If 50 people working in a shared service centre based in India can do the work of 100 or more scattered across Europe, what chief executive could resist demanding the change? Pressed by the stock market and global competitors, and vaguely aware that his company’s legacy computer systems cannot provide the support his managers need, he will be impatient for results from shared service developments and all that goes with them.
Patience in liberal quantities is usually required, however. Transferring accounting processes from a number of different offices to one or two major centres does not sound too difficult. But the further you delve into the process, the more fundamental the changes to the entire organisation are required.
If the management style is essentially decentralised, for example, accounting and IT systems will almost certainly vary even if the basic architecture is the same. A bigger obstacle is likely to be the territorial managers who jealously guard their autonomy from head office and/or other colleagues. Removing their accounting support to some remote location under central control leaves them feeling disempowered.
The deeper you dig, the more problems are likely to surface. At software company Oracle, for example, Chris Baker, UK vice president of technology, recalls that when it took the first steps towards its own shared services project in the late 1990s, “we really didn’t know in detail what they (the business units) did, and so we didn’t know what we expected to happen. Lots of things look the same, but in reality, they’re all different.”
Even if they start the same, they quickly diverge. Peter Moller, shared services specialist at Deloitte, the consultant, is only semi-joking when he says that “the half-life of a standard process is six months”. Reversing the urge to diverge requires more discipline than many companies can handle.
This is especially true of companies that have a long decentralised history such as Unilever. The consumer products group is currently making major efforts to tackle its underlying performance problems as well as rationalising its business services. Its Anglo-Dutch structure, stretched over more than 100 countries, long impeded moves towards unification. But investors demands for faster growth two years ago prompted the selection of a single CEO for the first time, Patrick Cescau, with a centralising remit.
His “One Unilever Programme” has simplified the structure into three main lines of business: foods; detergents; and personal care. One of the many benefits is that business services, simplified and standardised, can now be shared across the organisation.
For example, a central purchasing and supply chain company catering for all Unilever’s European operations has been established in Schaffhausen in Switzerland. However, for basic financial, HR and IT services, the group has gone one step further by outsourcing them to IBM and Accenture. A €1bn (£680m) savings target has been set for the end of 2007.
For most companies, the promise of shared services is wrapped up with enterprise resource planning systems, which process all the business transactions and perform other major clerical tasks such as payroll, time recording and so on. No two companies are alike, of course, and much of the corporate trauma that ERP has caused in the past has been due to the attempt to squeeze their operations into standardised products that don’t fit the complexities of individual businesses.
Improvements in ERP and the hardware that enables them, have cut the rate of failure but heightened the need for standardisation. That is as common to shared services as it is to ERP, and in practice the two support each other.
Which should come first? Carole Murphy, Capgemini’s vice president for finance and shared services, thinks it all depends on a company’s style and history. Only the bravest and most agile attempt both at once.
One example is the car hire company Avis Europe. Three years ago it decided on a radical reform of its back office and IT functions to improve its performance in a cut-throat market. A shared service centre would be set up in Budapest, a new ERP system would be installed and the IT function restructured.
A year later, the SSC was up and running and the first of the transfers of administrative processes had been completed successfully. The ERP system hit big obstacles, however, and the official Avis communique tersely blamed “a number of fundamental problems with its design and implementation. A decision has been taken to terminate the development of the new system as quickly as practicable to avoid further cost.” That year, the company announced a loss of €20m before tax.
Today, however, its Budapest SSC caters for 11 European countries, and by the end of this year will have hit 80 per cent of the original target. Nigel Carrigan, its managing director, says that “it was a difficult journey, but a year or two on, the services offer better quality and more control to the line managers because of better transparency.” Unsurprisingly, that has gone a long way to convincing them of the centre’s value and in 2005, profits bounced back to nearly €30m.
Telecoms company Ericsson was in a similar fix in the first few years of this century, as it struggled to keep up with the pace of change in the telecoms industry. It had made a few desultory efforts towards regional and local shared services in the late 1990s, and by 2003 had cut its finance staff by 50 per cent, but there were still over 100 different local units with their own accounting conventions.
Like Avis Europe, it installed a common IT platform for the group, and introduced a global standard ERP system. Unlike Avis Europe, these have worked well, so the SSCs had a firm base on which to build. The first steps were to set up 12 regional SSCs under unified management to separate them from operating units and insist on adherence to global standards. Some of the processes are now being transferred to the group’s global SSC in Manila.
“It’s a process that will never be completed,” reflects Stig Christensen, head of global finance and accounting operations and shared services at Ericsson. “It’s a constant journey, and we’re already planning the next step towards further integration.”
In the modern globalised economy, nothing less will suffice.