions, Payroll and Banking Established Policies, procedures and standards Acquired in 1998 31
  • 32. Questions and Any Additional Thoughts or CommentsPhil Searle David O’Sullivan+ 1 408 460 0785 + 353 86 384 8573+ 44 7779 714 573philsearle@chazeypartners.com davidosullivan@chazeypartners.com 32