Q&A: Davide Laghi, Y6Sigma Solutions

Davide Laghi is the founder and MD of Y6Sigma Solutions Ltd., a consultancy and solutions provider based in Scotland in the UK and the winner of the Honorary Mention in the Thought Leader of the Year category at the 2008 Shared Services Excellence Awards. Ahead of his forthcoming presentation at the 9th Annual European Shared Services & Outsourcing Week in Budapest, SSON spoke with him about the effect of the current climate in shared services.

SSON: Davide, you’ve said that "if shared services organizations are either struggling or failing in 2009, it is not due to the current economic climate, but rather the fact that these organizations do not have all of the right solutions to deliver the real business case of a true ‘value-added’ shared services center". Can you explain your thoughts on this?

Davide Laghi: The current economic climate is placing additional pressure on shared service organizations (SSO) to produce more immediate working capital and top & bottom-line improvements. This is no different from any other contingency.

This kind of pressure should always be there and the true business case of the SSO should be delivering these kinds of benefits anyhow. If SSOs are either struggling or operating sub-optimally in 2009, it is not due to the current economic climate, but rather the fact that these organizations do not have all of the right solutions to deliver the real business case of a true "value-added" shared services center, which entails segregating the transactional processes and enabling what is left of the upstream, now client support function (i.e. finance), and transforming it into a value adding business development support engine capable of the following:

• Finance: Driving core business improvements (top & bottom-line)
• Procurement: Delivering the best mix of quality and cost of supply
• HR: Driving cultural transformation and change enablement
• Marketing: Selling business transformation
• IT: Enhancing business process competitiveness

SSON: So what does it take to become a high performance & transformational SSO?

DL: The right culture, the right methodologies and the right technologies.

On the right culture side of things, corporations would have to drop the ever-present "culture of conflict and blame" in order to benefit the mindset of collaboration and partnership. Whereas, Lean & Six Sigma would have to become foundational pillars of the organization’s approach towards continuous improvement, and information technology would have to become a tool of true process control and automation.

Process automation can only become a true vehicle for process efficiency when defects are effectively eliminated out of business processes; otherwise, exception-handling will take away all of the benefits of process automation. The process capacity developed out of process streamlining and automation has to be channelled towards process-scope-development, taking on additional responsibilities from the upstream client support functions and enabling them to become true value adding business partners. In "good" times it would mean to maximise market and profitability opportunities, and in "bad" times it would mean to become leaner and maintain market leadership. This was true 20, 10 and 5 years ago, even now and it always will be.

Eventually, the only difference will be that in the future, the pace, the force and the frequency of economic climate changes will happen with very little to no predictability. Therefore, having the capability to change and add more value will challenge SSOs to "transform" even quicker. All of this represents a stronger challenge for cultural, methodological and technological instruments to become more qualitative, innovative and effective, and to do it all faster.

SSON: How can shared services leaders help resolve some of the issues around governance and oversight which have contributed to the current economic downturn and how important a role do you think shared services will play in corporate governance going forward?

DL: There is one distinguishing factor about the last couple of shaking crises which have stormed the Western Economy (WorldCom & Enron) and the global economy (financial & banking sectors), and it is simply due to the poor quality and lack of effective governance processes and ethical conducts of businesses. This represents a tremendous challenge as well as an outstanding opportunity for the end-to-end purchase-to-pay, order-to-cash and financial accounting processes led by SSOs to become the cultural and process control gate keepers who will ensure the prevention of unethical business conducts.

SSOs can become engines of cultural transformation that will enable collaborative continuous improvement efforts. In becoming specialists in organisational cultural transformation, SSOs can help their organizations by enabling values and beliefs-based ethical behaviour and conduct. From a process control perspective, finance shared services is the best placed business unit to become the "SOX-Type" compliance control gate keeper.

SSON: What steps can and should SSOs take to combine the agility and reactivity required in today’s market with the requirement to keep sufficient headcount, and sufficient infrastructure, in place to maintain the integrity of critical processes?

DL: When we think about maintaining business process integrity, we don’t necessarily have to think about it in terms of accountants by the masses checking every single corner of the accounting environment. This is a possible solution, but not necessarily the right one from a process efficiency and effectiveness point of view, and ultimately a cultural point of view as well.

Manual process downstream controls add a significant layer of cost to the processes by detracting resources from more value-added activities and contributing them to fostering a culture of low trust – defects elimination does not necessarily benefit from this manual approach. Despite the introduction of SOX, we see history repeating itself again with the current economic crisis triggered by the collapse of the financial and banking sectors. What we have to realise is that our information systems (the famous ERPs which cost millions to implement) let in all sorts of accounting monstrosities through their very lose filters, which causes the need for intensive manual quality control of the final financial accounting output.

The answer to your question is that the balancing element between keeping lean and controlling processes is represented by the right utilisation of the latest information technology possibilities. An old and deeply respected mentor of mine used to say all of the time that "implementing preventative financial control solutions through IT means transferring financial accounting knowledge into the information system..."

SSON: You’ve written on the importance of "transformational leadership" – particularly in relation to the implementation of methodologies such as Lean Six Sigma. Can you explain why this is such an important factor, especially now, and especially for LSS in particular?

DL: Transformational leadership is crucial in driving sustainable LSS and should be incorporated into the "extrinsic" management by objectives framework. However, it does not mean to simply embrace LSS, place it as a high priority within organisations and include it with the "extrinsic" motivational process – translating company objectives and cascading them down to all hierarchal levels (this is a given). The real difference behind transformational leadership is realised through the "intrinsic" motivational levels across the whole chain of command, which ultimately reaches the entire work force across an end-to-end process.

Stimulating the "intrinsic" motivational process requires profound cultural preparation work, which first and foremost must begin with the leaders themselves. If leaders are incapable of aligning to the required cultural mindset of their organisations, in order to stimulate end-to-end process transformations (a culture of performance measurement to leverage internal/external business relationships and partnerships) and make "change" a sustainable effort, then they themselves are not credible leaders and will fail to foster and generate the required behavioural patterns to empower their teams/followers to execute and ensure that LSS projects become sustainable efforts. This leadership misalignment is the root-cause behind why many LSS projects ultimately fail.

If SSC leaders want their LSS efforts to produce sustainable results then they themselves must become Transformational Leaders who will "lead-by-example and walk-the-talk." Organizations need leadership that is aligned and congruent to the principles of performance improvement and sustainable change, beginning with the individual, and leaders need to possess the highest levels of "integrity" and "congruency" in order to be followed.

If however the case is that SSC leaders choose not to include LSS projects into their business objectives framework, projects will fail on their own accord even with the consideration of a few one-off successes.

SSON: What are the qualities which define a Transformational Leader?

DL: A Transformational Leader is someone who walks-the-talk with the principles of collaborative partnership works. He/She is a strong motivator who is attentive of others, possesses cross-functional influencing skills across the organisation, and is capable of putting together departmental teams and leaders in collaborative efforts towards the identification of process improvement root-causes and seeking out the right solutions.

SSON: And how can organisations identify and nurture those individuals who possess these qualities?

DL: Using an approach based on values & beliefs driven behaviours. Organizations can measure the values, beliefs and behaviours of individuals and teams to identify and nurture the career development of those who possess the right abilities to use these approaches effectively as leaders.

SSON: You’ve written that "if leaders do not include LSS projects into their business objectives framework, then projects will fail even with the consideration of a few that may become one-off successes." The logical conclusion of that perspective, surely, is that you’re recommending that all shared services leaders must be adept in Lean Six Sigma – would you agree with that? And if so, why do you think LSS in particular is such a critical methodology?

DL: LSS is such a critical methodology because it is the only effective tool which can be used to systematically understand the root-cause of process errors and eliminate the need for manual detection and rework.

SSC leaders do not necessarily have to be adept in LSS, but they do have to understand the concepts of LSS and the benefits realised if LSS is implemented correctly. As outlined in one of my earlier answers, SSC leaders have to walk-the-talk with the principles of collaborative partnership works and become strong motivators who possess cross functional influencing skills across their organizations. They must be able to put together departmental teams and leaders in collaborative efforts towards identifying process improvement root-causes and seeking out the right solutions, in order to maximise delivery of service and value.

The technicalities of LSS deployment is left to operational leads and improvement specialists. However, SSC leaders must ensure that their organizations work collaboratively without conflict through the production and sharing of performance measurement frameworks, which will surface needs for improvement and point the teams in the right direction.

Lean Six Sigma (LSS) principles and methodologies can be used to help SSOs reduce costs, decrease cycle time and improve quality. However, unless there are clear commitments from organisational leaders (top to bottom), LSS will only deliver minor improvements for departmental processes and nothing more.

SSON: Finally, how can and should companies adopt LSS to ensure that the philosophy is applied at all levels of the business?

DL: The answer is quite simple; companies can adopt LSS and ensure that the philosophy is applied at all levels throughout their organisations by sharing a higher purpose and fully understanding the strategic alignment between their corporate strategy and their shared services intent. What I mean by shared services intent is the degree of SSO alignment with the organisation’s overall strategic direction. A few thoughts to keep in mind are: What is the organisation’s view and approach about the sourcing mix as a strategic mean/tool (i.e. captive on-shore, captive off-shore, BPO on-shore, BPO off-shore)? How will the organisation leverage this view and approach within their strategic imperatives?

All organisational leaders (top to bottom), impacted by the shared services change journey, must share the same higher purpose in wanting to transform their organisations for the better - whatever that may be. As long as a higher purpose is shared, the technical tool to achieve it can be called shared services, LSS or whatever else – nothing else will really matter and no one will ever oppose it as long as it works.

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