Roundtable A Double-Edged Sword: Catalysts & Impediments, PART 1

Facilitators:

Vipin Suri
Amherst Group Limited

Joseph Soalheira
Project Leader, Brisbane City Council,
SSON Advisory Board

Particiapants:

Shaun Brooks
Director, Global Financial Shared Services
Foster’s 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 Darling
Client Solutions Consultant
Moody International

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

Andrew Monaghan
General Manager, Corporate Supply Chain
Qantas Airways

Jody Redfern
Manager, Shared Services
Sydney Water Corporation (SWC)

Vipin Suri\Joseph Soalheira: What were the goals for your shared services organization?  What factors facilitated achieving these goals or caused impediments?

Albert Olley (Businesslink, NSW): Businesslink came into existence though a government imperative in New South Wales. It was established as a component of the State Government shared services strategy to support improved back office efficiency and cost reduction. At the time of Businesslink’s establishment the level of services being delivered to its clients was sporadic.

The control base at establishment was the cost the clients had. We started with fixed funding allocation without service levels defined or agreed. That situation changed into a full fee for service basis with defined service standards four years ago. Our clients’ costs are now based on consumption and volume. So we’ve unitized the whole business. We consolidated the majority of outsourced IT contracts back in house, and managed to achieve significant annual savings by doing so. We are able to track the achievability of efficiency gains that are achieved via the pricing model. We’ve been able to hold our prices flat for four years in a row, so that is quite a result. We’ve pretty much absorbed CPI increases and achieved flat unit prices through those savings. In terms of impediments and success factors, it’s been a double-edged sword. A number of impediments had to be overcome in the early years as issues not addressed at establishment affected the capability of the business. We had a major breakthrough when we went to unitized processes, which involved activity and issues tracking plus KPI monitoring etc. This allowed us to have a factual rather than an emotional discussion around service standards and issues. Another component that has assist in recent times is the turnaround in the attitudes of clients as they have gained confidence in the business and seen that value it can provide them. They are now considering migrating more business to us as a vehicle to assist them achieve processing efficiency and transparency..

Vipin Suri\Joseph Soalheira: Was there a tipping point between governance and risk? Because it sounds as if you’re using this as a corporate advantage?

Albert Olley (Businesslink, NSW): I think the tipping point was when the clients got confidence that we were delivering a statement service. They trusted us to deliver the work and worked with us.

Shaun Brooks (Fosters): At Fosters, we consolidated financial services in Australia a few years ago with limited success, due to multiple and complex operating systems. We are now embarking on this journey on a global scale leveraging the transition to common operating systems and a single global ERP system to be deployed through our Enterprise Architecture program that will drive successful integration activities. We have a couple of key goals: cost reduction is not the primary one, but certainly an expected outcome. The areas we are really focusing on are driving efficiency through process improvement via standardization and simplification and leveraging technology to adopt new practices, and moving away from customization. Customers have to be educated as to what our core shared services service proposition is including our standard suites of services. Employee Engagement is another goal. We’ve gone through two cycles of a global employee engagement survey and received a lot of feedback that the processes are far too complex. Part of this is being addressed in rationalizing our diverse technology platforms and multiple operating systems in addition to standardizing our processes and adopting globally consistent polices and practices including implementation of SLA’s.

We have made a few major acquisitions over the past 5-10 years and attempted to bolt them on without a core operating platform and integrated systems architecture, which drove inefficiency and complexity to my earlier point. Our key goals then are based on the core elements of our customers, employees, processes and financial objectives. On customers, we will be changing the mindset of staff from treating internal BU’s as departments to that of customers. From a financial perspective, we are aiming for double digit cost reduction on baseline costs over the next few years through driving process efficiencies. Regarding our people, we will be focusing on upgrading core capabilities across hard and soft skills through various internal development programs as measured through employee engagement surveys.

Joseph Soalheira (Brisbane): You should keep comparisons with your baseline so that your customers can identify total improvements. This is one of the most important elements in performance measurement. It will give your employees a sense of achievement.

Guy Nicholson (Vic. Govt.): Our shared services division was created when the government came in and ripped the department into two parts and decreed that all corporate functions were to be done within the existing budget. At that stage we were doing financial services only. Our first goal was to make sure that we were cost
neutral compared to the original budget. The biggest issue we faced, though, was clarifying what the services were. A lot of that boiled down to saying what we would NOT be doing! We set up SLAs, documented the agreements, etc. Now we’ve grown, we’ve taken on three more customers, we’ve added HR payroll to our services. So our new goal is to be the provider of choice, as we have to compete on commercial terms.

We now get more and more customers turning up, customers who had previously outsourced for example. We have a large level of expertise, and we do a good job and do it fairly. In fact, we’ve run at a surplus and ended up handing money back. When you in source, you make it part of your core capability. And just a word on project work. We’re able to bill clients substantially less than full cost on some projects just because we have the capability. And that really builds goodwill. One of the most important things about project work is that staff love it. It gets them away from their routine.

Andrew Monaghan: At Qantas, we started our shared services in 2003. At the time, as a result of breaking the business into separate divisions, a lot of functions were centralized. We’ve gone from 950 staff in the SSO in 2003 to 580 staff today. We have goals in terms of SLAs and balanced scorecards, the latter broken into financial, operational, and customer safety. We operate under a group target, which is the Sustainable Future Target, through which the company aims to take A$500m out of the business per year. Each department is given a target. Ours is A$10-15 million a year. We also have headcount targets. We are included in the corporate headcount, and therefore end up in a higher percentage to take headcount out. It’s challenging.

We have a clear understanding internally of our goals because our balanced scorecard is directly linked to our performance reviews, as managers. We also have a five year strategy, the first art of which is clarity of services. We provide 65 services to customers. Clarity helps the customer understand what you are doing but it also helps your team understand what they are meant to do. Some of our goals we just cannot achieve within the team. For example, we have a A$60m headcount budget, so we cannot take A$10-15m out of our team. In that case, we have to partner with our customers in project work and share the savings. We get credit for that.

Anon. participant: I’ve been at (company) since June 2008. One thing I realized immediately was that the reporting I was getting, about how well we were doing and how we were hitting our targets, etc. was just untrue. There was a real disconnect.

Our areas of service delivery are: IT and IM strategy; procurement; contract support; HR operations, financial services, a property portfolio, and project delivery services. We had a real blend of things. We are at about 600 staff now and have a very high quality team, led by a great CEO. The guys running most of the divisions are new blood. We’re very serious about building our commercial industry. Shared services is the way to go for us for a couple of reasons. We are the thin edge of the wedge in terms of organizational transformation. We face a heavily unionized environment. There are easy winnings and we have the management will in spades. If we manage this company as a normal commercial operation and just apply Management 101,we’ll probably take A$100-150 million off the bottom line tomorrow. It’s very basic stuff. We have a really strong agenda for reforming the organization.

The things that are important going forward will be to clearly identify what those services are, and identify their value, and make sure we have the right pricing on them. Demand management mechanisms are important. We’re in a situation now where we’ve really got to work out what we need to do, price it appropriately, and then harvest the savings. We can’t move as quickly as we’d like to due to the industrial relations environment. In the long run, we’ll be better off for it because we’ll have to be smarter and better to get acceptance for this change.

Jody Redfern: Sydney Water Shared Services has been around since 2000 but has been on quite a journey. We generally go through a model of step change, and then a number of incremental changes, when bringing services on board. Two years ago we did a step change in some of the accounting and reporting functions and managed to reduce cost by 50%. We continue to undertake a number of incremental changes across the board to reduce cost, where possible. We work within a constrained budget every year and use benchmarking to drive costs out of our processes. We also look for process improvement throughout the organization, using business intelligence tools to drive more business value out of our existing IT investments.

Our role also links to organizational transformation, where we seek out improvement opportunities across the business.

Graeme Szetu (AHL): Our overall strategic goal for shared services was to offer a low cost competitive advantage against our competitors. We started centralizing about six years ago, although the shared services were only formed about two years ago. We saw we could easily have one system instead of the six that existed previously.

Our baseline was probably really high for our size organization. We probably cut 50% on costs since then, and continue to benchmark with others in our industry. In terms of project goals, we wanted to standardize systems and simplify our processes. That’s about 50% of the problem—and the problems start to disappear as you think it through. We’re a commercial organization and are going through a process of renegotiation and restructuring of our structure. We’re also thinking about the impact downstream, how it impacts the rest of the business. Technology can be helpful in squeezing the budget and cutting costs but we will hit a bottom. We wanted to develop a scalable system because we might purchase another business. We’ve put a lot of thought into measurement. Benchmarking is interesting but you have to be careful about knowing what’s in a process. We need to make sure there is real information.

Also, we were always really positive when asked to take on something. We’d really try to do the best. We have a strong core staff, but we’ve also been really successful in employing casual, or temporary, staff for certain projects, generally low skill.

Vipin Suri\Joseph Soalheira: What is your policy on shared services leadership in times of economic crisis? What are the dos and don’ts?

Andrew Monaghan: At Qantas, the bulk of our revenue comes from discretionary spend – we are impacted. Our employees feel vulnerable. So our strategy is to stick with the original vision and plan. Keep communicating the strategy. We’ve got four pillars as a foundation for cultural change, and we wheel those out to a greater degree at the moment. They include: be lean, be seen, be safe and be green. They are providing a tangible cultural foundation.

Anon. participant: At (company), our model actually reflects these things. We try to protect non-discretionary services at the right level of risk and quality. And on discretionary services, we give control to the business so it determines what the demand level should be. The rub is that we can’t take the hard savings out right now – ie, reduce by 20% in a certain area.

Shaun Brooks (Fosters): At Fosters, we have had to focus on our core service proposition whilst balancing cost and quality of service. There is a certain level of service that comes with a cost and you need to find the most efficient way of delivering that service during tough economic times. Whilst beer sales are rising, so are the volume of pricing requests that we need to manage with a fixed overhead base, so you need to be flexible in your approach to servicing the needs of the business. We are trying to flex by looking at centralizing activities to drive efficiencies whilst maintaining service standards through exploring various shift patterns and rotations, adopting new processes and tools, etc.

Anon. participant: At (company) you need more in these times to hold your ground. That is what we are focusing on: management capability around leadership. What’s important is that in those tough negotiations with customers, you cannot let them ride roughshod over you. So resilience in management is important. Leadership style does not need to change but it needs to adapt, to be flexible. Having hard conversations is part of being a leader.

We are now close to 50:50 on permanency vs contract temp work so we can scale up and down as needed. As an organization, our company employs no one at all – it’s all in the labor contracts. Keeping public servants in the key knowledge service and temp work in the more transactional work is our task.

Click here to view Part II of this roundtable