Roundtable: Getting Your Strategy Right From the Start

Jamie Liddell, SSON’s online editor, sat down with a few practitioners at the recent Planning & Implementing Successful New Shared Services event in London to identify winning strategies from the get-go. Site selection, according to the consensus, is not key; rather, getting the process right from the start.

Participating were:

Peter Pan
Senior Executive
MSC Malaysia

Walter Jess
Shared Services Strategic Planning Manager

Michael Radford
Process Improvement Manager

Jenny Coombs
Shared Services Director
Barnet Council

Gary Critchley
Head of Finance Shared Services
Marks & Spencer

Hindrik Jan (René) Zigterman
Business Development Shared Services
SAP Belgium

SSON: To start, tell us how you decided what to include in your shared services operations when you set up.

Jenny Coombs: We looked at the corporate services we were already delivering, the standard things: information services, finance, human resources, procurement, facilities management… all these things had been delivered disparately in the past. We also looked at the nature of these services and added specific services around collecting council tax and delivering housing benefits because they are transaction-based processes. The challenge was to discover how the processes would fit together.

Walter Jess: I think it is really about identifying what is not core to the business; what protects your brand name and your sales points in the market — quality, design, etc; Also: look at what does not support day-to-day decision making; so general accounting issues such as calculating, recording, etc. … as opposed to the activities that business unit managers use on a daily basis to decide on their business. It is also important to gain sufficient volume to manage the costs of the initial stage.

Michael Radford: I think you decide on the basis of "repeatable business" – in other words, what you could give someone else to do. In terms of scope, you can have a larger scope of services in the first instance, but give it to a smaller group of divisions and scale up later, depending on how well things work. A "chunk at a time," is a good way to start, until the business absorbs the new process.

Gary Critchley: A standard approach is, "where is the volume of labor arbitrage?" In other words: Where do we have the most people that we can move to a lower cost environment? That is the core of any business case. But beyond that, you can look at "where can we leverage our commercial value by specializing in a process?" Purchase-to-pay (P2P) is a great example. You can become an expert, and then create additional value from higher volume transactional processes via things like dynamic discounting. So, you can drive margin off the back of high value balance sheet items to help keep the business profitable. A more strategic move, therefore, is to become a revenue driver rather than focusing just on cost.

Michael Radford: Yes, we took that approach. We migrated the processes to our offshore shared services center, depending on the risk profile of the process. For purchase-to-pay, we moved it lock, stock and barrel as it is a common process. On the order-to-cash side, however, the businesses pushed back. They wanted to retain some ownership of the cash collection process themselves. Now, as they begin to believe in shared services, we can start to extend our scope in this regard. But it takes time.

Gary Critchley: This is interesting to me, Mike, because of the fact that you were offshoring, right? – which gave you a different risk profile. We kept our shared services captive and onshore; so although we were moving riskier transactions like merchandise payments, the process remained onshore and was therefore perceived as less "risky."

Walter Jess: This conversation reminds us of one key thing: Change management is continuously underestimated within this area. You absolutely need to implement a program to manage this change, make it transparent, and allow time to build confidence.

Gary Critchley: An important step is to map your stakeholders. Some customers will not be as easy or are higher maintenance. Pick off these and invest time in the relationships. Once converted, they can be your best standard bearers …

Peter Pan: We work with a lot of organizations setting up shared services in Malaysia. A lot of these arrived looking for cost arbitrage. Now that they are maturing, though, they are looking for more strategic partnerships. Location is becoming less cost-competitive, so the question is: How do you move up the value chain? HSBC, for example, moved its global resourcing from India to Malaysia – and now the Malaysian center runs analytics for the HSBC Group. This way, they can determine what process to move to shared services next, and which of their 13 centers should carry out the service.

Walter Jess: The challenge is to move away from thinking of shared services as a cost activity, i.e., move to low cost and dump the work that does not matter. Shared services should be about bringing centers of excellence to the business. The more you focus on process optimization, the less important I think wage arbitrage becomes. Shared services is not a second-class activity, but delivers efficiency.

René Zigterman: So, looking at lower-level transaction processing, are you assuming automation? What I mean is, are you basing your thinking on an automated "fixed cost" environment as opposed to labor costs – which are always rising?

Walter Jess: The whole point is to get away from looking to reduce cost alone and to focus on improving processes. The shared services environment provides a great opportunity to drive process optimization, as all activity is brought together. It’s also a great opportunity to consider which parts you are bringing into the center. Take AP – a great place to start. But considering the whole P2P process, standardizing and automating AP will still limit the value of the P2P process unless you bring the front end – purchasing into the process as well. In other words, even if you run AP from a shared services center, the results will only be as good as the entire P2P process. Another thing to consider is risk. AP is vital – if you don’t pay your providers, taking Marks & Spencer’s example, the shops will be empty, production lines might stop. So you really need to work end-to-end to gain business value.

Gary Critchley: We automated certain areas and are now driving further automation through SAP. That will drive more people into the center to manage automated processes, producing masses of additional data … which requires management … which we can then leverage … In other words: the commercial front-end benefits far exceed having more people employed at the back end.

SSON: How would this focus on end-to-end drive the decision as to where to locate?

Walter Jess: This approach certainly supports the "center of excellence" argument, rather than "low-cost locations." I think the tendency would be to keep the activity closer to the business, perhaps therefore in a higher-cost environment. But the gain in process improvement should offset the higher location cost.

Gary Critchley: You make a very interesting point! Everyone wants to move up the value chain, into decision support, to increase value-add. But another way of looking at this is to move horizontally, across end-to-end processes. In your example, getting procurement to reconciliation working in one center would be a real achievement.

Walter Jess: Yes, but end-to-end does not mean moving all processes into shared services. I am aware of one organization that brought AP into its shared services first. Then, when looking at the P2P process, the first action it took was to cut down the supplier base massively. Fewer suppliers made the process more efficient. So they started with the supplier base, but AP was the only part of the process initially transitioned into shared services.

René Zigterman: How important is the automation of these processes to you? Automation ensures a higher quality data and provides data streams to be discussed with the shared service center customers, the internal business units being served by the SSC processes, as well the external SSC customers (suppliers/vendors and customers)… how is this handled by your SSC?

Gary Critchley: Automation is important, but it is really all about compliance and behaviors. We want to avoid process breakdowns and liberate the front-end buyer, say, but many issues – take blocked invoices – are contingent on a behavioral piece, like clicking on "goods receipt." Shared services are on an equal footing. It is about "service," not being "servile."

René Zigterman: So the handover point between the end customer (internal and external) and the shared services itself is crucial. You need to integrate this in one business process and one piece of technology.

Walter Jess: Yes. We have found that something like 47% of our invoices represent 0.9% of our spend. So we have lots of people wasting their time on originating multiple purchases. If we can reduce the number of suppliers, offer online catalogues and electronic systems, and thereby free up the time currently taken … then we take away all non value-added activity.

SSON: So how do we get the IT element right first time?

Walter Jess: You’ve got to really understand the nature of the end-to-end process; understand where it starts and where it ends. It is not, as we have said, about bringing the whole process into shared services but about process optimization. In our case, it is about making sure that the front end of the process, the part not in shared services, is fit to support the shared services environment.

Michael Radford: Sure, the front-end customer needs to understand the process and his part of it. And not just from a systematic perspective. He needs to learn all about the process – otherwise, after six months you’ll likely find yourself re-educating him while also trying to clear a backlog of work.

Walter Jess: There is probably a direct correlation between a process not automated and the introduction of tribal knowledge, or institutional knowledge. So long as a process is not automated, everyone will have their own "take" on it and do it slightly differently. Capturing that institutional knowledge is critical. You need to bring the business unit operating staff into the shared services so that you really understand the process. Problems don’t usually show up in the first week, or even first month. But you can be sure that they will three months down the line at which stage most operating staff have moved on, and their institutional knowledge is lost. So there are two key elements: first, help the businesses recognize that their processes will not work in a shared services environment – so change some behaviors; and second, capture all that local or institutional knowledge and bring it with you in the early stage; you’ll get rid of it later, when it is redundant.

Peter Pan: Would you say it is important to clean up your processes first, before moving to shared services?

Walter Jess: I would recommend "lift and shift." If you wait until you have fixed the process, you might never get there. You’ll not get to the quality you think is transferable. So, go ahead and move it, capture the local knowledge, and then fix it later.

Gary Critchley: I’d agree with that: Shift and fix. Get the patient to the hospital – that is where the expertise is. So it is best to get the process into the culture where you can make it work.

René Zigterman: One thing I’d add here, in terms of preparing the end user, is that it is important to get into the "comfort zone" of the end user. So, if he is comfortable with email, but not with a new application, like a portal, then deliver the application from within email. Or, design internet-based invoices to look like paper-based ones. You need to ensure people can work with the system and understand the data to be processed intuitively.

Michael Radford: I am all for automation, especially in terms of control etc. But in order for this to work, you need a whole set of rules. Otherwise, you’re just automating a way to get lots of things wrong. Also, the rules driving automation are not static. If the process to support automation is not robust, then you’ll only create an automated mess.

Gary Critchley: Well, there are some risks with individuals being involved in a transaction – and different risks connected to automation. With an individual, the concern is misappropriation or error; with automation, the concern is that you may not be able to react quickly to a given change; you might be too exposed to one supplier, for example. There is some comfort to having the right people in-house, providing real value. Lights-out technology is not my aspiration.

Walter Jess: I think we all run the risk of relying more on technology than it can deliver.

Peter Pan: We tried migrating to one platform, but given our complex processes it required more work by the end users. And we ended up abandoning it. So you need to be sure what processes you can automate to maximize efficiency; sometimes you really just need the people.