A Global Business Landscape Demands Global Frameworks from German Corporates with Broader Vision
Increasingly globalized customers and suppliers are pressuring organizations to adjust – from the inside out
While Global Business Services is sweeping the services delivery landscape world-wide, in Germany a combination of corporate conservatism and more stringent domestic regulation, specifically where the workforce is concerned, has impacted its rate of adoption. Nevertheless, companies like Lufthansa and Daimler have all recently shifted to the GBS model, albeit most have a decade’s worth of Shared Services behind them before embarking on the next stage.
The challenge for German companies is that they are generally organized by business function – Finance, Marketing, HR, Procurement, Manufacturing, etc. This means that a silo, or functional, approach is ingrained within the business (indeed, business schools still teach this organizational model).
With functions holding tight to their functional power and influence (and workforce), the idea of ‘integration’, inherent to best practice service delivery, is not a natural fit. As a result, there is a certain “misalignment” between the reality of the business line and the concept of a cross-functional service line organization. For Global Business Services to succeed, however, it's necessary to abandon this functional view and move, instead, to an end-to-end process view across multiple functions. Today, the question is no longer: What is the role of Finance… or Procurement… or HR? Instead, it’s: What is the role of services in supporting the business?
Optimization – an integrated affair
This question presages a shift towards integrating standalone services into a single, dedicated entity. Whereas in the early models every function was responsible for optimizing its own processes, GBS takes a holistic approach to optimization. And given today's market this trend bodes well for enterprises.
Simply put, the integration means cementing processes end-to-end within a new structure. Within Finance, for example, Procurement is aligned to Accounts Payable resulting in the procure-to-pay service; Distribution is aligned with Accounts Receivable resulting in order-to-cash; and Consolidation is aligned with Closing, resulting in record-to-report. Hire-to-retire undergoes the same process.
Internal business unit customers generally don't care about functional silos but do care about seamless support. As one longtime GBS leader explains, "The customer doesn't want to think about whether we have one delivery framework or five – the customer just wants a great experience. Silos work against this.”
Seamless, integrated support, one could argue, is best served by moving to a Global Shared Services model. But first there are numerous hurdles to overcome.
German-based organizations often struggle with the fact that where a “Global” (often defined as “multi-function or “multi-tower”) Shared Services reports to the CFO, other functions represented – for example HR – have trouble accepting that 80% of their workforce effectively operates within the CFO’s realm, reporting to Finance, and only 20% remain within the actual function. This fuels something of a power struggle and works against the idea of seamless service delivery. In addition, every function is trying to get its member onto the board, or at least one level below, to ensure strong representation. From the start, this presents a very real challenge to the culture necessary for GBS to grab hold.
The end-to-end process view is a fundamental characteristic of GBS. It dictates the extent to which GBS can make life easier for the business and add value over the entire process. GBS therefore becomes responsible for all decisions – but also accountable for all actions.
In an ideal scenario, as many German-based practitioners agree, a GBS should incorporate all in-scope functional support activities – and not just a part of the process. This is important for many reasons.
First, the overall process design is led by GBS, not the function; and secondly, GBS must be accountable for the whole – and this cannot happen if part of the process remains in the function (and certainly not if a part of every process remains in every function).
What emerges, therefore, is a fairly revolutionary idea based on restructuring functions within the scope of an entirely separate Global Business Services.
A world of trade-offs
However, while this idea has many supporters, some, like Thomas Laux, Financial Director of Deutsche Telekom Services Europe, propose a “more realistic”, so more doable, approach.
“It’s unrealistic to assume local businesses will hand off the decision-making and control of financial closings without trying to hold back selected, considered crucial, aspects. Theoretically it's possible, but practically we live in a world of trade-offs,” Laux says.
At Deutsche Telekom, the approach is to optimize as much as possible, and take on 100% of the transactional work – “but when it comes to knowledge-based processing, like Closing or or selected HR-activities, we are content to stretch to a ‘maximum’ model" Laux explains.
This means choosing a model that maximizes cost benefits, and optimizes quality, based on moving the maximum activity possible into the GBS. In other words, the parts left locally are minimized to the extent possible, but still to the customer’s satisfaction.
To a large extent, says Laux, the ability of an organization to shift to GBS depends on how globalized and standardized the organization already is. The more standardized, the more it's able to transfer more important activities into a Global Shared Services model. Where country businesses are more powerful, however, it’s prudent to take a more circumspect approach.
Going for “Global”
But for those who have the full support and encouragement of the Board behind them, a more aggressive GBS policy plays out well. Multinationals like P&G have already successfully implemented the more fully integrated model described above, and in Germany, too, we are seeing examples of organizations attempting it. But it’s not for the faint-of-heart.
Lars Hölzer is one individual who is aiming for nothing less than total integrated services. And he has taken on the challenge with relish. Previously at Daimler, where he successfully led the establishment of Daimler Group Services as a Global Service Provider, he now heads the GBS initiative at thyssenkrupp AG (as SVP of Global Shared Services), where he has been guiding the design and implementation since late 2013.
“You could say thyssenkrupp was late to the party,” says Hölzer, “but once the company realized that it was missing out on innovative opportunities, the Board was determined to take advantage of the kind of global, standardized services model that could help it meet the needs of a global modern-day multinational.”
Hölzer was offered the leadership role in establishing a state-of-the-art GBS to incorporate Finance and Accounting, HR, IT, and Real Estate – with a direct report to the CFO. "It was really a dream job for someone like me who looks for Board-level support to drive new and better services infrastructure across global operations," he explains.
It was this “greenfield” opportunity that excited him. And the opportunity is enormous: with 155,000 global staff, 500+ group companies and five divisions, the thyssenkrupp GBS stands to have the kind of impact that truly separates the ‘transformed’ from the ‘old school’. The model, in its final form, will extend over five locations – Germany, Eastern Europe, South America, India and China – and leverage outsourcing where appropriate to complement captive capability.
Ultimately, thyssenkrupp’s GBS will be the answer to the challenge of facing an increasingly global, distributed supplier base and marketplace. With the external landscape evolving dramatically and becoming more open, more accessible, and more transparent, a modern day enterprise with global aspirations must reflect this change in its own framework and support structures, as Hölzer acknowledges.
Driven by “less is best” approach
thyssenkrupp is certainly not the only corporate to recognize the value of combining multi-tower [multifunction] services in one entity to provide a single ‘global’ standardized service portal. Other practitioners are also examining ways to better meet the challenges facing modern multinationals.
“GBS helps leverage scale, and mirrors the changes going on in our customers’ businesses,” explains the Head of a German-based Business Services group. “With most optimization strategies today based around fewer of everything – suppliers, systems, etc. – a global services delivery framework is a prerequisite.”
GBS also supports more effective use of corporate talent, through a global talent management strategy. Given that employees are a global resource, the ability of HR to move talent around the world according to need – and the agility this implies – are big wins. Without a consistent set of [global] processes these options are significantly impaired.
Lars Hölzer agrees that this is a significant benefit and warns that a regional model risks holding corporations back. And that is something no multinational can afford these days.
Another crucial benefit of GBS is the ability to quickly and effectively adopt and roll out new tools as these come into the marketplace. Piecemeal applications across regions represent the sort of stop-start approach that leads to fragmented systems – the opposite of the ‘integration” that advanced enterprises are seeking. The ability to deploy SaaS, procurement, or HR solutions globally provides the competitive edge that multinationals are targeting to compete more effectively.
“Without a global organization you don't have global processes and you cannot leverage global tools,” says the Business Services Head. “The argument in favor of ‘global’ is, therefore, clear – in service delivery as in other corporate strategies.”
Service platform, not centers, drives agenda
One thing most practitioners agree on is that the GBS model is not necessarily defined by its centers but by the service platform. In its ideal form, practitioners agree, the question is less that of what part of the process should be moved into the center, than how to optimize service delivery end-to-end, based on a standard platform-driven approach. Again, many describe a model solution where the service platform represents all functional services end-to-end. "Leaving part of the process within Finance and reporting to the CFO, and part of it within GBS only opens the door to confusion" explains one practitioner.
The solution lies in reporting lines. By repositioning reporting across all functions into the GBS, an end-to-end process is clearly supported. Otherwise, warns one GBS leader, you are constantly confronted with a scenario where the local CFO is pushing back against GBS practices.
While Germany has been somewhat slow to embrace the holistic GBS model, there is an advantage, as one GBS leader pointed out: German enterprises can today leapfrog decades of learning by moving straight to GBS, instead of taking the traditional path of starting with simple Shared Services and then evolving. Lars Hölzer’s current project at thyssenkrupp is a prime example. What's key, of course, is having the support of the CEO and being given full responsibility for the service platform. CEOs who take this kind of reorganization on are often those new to their role or company, and who make grasping the opportunity of global service capability a priority.
Building the team
As GBS represents a significant deviation from conventional shared services, it stands to reason that a new breed of practitioner is required to implement the model. At thyssenkrupp, Hölzer found himself having to replace most of the managers who had led the services before he joined. Of his current 14 core management team, 13 are new to their current position, he explains. What is interesting is that he chose to source many of these managers from third-party providers. They bring in the best of current service delivery thinking, Hölzer explains, having worked across multiple implementations and leveraging the best of outsourcing know-how.
It’s not just the know-how and experience that Hölzer was implementing, however. He knew, as he explains, that the success of the GBS hinged on having the Board’s trust – and that trust is driven to a large extent by the fact that Hölzer’s teams are led by seasoned professionals with plenty of relevant experience and a natural affinity to the kind of service mentality required when negotiating with customers. "They are able to talk about their previous implementations with authority and confidence, and thereby drive better acceptance, both with the Board as well as the divisions, than anyone without that experience could," Hölzer says.
Another talent strategy Hölzer has applied is hiring locals to lead in-country or regional operations. “In Poland there is an enormous shared services and BPO industry, with plenty of excellent talent available,” he explains. “The same goes for IT Services in India. So there is no point in sending management from HQ who would not understand the finer nuances of local business culture. There is far greater acceptance from middle management when you lead with local talent,” he emphasizes.
How to get buy in
Given the upheaval inherent to GBS transformation, keeping the customers on your side, or at least not vocally against you, is key. GBS models such as thyssenkrupp’s provide the same range of services from each of their global locations, be it Poland, Germany, India, or Brazil (China is still in the build-up phase).
“What's key for us is that we are focusing on customer needs and demands. And this extends to listening to customers and reacting accordingly, even when the numbers might not be in favor," explains Hölzer.
For example, early feedback indicated that US customers were not entirely happy with the India-based services, and that, in fact, they preferred being serviced from Poland – which was culturally a better fit for a German based multinational company. So although the savings from the Poland-based model were slightly less than the India option would have offered, Hölzer’s team complied.
Similarly, when it came to human resources it would be tough to imagine servicing German business units from anywhere outside Germany. So using another location was not an option. But even within Germany, Hölzer was able to drive a 50% reduction in costs by founding a new entity compared to the centralized center at corporate that had provided services in the past.
It was this willingness to adapt and change according to customers’ needs, Hölzer believes, that drove much of the support for the new GBS. “People were committed because they saw our willingness to change and adapt, instead of insisting on a formulaic model," he explains. "We wanted to show our willingness to collaborate closely with the business, so that it would cooperate," he adds.
The challenges and opportunities wrapped into Global Business Services are both managed and contained via governance. Structuring this correctly is absolutely key. It's something that Melanie Wiese, Vice President of Accounting Shared Services, at ZF Friedrichshafen has spent a lot of time thinking about. “GBS is increasingly a top priority for many German operational leaders who want to drive synergies – but what is key is to establish a governance structure around which the GBS can operate, expand, and succeed,” she explains.
In fact, Wiese says, a robust governance structure is a precondition for a successful GBS.
Wiese knows what she is talking about. With more than a decade's worth of consulting experience behind her she has worked with many DAX companies across shared services and GBS. The pitfalls lie in terms of how you allocate governance, she explains. And in contrast to the more holistic view prescribed elsewhere she warns that “no one can own everything.”
Wiese advocates the idea of a ‘balanced’ governance model. Ideally, she explains, corporate functions are responsible for the total cost of ownership and holistic processes, and GBS would work with functional owners on a “different level of granularity” – focusing on technology, standardization and automation, for example.
Not all governance can sit in the GBS she warns, pointing out an obvious stumbling block of there being anywhere from 10-20 processes at the corporate level. “Despite what we want to believe, it's just not realistic to find one process owner across the entire P2P flow – encompassing negotiation to contract management to accounting,” Wiese says.
And while many practitioners emphasize the importance of a ‘single process owner’ (“non-negotiable”, one practitioner told me), to Wiese this is “a myth”.
“If you don't give up the idea of a single, overarching GPO your governance just won’t work,” she explains.
On the other hand, within the GBS there could be GPOs that act as an interface with their functional counterparts.
ZF is currently in the midst of a high profile merger, and Wiese is highly sensitive to the need to manage the service governance discussions with the acquired company correctly. In early negotiations, she avoided taking a strong approach to adopting all governance. “First you build trust,” she explains. “Then you can slowly build the model. Governance must reflect this strategy.”
"It’s never black and white – always a shade of gray,” she says. “But we need to be able to work in this gray area. Otherwise you end up constantly leveraging exceptions."
Under Wiese’s guidance, the GBS will not aim to control all of the governance. Instead, she proposes a more sympathetic approach that accommodates the regional centers currently in existence, alongside the expanding GBS. “Our regional centers serve some processes end-to-end, for example procure-to-pay, and as we transition to a GBS it’s important that we take an evolutionary approach – not a big bang,” she explains. "We are taking each process at a time, and optimizing to the extent we can, from a process development perspective.” Certain aspects of work are better left with the functions, Wiese believes.
Summary: is Germany that different?
German corporations’ traditional emphasis on business functions present a hurdle to the integrated requirement of a modern-day GBS. And yet we are seeing more examples of companies like thyssenkrupp, Deutsche Telekom, and ZF Friedrichshafen moving up the services delivery path.
To succeed, however, requires a ‘big transformation approach’ at a certain management level – “otherwise there is no power behind the change initiative,” as thyssenkrupp’s Hölzer explains.
“At the end of the day, success or failure may be down to the strength or the generosity of functional leaders and their ability to see the bigger picture,” he adds. “Many companies will no doubt remain limited to making the best out of their silo-based options.”
The final point may well be the most important point, as most of the practitioners interviewed for this article agree: the key enabler for a successful GBS is the reporting line – specifically, reporting to the CEO or CFO – both of whom generally have the support of all Board members, and hold a strategic role within the enterprise portfolio.
Read also online at SSON: Integrated Business Solutions: the Motor to Drive German Business Forward? (9/2013)