10.45 am : 11.30 amWednesday 26th May,

2010

Does size matter when considering Shared Services and/or BPO?

Phil Searle

European Shared Services &

Outsourcing Week Edinburgh 2010

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With Shared Services and Outsourcing as potential servicedelivery 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 ServicesIs Scale Critical to Success?The Potential Role of OutsourcingSome Tips and Tricks And Relevance to ScaleAppendix: Some Case Studies

What We Will Cover

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What is “Shared Services”?

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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.

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Why is it different to centralisation?

Demarcation

Another corporate function

Rare

Cost reduction and central control

Corporate

Centralisation

PartnershipResponsibility

An independent unitClassification

WidespreadService Partnership Agreements

Service excellence and continuous improvement

Key Performance Targets

Business unitAccountability

Shared ServicesAttribute

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Critical Success Factors for Shared Services

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Customers

Technology Processes

People

Processes documentedStandardized, controlled & repeatable activityRecharging methodologyBenchmarking capability –internal/externalMetrics: (i) Control Based(ii) Efficiency & Effectiveness

Act independentlyService orientation in placeRule driven but flexible way of dealing with customersCustomer satisfaction levels understoodSLAs in placeReality versus perceptionAccount management

ERP implementedDocument Scanning SolutionWorkflowAutomated PaymentsElimination of Side SystemsSelf services toolsAutomated Score Cards

Critical Success Factors

Skilled Leadership in place – do not compromise on competenciesTeam shape & stability – process shaped/spans of control/staff – perm v tempsTeam members – culture, values & behavioral competencies assessed Team morale, reward & retentionWorking environment conducive to team working

Critical Success Factors for Shared Services

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Is Scale Critical to Success?

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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 matterAnd “scale” can also be achieved in a number of waysAnd 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 pastThere can also be significant diseconomies of scale in larger organisations that actually make successful Shared Services less likely.

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The Potential Role of Outsourcing

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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.

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Some Tips and Tricks forShared Services

Sorted by Critical Success Factor

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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.

Tips & Tricks for Successful Shared Services

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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.

Tips & Tricks for Successful Shared Services

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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.

Tips & Tricks for Successful Shared Services

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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 requirements3. 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.

Tips & Tricks for Successful Shared Services

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Appendix: Some Case Studies

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Case StudyDigital Media Company

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Digital media company (editing, storage, distribution) Market leaderMedia companies and broadcasters, often state-fundedUS-owned, subsidiaries in Europe and AsiaTurnover approx $900m WW, $400M in Europe

Company Overview

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Strong revenue growth in EuropeDeveloping new lines of businessBack-office fragmented and outdatedCompany history of partial integration (e.g. of acquisitions) Front end of the business fixed

=> time to address the back end

Context

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Fragmented finance organisation 7 processing sites, 28 active companies in 14 countriesReplicated, different processes, no cover between teamsApprox. 100 finance staff across the regionFocussed on transactions, not strategy & business supportInability to react to change inside or outside the organisationCost of finance a multiple of “best in class” at 2.82%

Situation Analysis

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Re-organized Finance into key value driving rolesImplemented SAP ERPStandardized processesSignificantly downsized FinanceMore streamlined and agile Finance teamCost of Finance reduced by >30% Success has led to other Functions following suit

Results Achieved

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Case Study 3Com Corporation

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High Tech Computer Networking CompanyUS-owned, subsidiaries across the globe4 Main Business Units (plus Palm until 2000)Turnover $1billion to $2 billion in 2001/2/3, then increased again after JV with Huawei

Company Overview

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Shared Services

• Credit• Collections• General Ledger• Fixed Assets• Accounts Payable• Field Finance Accounting• Corporate Purchasing• Travel• Revenue Accounting• Sales Reporting• Sales Data Management• Claims Processing• Payroll• Expense Claim Processing• Commission Calculation &

Processing• Stock Administration• Indirect Tax/VAT Administration

Corporate Services• Governance• Internal Audit• Treasury (securing financing)• Tax planning• Trade Compliance• External/SEC reporting• Consolidations & Intercompany• GAAP Accounting/Financial

guidelines

Business Services• Financial and operational planning,

budgeting & forecasting• Supply Chain Accounting• Sales quotas and comp plans • Discount approvals, pricing analysis,

and approval of rebates or other claims programs

• Ownership of BU master data hierarchy (profit centers, cost centers, etc)

• Standard margin and profitability analysis

• Support for strategic & other decisions

Finance & Accounting Services in 3Com

Functions highlighted in red were all the responsibility of the SAS team.

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3Com Shared Accounting Service Centers

EUROPE

Full - UK, Ireland, Germany,France, Belgium, Holland, Norway, Denmark, Sweden, Finland, Italy, Spain, Switzerland

Partial - Dubai, South Africa, Israel, Austria, Bulgaria, Czech Republic, Egypt, Greece, Hungary, Morocco, Poland, Russia, Saudi Arabia, Slovakia, Slovenia, Turkey

APR

Full - Singapore, Malaysia, Australia, New Zealand, Japan, India, Korea, Hong Kong, China, Taiwan

Partial - Thailand, Philippines, Indonesia

AMERICAS

North AmericaFull - US, Canada

Latin AmericaFull - Mexico, Brazil, ArgentinaPartial - Venezuela, Costa Rica, Chile, Colombia

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3Com Shared Accounting Service Centers

Santa Clara

Singapore

Hemel Hempstead

Buenos Aires

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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

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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

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Case StudyHigh Tech Security Software Company

Late 1990s

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Small US based High Tech Software and Consulting BusinessHigh growth trajectoryRevenue grew from $5m to over $10m per quarter 1996 to late 1997.Went public in late 1990sTransformed European Finance function, introduced controls and procedures in and across EuropeEstablished new Shared Services support for Finance for European operations including AP, AR, GL, Sales Commissions, Payroll and BankingEstablished Policies, procedures and standardsAcquired in 1998

High Tech Security Software Case Study

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Questions and Any AdditionalThoughts or Comments

Phil Searle

+ 1 408 460 0785+ 44 7779 714 573

philsearle@chazeypartners.com

David O’Sullivan

+ 353 86 384 8573

davidosullivan@chazeypartners.com