Award Winner: Improvement & Innovation

Excellence in Improvement & Innovation Award 2011 - Europe

George Connell, VP Strategy and Center Finance Lead, Glasgow, Royal Dutch Shell

Strategy

In 2006 Shell was operating many non-standard financial processes from multiple ERP environments. This was operated from around 100 countries - many of these being relatively high cost environments. Even within a country, an invoice, for example, could be processed in different ways depending on the business or function. Two thirds of Finance staff representing approximately two thirds of the costs were involved in financial processing. This included transactional processing, financial accounting and reporting, treasury back office, fixed asset and stock accounting, and management information. Benchmarks conducted by Hackett in 2006 revealed that our financial processes were performing at best at third quartile.

Further observations from the Hackett benchmarking study were:

• A cost gap between Shell and the peer group median of 40%
• Processes not standardised and no end-to-end process view or ownership
• Heterogeneous system landscape
• High cost of labour due to limited use of shared services model (14%)

The Finance Functional Plan was defined, outlining the shared vision of Shell becoming a world-class Finance Function by 2010. It highlighted significant opportunities for efficiency and quality improvements.

The following benefits were targeted for the 2006 – 2010 time frame:

• Target cost reduction for the Finance function of 40%
• Decrease the number of FTEs in Finance by circa 20 %

The levers to achieve these benefits included:

• Increase process penetration in shared services from 14% to 50 – 75%
• Link up process design and process operations, improve process performance
• Implement and apply a continuous improvement programme
• Implement large scale global IT programme
• Standardisation of all Finance processes within Shell across different Business Units and regions/countries

Improvement Methodologies

A process governance structure was introduced and the shared services organisation called Finance Operations was established as a distinct organisation in mid 2008. The current network of Finance Operations consists of five centres (Glasgow, Krakow, Manila, Kuala Lumpur and Chennai). The newest centre, Chennai, started end of 2008 with a focus on Management Information, performance management (budgeting, forecasting) and decision support areas. This centre has grown to around 1,400 staff by the end of 2010.

Based on available external best practices, a robust migration methodology was developed, streamlined and successfully operated. Since 2006 over 4,700 roles have migrated safely from in country Finance to the shared services network. This was a huge collaborative effort from many staff across Finance. The migration of work has not always been easy but staff involved took ownership of the migration to succeed. There are many examples where the interaction between the country and Finance Operations staff developed into active mentoring and development relationships.

The accountabilities within Finance Operations are fully aligned by process. An important foundation of the process organisation has been the establishing of standard metric definitions with associated targets for Top Quartile (TQ). For each process a three tier model of metrics (strategic, managerial and operational) has been put in place. The TQ targets are based on external benchmarking data. For each strategic metric a four year glide path towards TQ has been agreed. The monthly review of process performance via metrics for effectiveness, efficiency and compliance is an intrinsic part of how Finance Operations operates.

With the build-up of the Finance Operations organisation over time, the model allowed for selective process concentration. This enabled realizing economies of scale and increased standardisation of processes. The concentration risk is actively managed by, for example, tested Business Continuity Plans and structured interoperability for critical processes.

Developing a Continuous Improvement (CI) programme and capability is a critical element in achieving and sustaining Top Quartile performance for processes. Based on the Lean Sigma methodology, a Continuous Improvement mindset and competences have grown in the shared services organisation. The targeted benefits are hard-wired in the individual process budgets and bottom line declared savings are transparently and independently audited. Sustainable capability has been built for the enterprise (Master Black Belts, Black Belts and Green Belts). By the end of 2010 circa 20% of staff in Finance Operations has been trained to minimum Green Belt standard. In 2009 and 2010 benefits were realised within Finance Operations as well as the wider Finance Function. Cumulatively the targets were exceeded by more than 200%. For the shared services the annual savings are in the range of 10 -15%.

The TQ journey continues with full focus on delivering the strategic, compliance and effectiveness and efficiency process improvements as measured by metrics for each process.

Complexity of Change

The transformation of the Finance function led to large scale organizational redesign, right sizing the Finance Function for Royal Dutch Shell and for individual businesses. An important change was the transferring of the governance of a number of Finance processes to the shared services organization. Given the embedded culture and structure that existed, this has not been easy and met resistance in various pockets of the organization.

The build-up of the shared services organisation involved complex migrations from over 100 countries. Managing the scale and complexity of the migrations together with at times difficult staff consultation/ union dynamics has been challenging. Additional challenges were the migrations from non-standard environments with regards to process, systems or organizational structure.

As the centres are located in Europe and Asia, time zones, languages and cultural differences between sending and receiving organization had to be managed.

For a transformation of this size, the board level sponsorship and management commitment at all levels is imperative. The change was managed with a solid programme, with dedicated resources, project plans etc. We started with easy wins to build credibility.

What made the difference were the following elements:

• Follow through on chosen strategy - persevere!
• Ensure there is a compelling rationale for the changes being made
• Work bottom-up towards top-down vision; don’t wait for "perfect plan"
• Put in place a structured methodology for migrating work and controls
• Implement structured CI methodology for realising benefits after migration
• Develop leadership capability in line with the evolving and maturing state of the organisation
• Have a clear focus on structural and collaborative connectivity with the onshore organisation
• Continual comparison and benchmarking to calibrate targets
• Manage strongly and consistently by metrics – embed accountability
• Strong focus on yearly refresh of network strategy (capacity anticipation)

Benefits Achieved/Hard Improvements

Versus the original objectives in 2006, the following targets and benefits have been achieved:

• Over 4,700 roles migrated to the Finance Shared Services Organisation in 2006 – 2010 timeframe.
• Substantial wage arbitrage benefits delivered on a yearly basis.
• Process penetration in Finance Operations has increased from 14% in 2006 to 64% in 2010. As more of the processes are operated in the shared services environment this has facilitated the standardisation of both processes and controls.
• Controls operated in Finance Operations increased from 6% in 2008 to nearly 50% of financial controls in Royal Dutch Shell at the end of 2010.
• The design and deployment of controls was previously largely provided by expensive third party consultants. The increased number of controls in Finance Operations allows this now to be operated in-house.
• Starting only mid-2008, the CI programme has exceeded the original target of continuous improvement benefits by more than 200% (cumulative 2009 & 2010). The benefits have been realised both within Finance Operations as well as the wider Finance function.
• The yearly CI benefits for Finance Operations are in the TQ range of 10 – 15%.
• End 2010 65% of Finance processes under shared services governance are Top Quartile for effectiveness (starting point in 2008 6%)
• End 2010 56% of Finance processes under shared services governance are Top Quartile for efficiency (starting point in 2008 1%).
• Critical mass of controls now operated in shared services organization. Due to standardisation of controls, external audit fees have been reduced and internal audits easier facilitated.
• Through the continuous improvement programme there is increased connectivity between Finance and the businesses. We are adding value to business improvement programmes.

Additional benefits

• Having control testing performed in-house rather than by external accountant’s leads to ongoing annual benefits.
• Given the ramp-up and speed of the transformation process wage arbitrage benefits have been captured earlier than anticipated.
• Shared Services model has offered flexibility for strategic acquisition and divestment decisions for Royal Dutch Shell
  Shared Services has been able to quickly absorb the work that could not be performed by local staff in the Middle East countries due to recent events. Finance processes were operational again within 24 hours.

Differentiators

The differentiators for the build-up of Finance Operations are:

• The change was conducted in one of the largest corporations in the world and has established significant shared services capability operated in a branded captive model.
• Finance shared services has repositioned from peripheral player to one that is a key enabler for the Finance Function to deliver TQ performance.
• Finance Operations has end-to-end controls responsibility (from design to operating). Controls penetration ramped up from 6 % in 2008 to nearly 50 % in 2010.
• Due to solid performance, relationship with the businesses has evolved from customer/supplier to true business partnering.
• Shared Service organization is a driver for the Continuous Improvement Programme for the whole Finance Function.
• Safely migrated over 4,700 roles since 2006 into our shared services organisation.

[eventpdf]