Expanding Geographic Scope and Setting Up a Truly Global Process Model
Shared services is a proven approach to improving service levels and reducing costs. Many organizations have been able to achieve some of the benefits of shared services by implementing within a limited set of functions or within certain locations. To really leverage the benefits of shared services one should extend the scope across the non-core service functions and globalise the reach across multiple functions, regions, countries and legal entities.
Why shared services?
Globalizing shared services provides the opportunity to significantly reduce costs, standardize processes, increase service levels, improve worldwide visibility and tighten the overall control environment. However, there are many obstacles to overcome. As in any world-class shared services organization (SSO) it is in large part about the ability to do more with less. At the same time organizations are looking at their enterprise-wide internal control environment with a greater degree of focus and urgency than ever before, with new requirements placed on companies following the corporate scandals in the United States and the Sarbanes-Oxley Act of 2002 that followed.
Background to shared services at 3Com
Shared Accounting Services at 3Com was initially rolled out across the US in the 1990s, and the worldwide billing, credit and collection functions were very successfully shared-serviced in the mid 1990s. In 1999 and the early 2000s the scope of shared accounting services was significantly expanded to cover all areas of global accounting and control across all entities, regions and functions.
The Shared Accounting Services (SAS) organization at 3Com today provides support to operations in 50 countries world-wide, with a legal entity footprint in these countries comprising approximately 100 legal entities. This support is provided by one global center in Singapore and three regional centers in Santa Clara (US), Buenos Aires (Argentina) and Hemel Hempstead (UK).
Scope of Shared Accounting Services at 3Com
All of the following services are provided today by the Corporate Controller/Worldwide Shared Accounting Services team on a global basis:
- external/SEC reporting
- consolidations & intercompany
- GAAP accounting
- financial guidelines & policies
- general ledger
- fixed assets
- accounts payable
- field finance accounting
- corporate purchasing
- revenue accounting
- sales reporting
- sales data management
- claims processing
- expense claim processing
- commission calculation & processing
- stock administration
- indirect tax/VAT administration.
Credit and collections roll up under Corporate Treasury but also operate as a shared service.
How was Shared Accounting Service successfully globalized at 3Com?
In common with many best-in-class SSOs, 3Com now utilizes a single worldwide instance of SAP and a single worldwide chart of accounts. The company is also able to conduct the bulk of its external audits from its regional centers and therefore negotiate reduced fees off the back of a single ERP solution and standard processes and controls. 3Com has also been able to reduce IT costs significantly and increasingly leverage SAP as its core ERP solution by focusing support on a single software application rather than multiple "best-of-breed" solutions. Working closely with 3Com’s IT department, this strategy has been driven by the move towards a single global SAP finance solution and focusing on end-to-end process reengineering.
Over the past four years, many significant worldwide process improvement initiatives have been rolled out. These include the complete end-to-end process reengineering in the data-capture-to-reporting and procure-to-pay process streams, the roll-out of document imaging technology, the implementation and global use of electronic funds transmission, the roll-out of online expense reporting, the automation of claims tracking, the use of evaluated receipt settlement (ERS) in production accounts payable, the automation of workflow approvals across a number of functions, the roll-out of online purchase requisitioning, the standardization and automation of intercompany processes, and the roll-out of global purchasing and travel & expense (T&E) cards, to name a few.
Shared services and SAP have facilitated the implementation of standardised global processes that support all geographies
With regards to the change management side, there was regular communication with the sales offices, the business units and divisions, and the shared services center (SSC). In fact, talking to the local general managers was key to the successful globalization of the project. We presented on shared services to different audiences on different occasions. We employed project management and business process support techniques and made sure we had the right people in the team. However, as with any significant change initiative, senior management sponsorship was critical and this was provided at the CFO and CEO levels with the Corporate Controller and head of world-wide Shared Accounting Services driving the project forward as main project sponsor, with close day-to-day involvement in the project, along with a very active steering committee.
SAP as a key enabler for shared services
SAP is a key enabler for shared services at 3Com. Other ERP systems also provide similar functionality but at 3Com we used SAP. The system is standard preconfigured to meet most local legal and statutory accounting and reporting requirements world-wide and we leveraged this for all it is worth as we rolled out globally.
For example, we use:
- SAP alternative chart of accounts functionality to meet statutory reporting format requirements in France, Spain, China and Latin America
- SAP foreign language character sets where some uses of local language characters are mandated (e.g. Japan, China, Korea)
- SAP special purpose ledger to meet requirements of different in-country fiscal periods (e.g. Brazil, Mexico)
- SAP tax tables to meet local indirect tax (VAT/GST) accounting requirements
- SAP fixed asset tables to meet different jurisdictions’ capitalization and depreciation rules in order to comply with local statutory accounting and tax requirements.
We also used other SAP functionality such as Workflow and SAP requisitioning as part of our end-to-end process reengineering, particularly in the procure-to-pay area. The use of SAP’s internal order functionality combined with cost centers was also very important in allowing smaller projects (such as those in marketing) to be tracked on SAP rather than on a sidesystem (often Excel spreadsheets). Making use of internal order functionality in this way also eliminated the need to set up new cost centers for each new project.
Some other enablers and techniques used to help globalize shared services
There are a number of other enablers and techniques that we utilized to help rapidly globalize Shared Accounting Services in 3Com. Some of the many examples are as follows:
Use of imaging technology
One cannot overstate the benefit of using imaging technology. This allowed us to adapt our paperwork flow and storage to meet local document retention and filing requirements in multiple jurisdictions around the world. For example, in certain countries such as the US and the UK, an imaged document is as good as a hard copy and so the paper can be destroyed once a document has been imaged.
In Latin America, not only are there local document-retention laws but the mail service is notoriously unreliable across borders, so we did not want to ask vendors to send invoices to another country. Therefore, we use local scanners to scan invoices into SAP so that the invoices can be retained in-country. The final approval and payment can then be managed by the regional or global SSC.
Imaging has also allowed us to have all paperwork sent to the local or regional shared services contact, rather than have paperwork sitting on people’s desks across the company. Once imaged, anyone with the right level of access can view the image on their screen wherever they are located.
Use of local telephone numbers and PO boxes
Depending on specific local requirements, we have used local telephone numbers and local PO box numbers to keep the transaction as "invisible" to the outside party as possible. For example, accounts payable invoices can be sent to a local in-country PO box number; this PO box is then picked up and forwarded to the SSC for processing. Documents can then be retained at the SSC or sent back to the originating country, depending on local requirements.
A local telephone number can also be set up that will automatically be call-forwarded to the SSC, where the person taking the call speaks the local language fluently and knows where the call is coming from before he or she answers it.
English is not always an option. When recruiting for key positions in accounts receivable, accounts payable and general ledger, 3Com employs people who can speak certain local languages fluently (e.g. French, German, Spanish, Italian, Portuguese, Mandarin, Cantonese, Japanese).
Use of the "Quick Wins" approach to get things moving
Achieving quick wins can move the project forward more rapidly, as these wins act as a fast "proof of concept" and breed belief and support both within shared services as well as in the wider business.
For example, in certain countries, such as Canada, we were able to quickly get support from local employees and management by rolling out an automated Lotus Notes expense reporting system that interfaced with SAP. This meant that employees could complete their expense claims on-line, route them for approval and then receive notification that the expense report had been approved, and paid, by e-mail.
Another example occurred in the early stages of the Europe, Middle East and Africa (EMEA) project. In 1999, 3Com acquired a small company in France that had very long close cycles at period ends and generally poor accounting processes. As a "proof of concept," this small French company was put onto SAP and serviced from the UK. As a result, the close was dramatically reduced and much tighter accounting processes put in place.
Acknowledge and address all issues raised
It is important to address issues quickly and not to let them "fester", whether they are real or perceived. For example, early on in the EMEA roll-out, one in-country sales team complained about their mobile phones being cut-off – and rightly so. We quickly acknowledged the issue and looked into it. It transpired that invoices had not been sent to the SSC in a timely fashion in the early days, post go-live, but were being sat on in-country. The problem was quickly resolved by highlighting its cause and then recommunicating the need for vendors to send invoices to the UK SSC, and for any invoices that did turn up in the local office to be quickly forwarded to the SSC for processing and payment.
Communication and enforcement of policies and procedures
To streamline end-to-end processes there must be standardised rules in place that are understood and enforced. Before shared services, there were multiple sets of rules in place varying by function and by location. Some examples that were especially targeted for standardization, communication and enforcement were:
- 3Com’s financial guidelines
- 3Com’s world-wide expenditure authorization limits
- the purchase requisition process and the requirement for purchase requisitions to be raised and approved before the delivery of goods or services ordered, and the subsequent receipt of the associated invoice by the accounts payable team
- use of the company Corporate procurement and expense cards.
Standardization of worldwide processes, and enforcement of policies, often means having to act as "the bad guy." Initial complaints can be loud and numerous. This is where determination and steel is required to move on – combined with a patient approach to answering complaints and explaining why the policies are in place. It is also important to understand the local issues so that you can "think globally but act locally". For example, SAP meets multiple reporting requirements, and so long as it is configured correctly this will allow multiple uses to be made of just one input of a piece of data. In this sense, the set up must be rule-driven but flexible in order to also meet local requirements.
Employment of Local Field Finance Managers
One of the most radical improvements associated with the 3Com worldwide Shared Accounting Services initiative was the establishment of new positions called "Local Field Finance Managers". These key SAS team members were located in our higher-risk countries to help ensure compliance with local legal, statutory, tax and reporting requirements and to help with enforcement and communication of corporate policies locally.
Today, in 3Com, we have 16 such Local Field Finance Managers in the following locations: China, Japan, Korea, Australia, India, France, Germany, Italy, Spain, Sweden, Canada, Columbia, Mexico, Brazil (2 people) and Argentina. These people are not highpowered "controllers" and they do not process AR, AP, payroll or expenses. They are well-qualified accountants who report into the Regional General Ledger Manager and have a number of responsibilities including:
- ensuring all statutory and tax (direct and indirect) filings are completed in accordance with local country requirements
- liaising with local external auditors, tax authorities and outsource agencies including payroll and employee disbursements
- communication and enforcement of corporate accounting policies to local employees
- ensuring appropriate accounting for local accruals by liaising with local marketing/sales to determine if services related to outstanding purchase orders have been provided
- physical control of local fixed assets
- providing general finance support to the local entity
Has outsourcing played a role?
In theory, any "non-core" service can be considered for outsourcing. The question is really one of cost (short and longer term, fixed and variable) verses control. The "attitude" to outsourcing depends on other factors as well, such as company culture, risk sensitivity and the level of development and maturity of any existing shared services functions.
Outsourcing can sometimes also be used as a "lever for rapid change". However, be very careful of "outsourcing a mess" to achieve hoped for rapid short term cost savings. This may only "save" costs in the short term and could result in control and compliance issues as well as increased cost and clean up problems down the track. Transaction-based services are easier to outsource than services further up the value or risk stream
There are a number of factors over and above just the cost of labor that should be considered, including, but not limited to:
- communication issues, including access, security, confidentiality and the associated costs
- possible minimum commitment levels in contracts
- service levels after go-live if outsourcer considers you to be insignificant or not very profitable for them
- language requirements
- how to achieve continued end-to-end process reengineering to lower costs further and improve service levels
- political and other risks associated with the country where the outsourcing will be provided from (including disaster recovery considerations)
- ability to flex up/down with volumes, required services and complexity (e.g. following an acquisition)
3Com has, to date, used what one might call restricted and selective outsourcing. For example, we have outsourced local compliance and bookkeeping in certain smaller countries, much of payroll worldwide and part of the stock administration function. We have found that, in our particular case, outsourcing is not currently a viable alternative to an effective internal SSO, and we have also been wary of outsourcing any significant part of our control environment.
Going global in Singapore
The latest stage of the 3Com SAS journey has recently been completed with the transfer of certain worldwide support functions to one global shared services team operating from our existing SSC in Singapore. After carrying out a detailed feasibility assessment, and after having looked at possible outsourcing alternatives, we decided to transfer the following "transactions-based" functions to one global center 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
- worldwide expense claim processing and reimbursement
A number of accounting services were previously provided globally, for all 3Com locations, out of our North America SSC, which has a much higher cost of labor than Singapore. We decided to keep these services in the North America SSC, despite the higher labor costs, due to our assessment of risk and complexity in comparison to the anticipated benefit of moving these from one global center to another:
- worldwide commission processing and payment
- worldwide stock administration
- worldwide sales reporting and sales data management
- worldwide consolidation
- worldwide inter-company accounting
- external reporting
Finally, the following areas are remaining in-region (EMEA, North America, Latin America and Asia- Pacific) due to considerations regarding language requirements, time zone, and assessed 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 and expenses.
When deciding whether to make Singapore our global center for the services highlighted above, we took into account a number of factors including the fact that we had an existing SSC in Singapore, the significantly lower labor costs in Singapore, as compared to the US or Western Europe, and also the fact that the skill set of the labor force in Singapore is very high with degree-level staff performing many of the roles. Singaporeans also generally speak more than one language and all the team there speak excellent English. They are also accustomed to US and European practices and accounting rules.
We did also look at outsourcing to India but at this stage in 3Com’s SAS journey decided against it as using an existing Singapore operation meant we were able to retain control of these functions within 3Com, reduce the transition costs and risks associated with this latest initiative, and leverage 3Com's use of SAP and other technology. Furthermore, the cost comparison between Singapore and India did not support such a move. While the labor costs in India are a lot lower than in Singapore, the associated costs made the comparison basically cost-neutral (e.g. systems and communication costs, lower use of developed 3Com in-house technology enablers, the outsource vendor’s margin etc).
Summary and conclusion
In today’s tough economy, businesses are facing growing pressures on many sides. There is much greater pressure to reduce costs and increase efficiencies, especially in what one might call the "non-core" business support areas of finance, HR, IT, legal, procurement, real estate and site services. Senior management and investors are demanding profitability and return on investment, with shorter paybacks.
Shared services is a tried, tested and proven way to achieve the triple benefit of lower costs, improved control and better services. To really leverage the benefits of shared services one should extend the scope across the non-core service functions and globalize the reach across multiple functions, regions, countries and legal entities. This is entirely possible as long as the right approach is adopted and key requirements are understood and addressed.
Furthermore, each organization needs to adapt the scope, timeline and approach to its own particular circumstances, culture, attitudes to risk and goals.
It also takes a degree of passion for the philosophy and approach of shared services and a determination to get things done - but the rewards for success can be substantial...