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Icelandair (listed as FL Group) began its journey towards shared services in 2001. The company is at the forefront of Iceland’s tourist industry, which contributes 12 per cent of foreign currency earnings to the country’s economy.
In 2001, the company undertook a major IT infrastructure overhaul. “We had an old batch system, operating on a mainframe and our accounting software was developed totally in-house,” explains Magnus Kr Ingason, general manager at Icelandair Shared Services. “This had two major drawbacks for us. First, the accounts payable/receivable, general ledger and fixed assets modules were not integrated, which was causing us problems and extra workload. Second, the accounts payable/receivable functionality was also weak.”
In addition, the company decided to install Coda-Financials from the Coda Group. “We initially selected Coda-Financials because its unified database gives us instant access to our precise financial position, while its flexible chart of accounts allows us to customise the software around the accounting requirements of the airline industry,” explains Mr Ingason. Functionality was also an important factor in the choice: users found Coda-Financials to be both powerful and intuitive and, therefore, easy to learn and use to full effect.
“We were even more delighted when we discovered that the Coda-Link utilities offered seamless integration with our existing specialist or custom-built systems in each of the business units – neatly avoiding all of the time wastage, expense and disruption to operations that a wider upgrade might incur,” adds Mr Ingason.
Next came a strategic decision to move from being a highly centralised organisation to one that is dynamic and decentralised. Further, the company knew that it had to find a way to reduce operating costs and considered outsourcing some operations offshore. However, it was decided that it would rather keep control of its operations for corporate governance and compliance reasons.
It is this requirement that led them to take the shared services route. “Decentralisation of the group had positive effects, but it soon became apparent that the cost of the various support functions were spiralling,” Mr Ingason admits. The shared services business model was the answer.
Icelandair then began a rapid acquisition strategy. In early 2006, it had 14 subsidiaries, staffed by 2,500 employees, including airlines, hotels, car rental, ground handling, cargo, aircraft leasing and investments. The integration of new acquisitions, and the speedy realisation of benefits, would not have been possible without a shared services approach.
For example, it was vital for the organisation to increase the quality and reliability of its information, having previously relied on various ERP systems throughout the group. “Centralising on Coda-Financials gave us instant access to our precise group financial position rather than the islands of information we were dealing with before. It has meant a significant reduction in costs and each subsidiary can now focus on its own core competencies,” Mr Ingason says.
The shared services concept had to be marketed successfully within the business to ensure subsidiary buy in. “You cannot underestimate the importance of getting buy-in from people,” Mr Ingason emphasises. “This was a huge cultural change for the whole company, so the project team, once established, had to provide a stream of success stories and visible proven results along the way.” Behind that lay clear objectives for the project from the beginning.
The shared services cover HR, payroll, and all general ledger activities including accounts receivable and accounts payable. “We have made efficiency savings and cost savings, particularly on head-count and in IT. Plus, the service level for each subsidiary has improved significantly and the business is covered against external risk which is critical in our industry,” Mr Ingason continues. Customer satisfaction surveys also show that the new business model has paid off.
“We completed about 100 system integrations to Coda in just three months and measured a 15 per cent cost saving in the first year of the project,” Mr Ingason explains. “This increased to a 25 per cent saving in the second year and we are consistently cutting the internal pricing to each of the subsidiaries, too.”
Today, all employees work with standard processes and the shared services continue to underpin the company’s aggressive investment strategy. “We can upsize and downsize easily now, which protects the business from external risks and means that we can grow rapidly,” Mr Ingason continues. “For example, in late 2005 we made two major acquisitions which means that the group has doubled in size. We can accommodate that kind of growth now.”
Like any leading company, Icelandair is continually reviewing its business model to make ongoing improvements to the way it works and how it delivers services. At the same time, the company is always looking at cultural development, too.
With Coda’s finance systems at the heart of the operations, and Coda working as a key IT partner, Mr Ingason and his team are confident they can drive continual improvement and cope with whatever corporate changes head office puts their way.