Shared service centres: the road to success? Stephen

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Shared service centres the road to
success? Stephen Skipwith MICM (Grad),
MBAEuropean Credit ManagerTaylorMade adidas Golf
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Themes

• Drivers Barriers to Shared Service Centres
  (SSCs), both in terms of inception
  sustainability
• How does the GCC economic area compare against
  these drivers and barriers
• Focus on Order to Cash Cycle, possibly the
  greatest area of competitive advantage an SSC can
  deliver
• Credit Management its evolving role in SSCs
  the Order to Cash cycle

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Shared Service Centres

• Vehicle to standardise and optimise
  organisational operations to achieve competitive
  advantage
• Support functions in one location
• Transactional processing in one location
• Management of internal business processes in one
  location
• An attempt to combine the benefits of
  centralisation and decentralisation
• Concept is nothing new having been around since
  the mid 90s

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Shared Service Centres

• 80 of Fortune 500 companies have SSCs
• New technologies have given SSCs a second birth

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Drivers for the SSC concept

• Economies of scale
• Research Development
• Marketing
• Logistics Operations
• Tax Benefits
• Headcount efficiencies removal of duplication
  of efforts
• Reliability consistency through greater
  standardisation
• Elimination of costly cross border transaction
• Learning Organisation
• HOWEVER SCALE OF THE ORGANISATION MUST BE RIGHT
• Ernest Young survey 74 of organisations cited
  the need to reduce costs as a driver for SSCs,
  runner up at 64 was the need to improve services

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Drivers for the SSC concept

• Need to compete with globalized competitors
• Stakeholder Pressure
• Debt to Equity Ratio
• To tap optimal locations for activities and
  resources
• To maximise knowledge transfer across locations
• To exploit clusters and convergences in end
  customer tastes and buying patterns. In essence
  facilitating adaptation to local market
  conditions whilst exploiting standardisation
  benefits
• Especially in EMEA markets

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Barriers to the SCC concept

• Inability to cultivate trust amongst team members
• Lack of clear SLAs
• Cultural differences not addressed
• Poor leadership
• Goal misalignment
• Poor communication of strategic aims
• Lack of clear SLAs
• Poor leadership
• Inability in achieving changes or sustaining the
  pace of change
• Leadership
• Resources
• Failure to re-engineer processes
• J P Morgan 2004 Success in SSCs comes on the
  back of best practice, most cost reductions come
  from process re-engineeering as opposed to
  exploitation of geographical locations

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Barriers to the SCC concept

• Deficits in knowledge skills or the ability to
  attract or develop them (especially when set
  against potential losses of local/SBU based
  knowledge)
• 38 of EY survey cite need for labour with
  technical skills
• 28 of EY survey cite need for labour with
  language skills
• Lost contact with local market conditions
• SSCs looking for processing advantage could lose
  sight of local market
• Ability to react to local commercial pressures
• Danger of SSC and SBU/local level losing contact,
  risking misalignment of strategies
• Geographical barriers
• Physical logistic considerations, 41 of EY
  survey site availability of property projects as
  the key driver on location
• Political considerations
• Considerations of time
• Cultural barriers
• Technology

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Shared Service Centres their viability in the
GCC Economic Area

• Growing number of international SSCs Call
  Centres, Alcatel, CISCO, Dell, Ernest Young, GE,
  IBM and Microsoft now located in the wider Middle
  East. Focus for these on Call Centres, IT BPO
  functions.
• Favourable time zone position
• Favourable tax position
• Infrastructure in place, on-going investment and
  locations available
• Access to educated technical workers and proven
  ability to attract imported workers
• History gives linguistic exposure to English and
  other European languages
• Low compensation costs

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Shared Service Centres their viability in the
GCC Economic Area

• A very strong environment for outsourcing
  organisations but does this translate into the
  ideal location for an SSC with wider functional
  coverage?
• Are GCC economies now the low risk choice to
  house SSCs over India?

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The SSC / Order to Cash Challenge Key Areas

• Customer attraction, capture credit analysis
• Order capture accuracy
• Order fulfilment, accuracy and timings
• Invoicing integrity
• Effective dispute resolution
• Effective and commercial collection processes
• Accurate revenue recognition and receipt
  application
• Customer retention knowledge capture

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The SSC / Order to Cash success story

• MEETING THE CHALLENGE GIVES
• High customer satisfaction, attraction and
  retention
• Enhanced Customer Services Internal External
• Optimal bad debt losses and DSO, improved debt to
  equity ratio
• Leading edge marketing and product development
  led by customer knowledge
• Economies of scale through improved processing,
  logistics and required headcounts

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Acid test for success relevance of Credit
Management in an SSC/Order to Cash Environment

• If you want to see what is wrong with an
  organisation look at its unpaid invoices
• Accounts Receivable (AR) is the place customer
  problems come to die
• Information capture transfer across locations
• Getting the correct balance between lending
  decisions, collection processes and internal /
  external customer services

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Credit Management its evolving role in SSCs /
Order to Cash Process
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Credit Management its evolving role in SSCs /
Order to Cash Process

• Support for Sales and Marketing functions through
  data custodian role the supply of fit for
  purpose data
• Innovation in terms of credit terms and payment
  methods
• An often over looked area that has the true
  potential to assist organisations break new
  markets and manage cyclical peaks and troughs
• Improved sales disciplines
• Enhanced dispute resolution role in the order to
  cash cycle
• Policing trading terms related compliance roles
• Knowledge capture and the commercialisation of
  the same
• Vital input into evolving organisational
  strategies
• And of course. risk assessment and the provision
  of effective collection processes

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Credit Management its evolving role in SSCs /
Order to Cash Process Case Support

• TMaG decided to re-locate all European credit,
  customer services and logistics operations in one
  SSC
• Four outlying offices closed
• 45 reduction in Credit Team staff
• Bad debt losses reduced by 1000 year -2 and 500
  year -1
• DSO reducing by approx 20 year on year
• Bad Debt DSO improvements cited as one of key
  factors for the divisions return to profitability
• Formalised training in place for Credit Team with
  a tangible professionalisation of the team
• Balance between standardised and
  adapted/exception based processes forming
• Improved external customer services especially in
  relation to sales, marketing and customer
  services functions
• Knowledge capture feeding marketing and payment
  terms innovation

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The death of functional responsibility
management?

• Credit Management feeding into all aspects of the
  order to cash cycle
• An overlapped wider view of all organisational
  functions feeding into the order to cash cycle
• Order to Cash as one process? With the inevitable
  amalgamation of Credit, Customer Service, Sales
  Support marketing support

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The eternal argument to gain competitive
advantage by outsourcing or by gaining internal
efficiencies by creating SSCs?

• Is it really a choice, or is a blended approach
  closer to reality
• If the most important aspect of SSCs
  contribution to economies of scale is by gains
  relating to process re-engineering are they in
  effect a precursor to greater use of outsourcing?

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The Road to SSC success..

• The creation of an SSC structure and environment
  that promotes clear and open communication to
  create trust and universally accepted goals
• Highly effective staff development and
  recruitment mechanisms. With lower head counts
  individual performance and skill sets are vital
  to success. In essence doing more with less but
  better people
• Never losing sight of the SSC concept by
  remaining close to and servicing local market and
  business needs
• Getting the balance between standardisation and
  adaptation right across cultural and geographical
  barriers
• Creating the optimal balance between SSC
  functions, outsourced functions and local market
  presence
• Provision of highly mobile Managers with strong
  negotiation collaboration skills who can play
  on both the SSC and local stages
• Ability to capture knowledge and the creation of
  mechanisms to do so, across all functions, that
  can be accessed by all and feeding this back into
  the organisation to promote efficiencies and
  innovation. Ultimately adding to evolving
  organisational strategies
• SSCs are a well established concept but to
  survive in an increasingly competitive and
  globalised market they will need to adapt
  continuously and never forget goods and services
  are executed at a local / SBU level

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Conclusions

• SSCs are not some form of panacea for all an
  organisations ills
• But they do represent a tool for releasing the
  wider organisation from the pressures of
  transactional processing to concentrate on core
  business functions (with of course the benefits
  of Economies of Scale!)
• However the future holds challenges for the SSC
  model in the effect of IT developments and
  climate change
• Almost inevitably the success of SSCs in cost
  reduction through process re-engineering open the
  door to the greater use of outsourcing thereby
  diminishing the scale of the SSC and the
  realisation of more virtual SSC models

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Acknowledgements

• Ernest Young (2004)
• Gupta Govindarajan (2001)
• J P Morgan (2004)
• A T Kearney (2007)
• Prahhalad Ramaswamy (2000)
• Trompenaars Wooliams (2003)
• Hassam, Craft Kortam (2003)