The Moreira Chronicles: Bangemann and Zabel on Pushing Shared Services Out Across Smaller Enterprises [Part 7]
Small and Medium-sized Entities
Over the past year, Pedro Moreira has written a series of columns for SSON summarizing his experience in rolling out an enterprise SSO model to a subsidiary, emphasizing the pros and cons of this approach.
Following the conclusion of this series, Pedro interviewed two well-known practitioners – Tom Bangemann of the Hackett Group and Kai Zabel of Heraeus Group, both highly respected practitioners in the field of Shared Services, with decades of implementation experience. Over the next two months, we are sharing a transcript of these interviews right here, covering the role of the SSO, its evolution and future trends; implementations and operations; and a discussion around GBS and new robotic technology.
Left: Pedro Moreira, Shared Services Expert
Middle: Kai Zabel, Head of Shared Services for Accounting, Heraeus Group
Right: Tom Olavi Bangemann, Senior Vice President Business Transformation at The Hackett Group
PM: With regards to smaller entities (4th quartile), how should you successfully integrate them in an SSO project, so that you maximize the expected returns in terms of cost, performance and headcount efficiency? Do you think that a small entity should be fully integrated?
Tom Bangemann: Lately,I’ve seen a lot of clients set up small accounting centers with 20 or 30 people. They typically have a few hundred million in revenues, but it obviously depends a lot on the business. In that space, I think it makes sense to set something up.
The trouble that you often have with small volumes is that, if you are international and you want to outsource and you go through one of those big outsourcing providers, with small volumes you’re going to be such a “small fish” for them that they will probably not really be interested in giving you the best deal. You’ll not be one of their best customers, so it’s like any other business: it’s a solution that’s there, but it’s not going to be very effective.
I would say if you have 20-30 people, I’d do it because I’ve seen those set-ups lately and they work. If you have 10 people altogether it’s really tricky. If those 10 are then spread out in groups of 2-3, I would outsource them locally, meaning: find a local solution that takes over those activities. The problem is that then you need to manage several agreements but apart from that it’s quite ok.
The problem is that if you select the big outsourcer, you have one contract but it’s not going to be very good and if you set it up yourself, with 10 people, you won’t have any benefits from it. There might be other benefits than cost, like transparency, compliance, being well consolidated, being more flexible and also in terms of environment; so there might be a lot of other reasons to do it but purely from a cost point of view, 10 people is probably not going to pay off and if it has to provide cost benefits, with 10 people, I would outsource locally.
PM: But in these cases, would it be better to eliminate jobs altogether and move them into the shared service center? Or still keep some FTEs in the entity?
Kai Zabel: My conviction is that when you have the one and same organization with large entities and lots of finance people, and you want to migrate into shared services and have very small sales offices where you have half a capacity or one capacity in finance, you can’t treat those two entities with the same approach regarding shared services.
Coming with a standard split of activities, with a standard delivery model of providing services, it does not work for the small entity, normally. However, you can consider moving even these very small entities into a shared services center, if it fits the strategy of the organization.
We have seen some organizations where it makes sense to cluster those entities in the shared services organization and provide them with a different approach. We are moving more to providing personalized finance and controlling activities to the small entities and eliminating more of the finance function in those, compared to the big ones, where you can also afford to have a certain split of activities between local and central.
So, you might start with a holistic approach for smaller entities and a split one for large ones, and as you further develop the shared services organization you can move into a holistic approach for the big ones as well. But that depends on the development and what the scope looks like.
The standard model for big ones does not necessarily work for the small ones in the same way.
TB: Yes, you’ll have to see, individually, how it works but what I would try to avoid is to leave behind too many fractional FTEs…
TB: If you leave 0.1 FTEs here and 0.2 FTEs there, that’s not good for anybody. You’ll get loads of problems with that and you would have to combine those roles into full FTEs anyway. But you’ll also leave behind many centers and access points to the system that you cannot control properly. There’s no point in leaving those things behind. Leave behind as little as possible.
PM: In Kai’s article, he presents the concept of “Hybrid Structure” in how to organize Shared Services for smaller entities. Have you implemented this model in a SSO and if so what were the results?
KZ: In comparison to most other organizations all our entities are small. Considering that, I don’t have really an organization where I take significant numbers of FTEs into one of our shared services. If there was already a concentration of a certain number of accountants, even in our model they became a center. Coming from this reality, I don’t have the issue of large finance organizations needing to be migrated into shared services.
What we do currently, in implementing one global ERP system, is we insource again previously outsourced activities for very small entities. The reason is for governance purposes. We don’t want to have the outsourcing resources operating on our systems, so the consequence is that we have to integrate those activities in our shared services.
What we do have are a lot of non-productive legal entities which still require accounting services and since there are not many people working for those organizations, we do the whole accounting for them from a single team. To a certain extent we are therefore applying this model (hybrid), however our organization is in general one that migrates small entities into shared services.
PM: If any particular small entity is experiencing a prolonged or continuous “hockey-stick effect” – meaning that instead of seeing increased performance, headcount and cost efficiency within a 6-12 month period, the entity is not experiencing those benefits – what does a situation like this signal and what corrective measures would you recommend?
KZ: First of all, there is a local perspective and a companywide perspective and those two views might not be consistent. Very often, the local view is that there are no benefits, everything becomes more difficult and it gets worse. From a global perspective, however, we still might have the view that things improved significantly.
Secondly, going back to the question, “what is the root cause for not reaching that performance, headcount effect, cost efficiency or the quality aspect?”… you need to work from a continuous improvement perspective in order to sort out these topics and eliminate them. I believe that with a proper attitude of working together, issues can normally be eliminated.
The other thing is that it becomes difficult every time you become fundamental in your criticism, so if the attitude is there on both sides to cooperate and work together, it’s my experience that you’ll find solutions which move things in the right direction and where everyone, on both sides, gets to a level of satisfaction which is good for the business.
PM: I was asking this question because when I did my case study with a small entity, I found that the structure that was serving this entity was the same that was serving a larger entity. My view was that they needed to change the structure and my recommendation was the adoption of a hybrid structure to improve efficiency. For example, different people from the shared service center were approaching the same person on the same topic because they were coming from different departments. Also, there appeared to be no financial gain on the local side, but clearly the benefit could only be visible on a higher organizational level. Can a change in the structure influence and bring benefits?
TB: I think there are a few different things on that topic. One is that you obviously try to standardize as much as possible and I think that in many cases the same type of service or activity split for smaller units is completely fine because there is no difference in how you do things. If invoices are received in a certain way, keyed-in a certain way, there’s less or more of them, or they are in this or that language … doesn’t really make such a big difference. Or, if you’re using a tool which is the same for everybody then it should be very similar regardless of whether they’re big or small entities because it’s the individual activity that should fit.
It can be that there are processes that for local reasons are different and the tools or processes don’t work well, so it becomes complicated. And if it becomes complicated and inefficient, especially if it’s not effective, then I think there should be changes to the process design.
The other point you make considers a financial point of view. I don’t think there is a point in looking at it from a local’s perspective in terms of “does it make sense for me to change to this other system?”, because if you take that perspective as the main perspective, you’ll never do anything.
We had the same thing at Hackett, when Kai was still working with me. We had a very small payroll solution locally, which was very cheap, and then we put in Oracle on a global basis. So, calculating for 30 people at the time how much Oracle will cost per person, it was going to cost more than this local solution we had, but that’s not the point. The point is that for the corporation as a sum it makes sense and then if I look at it from a local point, I need to think about how am I going to compensate for that fact that now I’m going to have to use this other system but It can’t be a benefit from an individual business case point of view from every country’s view, otherwise it would never happen.
I know that there are clients who do it differently. I’ve had clients who’ve done a business case for every single country, so that is possible but in my view the whole concept is based on the fact that you look at the holistic benefit. From a financial point of view, if it’s really bad for someone to join, then I need to see how I compensate. The processes point you make is a valid one: if I make people’s life miserable because they can’t work with this process or this tool, then I might need to give them something else to do.
PM: Most shared services projects, to keep complexity low and to more rapidly achieve results, adopt a standardized approach to all entities within the group. Is this the best scenario to integrate a small entity?
KZ: As I mentioned before, the important point is the momentum in the beginning, showing the benefits quickly in the beginning. You will not win the big prize with the smallest entities. If you can easily integrate them immediately, do it. If it comes with significant resource requirements, I would postpone it and try to adapt the approach.
The 80-20 rule applies, from my perspective, exactly in the same way as for other business decisions, in sourcing or changing the sourcing model into a shared services based organization.
TB: I think that in general, however you do it, you want to move the big volumes. They are the easiest ones to shift, the best for the business case, so smaller entities within the group are normally going to come at best, tail-end, no matter how you do it.