Roundtable Debate: Globalization

Participants were:

Hugo Walkinshaw
Principal
DELOITTE

Erik Moller-Nielsen
Managing Director - Maersk Global Service Centers (Philippines) Ltd.
MAERSK

Yong Shen
VP Process Revenue, Finance Operations
ROYAL DUTCH SHELL

Stephen R. Smith
DIAGEO

Rodrigo Martins
General Manager - Asia
GE GLOBAL BUSINESS SERVICES

G.V. Prasad
Senior Vice President
AXA BUSINESS SERVICES PVT LTD

Jo Hart
Director of Business Support Services
ALLIANCE & LEICESTER

Hugo Walkinshaw: I’d like to start off today’s discussion by asking you all to what extent your organizations are running or planning to run a global services center. How do you define "global services," and how does it fit into the corporate services delivery strategy?

Rodrigo Martins: At GE, we have been running global business services for many years, now. This includes payroll, travel & living (T&L) customs, and general accounting amongst others, being provided from centers located in many countries. Now, we are taking this one step further, and establishing regional and then possibly global centers: first for T&L – which could be run for every single country out of one or two locations. We are also taking some of the general accounting work and sending it to the Philippines and China.

Hence, from a service delivery standpoint, we are starting with regionalization for some products, and then going to a global model where this makes sense. And we’ve been fairly successful so far going in that direction. From a cost and quality standpoint, as we pulse our customers – GE businesses – and benchmark costs, periodically moving to global products make sense when the work is purely transactional. In other words, you can easily shift the work from one country to another, and when we have the IT platforms to support that process. In our case, T&L is mostly operated with Concur. That will enable us to run everything out of one or two centers globally.

Hugo Walkinshaw: What is striking when you discuss globalization with folks here, is that many people imagine one center, all under one roof, serving the world; but from a business continuity standpoint alone this makes no sense. So, at GE, what do you call a global center?

Rodrigo Martins: When product delivery or strategy is centralized. Two examples: T&Lis based out of one center, serving several countries. Therefore, we service multiple geographies across regions with a specific function, or part thereof; not multiple functions across regions. Another example of global center is our employee services (payroll, benefits, etc), where the product’s strategy, and some tools and know-how, come from one country, and the delivery is executed in several centers around the world. It is nearly impossible to have one big global center servicing all customers’ needs simply from a scale standpoint this would not be viable: GE has four strategic units with diverse businesses; in each country, we could have about 35 businesses; worldwide, we also have thousands of legal entities. The scale is simply too large.

Hugo Walkinshaw: What we’ve seen is that when an organization moves towards a global center, the more geographies it takes on, the smaller the process scope. In other words: you start focusing down the processes as your geographic scope spreads.

Rodrigo Martins: Yes, for us that is part of the complication. We are servicing so many different businesses that it is difficult to reach standardization across multiple processes, so we take smaller portions and transform them into stand-alone products. Take account reconciliation as an example. We are running a regional center out of Manila. First, we are bringing in account recs from all Asian countries, and then we are planning to move west around the world, where it makes sense bringing service to that center. The difference in time zones is an important issue, especially in Manila. Finding strong accountants that are willing to work a nightshift would be a challenge. And this could prevent us going global in this product line.

Hugo Walkinshaw: What we generally see is that most shared services start with regional hubs and a big process footprint, but as they begin to go global – ie, cover different processes in different geographies – the number of centers begins to increase. Deloitte runs a global shared services survey every 18 months, in which we ask: do you plan to increase or decrease the number of centers in future? Generally, one might expect to hear "decrease" as they consolidate, but in fact, the majority have been responding "increase," as they move to global centers but shrink to single processes. What are the rest of you seeing?

Yong Shen: Globalization means a number of things to us. Shell already has a global network of service centers, and the reality is that every center covers the same set of processes. What emerges in our network strategy is that we have more of a global concentration in certain centers. For example, globally we’ve decided to run our direct tax report from Chennai, India. Our market studies have shown us more capacity and experience there versus Manila or Kuala Lumpur. And some other processes will gradually be consolidated there as well, e.g., management information support. But we are not necessarily closing down existing centers – just strategically moving towards mega-centers such as Manila, where we have 1,200-plus staff in our F&A operations; Chennai will probably be bigger than this even, within 18 months. Other centers will stay where they are and possibly resize to facilitate this trend towards globalization.

A warning, however: it always depends on the nature of work. F&A, often involves multiple systems and processes. There is so much related diversity, it’s almost not viable to consolidate all F&A into one location or continue on a regional service model because, in that case, you could not deliver effectively to the primary drivers of shared services – namely, standardization, cost, and enhancement of control and compliance. It is very difficult to globally standardize with a network of regional centers.

Erik Moller-Nielsen: At Maersk, globalization means handling multiple processes from multiple sites. In our case, all six sites happen to be based in Asia but we handle the world from there. This started ten years ago with just one process – documentation – then supplied globally from two sites. Given our scale, we’ve found that over the years we managed to successfully market ourselves to the organization and take other processes over. Now we run seven main processes in most of our sites. We are big on business continuity and contingency planning – meaning, if it is a business critical process, then we mandate that it must be handled by at least three sites.

Hugo Walkinshaw: It’s interesting that all your sites are based in Asia. I find that most European or U.S. multinationals have a surprising lack of understanding of what Asia can offer them. They cannot think beyond India and China – and believe the Philippines and Malaysia are dangerous places. Also, that you started multifunctional at each of these sites. Can you expand a bit more?

Erik Moller-Nielsen: Yes, well, we did actually start out in San José, Costa Rica, but closed it down two years ago. This was originally set up by our North American division, reflecting the early days of outsourcing when it was felt that if it was "in your backyard," so to speak, you could just fly down and fix things if they were broken. We convinced them that since Costa Rica was the most high-cost, and smallest, actually, of all our sites, we could handle it from Asia. In fact, the work fitted perfectly with our night – their day – time. So we could increase workstation ultilization, too. We now run at 1.5 globally – meaning, we use desks and PCs one and a half times.

Hugo Walkinshaw: A common trend I am hearing is that you use regional centers to get people used to shared services – and then move offshore. I have two questions for G.V.: did you go through main U.S./European centers first, before consolidating into India, when you made that big step? And how do you handle the language dynamics with an Indian center? The perception in much of Asia Pacific is that you cannot handle north Asian languages from India. So I’m fascinated you’ve got such large numbers speaking Japanese.

G.V. Prasad: AXA had presence in various geographies in the form of having processing centers to serve the local markets. Its strategy from the start was to have a center in India, when it came to having an offshoring business services center. The Indian center came into existence primarily with the notion of serving English-speaking countries. We are still in the early stages of looking at other languages. Yes, we have a Japanese team of 60 staff, and that resource pool is growing in numbers besides looking at other languages like German. We have chosen to develop this alternative language approach as a sustainable business model for the long run. Now, as we are tapping into more and more European countries, we are looking at our options. We do need a sustainable talent pool in India; and we need people who look at the IT industry as a career. In India, many people who learned languages learned them to work as a translator – so not from an IT perspective. This is slowly changing and this specialized talent pool is now becoming available.

Hugo Walkinshaw: So you’ve gone for one mega center, with 3,000 staff, and providing multiple functions? So what have been the key challenges?

G.V. Prasad: Firstly, the challenge is understanding different market dynamics in terms of end customer expectations and competitive landscape on services; for example, for life and pensions, this changes drastically between countries – picture the U.K. and Japan. Second, is that the regulatory requirements are tough, too, and need to be understood in depth. Every geography has its own mandate based on the regulatory requirements and requires one to have the flexibility to deal with this. A third challenge relates to cultural alignment – it is not easy to be part of one culture but align yourself with multiple others.

Hugo Walkinshaw: There is always a debate about the best structure to have in an SSO: process aligned or geography aligned? In regional implementations, I’ve found that many operations are process aligned. I imagine in a global center you need to be geographically aligned?

G.V. Prasad: Yes, we are primarily geographically aligned, but within the geography we are process-aligned. So, the U.K. is one geography, with Life and Pensions being one vertical, general insurance another. It is up for debate as to which structure is ideal. Geography gives you the advantage of understanding the nuances of a marketplace. But at the next level, you need to be process aligned. It is something we are debating at the moment, because, if you align your processes geography-wise, you may miss out on economies of scale in running a global operation. Hence, based on the number of people servicing a geography or process, the appropriate structure can be derived.

Hugo Walkinshaw: So, geography may be a better starting point – and then moving to process functions as you approach maturity?

Stephen Smith: There are definite wrong turnings you can make with that strategy – we’ve made a few! To illustrate: our purchase- to- pay is a standardized global process and we were operating it out of Hungary for virtually all our businesses running on SAP, which is about 70% of Diageo. So, we decided to drive it for efficiency and divided it into sub-processes (scanning, validation, invoice processing, etc.). We ended up removing any geographic dimension to the work. But what we found was that the user did not play well with this because it required him to understand the root cause of the problem before contacting shared services in order to speak to the right sub-team. It caused absolute disarray and we now have moved to a customer-facing team, actually covering both the purchase-to-pay and order-to-cash with all the sub-process complexity sitting behind them. We’ve just gone live with this model so we’ll see if it works!.

Rodrigo Martins: One thing that has not come up yet is the hub-and-spoke model. This leverages local knowledge of regulatory requirements, language, and cultural issues via the "spokes," while the purely transactional work is sent to a central "hub." We do a lot of this in GBS Asia, and are trying this outside Asia, as well.

Hugo Walkinshaw: Again, on which processes to move to global first. Some of the first processes to move into shared services are transactional. But some of the first processes to go to global services are more Center-of- Excellence-type processes. They seem to lend themselves more easily to global distribution – do you agree?

Stephen Smith: I think the constraints are more about the will to globalize your process. You need the organizational imperative. Diageo is an interesting case, because, when we launched our shared services ten years ago the company was quite "federal." Each country general manager was an "emperor." Shared services was imposed centrally and contributed to a change in the culture of the organization.

Hugo Walkinshaw: From a functional perspective, finance can be easier to implement globally because the audience is smaller – you are dealing with a select group of people. HR covers everybody – all employees are your customers! So, when moving HR to a global group you need a strong portal, self-service capability, and customer-facing staff. In finance, you can do without this. So, is HR more challenging to run globally?

Jo Hart: Looking at the functional issue, when I was at BAA, we created an HR shared services center on the back of a finance shared services center we already had. We got great user surveys back from staff – over 80% – but we were slaughtered by the HR community, which rated us at 30-40%. They felt we’d taken their jobs away and had not gotten the retained organization bit right. The problem was, we had not created the right face-offs in the HR community. They felt HR had been taken over by a bunch of accountants. It was only when I installed an experienced HR professional,  that the whole perception, from the HR function, improved overnight.

Hugo Walkinshaw: You raise an interesting point. For those of you who’ve gone global, but who came from a background of different functional centers in different locations – did you bring someone new into the organization to take over the lead? Or did you bring in someone from a function? Many shared services start as the brainchild of the controller and propagate in operational silos until eventually a global leader is brought in.

Rodrigo Martins: At GE we have both. As an example, the leader of the global employee services comes from HR; and the head of our global GBS has a finance background. In order to better understand functional needs, we run councils. So, when it comes to payroll, we’d change nothing without engaging the HR council.

Yong Shen: Our shared services was driven by the finance function, yes, but now we have an HR and huge IT operation, too. But we are not moving quite into the direction you describe, i.e., one person coming in to bring the services together. Globally, each function still governs its own operations, but there are some commonalities across functional lines – this is the infrastructure piece: real estate, facilities support, telecommunications, etc., so we are implementing a common infrastructure management system. A senior global manager oversees the common infrastructure for all locations.