Kone: Six lessons learnt when launching a Shared Services Centre

In response to the recent articles on the ‘Top Ten Mistakes when starting Shared Services’ and ‘Ten More Mistakes made when starting Shared Services’ posted on the SSON website, from many of you who agreed with certain points and would argue others according to your own experiences. Peter Andrisin, General Manager at KONE SSC in Bratislava, Slovakia highlights a few of his own.

‘Having the opportunity to meet other colleagues during Shared Services & Outsourcing Network (SSON) conferences, many organizations copy and/or mirror ONE existing SSO model with all the associated "child sicknesses". Analyzing this model – and reading these articles, I am not surprised many companies are struggling in the first years after implementation. We experienced many of these problems in the first few years at our SSC – but I would like to share some other thoughts with you on some of the problems which were outlined.

Lesson #1. Not instituting coherent allocation or chargeback mechanisms

There are several methods of chargeback (actual FTEs; SSO cost plus; existing organization costs minus; estimated costs etc.). None of these mechanisms motivate a SSO to optimize the costs (especially for internal SSO, all spending is charged to the business). When it comes to charging models like agreed FTE or cost per transaction, I haven’t seen these in any SSOs, even though they are the most effective models for both SSO and business.

For example, an agreed FTE could use existing workload (FTE) with SSO cheaper labor costs. So if a current process was carried out in a business with 5 FTEs: charge 5 FTE by SSO (or e.g. agree 6 FTE for first 6 months until stabilization and then 5 FTE). Agreed FTE motivates the SSO to optimize the productivity – to save e.g. 1 FTE, therefore it is net saving which could be used for existing employees’ engagement and SSO cost saving.
Cost per transaction is the advanced model – more effective than agreed FTE. Typically a SSO will setup cost per e.g. P2P invoice (just illustrative numbers): paper invoice w/o PO 2 EUR, PO invoice 1 EUR, E-invoice 0.5 EUR (similar model can be setup for billing invoice, cash collection, Master Data or contracts setup / maintenance and other processes). This is fair to the business –pays for real activities and it motivates them to use 21st century technology (e-invoices, PO etc.). SSO in parallel can use value added technology (OCR, workflow etc.)

[eventpdf]

For starting business it can be difficult to setup the right price from the beginning – for this case there should be a 6 months review period when they will agree the review (summarize the business and calculate correct numbers – and adjust them for next 6 months).

Lesson #2. Not installing adequate change management architecture

The main issue is, that a SSO (both 3rd party and in-house) take the processes as they are (lift & drop) to low cost regions. Afterwards they wait for stabilization and plan transformation.

In my experience – this is the most expensive model (and probably the number 1 reason for SSO failures). Corporations use different ways of accounting and systems (software) in different countries. Main differences are caused by a country’s management skills and approach. In the KONE SSC we provide services for 14 EU countries (29 units) and no two countries are the same. Consultants and SSO staff spend enormous amounts of money and energy for something which is already obsolete. The business expectations are: ‘if this process took us 10 days, SSO should do it in 3 days ("they are experts!")’The SSO advantage is learning from various companies / countries former experiences and using this knowledge in standardization of processes. Take P2P: receive – scan– get to the system – approve – post – paid – archive invoice.

Lesson #3. Only transferring basic processes to shared services

Another cost spending way of a SSO. The end-to-end process should be transfer to SSO, otherwise it will be out of control and result in a lot of complains between the business and the SSO.

Lesson #4 Relying too heavily on received wisdom

Sorry to say, but many of consultants work in this mode: as worse for business (of course in acceptable level) as better for them. Their need is prolonging.

Lesson #5. Accepting "constraints" too easily

Most of companies assign the existing CFO as head of SSO or Project Manager. From my own observations - unfortunately in most of the cases this choice is wrong. Skills and experience requirement for SSO are far different from CFO (even when they have the same interest).

Lesson #6. Underestimating working costs

An experienced head of SSO is a must in business (and SSO). It starts with headcount – for basic transactions certified and experienced accountants with foreign languages are hired. Output: a) too expensive, b) costs for attrition c) soon get bored as SSO is factory line production d) intention to complicate the process - often they do not understand they have just "re-type" instead of re-create.

Using model above (of course with some variants) we run our SSC in Slovakia and percentage –wise, we are double-digits cheaper than other competitors in region (Slovakia, Czech, Poland, Hungary) with one-digit attrition while the region average (despite the economic crisis) is +25%.