Roundtable: Multi-functional Shared Services

Participants were:

Tom Bangemann
VP
BUSINESS TRANSFORMATION
HACKETT GROUP

Mike Gibbs
Principal Consultant
EQUATERRA, INCORPORATING
MORGAN CHAMBERS

Lynda Atherton Miles
Formerly Director of Global Business Services
CUMMINS

Tim Palmer
Head of HR Sourcing
PA CONSULTING GROUP

John Gregory
Director, European
Shared Services
KELLOGG EUROPE

Graham Russell
Head of Global Transaction Processing
ASTRA ZENECA

Gerry Niven
Shared Services Programme Leader 
GREENE KING PL

David O’Sullivan
Director
CHAZEY PARTNERS

Noah Franklin
Group Director of Business Services
CADBURY

Philip Searle
Founder and Managing Director
CHAZEY PARTNERS

Andrea Schaffell
Formerly VP, International Services
LOCKHEED MARTIN

Phil Searle: I’m delighted to kick off today’sdiscussion on multifunctional shared services. To start, I’d like to hear from each of you what you consider to be the key arguments for multi-functional shared services. And just to make sure we are all on the same page, when we refer to multi-function, we are, for today’s purposes, talking about reaching across different functions – finance, HR, IT, procurement, logistics, etc.

Noah Franklin: At Cadbury, as is perhaps the case for many companies, we started on multifunctional shared services because so many characteristics of shared services are common, regardless of function. You need the functional expertise for each tower, and functional sponsorship from business leaders. But beyond that, if you don’t go multifunctional, you are constantly "reinventing the wheel" as the basic ingredients for success are the same.

Lynda Atherton-Miles: In Europe, we see a lot of "following the leader." There are lots of finance shared services because there is a lot of information on it and lots of companies already doing it. When I worked at Amoco, we had multifunctional shared services: finance, IT, HR, taxation, treasury, etc., and you could really see the benefits because the company believed in applying shared services to all different functions. At Cummins, we’ve done some of that, particularly in IT infrastructure. In fact, I’m always surprised we don’t see more IT infrastructure shared services – the benefits are enormous as this is a "big spend" area. So the savings are tremendous.

Andrea Schaffell: At Lockheed Martin, we also had multifunctional shared services, encompassing finance, HR, systems & process management, global supply chain management and energy, environment, safety & health among others. What was notable was that the latter two groups were interesting because they didn’t manage transaction type work but rather corporate governance and in some cases policy and procedure generation for the businesses to follow. While the global supply chain group did procure all major corporate agreements throughout the company, they did not actually provide purchasing activities for the operating units.

Lynda Atherton-Miles: Don’t you think,though, that one of the problems is that many companies fail to put in place a full process owner? So there is no one person who owns purchase to pay, for example? This means that shared services tend to get the accounts payable part of the process, but the rest - purchasing, pricing, treasury etc remains disconnected and owned by different functions in the business, so the end to end benefit isn’t leveraged by the company.

David O’Sullivan: I think it is even more basic than that, Lynda. I’ve seen lots of multifunctional shared services grow organically, not from a big picture point of view. So finance starts and HR follows, or vica versa. It all comes back to where the real decision-making is taking place. In many cases, the corporate agenda may not be really joined up. Some companies running multi-function shared services stand out for their cohesive, seamless approach. Others operate on a more piecemeal basis. However, the fact that shared services evolves because functions "do their own thing" should not necessarily be seen as a negative. Quite the opposite in fact. Typically
success breeds success and encourages other functions to follow suit. All roads lead to Rome, in a manner of speaking. How you get there is a different proposition.

Tim Palmer: I’ve done a lot of sourcing consulting work over the past few years, and there is one question I am constantly asked by European multinational HR teams: We are not putting enough volume through our HR services group and are under pressure to use our finance services group, based in "x." Should we join up with them or should we outsource instead? It seems to me that a lot of companies are almost sleepwalking into multifunctional shared services type arrangements. The other thing is that we are not yet seeing real multi-functional BPO happening, at least with one provider. Most companies are using a blend of outsourcing arrangements. The best practice would be to think and plan strategically for this.

Tom Bangemann: I think what is crucial is how we are defining multi-functional shared services. It is all about deciding whether the delivery model makes sense. It does not have to imply using only one center. The point is to use the same model across functions. Even apparently multi-functional services may contain functional silos. The other point on process ownership seems more important, to me. The real
benefit comes from a comprehensive, end-toend strategy. The key is to find one process owner, and to move away from a functional orientation.

Philip Searle: A key hurdle I’ve often witnessed is that when you discuss "multifunction" with say, an HR, IT or finance head, they are often concerned with the impact on their own individual roles and also want to know if they might lose their jobs or influence as a result.

Graham Russell: It sounds to me like none of us here have successfully done this, at least in a captive way. I’d be curious to hear whether the consultants around the table have come across some really outstanding case studies.

Mike Gibbs: The starting point is key; if you were starting out with a greenfield organization today, why would you not create a multifunctional organization and pull things together? But we don’t see that many greenfield situations, these days. The earlier point about location is, therefore, important. Mature organizations are dissecting their processes and looking at a multi-sourcing approach – local/nearshore/offshore; one location may not be optimal for each process and geography. Even if you don’t have all the same elements for different functions, you would still want one model to manage it all. And don’t forget: Scale is important. Within a company, scale is achieved by bringing everything together. Most outsource providers are achieving optimal scale within the process, by nature of their multi-client business, so you’ll find that they are generally running separate function- centric centers, across different sites and locations. The reason we are not seeing a lot of "multi-tower" BPO is twofold: First, individual providers don’t necessarily have the core functions and skills to deliver all these services; and the other issue is a reluctance to put all your eggs in one basket. In other words: to balance the risk.

Gerry Niven: I’ve been involved with various shared services functions over the years and my thoughts are as follows: If I have access to technology, telecommunications and language capability to support a process, I’ll move it away from the business and it doesn’t really matter whether it’s 500 miles or 5,000 miles
away. My only stipulation is that I won’t move anything that requires interaction with local business or from a customer point of view.

John Gregory: At Kellogg’s, we don’t multifunction because we are so functional based that, although finance "gets it," it is a struggle to convince the other functions.

David O’Sullivan: All functions we are talking about have the same agenda: to do more for less. So you’ve got to ask yourself: why is the pace of change or dynamic of change so different between functions? Why do some "get it" and the others don’t?

Lynda Atherton-Miles: I believe whether rwork goes into shared services or not depends on the balance of power. At Cummins, every year, we look at work which is done across all the businesses and decide whether cost is well understood for each process. The businesses know that we understand cost, and that we charge according to transaction – which does help to bring overall cost down. The other thing we do annually, under our global partner strategy, is look at the services offered in our center and check whether there are other companies with a better global capability reach who could deliver the services on our behalf. So our SSC is really a passthrough organization: We acquire work not well understood; rationalize it; standardize it; and then pass it out to a partner if that is a better deal to Cummins overall.

Philip Searle: I think a critical question in this debate is who "Business Services" reports up to internally. I hear this question a lot. Is it to the CFO? CIO? CAO? COO? Head of HR?

David O’Sullivan: My observation is that there is some confusion regarding the perceived value of this kind of undertaking at the right level and thisresults in a functional approach rather than a business wide venture.

Tim Palmer: What I’ve seen in companies not able to make the bold move of putting one person in charge of delivery is a sort of incremental step of setting up a global business board. This does allow for meaningful discussion among a management board with a hands-on role of setting the business management agenda.

Andrea Schaffell: At Lockheed Martin, my initial boss, who was SVP of corporate shared services reported into the COO of the corporation, who was also co-chairman at the time. This reporting structure secured tremendous support, of course. Within the SSO structure there were five VPs: one for finance; one for HR; etc. Each of us reported into the SVP as well as a dotted-line report into the corporate function: I, as financial services VP, into the corporate controller. There was a certain amount of a struggle from the organizational perspective to recognize who we took our ultimate direction from. Now that the organization is more mature, the shared services leader reports to the CFO – but the dotted-line relationships continue.

Noah Franklin: We all have that issue: who you are reporting to, as opposed to who your customer is, and who your sponsor is. It does not help.

Gerry Niven: This is a real challenge. It goes back to, "what is an SSO"? Is it a business unit in its own right? Frequently SSCs end us as part of finance, more a centralization rather than a full-blown service. I think a general manager should head shared services. Especially when it comes to multifunction, where you have the
same disciplines, same skills sets, and same process focus. How serious the shared services capability is depends on who you report to – you need a strong business and services orientation.

David O’Sullivan: Yes, I agree with the criticality of reporting lines. The customer reporting lines are really critical but so is the representation at executive board level to ensure the mandate is carried out in accordance with company goals. But do you need a global head of shared services at executive level? Or can you give this
responsibility to an executive board member as part of their overall role?

Tom Bangemann: In terms of success criteria, the higher your support level, the better. The more independent the shared services, the more likely it will be successful. A crucial aspect is that you need a program management office or a transformation office, which acts as a linking pin. All different initiatives are consolidated, and transparent, through this office. Regardless of where they report into, a PMO can drive shared services projects in one common direction.

Philip Searle: What I’m also hearing is that shared services, as a delivery model, is still massively underutilized. "Doing" AP is not the same as running broad scope shared services. There is still a huge opportunity, here, which is largely untapped.

Lynda Atherton-Miles: Because we look for scope, it offers us a pressure point on the business. Often, this is linked to something we already do. At the moment, for example, we have been looking at customer care, which is done everywhere in our business – though it is not linked to anything we already do at present. We built a competency of being able to understand the costs of work and bringing it down. Another potential area is the maintenance of price files, which is carried out throughout the business – but not very well. It impacts AP, which is located in our services center. So, generally, we look for linkages and ther work we could rationalize and where we could drive costs down.

Philip Searle: Success builds success. At 3Com, when I started there, we initially ran with a Europe only shared services and SAP enablement project, and for only certain functions within Finance and Accounting. But we made very good progress and proved the concept quickly. The CFO was so impressed that he requested we expand to other regions and across other functions and activities. The next thing I knew, we were rolling out everywhere, scope was increasing and we were launching into helping the HR and IT guys move forward with global SAP and shared services. The flip side, of course, is that failure builds failure. When things aren’t going so well you may well need to change people to break the mold. Graham, in your presentation yesterday you said that unless people had worked within shared services, you thought they did not really understand how to be a good manager. Can you expand?

Graham Russell: Well, to build future finance leaders, you really need to put them through a finance shared services, where they have the opportunity to develop good people management skills over large teams of people which may not always be the case with smaller business partnering teams.. This together with understanding the building blocks of financial process and data helps develops the right competencies.

Gerry Niven: Several years ago I worked for a major PLC where we created a succession planning process through the finance organization. We took in strong financial analysts, with good commercial skills, and put them through the SSO, which was all about advanced team leadership, customer focus, innovative thinking, project management and process management. Then we put them back into a finance controllership role. You need these general management skills.

David O’Sullivan: At Whirlpool, the finance shared services is used as a key talent pool for finance recruitment in the company. This  started about a decade ago. Today, many key positions in the company are filled by people who started in the finance shared services 10 yrs ago.

John Gregory: We are breeding different animals in shared services. In finance, we’re recruiting business accountants and churning out managers.

Tim Palmer: Talent is key. You have to ask yourself: where does the talent pool come from for the finance and HR leaders of tomorrow?? Ownership of talent is 99.9% of the solution. If you let talent go you’ll lose them. And your talent is valuable elsewhere, so beware!

Philip Searle: Coming back to multifunctional shared services, or multi-tower BPO, do you expect the pace to accelerate?

Tom Bangemann: The trend we are seeing at Hackett is without doubt end-to-end, which translates into cross-functional. We also expect automation to increase significantly. There is currently a huge gap. We tend to think that in AP and AR everything is already fully automated. In fact, average automation levels are only 35%. In terms of locations – there won’t be many new ones. I think we’ll see more utilization of existing ones, which tend to be still underutilized. The whole concept is still underutilized.

Philip Searle: It’s been a very interesting discussion. In terms of assessing the current market for multifunctional shared services, our definitions are important: do we define multifunction as location, organization, or cross-function? The emerging trend for, or at least keen interest in, end-to-end processes is critical, implying as it does a crossfunctional approach. Multi-tower BPO is not yet really happening, although selective BPO across multiple functions is occurring. Internal politics, as we all know, will always create functional silos and obstacles. But a passionate advocate at board level will do more for a multifunctional approach than anything else. I think that we are all definitely in agreement on one thing: shared services still provides a massive
untapped opportunity, both within and across functions.