Gap Reorganizes along brand-centric lines – supported by shared services

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Gap Reorganizes along brand-centric lines – supported by shared services

These are interesting times at Gap, as the corporation finds itself within a few months of a fairly broad-reaching, and highly publicized, reorganization. Tom Croston, VP of Corporate Shared Services at Gap Inc., tells Barbara Hodge what the new focus on brand-centricity (versus geography) means for his Shared Services team, and how it is supporting Gap’s growth objectives.

Listen now via the button above – or read a transcript of the interview below.

Gap’s SSO has matured in the 11 years since its inception, and today operates as process holders for employee services; real estate; and F&A. It also handles inventory control globally. The focus now is on partnering with other functions in the company to help them create shared services models for their roles, given the reorganization.

Barbara Hodge: Tom, thanks for joining me.

Tom Croston: Thank you for inviting me, Barbara.

These are fairly interesting times at Gap right now. You’re within the first 100 days of a fairly broad-reaching reorganization of the corporation. Could you talk us through that?

Well, back in October the company announced, that we were going to change the way that we run the business. Historically, we’ve been organized according to geography, so obviously our largest presence was in North America. We also had a presence in the UK, and in Japan. Now, over the last two years, as we’ve penetrated China and begun a rapid growth program there, our CEO, Glenn Murphy, decided that in order to leverage the breadth of our resources across all functional organizations more effectively, it made more sense to reorganize so that we would be brand-centric. So rather than having market specific leadership and infrastructure, we are focusing on having one global CEO and management team for each of our brands – Old Navy, Banana Republic, and the amalgamation of our growth and innovation strategies in our new online brands, Athleta and Piperlime.

Our shared services infrastructure is strongest in Finance, really. We relocated from San Francisco to Albuquerque, New Mexico, back in 2001 and over the course of those 11 years, we’ve become very mature. We operate as process holders for employee services, so payroll and benefits, real estate – including our lease activities, rent occupancy – depreciation expense accounting and forecasting. We handle inventory control globally, which enables revenue accounting. We’ve come very far from the early days of being a transaction support shop to a decision support shop, and it’s been a great ride.

The opportunity now is to partner with other functional organizations in the company, and to help them create shared services models for their roles given this reorganizational change. It’s going to be a very exciting time for us to leverage all of our learnings over these 11 years, so to take our strengths and help our business partners create effective organizations. Once we build the infrastructure, we can determine what the right longer-term model for our company and our various functional organizations will be.

In Albuquerque, is there a plan to broaden the scope to include other functions with your shared services, to move towards a global model?

Well, as it relates to finance, and effective now that we’ve made this announcement, I have oversight responsibilities for all of the accounting and control organizations in the UK, Japan and China. So this is the first time within Gap’s financial shared services history that we’re going to have a truly global model, and I’m very excited about the potential. My business partners in those markets will actually be traveling to Albuquerque next week and we’re going to start rolling up our sleeves and start digging in to determine what our strategies need to be globally, what defines best practice from a global process perspective, and what opportunities exist to standardize process, standardize toolkits and make sure that we’ve got a good handle on all of our talents. We have incredible talent in those markets – and we are going to start thinking about succession plans and opportunities to share this talent amongst what are now our four geographic locations for financial services.

Many of the people I speak to are leveraging a more regional shared services model for growth markets in Asia. Is that also your plan?

I think ultimately we’ll end up going down that path. These announcements are very new. In fact, they were only made public yesterday. That said, we’ve been in market now for two years and we’ve learned some incredible lessons about the complexities of doing business in China. My team has been supporting the China team as we rapidly expand our store base in that market to make sure we are prepared to handle all of the incremental requirements resulting from that fast growth. It’s going to be an interesting ride for us and I think my team here in Albuquerque is incredibly excited. We’ve wanted to evolve our shared services model for years and this is really our first step in doing so.

Considering the new organization you’ve described, where do you think you can add the most value? We all know about the transactional elements – but nowadays we talk more about data analytics, knowledge sharing, and outsourcing. So what’s your strategy for making this new vision a reality?

The potential from our vantage point is limitless and, again, I am trying to break through some of the traditional political barriers that exist within organizations that have their own structure, their own ways of doing things – as well as address their concern to remain self-contained. These are common themes that all shared services professionals deal with at this natural evolution point. For us, we are internally re-evaluating opportunities to create shared services functionality across the four brand organizations I mentioned earlier. It’s really a great tipping point for us, us as the company’s premier shared services infrastructure.

As I think about the business its needs, and evaluate 2012 … it’s been an incredible year for Gap. We’ve done a great job in creating wonderful products that have resonated with our customers. Our sales are up; our margins are up; we’re gaining some of the benefits of the cotton price tailwinds from 2011. With all of that said, management’s focus for 2013 is to continue to drive sales. The best role that we can play as an organization to support all of our customers is to ensure that we are creating – from the raw data of our traditional business activities – the information necessary for those folks to effectively manage the business.

So whether that is providing them with the information that will help them understand sales and traffic, and what’s converting into sales based on that traffic; whether it’s inventory management; whether it’s understanding the impacts of all the lease activities as we continue to shrink our footprint in the brick and mortar stores and our online business continues to grow; … these are all things that ultimately flow through to financial statements, in some shape or form. So we ultimately touch it. Our goal is to do the best job we can to provide this information in a manner that can readily be interpreted and actioned up by our leadership. And I think we’re getting pretty good at it.

What’s interesting with organizations like yours, which are moving from bricks and mortar into the digital world, is that you need to be able to rely on your support services for agility and flexibility. To what extent are you looking to outsource providers to help you build in this flexibility?

At this point we’re not really looking for outside support for what we’re doing. We’ve made a significant investment over the years in our Internet infrastructure – and if you go to any of our websites, they all have tabs for each of the brands: Gap, Old Navy, Banana Republic, Athleta and Piperlime. So whether you access any of those sites from their domain or whether you navigate within these sites you can mix and match from the different collections. It’s a very, very split tool that we’ve invested in significantly and that does a wonderful job feeding into our revenue accounting systems and, ultimately, into our general ledger. So we’ve created solid management reporting as well as financial reporting tools, that are best-in-class as far as I’m concerned. It has really precluded our need to source support from third parties at this time. And as we try to evaluate future opportunities for uses of cash, we’ll be able to just meld these opportunities into that infrastructure and hopefully achieve some immediate lift as a result of our effective financials.

How well are you connected across your brands with an ERP platform?

We utilize Oracle as our financial platform and as our retail platform in the UK, China and Japan. We have a legacy accounting platform in North America that we are currently evaluating to possibly upgrade to the Oracle revenue accounting model. I would say across our geographies we haven’t fully implemented all of the Oracle financial suite modules that we have in North America, so now that we are actually striving towards having one global footprint and one global model, we’ll be evaluating how quickly we’ll be able to implement those applications and those geographies as part of our planning for what’s ahead.

How are you approaching end-to-end process ownership from a global perspective?

As a company we’ve got great partnerships throughout the organization and we are actually in the process of taking a more agile approach to our IT projects, building a better partnership. It’s been a great learning process for us. The benefits that we’re finding are that we are able to respond more fluidly within project plans and project executions to come up with solutions to real time problems, which, as you know, occur almost every day. So it’s having those great partnerships and having a great process that lends itself well to successful execution. Earlier this year, we upgraded our Oracle financial suite to version 12.1.3 and went live with that in April of 2012. Our CFO, Sabrina Simmons, observed at the time that it was the most successful IT implementation that she’d witnessed during her tenure with the company. That was great for us to hear, but it certainly lets us know that when we plan things right, when we architect things properly – when we’re all partnering and "in it together," as my colleague Amy Stanbury likes to say – we can create great results. We’re going to leverage those positive experiences over the next couple of years as we reach out and standardize, because there’s a lot of tough work ahead.

I recently spoke with someone leading the finance transformation at Avery Dennison who made the point that what has been significant to the success of that particular project was the fact that IT enabled change – it did not define it. This implied some flexibility, however, in order to leverage best practices built into some systems – as opposed to hanging on to customized solutions. Are you open to adapting some of your process?

Absolutely. Flexibility is key. This is a very unique point in our history and while we have 360 amazing finance professionals here in our shared services centre in Albuquerque, we also have another 60 plus folks between the UK, Japan and China And there’s no doubt that being able to harness that talent – and strategize and create plans for the future – is going to be incredibly powerful. As the leader of our global finance process it would be short-sighted of me not to evaluate every option – whether we continue with the status quo or whether we take the opportunity to have our global business partners evaluate our North American process and help us refine it; whether we see an opportunity to leverage third party outsourcing relationships for a portion of our work. I’m definitely looking forward to that process because, as you know, scarcity breeds innovation and oftentimes we, in shared services, operate under significant constraints. So having a long-tenured team that really knows their subject matter well, makes me optimistic that we’re going to do some great things here.

Much is now made of industry verticalization, in other words: tailored services for individual industries. How is this playing out at your end?

I think that you’ve got to look at the unique nature of the retail industry. Most of our transactions occur at point of sale, so we have a very robust revenue audit team that ensures the propriety of all our transactional flows. We accept numerous types of tenders, each of which has their own processing challenges. Some require third party support from Visa, Mastercard, or Amex. In inventory control we’ve got a store inventory that we take at least a couple times a year and we’re utilizing third party accounts services to support us in those areas. This is definitely unique, and fortunately for us there are companies that specialize in service provision for these retail-specific needs, and we do utilize them pretty robustly.

As I think about some of our back office opportunities, we’re doing some inhouse AP vendor recoveries, and here we’re utilizing third party services to support us. With our Sarbanes Oxley compliance measurement, we’re using support services to help us with our general ledger account reconciliation processes. Where we have the opportunity to leverage third parties with plug-ins, we do so, and just try and ensure that, again, we optimize our service delivery with minimal cost component where possible. And we’re always willing to evaluate new opportunities. Again, whether or not funding exists is always the key to these decisions, but our management is very practical, very risk focused and to the extent that we can deliver opportunities or options that will help maximize efficiency and minimize risk, we’re usually very open to those.

Tom, thank you so much for speaking with me today, at such a fascinating juncture in Gap Inc’s business.

Thank you. I look forward to meeting other members of SSON at the annual North American SSOW conference in Orlando next spring – and to cherry picking some of their ideas to help us move forward along our path as we embrace new challenges.

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