A Double-Edged Sword: Catalysts & Impediments, Part 2

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Facilitators:

Vipin Suri
Amherst Group Limited

Joseph Soalheira
Project Leader, Brisbane City Council
SSON Advisory Board

Participants:

Shaun Brooks
Director, Global Financial Shared Services
Fosters Group Ltd

Graeme Szetu
General Manager, Finance & Accounting -
Amalgamated Holding Limited (AHL)

Albert Olley
Director, Commercial Operations and Corporate
Governance
BusinessLink (New South Wales)

Stephen Dowling
Client Solutions Consultant
HR Optimization

Guy Nicholson
General Manager, Shared Business Systems
Victoria Government (Vic Gov)

Andrew Monaghan
General Manager, Corporate Supply Chain
Qantas Airways

Vipin Suri/Joseph Soalheira: Should your personal leadership styles change in this current economic environment? 

Anonymous participant: It takes more courage in these times to hold your ground on things that are important and to have the difficult conversations.  Thats something were focusing on now, at [company]. 

Guy Nicholson: Somethings got to give. You have to be brave enough to sit down with your customers and have those tough conversations without letting them ride roughshod over you. 

Andrew Monaghan: I don't think the leadership style changes, but the leadership needs to adapt to the environment and the circumstances. You must have the ability to be flexible and adaptable, and have the hard conversations. 

Stephen Dowling: We are looking at the area of risk awareness in supply risk across all products and services. What does the value chain look like? What are the supply company's pain points? Given economic uncertainty, what needs to be monitored on a continuous basis? If something falters, where is your alternative supply coming from? We see this as a good time for some cross negotiations to strengthen partnerships for mutual advantage now. The goal is to sustain the end user, your customer and your own business to the benefit of all.

Shaun Brooks: The upside of this, though, is that you've got the opportunity to go through some re-negotiations where possible. With difficult economic conditions, there is an opportunity to trade off some tenure for some price advantage now, even if the contract is not due to be renegotiated for another couple of years. With suppliers looking for certainty, contracts can be re-secured under new terms, which is beneficial to both parties.

Stephen Dowling: In our experience, tight money drives change hard. You need to be clear of the consequences of any changes. Above all, if you can provide certainty to customers and employees, it will allow them to make informed decisions. It's the conversations that take place at the employees' kitchen tables that make or break your business. If you can focus on good, fact-based information, those conversations will work in your favor.

Stephen Dowling: Andrew, what I'd like to know is this -- you work in probably one of the most volatile businesses around. And you see hardships almost immediately. So how's the leadership responding at the moment?

Andrew Monaghan: We've got two main focuses at the moment: one is people and reengagement, and the other is cash preservation. Within shared services, because we do so much of the transactions we are actually owners of the information. Also, our leader is quite progressive, so we've taken the lead on a lot of the cash preservation exercises. We're working with treasury and our business units on the payment terms with our suppliers; and on the revenue side, we're working on improving debt recovery and working capital. We've actually put together dashboards to report out to our customers how we're improving the cash and business on both sides. That is where shared services can add value because we have a real intelligence there.

Joseph Soalheira:  What are the most significant changes you've experienced since the global crisis started?

Albert Olley: Absolutely. The obvious thing is capital. The things that used to pass through the gates on capital submission simply don't pass through anymore. Risk is coming into the equation. The public service mentality do we have it in our budget so let's spend it has completely stopped.

Vipin Suri: In these tough times, should the financial or business acumen of your team leaders increase?

Andrew Monaghan: As shared services evolve, we should be moving up the value chain and trying to attract those high-level skills anyway. The challenge we have with shared services at Qantas is to attract talent - no matter what the economic situation. We have other parts of the business that seem to appeal more! A big part of our strategy is to attract talent, so we are actively nurturing a culture that is attractive to people.

Stephen Dowling: What I'm seeing a lot, at clients, and it's happening because of labor issues, is people who wouldn't normally be attracted to this environment are coming in because they see continuity, certainty, professional development and these are things they are not seeing in some other industry sectors eg Finance.

Joseph Soalheira: And that will be useful for when the recovery kicks in.

Anonymous participant: That will be the big challenge, though, because right now we can get people that we could never get before.  People like to work in public service at the moment, but ultimately they will want to go after the dollar again, when the upswing comes. We're looking at it from a life-skill level. So on the user support desk the challenge is: do you employ really cheap people or do you try to lift up the value chain by employing higher skilled staff? You'll pay more but you might need less people.

Anonymous participant: Our challenge now is trying to give our middle managers the skill sets they need. What we're running into is a lack of financial skills and leadership skills in long-term public servants that are in middle management roles.  That's one of our biggest challenges going forward.

Shaun Brooks: That's a systemic issue that requires a review of the skills and capabilities required to take the business forward. But, of course, there's an execution risk around that in terms of knowledge retention. Without generalizing, you also have the challenge of dealing with that middle concrete layer in some circumstances that has built all kinds of self-protection mechanisms to ensure survival.

Joseph Soalheira: The interesting thing is that this crisis makes this concrete layer more obvious particularly in the public sector.

Stephen Dowling:  I think the other issue to be aware of for shared services operations is the pendulum swing from centralization to decentralization.  Financial services is a good example of organization design changes can occur at light-speed.  In the stroke of a pen you may have a different set of management capabilities and rapidly changing customer base. You need to be able to quickly adapt your service delivery model, as services are now provided to a different group in a different organization structure in a different way.  So you need to be aware of the implications for the structure, to the business, and get ahead of the change to streamline service offerings and manage the impact on end users.

Vipin Suri: So, what weÕre hearing is that you should continue doing the same things you are doing, but with some changes: more focus on customers and employees, more business-oriented, and more open to negotiation. The other point was that perhaps we should start looking at things at the other end of the value chain  for opportunities beyond transactional services.

Shaun Brooks:  You need to be able to change in the current business landscape or someone will change it for you.  Another point that was raised is sweating the assets. We need to get the maximum amount of cash from our assets.  That means managing working capital tighter, reviewing capital expenditure plans, leasing, reviewing terms with vendors, being as efficient as possible with the assets you have employed, and so on. Ultimately it's about cash generation  - cash is king in times of economic uncertainty and difficult market conditions. The leadership team at Fosters understands this importance aspect. In general, from a cash conversion perspective, if it is not in the high nineties we are not sweating our assets enough.

Anonymous participant: It makes things difficult when you have demand dropping sharply. The coal haulage business, for example, which is a large part of our business, has experienced a significant drop in demand. But having this pressure gives us a burning platform an opportunity for improvement. We should obviously always be managing as astute business people but this gives us a burning platform, which acts as a catalyst for change. 

Vipin Suri: So, to put this into context, what are people doing differently, that is really going to change their business around?

Albert Olley:  We're taking more of a solutions focus: how can information services partner with shared services? We're taking more of a lead role around delivering better solutions for the business. We're also focusing on project management capability across the business. Part of what we do is provide the discipline to leaders to make better decisions, which in turn help us sweat the assets better.

Stephen Dowling: What we have found when working closely with the Shared Service customer base is that we try to encourage Senior management not to downsize too deep too fast.What happens far too often, is that there is little time to oversee and manage the talent of a business resulting in some cutting the workforce far too deep, too fast, and in the wrong areas.  In the short term, this can create significant capability gaps in the customer's business  -  a gap that Shared Service teams need to be willing and able to tackle.  This is crucial to ensure the business can sustain its core capabilities and in itself deliver to promise.

Andrew Monaghan: Yes, we are moving from transaction and order taking into managed services.

Joseph Soalheira: Even local governments are looking at ways of releasing assets from their balance sheet to generate cash and invest in other community programs. One large local government in Australia with over $20bn in assets, and who owns all ferries (river transport) is considering selling them and leasing them back to release some of the cash tied up in those assets where the ROI is very low.

Shaun Brooks: You have to be careful, though, because there are lots of astute investors who will offer significantly deals for such assets. You don't have to necessarily own real estate holdings and tie up capital, although you need to pay particular attention to the terms of any such sale and leaseback deal in terms of returns vs other capital investment strategies.

Vipin Suri: One more point, while we are on this subject: should outsourcing increase in these times? Should we be more aggressive on outsourcing?

Albert Olley: We run a somewhat insourced/outsourced model, because we are a separate company to our clients. But the clients are now using us as the contract management vehicle, ie: what do we want to outsource? In time, we'll probably start to take on a contract manager role for outsource services; decide where its cost effective for us to do it instead of going to the supply shop for everything, like we do currently. But you have to be able to manage it correctly.

Anonymous participant: It comes down to fact based decision-making, in a crisis, as opposed to firing on all fronts. Fact based decision making reduces the risk and raises the radar across all issues. 

Joseph Soalheira: It's not really an issue of crisis or not, but rather it depends on your strategic objectives. At the end of the day, if you want to downsize your operations, and the market is prepared to pay a certain price you will outsource or sell. 

Vipin Suri: Should your decisions be made with more of an eye to the short term than the long term in these times? Or is it the same?

Shaun Brooks: I think it should be the same but things can sometimes be motivated in different ways.  It depends on who your investors are and the nature of your business. In general, the investment community puts significant pressure on short-term results as opposed to Japanese companies that have a tendency to think over the longer term. The leadership of any business needs to balance the short term needs of the financial markets with the longer term aspirations of the company. With the nature of our business, like others in this market, we are naturally engaged with the investment community to manage expectations but of course we are expected to respond quickly to the changing landscape.