Managing Shared Services in Recessionary Markets

SSON News and Analysis
Posted: 07/09/2012

Phil Searle, Advisory Board Member for the Shared Services & Outsourcing Network, asks Jim Ward, Vice President Shared Services International at Eaton, about Eaton's Shared Services Center in Glasgow, Scotland, and specifically how the current recession has presented both challenges and opportunities for the Shared Services team.

Phil Searle: Jim, thank you for taking the time out to talk with me about Eaton Shared Services and how you have adapted to the current difficult economic times. To get us started, can you please give a short background on the company and Shared Services at Eaton since establishment, size, scope of services, etc.

Jim Ward: Eaton is a global power manufacturing company with more than 70,000 employees worldwide, including 15,000 employees in Europe, and more than 200 manufacturing sites in 30 different countries. We sell products in 130 countries. In 2008, Eaton had global sales of $15.4 billion.

Eaton's Shared Services Center in Glasgow, Scotland, employs 80 finance staff and 20 IT staff. It operates with one Oracle database covering the globe from Mexico to New Zealand. The center supports 386 ledgers, across 42 countries. The center also supports multiple language requirements including most European languages plus others including Mandarin, Cantonese, Arabic, Urdu and Hindi.

Services provided from the Center include
Finance Services
¥ Bank, AP, AR (including Credit), FA (shared), Net Worth and some Intercompany
¥ Statutory preparation
¥ Budgets (optional)
¥ New Implementations & divestitures (integration on to Financial system)
¥ Interfaces to legacy systems e.g. payroll, manufacturing etc.
¥ Transmission of results to Corporate
¥ Cash flow enhancement

IT Services
¥ European Network management
¥ Development of customizations - business requirements & statutory
¥ Unix support for Europe (optional)
¥ Change Management
¥ Production support (interfaces)
¥ Database administration (Finance, Manufacturing databases)

PS: What was the main driver for setting up Shared Services at Eaton and how has this changed, if at all, over time and during the current recession?

JW: Back in 1995 Eaton took a look at its administrative cost base as a percentage of sales. This showed that we were too high compared to peers and best in class (as classified by the Hackett Group). A typical Eaton business unit has turnover in the range $20 million to $50 million. The opportunity for economies of scale through Shared Services was real and achievable.

There was no single accounting platform throughout the company. Plus Y2K was approaching and there would have been a huge cost to upgrade approximately 30 disparate accounting systems. We also needed a scalable platform to support growth and M&A activity. As a result, we moved forward with Shared Services, and the Glasgow SSC was established in 1997.

Over time, and also as a response to the current recession, we have seen a number of changes, including:
¥ Increased focused on shared services as a control hub
¥ Internal Audit
¥ External Audit
¥ Sarbanes Oxley

¥ Increased focus on cash flow
¥ SSC pivotal to control of cash and plays a key role linking to Supply Chain Management (SCM) and Credit functions to partner for cash flow enhancement
¥ Ability to data mine to maximize spend, terms, discount etc
¥ Renewed evaluation of additional services the SSC can provide cost-effectively

PS: In your view, how can effective Shared Services assist companies during tough economic times, and is this different in any way from when times are better?

JW: Apart from what I have covered in answer to your second question, Shared Services has been able to add even greater value during these current recessionary times through a range of ongoing initiatives, some of which were already in play but have become even more important recently.

For example, we have been able to:
¥ Further eliminate, streamline and rationalize the transaction base
¥ Automate the transaction base
¥ Data mine for business benefit e.g. cash flow, profit improvement (discount, bank charges)
¥ Leverage Eaton Lean Six Sigma, value stream mapping & business process improvement
¥ Facilitate finance function efficiency & effectiveness
¥ Leverage standard processes
¥ Reduce functional costs
¥ Expand into other functions and across existing functions
¥ Expand into new geographies
¥ Train other functional and operational staff in Lean methodology

PW: Has money for specific investments in Shared Services been tougher to come by recently (e.g. for training, business process improvement projects or for new technology enablement)? How have you worked around this?

JW: Money has remained available for key internal control points, to fund operational synergies, to integrate acquisitions or migrate our businesses to the standard shared services platform and for business process improvement events, especially where an attractive payback can be demonstrated.

On the flip side, we have needed to work with and around a number of constraints recently. These have included minimizing discretionary spend (e.g. on external consultants) and generating internal productivity savings of 12% per annum through Business Process Improvement (BPI) deployments.

PS: In what ways can Shared Services improve Working Capital? Can you provide some specific examples?

JW: Shared Services can be a very powerful enabler for working capital improvement. Some specifics around Receivables and Payables, key components of working capital, include:

Days Sales Outstanding (DSO)

¥ Leveraging the sales and credit functions to enhance collection activities
¥ Setting collection targets for all parts of the business
¥ Swift escalation to executive leadership of customers with payment difficulties

Days Payables Outstanding (DPO)

¥ Leveraging Supply Chain Management via data mining to:
¥ Extend vendor terms
¥ Rationalize vendor footprint
¥ Consolidating spend and levering price reductions
¥ Taking greater discount from vendors
¥ Reviewing payment frequencies
¥ Deploying a joint balanced scorecard between SSC and SCM to make end-to-end process improvements and improvements in business results

PS: What do Shared Service practitioners need to perhaps be worried about in times of recession that might be unique to Shared Services teams?

JW: During recessionary times Shared Services teams need to be cognizant of and alert to:
¥ Not investing in process improvement and staff development
¥ Failing to execute e.g.
o Synergies
o Productivity
o Integration
o Automation
o Capacity and capability
¥ Missing opportunities for growing the shared services franchise
¥ Staff morale and knowledge management retention

PS: Where next for Shared Services at Eaton?

JW: We intend to continue to build on the success we have achieved over the past more than a decade. Specifically, we will
¥ Continue to invest in our superb staff
¥ Enhance cash flow
¥ Support growth of our shared services in Asia
¥ Integrate all businesses on to a shared services platform
¥ Enhance internal controls for the Corporation via financial platform deployment
¥ Build a global governance framework for the shared services family
¥ Accelerate cycle times of all major SSC processes
¥ Continue our journey to world class processes from an effectiveness perspective
¥ Build volume-independent processes
¥ Increased business partnering and value chain progression

 PS: Thanks very much indeed Jim. You have a tremendous success story at Eaton Shared Services. You have also been able to adapt and really leverage your Shared Services Center to derive even greater value for Eaton through Shared Services and to assist the company through the current recession. This should really help the business to not only manage through the current economic environment but come out even stronger when things pick up. Many congratulations to you and your team.

Jim Ward
Vice President Shared Services International
Eaton Limited - International Shared Service Center
Email: JimWard@Eaton.com
Tel: +44 141 331 7074

Phil Searle
Founder and Managing Director
Chazey Partners
www.chazeypartners.com
Email: philsearle@chazeypartners.com
Tel: +1 408 460 0785

Jim Ward Biography
Jim Ward assumed the role of Vice President Shared Services International for Eaton in 2008. Prior to that, he was the leader of EatonÕs European Shared Service Center from 2000, having served in an interim capacity from 1999 onwards. Jim joined Eaton in 1997 as Customer Process Leader and also assumed responsibility for the Information Process, holding both posts concurrently until 1999.

Prior to joining Eaton, Jim worked for Seagate/Conner in the electronics industry from 1992 to 1997 in increasing positions of responsibility, ultimately serving as Financial Controller in the UK and the Netherlands. He qualified as a Chartered Accountant in 1990 and spent 5 years as an Auditor with Price Waterhouse between 1987 and 1992. Jim holds a BachelorÕs Degree in Accountancy from the University of Glasgow, Scotland.

Phil Searle Biography
Phil Searle is the Founder and Managing Director of Chazey Partners (www.chazeypartners.com), which provides expert business advisory services in Finance, Shared Services, Outsourcing and Technology. Prior to his current work, Phil was Group Vice President and CFO of Cendant TDSÕs International Markets Division, which included responsibility for the International Finance and Shared Services teams. Prior to Cendant, Phil was VP Finance and Corporate Controller at 3Com Corporation, based in California. There he headed the Corporate Controller Function and the Worldwide Shared Accounting Services team. Phil has worked in various financial management & control and shared services roles for nearly twenty years since leaving KPMG, where he trained and qualified as a Chartered Accountant (ICAEW). Phil recently received the award for Contribution to Shared Services and Sourcing Thought Leadership, 2009 at the 9th Annual Shared Services & Outsourcing Week event held in Budapest.

SSON News and Analysis
Posted: 07/09/2012

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