Shared Services and Small Entities (Chapter 2): Organization, Objectives and Relevance

This is part of a series of articles by Pedro Moreira, based on his work with the SSO at Siemens, where one of the projects he ran included a migration within the company’s finance group. Moreira subsequently focused his Master’s thesis on the impact of Financial Shared Services with a special focus on how Shared Services supported the migration of a small Siemens entity into the Global SSO. "Since starting my thesis, I have used SSON’s online resources as a source of information and ideas on the latest SSO developments and technology," Moreira explains. "Now, I'd like to contribute back to this community by sharing the knowledge I have acquired." "The findings and recommendations of my thesis are quite important in terms of analyzing common organizational structures within an SSO, understanding how Shared Services serves small entities, and, importantly, how it can ultimately lead to less than optimal savings and operational efficiencies", he says. The recommendations Moreira makes point to organizational changes and the measures required to reverse the negative impact, as well as tips on where and when this can occur. Moreira’s research shows that as SSO transitions generally try to keep complexity to a low level, they tend to leverage a standard or generic approach to all business units. When dealing with smaller entities, however, this creates a danger, as their rules, reality and dynamics are unique. Small entities, whose Finance function is usually staffed by 10 or fewer people, generally have broader responsibilities within one role, so services that would not be core to the SSO need to be considered as part of migration. This creates added cost and complexity. Moreira recommends that companies rolling smaller entities into their SSO should do so via a special "small entity migration wave". In my previous article (Globalisation and the Shared Services Evolution) we evaluated the factors (macroeconomic, IT and trends) that led to a surge in Shared Services Organizations (SSOs), and summarized a brief history and impact of this phenomenon on the organizational level, including the expactations thus raised. The results of this investigation are valuable to organizations facing similar transformation – as a management tool as well as by contributing new knowledge. Siemens’s Global Shared Services Specifically, this case study analyses the impact on the financial processes of an entity as a result of their migration to an SSO. The Siemens group was selected for the study: the fact that Siemens is a worldwide company with 343,000 employees, just shy of 72 billion Euros in consolidated revenue and 745 subsidiaries and associated companies (according to the fiscal year 2014 annual report) as well as possessing its own SSO, made it an interesting study in terms of learning how this industry giant processed its own financial transformation. Siemens’s SSO, the Global Shared Services is an internal supplier for a set of services which include finance and accounting, human resources, IT, E-Procurement, mobility and logistics. Conceived and launched in 2006 with this defined portfolio and several centers worldwide, the GSS processes 40% of all Siemens volume for that range of services. By 2009, the GSS was an organization with a considerable dimension that had grown without any specific mandate. Even though it possessed a good skill set with some of the best practices, the service portfolio was inconsistent with few global synergies between the several shared centers (SSCs) due to lack of mandate and objectives. However, the situation turned when the Siemens board expressed clear expectations around global and functional synergies in terms of cost optimization, quality improvement, transparency in operations and processes and customer satisfaction. The corruption scandal that hit Siemens in late 2008 seemed to have rocked the organization, demanding increased compliance, transparency and efficiency for the future. A couple of years later, the GSS seems to have transformed, with a clear set of objectives for the years to come. In 2012, Dr Ralph P. Thomas, CFO of Siemens AG, presenting at the Friedrich-Alexander University in Nuremberg demonstrated this focus and trend based on industry leaders, as well as the 2009 Shared Service Center Benchmark Study sponsored by the Hackett Group and SSON. At this point, we also got a glimpse of the territorial organization, its operational objectives and the approach/methodology used by the Siemens SSO across all its SSCs. The established goals were important for the case study since the analysis focuses on the impact of the SSO (GSS), and the goals establish what can be expected before GSS migration vs after GSS migration. The approach used by the Siemens SSO, called "Lift-Drop-Change" is also of significant importance as it defines the tactic to achieve these goals. In practical terms, a group of pre-defined activities are transferred from each client entity to the SSO organization within a short period of time (Lift-Drop) and once there, begin the process transformation, standardization, automation and optimization (Change). We’ll discuss this methodology, its advantages, disadvantages and impact in-depth in future articles. In any case, for those wishing to know more about the finance transformation undertaken by Siemens I highly advise the book "Finance Bundling and Finance Transformation" by Kai-Eberhard Lueg, Head of Finance Shared Services at Siemens. (Click to enlarge – Source: "Finance Bundling and Finance Transformation" by Kai-Eberhard Lueg, page 137) In terms of the physical organization of its SSCs, the GSS uses a combination of regional and global models. In the first, regional SSCs should control regional transactional activities for cost reduction and service standards with a local governance presence. This is complemented with a Global SSC, which should be in charge of global transactional activities for regional SSCs, for additional cost reduction. In an article titled "Three Steps to Global Shared Services: The Siemens Story", Anna Bowsher explained GSS’s strategy to become, first, a mandated internal supplier; then reaching world class level; and finally becoming a preferred partner. The article also includes an interview with Michael de Zeeuw, at the time CEO of the GSS, who reports staggering cost reductions, process improvements, transparency in operations and growth. Client Entity The GSS client entity selected for the study was a manufacturing business unit with a history going back to the beginning of the 20th century, and which was acquired by Siemens in the mid 2000s. In 2011, the company migrated finance activities to the GSS. The investigation carried out at the entity followed a structured evaluation methodology, using a defined set of variables to study the impact on the efficiency and effectiveness of the finance processes. The literature review done for the study made it clear that a migration process like this one would have a range of positive organizational impacts and optimizations. These positive impacts were tested in our case study entity by analysing it across different dimensions: Accounts Payable, Accounts Receivable, General Ledger, Operational Efficiency, Process Quality, Process Use, Process User, Financial, General, Communication and Alignment (more details about these metrics will be provided in the coming articles). The objectives of the investigation were to: evaluate both the positive and negative impact of the SSO on the organizational reality and find solutions for the latter; help the organization understand and elaborate its strategic and operational management based on the results; help the organization improve its planning and decision-making ability based on the findings of the study. Next Month: In the next article, Pedro Moreira will describe the methodology used to analyse the process impact, its framework and temporal pertinence. [eventpdf] Note: Other articles in the series: Introduction: How to Maximize Savings And Operational Efficiencies When Working With Small Entities Shared Services and Small Entities (Chapter 1): Globalization and the Shared Services Evolution Shared Services and Small Entities (Chapter 2): Organization, Objectives and Relevance Shared Services and Small Entities (Chapter 3): Milestones for Shared Service Implementation SSOs and Small Entities (Chapter 4): Case Study Data Collection [Note: if you liked this article, please use the buttons on the left side of the screen to share it across your LinkedIn groups – and contribute to this discussion by posting your thoughts in the comment section, below. Thank you for being part of SSON's community - Barbara Hodge]

Shared Services and Small Entities (Chapter 2): Organization, Objectives and Relevance

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