The Evolution of the Shared Service Model


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The Philips hybrid journey: From internal to external/hybrid

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The Evolution of the Shared Service Model

  1. 1. The evolution of Shared Service model- Philips Hybrid JourneyGoh Kim LeeSingapore8th Sep 2011
  2. 2. AGENDA 1. Philips introduction. 2. Our journey of SSC: from internal to external/hybrid 3. Scope of services 4. Evaluation of the first three years 5. Next steps 2
  3. 3. A strong diversified industrial group leading in health and well-being Who we are Our businesses Our mission Founded in 1891 Headquartered in Amsterdam, “…a global company Netherlands of leading 26% businesses creating Sales of €22.3 billion in 2010 1 39% value with Growth Markets 2010 meaningful 32% of 2010 sales generated in innovations that growth markets improve people’s Globally recognized brand 35% health and well- (world top 50) being.” Our brand value doubled to $8.7bn since 20042 Healthcare 120,000 employees Lighting Sales and service outlets in over 100 countries Consumer Lifestyle €1.5 billion investment in R&D, 7% of salesConfidential 2 Source: Interbrand
  4. 4. Healthcare Philips Healthcare Businesses1 Sales & services geographies1 Imaging Home Patient Care Customer North America International Growth Systems Healthcare and Clinical Services Markets Solutions Informatics 38% 14% 22% 26% 45% 34% 21%€8.6 36,000+ 8% 450+Billion sales People employed of sales invested in R&D Products & servicesin 2010 worldwide in 100 countries in 2010 offered in over 100 countries1 Last twelve months June 2011
  5. 5. Consumer Lifestyle Philips Consumer Lifestyle Businesses1 2 Geographies1 Personal Health & Domestic Lifestyle Mature Growth Care Wellness Appliances Entertainment Markets Markets 21% 12% 27% 34% 60% 40%€5.8 17,000+ 5% 34%Billion sales People employed of sales invested of green productin 2010 worldwide in R&D in 2010 sales in 20101Last twelve months June 20112Other category (6%) is mainly license income and is omitted from this overviewNote - All figures exclude discontinued operations
  6. 6. Lighting Philips Lighting Customer Segments1 Homes Offices Outdoor Industry Retail Hospitality Entertainment Healthcare Automotive 23% 17% 15% 10% 15% 5% 3% 4% 8% €7.6 6 54,000+ 5% 80,000+ Billion sales People employed of sales invested Products & services in 2010 worldwide in 60 countries in R&D in 2010 offered in 2010Confidential 1 Indicative split
  7. 7. Unique leadership positions in many marketsExamples of current NPS leadership positions1 Healthcare Global Global Regional Global Regional (USA) Cardiovascular Patient Cardiac Ultrasound Home X-ray Monitoring resuscitation Monitoring Consumer Lifestyle Global Global Global Regional Regional Male electric Mother and Child Oral (China) (LatAm, China) shaving Care Healthcare Haircare Kitchen Appliances Lighting Global Global Global Global Global Professional Professional General Automotive Lighting Systems Lamps Luminaires Illumination LED Lighting & Controls1 Leadership is made up of outright leadership (outperforming the best competitor by >5%) and co-leadership (on par with best competitor, within 5%), globally or regionally
  8. 8. AGENDA 1. Philips introduction. 2. Our journey of SSC: from internal to external/hybrid 3. Scope of services 4. Evaluation of the first three years 5. Next steps 8
  9. 9. SBS Finance Our History 1998-> Philips established standalone SSC created in Bangkok(Thailand) for Lighting sector. India setup SSC in Culcutta in 2001. 2002 Philips established multi sectors Shared service centers in Lodz (Poland), Chennai (India) and Bangkok (Thailand) for accounting work 2007 Shared service centers divested to a BPO 2007 Global SBS Finance created (local captive centers) 2009 Transaction based pricing introduced 2009 Introduction of BPO model in Latin America 2010 Start of rule based controlling project BPOConfidential 9
  10. 10. Why going captive initially and not directly tooutsourcing?• Philips had 3 key attributes required to be successful: 1. The know-how with prior experiences and knowledgeable staff 2. The presence in off-shore to provide support 3. The scale to generate enough savings (>500FTEs per center)• Strength of approach: – Capture all the savings initially (but also all the costs) – Avoid some initial risks of outsourcing • creating a partnership together with transition, • internal buy-in during the migration from onshore to offshore SSC 10
  11. 11. Why in 2007? BPO• Key migrations were done and service centers were due to shrink because of process improvements – Impact on staff career opportunities – Cost are no longer optimized because of lower scale• In a still maturing market with key players still positioning themselves, Philips saw an opportunity to create extra value by divesting the shared service centers.• Transition risks are limited as Philips hands over a mature existing business (transformations are achieved, staff remains unchanged, governance model already in place, costs are competitive) 11
  12. 12. AGENDA 1. Philips introduction. 2. Our journey of SSC: from internal to external/hybrid 3. Scope of services 4. Evaluation of the first three years 5. Next steps 12
  13. 13. 3. Business Model SBS Finance One Service Provider concept One face to the customer Research, Corporate Technology O2C CL Philips Commercial, Industrial, Front Office HC P2P BPO LI R2R SSC‘s (Back Office) GM&S RBC SBS Finance I&EB Harmonised processes Service processes (value chain)Confidential 13
  14. 14. SBS Finance Scope of services Remains with the “Judgement” sectors Based Controlling Analysis on sub “Rule Based” process level will be the Controlling basis for a decision what to bring in scope Must transfer to Transactional Accounting SBS FConfidential 14
  15. 15. Our Portfolio includes traditional Finance services but also Procurement and Compliance Mgt Regional Global Local Requisition Processing X Procure To Pay X Catalogue Management X Accounts Payable X Travel Expenses & P-Card X Freight Payments X Inter Company Accounts Payable X Payment Services X Credits X Invoice To Cash Accounts Receivable and Application X Collections X X Inter Company Accounts Receivable General Accounting and Closing X Record To Report Fixed Assets X External Reporting X Tax Accounting X Tax Filing and Reporting X Standard Reporting X Compliance Management XConfidential 15
  16. 16. SBS FinanceExternal recognition for our approach… “The company’s (Philips) approach manifests several critical trends of world-class performance in finance and shared services, as identified in Hackett research.” (Source: Hackett case study report on Philips, March 2008) 16
  17. 17. AGENDA 1. Philips introduction. 2. Our journey of SSC: from internal to external/hybrid 3. Scope of services 4. Evaluation of the first three years 5. Next steps 17
  18. 18. SBS FinanceThe 6 reasons why Philips decided to create aglobal SBS Finance organization• Further efficiencies: economies of scale across sectors• Communication: the BPO contract requires one point of contact per country with BPO.• Scope compliance: more than 20% of the work that should be transferred to BPO is still done in the sectors.• Harmonization: the speed to reach harmonized work instructions is too low.• Innovation: together with the Finance Excellence Network we can implement process innovations quicker.• People: managing knowledge (including back ups) and career opportunities. 18
  19. 19. SBS FinanceVision & Mission Our Vision We want to be recognized as an excellent provider of financial services to all Philips businesses worldwide. Our Mission We are a business focusing on customer needs and delivering excellent quality and sense and simplicity in financial services at competitive prices to all Philips businesses. 19
  20. 20. SBS FinanceOur strategy is linked to the 4 Philips values• Depend on each other Scope: execute the Shared Business Service Finance concept by bringing all transactional accounting into the SBS Finance front office (Philips) or back office (BPO), to be ready by mid 2010. In addition, provide attractive opportunities to our internal customers to migrate rule based controlling work to SBS Finance or BPO• Delight customers Customer satisfaction: achieve a high level of customer satisfaction by delivering quality and “sense and simplicity” services at competitive prices.• Deliver great results Costs: support Philips in bringing the total Finance costs closer to benchmark targets by pursuing further efficiencies in our front office organizations, by actively migrating the appropriate activities to the low cost centers of BPO, by strongly driving innovation (together with the Finance Excellence Network, BPO and our customers) and through a high level of harmonization and automation.• Develop people People: offer a professional and customer oriented environment that provides solid career opportunities for (finance) professionals, but also safeguards essential (accounting) competencies within Philips. 20
  21. 21. The partnership with BPO is stable and working well Customer satisfaction BPO locations Scope Compliance: close to 80 % Compared with the initial outsourced objectives: Savings 2008-2010 Lower cost Flexibility and cost variability Capacity for outsourcing scope expansion Improved service Improved BPO relationship management skills Leveraging technology Better staff retention and motivationConfidential 21
  22. 22. The 4 building blocks of SBS Finance Completing the standard scope Increasing the efficiency within the standard scope; Executing for accounting the agreed scope for BPO De-bottlenecking and further automating processes Broadening the scope Decreasing the BPO Charges Substantial savings in Adapt our way of working to accounting and controlling reduce the BPO costs under by more aggressive outsourcing transaction based pricingConfidential 22
  23. 23. Harmonization of accounting processesWhy harmonisation in accounting:•Less complexity offers next step towards lower costs•less complex customer for BPO (better service/re-locations)•Facilitates faster process improvement Results of assessments: 45% of processes is more or 25% can be 30% will take quite harmonized with some effort less harmonized some effort 2009 2010 Creation of harmonized a. Impact analysis SAP landscape b. Harmonize if possible Fiscal requirements Work instructions Business requirements 23
  24. 24. Harmonization Roadmap Overview PROCESS PROCESS COMPLIANCE IMPROVEMENTS CHARTER DOCUMENTATION Scope and Framework Documentation Compliance efficiency Completeness Scope compliance Process compliance Process Charter Quality assessment Process improvement scope completeness and improvement Compliance reliability Document management AuditsConfidential 24
  25. 25. AGENDA 1. Philips introduction. 2. Our journey of SSC: from internal to external/hybrid 3. Scope of services 4. Evaluation of the first three years 5. Next steps 25
  26. 26. Our Strategy towards World Class Current Initial Cost Level Salary Arbitrage Savings Process Improvement Savings Future Cost Level World Class Salary arbitrage is the quick gain for the first few years. Savings thereafter would need to come from process improvement initiatives. Go for costs, stay for qualityConfidential 26
  27. 27. Increase Scope of Rule Based Controlling Remains with sectors “Judgement”Definition RBC: Based•No/less face-to-face contact Controlling BPO is already involved inwith the business functions rule based controlling work “Ruleneeded and Based” on a small scale•can be captured in work Controllinginstructions Present scope•are of routine nature of SBSF / BPOrequiring relatively littlebusiness knowledge Accounting This model allows the controller to focus on core business activities and support business functions, e.g. sales, production rather than transactional activities. Sector SBSF BPO Sector SBSF BPOJudgement BasedActivities RBC Project RBC ExecuteRule Based Activities1 leadTransactional & RBC ExecuteAccounting Activities1 lead+ 27
  28. 28. SBS-F’s role as an analystHow the RBC project will work: business model and scope Scorekeeper Analyst Business Partner BPO SBS-F Local Finance RBC JBC Accounting and controlling functionMove to Shared Service Stay with the business Environment function • BPO is performing the scorekeeper role which is highly repetitive and standardized • The analyst function within SBS-F requires also a certain degree of business knowledge forming a value adding front-office function for business reporting and analysis. • Local finance focuses on the added value part of controlling, requiring in-depth business knowledge building on the pre-work performed by the scorekeeper and the analyst. 28
  29. 29. The roles of finance function and its specialization Business skills Analyst Business Partner • SBSF as commentator, explaining the • Acts as business advisor, having the business story in numbers and variances total business view • Support the sectors in their decisions, • Active support of commercial decisions from a finance angle • Takes ownership for and actively manages the financial drivers of value SBSF Philips SectorsProcess DirectionDelivery Setting Score Keeper Custodian • Role focused on repetitive work • Role clearly focused on full scope rule • Philips efforts to design and BPO to based accounting and controlling execute on efficient transactional • Works with the business to ensure processes compliance and effective controls • Providing standard reporting and • Custodian of assets and value analyses protection; leading the creation and maintenance of financial statements • Ensure effective monitoring BPO on BPO SBSF Finance skills 29
  30. 30. Recent research by Ernst & Young confirms Philips is a leading company in terms of shared services….Confidential 30