Smorgon Steel Business Services: From Business Case To Fulfilment

Smorgon Steel Group (SSG), a family company, was floated in 1999 with sales of A$500 million. On the same day, SSG took over a company with three times its own sales. SSG’s stated objectives were to be a low-cost provider, to diversify its income stream and to participate in the rationalization of the Australian steel industry. SSG has achieved these objectives by continuing to drive down costs, diversifying income streams into mining and scrap metal, and participating in the steel industry consolidation through a number of acquisitions. Sales levels today are A$3.2 billion – helped by the acquisition of three major companies.

Features of Smorgon Steel today are:

• comprises three operating divisions with 180 locations throughout Australia and overseas, particularly Asia Pacific
• Australia’s most integrated steel producer with a capacity of about one million tons per annum
• vertically integrated from scrap collection to steel manufacture and distribution
• a broad product range servicing diverse industry sectors
• around 5,000 employees and 30,000 customers within Australia and overseas
• external sales of nearly 2 million tons and nearly A$3.2 billion

An organization growing through acquisition faces a number of problems encompassing multiple cultures, systems, processes, policies and procedures. Each of the acquired companies had also grown through acquisitions which had not yet been fully integrated. These issues create an environment that is ripe for the establishment of shared services. A low cost provider focus was one of the major drivers when the board requested that a shared services facility for SSG be assessed and a business case was developed identifying the scope, costs and benefits available.

Business Case

The business case assessment was undertaken in 2001. Shared services models were researched by visiting established shared services and discussing their experiences, attending conferences and researching publications and books. Data was collected from SSG’s existing operations, which consisted of decentralized back office functions across twenty five centers. Targets were determined and potential savings identified. Targeted services included payables, payroll, financial accounting, master files, IT infrastructure, IT applications, group procurement and a pilot of receivables.

The task was complicated by the six different, loosely described ERP systems. Whilst there was a plan to consolidate to two ERP systems over time, the shared services plan was not delayed because of these limitations. The business case, identifying an internal rate of return above 40 percent, was approved by the board and collocation began in March 2002. Implementation was to be completed over three years.

The Journey

A key to the establishment of SSBS was to allocate staff who had been with Smorgon for a substantial period of time. The business knowledge held by the team allowed credible project assessment of risks and the impact to the business. The network also ensured that the appropriate people in each business were involved and the appropriate communication was made. Culturally, it was important as it prevented the "What do you know?" attitude that could exist in any change environment. This team was complemented by externally recruited staff with shared services skills.

A conscious effort was made to avoid the use of consultants except for in specialist areas.
This ensured that a consistent approach and style would be adopted in the assessment and implementation of most projects. Experienced project managers were appointed to collocate process streams and then implement process improvements. Process stream collocations followed each other in successive months (e.g., payables collocation was followed by financial accounting and then by receivables).

To minimize change and risk, all processes were collocated to shared services with limited changes. Mapping was completed to understand current processes with the underlying principle being to bring exactly the same function into the shared services. The businesses would not experience any changes apart from a different phone number and address to contact. Local sites were rolled in first and personnel was retained to ensure continuity of knowledge, service and contacts within the business. This allowed us to maintain existing service levels whilst we analyzed the processes and identified unique workarounds. Process review was consciously left to a later stage, to allow business knowledge to build up and for initial impact to subside.

Skilled staff were always assigned to the new divisions brought into SSBS. This, at a minimum, reduced system errors. New staff were employed to backfill these roles and were, on average, brought in a month in advance to get the one-on-one training required.

Redundancies are frequent outcomes of shared services. Incentives were offered for staff to stay for the transition. The transition period was subsequently extended to ensure existing staff were available for the first month end. Travel to SSBS was offered to some staff and this acted as an additional incentive. In most instances, SSBS staff would travel to the site to better understand the processes and meet with the business. This aided the transition process immensely as a result of the face-to-face contact established.

It was also important to acknowledge that collocation not only affected the business but also the existing shared services team. Existing team members were kept up to date with changes. When a large number of staff moved into the SSBS accounts payable team from one the divisions, a one-day off site team building exercise was organized for the whole team to get to know one another.

Projects were implemented that would deliver quick gains to ease the transition. Such projects were targeted to remove some of the manual processes, such as EFT payment to suppliers, outsourcing of customer invoicing, imaged vendor invoices available online and purchasing card for low value purchases. These were low risk projects which had adopted pre-existing technologies already proven successful in many other organizations. It was also valuable to deliver these early gains to the businesses to build up the credibility of SSBS.

A conscious effort was made to leave the complete reengineering of the processes to a second phase, once the transition of collocation had passed. The consolidated transaction volumes allowed SSBS to explore technologies that were previously not financially viable. Examples include imaging of accounts payable invoices for archiving purposes and outsourcing of customer invoices. These provided financial savings to the business that otherwise would not have been achievable and introduced technology savvy to commonly routine processes.

Standardization and process improvement was driven by internal assessments and ideas from the shared services industry. Internal initiatives were driven from three sources in particular. One source came from within the process
team and was driven through review sessions, feedback from operators and process mapping. The second source was undertaken half yearly on an end-to-end basis, where selected team members attended a multi-functional planning session to identify current problems and define improvement projects to be undertaken.
Thirdly, business unit reviews and forums were used to engage the business units and get their feedback and ideas. Champions from the business units reviewed proposed changes to processes, policies and procedures. Their responsibility was to provide input and agree to standardized processes and then communicate and coordinate changes back to the business. Peer visits, benchmarking and shared services webcasts remain an important input to process improvement and provide reaffirmation of where we are headed.

Regular checks were undertaken to ensure that the path chosen for our shared services was continuing to provide value to the business through low cost services and provide additional functionality. It is easy to become internally focused within a shared services environment and lose track of the bigger picture. Customer surveys and regular business unit visits ensure we do not lose touch with our customers and their requirements.

Performance Assessment

Performance assessment and accountability is driven through key performance indicators (KPIs) customer service surveys, monthly updates at SSG senior finance meetings and benchmarking. KPIs for each stream are reviewed with process streams on a monthly basis. These KPIs have been predominantly internally focused productivity measures. We have now moved those KPIs to include a focus on customer service and compliance to procedures and authority levels by business units. Customer service surveys are completed half yearly to measure customer service performance over selected criteria including timeliness, responsiveness, accuracy, courtesy and knowledge. A score (customer service index) is calculated for each criteria and process stream, enabling trends over time to be analyzed.

Where performance is below par, an improvement plan is outlined and implemented. Benchmarking was undertaken with theExecutive Performance Group (now Shared Services Roundtable) and webcasts provided new ideas and gave an indication of how we were progressing.

Communication

Communication strategies have changed over the life of our shared services. Initially, they were focused upon collocation and keeping the business up to date of changes and initiatives through the senior finance team of each business units. At this level, we would get feedback indirectly concerning issues within the business and more often than not, were remembered for the last problem incurred within the business.

Our communication strategy is now planned on a six monthly basis and consists of business unit visits and webcasts every two months to hear, first hand, of any issues within the businesses, update them of our plans and most importantly, tell them how we are progressing against plans and service levels. A two monthly newsletter is circulated to anyone in the business who has direct interaction with shared service – whether by raising a purchase order or by being a purchasing card holder – to keep them abreast of our plans and progress.

A website has been created for shared services which contains a copy of our annual plans, policies and procedures for each process stream, monthly KPI reports, webcast training dates (e.g., purchasing card, raising a purchase order) a copy of the latest newsletter and contact details for each process stream. The feedback from the business with regard to increased communication and the differing modes has been very positive with comments typically expressing "It is nice to be kept up to date with your initiatives," and "We didn’t realize you were undertaking these projects." Further, business units are moreprepared for impending changes from these initiatives.

The Future

Plans for a financial year are developed in conjunction with the budgeting process. An offsite planning session reviews achievements over the last 12 months, identifies problem areas or areas where progress has slowed and develops improvement plans for the next twelve months.

A strategy session was undertaken to develop longer term plans and document our vision, mission and operating principles. This document has further clarified who Smorgon Steel Shared Services is and defines our purpose. It simplifies the focus for our employees and ensures we maintain a focus on the business and on our customers.

Our model for the future focuses on the interfaces between the business units and the services provided by shared services and also the interfaces between business units and external parties. The underlying driver is to simplify these processes so that it is easy for the business to complete transactions and to establish interfaces with all customers and suppliers. Shared services provides the background processing. Automation is the prime key to simplifying these processes – in conjunction with the simplicity of our model – so that there is a common backbone structure to deliver services. Workflow is the common backbone structure that will allow us to drive a paperless environment and a have standard look and feel to system interfaces for our users.

Communication and feedback was undertaken with all shared service employees and business unit representatives. Each process area has outlined projects to meet our strategy. New business integration has been identified as an important element to the services that we must provide for the business. Smorgon Steel Group has grown out of acquisition and has stated it plans to continue overseas expansion in key businesses. Companies like Rinker have developed this capability to support the expansion of their business and is seen as a core competence of their company.

The success of our strategy will continue to be measured through existing measures and, more importantly, through the feedback of our customers and business units. Peer visits and webcasts as well as benchmarking with shared services organization will continue to provide important input to our planning reviews to ensure we keep abreast of shared services trends and developments. We strive for first-quartile performance, where practical, in relation to our model and environment.

About the Author

Jeremy Hill
Manager Shared Services
Smorgon Steel Group
e-mail: jhill@smorgonsteel.com.au

Jeremy Hill has been with the Smorgon Steel Group for 17 years undertaking senior finance roles within the operating business units before being enlisted to the team setting up shared services in 2002. Responsibilities now include leading shared services to the next level.