Governance - The Pen and the Sword
Our governance journey began approximately three years ago, early in 2004, when we decided to outsource our shared services operations. That was the first time I had heard the term governance used to refer to managing. It sounded like some new concept; a management style so secretive, they didn’t teach it in college because you were not yet part of the club with clearance to know about its secret handshake. What we didn’t realize, however, was that it would be both simpler as well as more difficult than we had anticipated.
Simpler, in the fact that success is measured by very few metrics – customer satisfaction being the most critical, and more difficult, in that you need to become governor, change manager, process expert and the complaint department all wrapped up into one.
We’ve learned that to govern effectively, we needed to deploy equal parts politician and army general – the pen and the sword.
The "right" people – not just a bunch of people – are key to making the relationship work and for managing a successful service offering. Whether you have an outsourced solution, a hybrid solution or a captive solution, having key people in the right positions with the right tools will make the difference between success and failure.
The team form the implements by which you do battle on a daily basis. They’re the expeditionary force that walks into enemy territory and bravely searches out new services to conquer; the landing party that takes fire from the gun turrets perched atop the hills firing off complaints and issues to your contact center. All metaphors aside, they need to be a strong team with the skills, the direction and the tools to work together to deliver results consistently.
Statistically speaking, the governance team should comprise 10-15% of the total staff in a shared services environment. This statistic is, admittedly, one of those "they say" statistics, based largely on anecdotal evidence and informal benchmarking. That said, our experience has proven that you do need at least a 10% ratio of governance to shared services staff to manage an effective solution. As your solution grows, the law of large numbers may impact the maths but starting out figure on 10% as your management team. I don’t think you’ll find you are overstaffed. And if you’ve outsourced your services, or are considering doing so, don’t let anyone tell you that one or two people can oversee the solution . . . even if it helps the business case.
We’ve organized our team in a matrixed fashion to provide both geographic and process coverage. Today we operate in two major regions – the U.S. and Europe. Each region has a regional governor responsible for service delivery. Supporting the regions are process managers for the major process areas: general accounting (which includes G/L, fixed assets, master data, intercompany accounting), accounts payable (including T&E) and accounts receivable (including credit and collections). Other governance team members cover financial analysis, contract support, negotiations, information technology and project management.
Secrets to Success
One of the most successful parts of our solution has been the designation of global process managers. These individuals are responsible for the global process, no matter what system and no matter what geography. It has allowed us to build internal subject matter expertise and focus on standardization of processes and best practices across the company. Although there is still a lot of room for improvement, we are moving in the right direction.
Also key to the people aspect of managing our solution is the interaction of the entire team. With our solution being outsourced, it’s a natural inclination for some to treat our service provider as just that – an outsourced entity. But to make the solution successful and to effectively govern, we’ve focused on integrating the service provider as an extension of our global team. It has not been an easy task to get the organization to think of our partners as part of the team, but it has formed an important part of any successes we’ve achieved. So from visits to the centers, to meeting with the functional leads there, to discussing process improvement ideas, to including team members in projects, to all-hands meetings . . . The integration of our service provider into the finance and accounting services team is how we believe we will continue to be successful.
One major challenge for the governance team was having true global oversight. Within shared services, our regions evolved separately and initially that autonomy was tolerated. As the solution matured however, and processes were being streamlined, the differences across the globe decreased and the need for consistency in processes and reporting became apparent. Saying this and doing it, however, have proven to be very different things, but the benefits derived from introducing consistency in processes and reporting (metrics, etc.), and the establishment of the global governance organization, have begun to make a noticeable difference in terms of the services provided.
Additionally, we prescribed to the fallacy that we really didn’t need to dedicate many people internal to the company to govern the operations of the service centers, because we just outsourced that stuff, didn’t we? Well, the answer is yes and no. While the joys of managing the people aspect of shared services centers may not exist for anyone but the service provider, we still needed to own the solution. To ignore this fact is to fail.
You’ll either fail through contractitis (contract issues which, if not closely managed, will cause leakage to your deal to a point that it will begin to deteriorate your business case or service quality) or you’ll fail because as good as a service provider may be, it is still made up of people – people who make mistakes, have their own agendas as members of the company they work for, and who can just be plain stupid sometimes. They’re not robots, contrary to popular opinion, nor are they all Six Sigma black belts. So govern them as you would your extended team.
Now to the pen. With data comes power. Using the data-rich environment that is shared services to drive added value as well as improve customer service can create the kind of visible success shared services organizations work to achieve. Don’t just use your pen to write your mission statement! Use it to report on meaningful business measures that can drive value into the company. Or use it to data mine customer complaints to understand the root cause of an issue, and thus to fix a problem at the source.
The governance team must also be commercially minded to drive value. Many CFOs consider your run of the mill accountant types not to be commerciallyminded by nature. To manage effectively, however, the governance team needs to have goals tied to certain commercial aspects of the arrangement and to think like a business manager, not an accountant or finance person. It’s about more than just counting the money – it’s about finding ways to count less of it.
Another key to successful governance is providing a value added service that the customer needs. Duh, right? Well, I can tell you from our early experiences that it was easy for folks to execute processes without putting much thought into why they were doing what they were doing – and without talking to the customer base to make sure services were in line with their expectations. I often employ a simple rule when I run across a process that seems like a non value-added activity. I ask the team to just stop doing it and see what happens (I would not advise doing this for payroll!). More times than not, the "TPS report" someone was getting was a waste of time and paper and we could create more value by freeing up time to focus on truly value-added activities.
It’s been two years since we outsourced our U.S. and French shared services operations and about four years since we decided to really look at doing something with our shared services operations. We’ve certainly learned a lot in the process; our solution continues to grow and we’ve lost a bit of hair but we have learned a few things.
We’ve learned that it’s not all about India and Central Europe. It’s not all about having metrics that show you process 400,000 payables invoices per year. We’ve learned and used the mantra "start with the end in mind" (a fancy way of saying: Draw a blueprint before you start building your house). We do root cause analysis and have projects and issues management committees. We hold quarterly calls with our customer base to keep them apprised of our initiatives and give them an open forum in which to vent (yes, we like to live on the edge). We’ve found that the laws of supply and demand apply everywhere – even in India. We’ve learned that the central European staff that speak French as their third language do not always speak a French that the French can easily understand. The list goes on.
After doing all that we have done it really comes down to remembering two things: whatever you do, make sure you continue to create value to the corporation by continuing to reduce costs; and providing the service the customer needs will always trump having a fancy metrics package or some nifty new technology.
This is the challenge I’ve issued to our governance organization. I wish I could report that we were best in class, and everyone was completely focused on the goal, but alas, I can only report we’re human, and trying our best to do the right thing.
It's difficult to keep the team, including our outsourcing partner, focused on the goal. It’s so easy to fall into fire-fighting mode, dealing with the latest invoice that did not get paid on time (at least we can now tell why). In a company where we are trying, simultaneously, to institutionalize the shared services concept, implement a global instance of SAP, and re-engineer our processes to streamline the work effort, it’s difficult to spend enough time on strategic direction and easy to get caught up in the daily grind of putting out fires.
In the end, I measure the success of our governance efforts by what I don’t hear, rather than by what I do. If I never hear from a customer, I feel we did our job. No noise, means no issues, means things are working as they should be. In the quiet time, we will focus our efforts on continuing to add value to the corporation by taking on additional service lines, reducing costs, improving efficiency and improving control.
So, by way of sharing a lesson learned: make sure your governance organization does what it says, and says what it does, and you’ll keep yourself safe from falling on your sword or poking yourself in the eye with your pen.