City Profile: Chengdu, China

The Chinese government has actively worked to create additional economic zones for international investment.  Increasingly, these have been further inland to leverage population centers where wage inflation hasn't been as strong.  The city of Chengdu, the capital of Sichuan province, is one city that has been developing to serve the needs of multinationals.

In 2007, this city of 14 million was designated as a Special Economic Zone (SEZ) by the government to spur investment and development.  Among the incentives are favorable tax programs to promote investment.  Investment in Chengdu is being driven by both the national government as well as Foreign Direct Investment (FDI).  Much of the FDI is directed towards the information technology sector, but manufacturing, transportation and financial services have also benefited from FDI.  Chengdu is one of 21 cities designated by China's State Council to serve as a model for the outsourcing industry.

Chengdu is one of the four major international air hubs in China after Beijing, Shanghai and Guangzhou.  An Airbus 380 can land in Chengdu.  In late 2012, British Airlines established a non-stop flight from London Heathrow.  A number of other international carriers, including Air China, Lufthansa, United, Cathay Pacific and others also fly into Chendgu.  The city is not more than 2.5 hours flight from Shanghai, Beijing, and Hong Kong. 

Language capabilities in Chengdu include Japanese, Korean, English and, of course, Mandarin and Cantonese Chinese.  Other languages such as French, German, Russian and Thai are also available.  A number of companies have set up in Chengdu to establish Asian regional hubs or global service centers capable of serving operations outside of China.

Salaries are typically lower than more established cities like Shanghai or Bejing.  In Shanghai or Beijing, for instance, a college graduate can earn a salary of 3,000 RMB or more per month.  In Chengdu, an equivalent degree would bring a salary of around 1,850 RMB per month, a savings of almost 40%.

Office rent for Class A office space is very competitive with more established locations in China.  Following are typical rents in RMB/Square Meter/Month (Source: Cushman & Wakefield analysis)

• Beijing                 525
• Shanghai            415
• Shenzen              288
• Guangzhou         220
• Chengdu             161

Multinationals with operations in Chengdu include Intel, Amazon.com, ANZ Bank, Microsoft, Motorola, Toyota, GE, JP Morgan Chase, and Nippon Steel.  More than 200 of the world's top 500 enterprises has a presence in Chengdu.  Additionally, a number of companies have set up Shared Service Centers to support business in China and across Asia.  These include Siemens, DHL and Maersk.

If you're looking for an Asian city to establish a Shared Service Center, it may make sense to look at Chendgu and discover what a number of other multinationals have discovered.

Four ways for Shared Services to remain focused on serving their Strategic Business Units

One of the biggest fears of business unit managers when discussing the move to Shared Services is that they'll lose control of their processes to a bureaucratic nightmare.  And it is not completely unfounded.  For too many years corporate services has provided too little value for too much cost.

While a Shared Service Organization can take serve their business units in a variety of ways, there are some essential elements that must be incorporated to ensure long-term responsiveness to the business units and to ensure that the Shared Service Organization is focused on those activities that are truely valued by the business.

1. Implement a sound governance structure that properly represents business unit interests.  Having the appropriate level of business unit representation will go a long way to ensuring the the SSO understands and is meeting the needs of the business.  These BU representatives should have strong organizational and political authority to represent the business.  Business Unit representatives should be high enough in the organizational hierarchy that they are taken seriously.
2. Clearly define what success looks like.  There should be clearly defined metrics that measure specific goals, such as cycle times and costs.  There should also be clear agreement with the business on how these metrics are collected, and how often, so that there aren't arguments over who's data is correct.
3. Regularly reevaluate what has value for the business.  As a general rule, business units value analysis and insight over pure transaction processing; however, that isn't to say that transaction processing isn't important.  It must be done efficiently and with sufficient control to maintain integrity of financial and management information.  But if the SSO is cranking out a monthly management reporting package that no one uses, then the business units has not only spent money needlessly, but they have been deprived of the time spent that could have been allocated towards value-added activities.
4. Regularly reevaluate the organization structure and responsibilities of the Shared Services Organization.  Markets and businesses change over time.  And these days that happens much faster.  As 3rd party service providers mature, it may make sense to move activities out of the captive SSO and to these 3rd party providers.  Or maybe it makes sense to move an activity back to the business units if the goals for that process haven't been reached after a set amount of time.  The point is that nothing stays the same, and Shared Service Organizations should constantly be looking at how they can reinvent themselves.

By focusing on these four areas, the captive Shared Service Organization can ensure that it remains relevant to the needs of the business it's serving.

Brazil power outage reveals strain on country's infrastructure

Brazil has been in the news lately, and not for the reasons it would like.  Brazil recently suffered a failure of its electrical system that impacted large portions of the country, and highlighted the strain of growth that has been placed on the country's infrastructure.

Brazil has been at the forefront of economic development in Latin America.  Cities like Sao Paulo and Rio have been traditional choices for Shared Services but other cities like Campinas and Curitiba are also experiencing growth as more multinationals move into those cities.  The overall effect, along with the demand for electricity from Brazil's population, has put the spotlight on the country's infrastructure. Other sources of blame for the failure include government regulation, forced rate cuts and inadequate investment in transmission capabilities.

An article from Businessweek highlights the problems.  Here's an excerpt:

Power was knocked out in 11 Brazilian states last night, leaving residents in the dark for several hours as the country’s latest blackout raises questions about the reliability of the electricity grid.

Power failures can occur in any country.  Just ask India.  But as multinationals evaluate various locations around the globe for potential shared service center sites, it's good to keep in mind which countries can keep the lights on.

Source: http://www.businessweek.com/news/2012-10-26/brazil-suffers-fifth-power-outage-since-crackdown-on-utilities

The Five Most Important Qualities in a Shared Services Leader

In any walk of life, strong leadership can make the difference between success and failure.  Shared Services is no different.  Strong leaders have a way of making a difference in their organization and in the lives of the people who work for them.

The Shared Services & Outsourcing Network has an interesting article on the most important characteristics of a Shared Services leader.  The article is based on a survey of employees in Shared Services.  Finance is well represented, but so is HR and other areas.  The results are not surprising.  What are they? Glad you asked. 

Here's a summary of the five points along with my commentary.  The percentage of respondents who voted for that particular attribute are shown in parentheses.  I'll post a link at the bottom of this post to the full article.  It's worth your time to read in its entirety.

• Provides a clear vision of where we are going and leads by example. (92%)

Leadership gurus Jim Kouzes and Barry Posner, in their book The Leadership Challenge, discuss the ability to craft and communicate a vision as one of the top traits of a leader.  Kouzes and Posner discussed the trait as the ability to be forward looking, but however it's phrased, people are looking for a leader that has a vision for the future and is able to communicate it in ways that are both challenging and reassuring.   So many times "leaders" spend time on everything but casting and communicating the vision.  If you're one of them, consider the results of this survey

• Empowers us / trusts us. (74.5%)

As a consultant, one of the things I hear from my client's personnel is that they want to be in a position where they can contribute and make a difference.  Very few people are content to show up at a cubicle each day, collect reams of data and issue a report that few people will read.  That life is death for most employees.  Effective leaders empower their employees to make a real difference.  Sure there could be some risk, but so what?  There is always risk.  As a leader, would you rather risk missing opportunities to make an impact on your organizations?  True leaders know they can't do it by themselves.

• Offer support and provide regular coaching (67.9%)

In most organizations and for most department heads (not I did not use the word Leader), the performance management process consists of a hastily prepared annual review which the manager then gets signed and submitted to Human Resources.  Whew!  Glad that's done!  Effective leaders understand that each day is an opportunity to provide meaningful feedback and enable employees to live up to their potential.  Waiting until the end of the performance year to Manage by Surprise is simply unacceptable.

• Keeping us informed of progress (55.4%)

No one likes to be kept in the dark.  Sometimes managers deliberately withhold information because they need to, but more often it's simply a matter of indifference or oversight.  They don't appreciate the importance of disseminating information on a timely basis.  Nature abhors a vacuum and in the absence of information employees will make their own conclusions.  Effective leaders communicate regularly and keep the employees apprised of progress.

• Manages performance fairly (49.1%)

Remember when you were in grade school and the teacher always called on Billy in the first row to go outside and clap the erasers?  Well, we hated favorites back then and we still do.  Most employees don't mind being judged, they only want to be judged fairly.  This means giving the criteria for performance before the beginning of the performance year and then reliably collecting information throughout the year.  It also means having realistic criteria to begin with.  Effective leaders use performance management as a way of reliably evaluating the strengths and development opportunities for each person in their group.  And they use it to provide frequent and fair feedback.

So there you have it, the Top 5 Qualities for a Shared Services Leader as described by the Shared Services & Outsourcing network. 

Only five days until the Eastern & Central Europe Shared Services & Outsourcing Conference

There's still time to register for the IQPC Shared Services and Outsourcing conference in Krakow, Poland.  The Conference will be held on 9-10 March, 2011.

Some of the many topics to be covered include:

• KPI's: The Best Form of Measurement
• Balancing Customer Service and Bottom Line Needs
• Priming the Ejector Seat: Devising Exit Strategies Just In Case
• Automation: Beyond Initial Implementation
• Reset Shared Services to Maximise Value Creation

In addition to the many workshops, this conference represents a great opportunity to network with others who are on the shared services and outsourcing journey.  I recommend that you attend if you are able to do so.

Customer or Partner? The Role of the Business Units in Shared Services

I've posted a new article today dealing with the relationship between Shared Services and the business units they serve.  Here's an excerpt:

In developing the framework for shared services in an organization, there are different approaches to how the business units should be viewed. Some organizations view the business units as customers while other companies view the business units more as partners in a journey.  How the Shared Service Organization views the business units will impact their relationship with the business units and the way they chose to deliver services.

Continue reading Customer or Partner? The Role of the Business Units in Shared Services.

European IQPC Shared Services and Outsourcing Conference - Launching a Shared Service Center in Central and Eastern Europe, Maintaining a Low Attrition Rate, and Much More

The Shared Services and Outsourcing Network is hosting a conference in Krakow, Poland on March 9 - 10, 2011.  One of the workshops focuses on planning and launching a Shared Service Center in Central and Eastern Europe.  The workshop will cover topics such as:

• Critical success factors for any Shared Services implementation
• Defining the project scope (depth and breadth)
• Recognising the critical importance of the “customer”
• People and organisation structures
• Systems/technology and ERP
• Processes
• Considering outsourcing as a possibility
• Criteria for your location decision

You'll also have the chance to tour the UBS Shared Service Center in Krakow.  The UBS SSC spans the areas of legal, compliance, risk, research, operations, IT, marketing and analytics.

To get an additional perspective on relevant topics covered by the IQPC Shared Services and Outsourcing Conference, you can listen to a podcast on ways to keep personnel turnover low in your Shared Services Center:

Tony Roberts-York: Shared Services: How To Achieve Attrition Rates of Below 10%

You can sign up by visiting the Conference website. 

After the Go-Live: Ten focus areas for effective Shared Service delivery - Part 10 - Foster a Culture of Continuous Improvement

It's been a long journey though this series of posts.  If you've stuck with me this long I appreciate it and hopefully you've gathered some additional insight that you can apply to your organization.  I'm wrapping up this series with a post about continuous improvement and organizational development.

High-performing companies make a commitment to continuous improvement in every area of their operations.  This improvement focus is centered on both the effectiveness of service delivery as well as the relentless pursuit of ever increasing efficiency.  There are a number of opportunities to focus on improvement.  Much of this improvement will be incremental and take place inside the walls of the broader transformation effort.  While true transformation makes bold leaps from one point to another, an organization's continuous improvement efforts supplement and refine that transformation effort.

Senior management must be visible in their commitment to the process, not only in word but in deed.  Funds must be allocated to the effort and the Shared Service Organization’s management team must be held accountable for delivering on promised and potential benefits.  Here are some ideas to contemplate as you improve your organization:

• Develop an integrated scorecard for the Finance organization that focuses on Financial, Customer (internal and external), Internal business processes and Learning and Growth.  It's hard to know how your journey is going if you don't have a way to keep score.  Develop a series of balanced metrics that provide a feedback loop for not just your current performance, but also to track the investments you're making to continuously improve.  You can track the number of customer invoices without an error, but you should also track the investment in training hours that you're people complete.
• Hold regular "lessons learned" meetings to identify areas for improvement.  I used to be a Controller in private industry, so I know as well as anyone that time is short in Finance and Accounting.  Yet it's important to set time aside to evaluate the current performance of the organization against established metrics.  What, you don't have metrics?  See point #1.  Really, why do Finance organizations continue to make the same mistakes and live with the same inefficient and ineffective processes month-after-month and year-after-year?  Don't let money be an excuse.  If the value is there and it's well documented in a business case, you stand a chance of improving your future.  At least you're trying.
• Rotate Finance personnel through Finance and Operations to give them a broader perspective on how Finance creates value in the organization.  I wish I had a dollar for every time a senior Operations manager told me they wished the Finance organization really understood their business.  Finance is about more than debits and credits.  Leading organizations have a formal rotation program that moves select personnel through both Finance and Operations so that they have a deeper appreciation for challenges of the business and better understand the ways in which they can create value.
• Clarify organizational responsibilities.  The world changes and so do a company's priorities.  Make sure that people's performance plans are up-to-date and reflect the alignment of operations with the company's strategy.  Implement at least two formal review periods during the fiscal year - at the end of the year and at it's mid-point.  Don't wait 12 months to give personnel formal feedback on how they haven't been living up to expectations for the last year.  Does a sailor only check his compass once a year?
• Implement a formal development plan for both individuals and departments.  What are the goals of each for the coming year?  What training, both formal and on-the-job, will these individuals and departments get to support their efforts to develop?  How do these plans align with the overall strategy of the organization.  If you don't have alignment you don't have an effective plan for organizational development.
• Implement a formal quality program.  Many companies have made the commitment to a formal program to track and improve quality.  And this is not just about manufactured products, but about all the support services used to support the company's strategy, including Finance & Accounting.  Instilling a culture of quality is as important as the reduction in error rates achieved.

These are just some ideas that companies use to continuously improve.  What have you tried in your organization?  What would you like to try and what's stopping you?  I encourage you to use the comment section below to leave your ideas and be part of the conversation.

Dalian, China restricts foreign workers

Dalian, China has been a favored location for companies looking to service the Japanese market due in part to the high number of Japanese speakers in that area.  China Briefing, which covers business developments in the Chinese market, has an article discussing Dalian's move to restrict foreign workers in organizations with small capital investments.  As noted in the article, this new ruling will have little effect on manufacturing concerns as they require relatively high capital investments.  Rather, it's likely to impact IT and BPO operations that are not as capital intensive.

An excerpt from the article:

The Dalian government introduced a new policy [Effective August 1, 2010] restricting the ability of foreign investors with a registered capital of under RMB3 million to obtain work permits for their foreign staff, effectively stopping foreign employees that want to work for such companies from being able to apply for a Z visa to work in China.

This measure is likely to affect companies in the service and IT sectors more than the manufacturing sectors, as service and IT enterprises tend not to be capital intensive, relying instead on generating income to grow their operations. The policy is likely to have a particularly large negative effect on innovation and entrepreneurship in the area.

Corporations looking to locate a site in China should look at how this impacts their evaluation criteria, including the ability to use foreign workers.  You can read the full article here.

After the Go-live: Ten focus areas for effective Shared Services delivery - Part 9 - Monitor Opportunities for Additional Sourcing Centers

In a world marked by globalization, new countries and cities are regularly developing the maturity necessary to be seriously considered as a service delivery location.  A balance is needed between the critical mass necessary to obtain economies of scale and the opportunity to move processes and activities globally to refine the global delivery model and leverage lower labor rates.  Additionally, it can make sense to grow the support processes in geographies that require additional support, such as an expansion of operations in Asia or Latin America.

In Asia, China is well established as a logical place to locate support centers.  Shanghai, Shenzhen, Dalian and Beijing are well know sourcing centers; however, due to rising wages, companies are looking to 2nd tier cities to locate manufacturing facilities and related support facilities.  The Philippines is a good choice when English speaking skills are required.  Even Vietnam is working to become a destination of choice for offshore work, although now it's mostly known for its IT capabilities.  And of course, India has multiple established cities for shared services, although, as with China, companies are considering 2nd tier cities there also.

In EMEA, companies have located in Budapest, Prague and Krakow, although there are a number of choices.  Companies looking for a labor cost advantage but who either desire or require a "near shore" facility like Eastern Europe for it's skilled workforce, good infrastructure and relatively low cost.

In Latin America, Costa Rica has long been a favorite for North American companies due to the time zone proximity (Central U.S. time zone during Standard time and Mountain U.S. time zone during Daylight Savings), reasonable English language skills and a stable political environment.  Brazil, as a dominant economic force in Latin America, is also the choice of many companies, particularly Sao Paulo and Rio de Janeiro.

And don't forget rural sourcing.  Even in high cost countries like the U.S. there are companies experimenting with rural locations as a way of retaining work onshore yet achieving cost reductions.  The point of all this is that, to put it mildly, globalization is creating the opportunities to develop a global Finance organization using a variety of tools.  This includes creating a delivery model that takes advantage of developing talent markets.  World-class Finance organizations incorporate this thinking into their existing and future plans to deliver Finance services to their companies.

After the go-live: Ten focus area for effective Shared Service delivery - Part 8 - Reevaluate the Captive vs. Outsourcing decision

A key decision in the development of a global delivery model will be the decision to outsource specific functions.  There are a variety of reasons why a company may choose to outsource a finance process, including access to current technology, access to industry specific knowledge and ability to scale up capabilities without a large capital investment.  A detailed business case detailing the reasons for the outsourcing decision should be created.  The same hold true for the retained finance organization.  There will be very good reasons why some finance processes will be retained in-house, including reasons related to governance and control.

However, despite the best efforts of the sourcing team to evaluate the overall delivery strategy in the captive vs. outsourcing decision, the reality is that conditions change and assumptions that were once thought reasonable are proved to be untrue.  As part of the ongoing effort to maximize the effectiveness of the delivery structure, the Finance Management team should periodically reevaluate the need to outsource a process that was previously handled in-house.  It may be that supplier capabilities have matured in that area or that competition among suppliers has pushed prices down further. 

Keep in mind that the process works both ways.  Sometimes an outsourcing relationship isn’t working out as planned and it makes sense to insource the process to provide better service.  A company with outsourcing contracts should be continuously reviewing the suppliers performance according to the Service Level Agreement (SLA).  It could also be that a company's strategic direction has changed  and it makes sense to bring some capabilities back in-house.

World-class companies use a portfolio approach to delivering finance services.  There will almost always be a mix of captive and outsourced activities.  In a dynamically changing world, it's incumbent upon finance organization to stay on top of the best ways to deliver those services.

After the Go-Live: Ten focus areas for effective Shared Service delivery - Part 7 - Evaluate Additional Processes to Shift to the Shared Service Organization

Once the Shared Service Organization is up and running, the governance committees responsible for oversight should regularly be engaged in identifying additional processes and activities that could be moved into the Shared Service Organization.  There are several different angles a company could take as they work to leverage the existing shared service infrastructure to drive additional value.

1. Expand the number of Finance activities.  Typically a company moving to Shared Services will take a relatively low risk (read: far away from the Customer) process and migrate it to a SSO.  Many times companies start with Accounts Payable or expense reimbursement.  Not that these aren't important activities, but they tend to be lower risk than other choices a company has.  As a company becomes more comfortable with "outsourcing" these activities from the Business Units to the SSO, they start to look at other processes such as general ledger accounting, management reporting, customer invoicing and cash applications.  Still others further along the curve are looking at budgeting, variance reporting, product costing and profitability, and customer profitability.  There is no single "right" choice for every company.  It depends on a number of factors including the complexity of the product or service, diversity in the lines of business, geographic dispersion and corporate culture.  The point is that leading companies are always looking for additional processes to migrate.  And they start with the assumption that the process could be migrated and then look at why it might not be wise to do so.  The burden of proof is on those who believe it should stay locally in the Business Unit.
2. Bring additional Business Units, Regions or Countries into the fold.  For a variety of reasons it may make sense to start with one business unit to stand up the SSO and then migrate additional business units.  Many companies take a regional perspective.  I worked on one client, a U.S.-based multi-national, who started with their North American operations, moved to Asia to consolidate a number of back-office processes in that region, and then moved to Europe to consolidate there.  The roll-out strategy will need to be developed as part of the overall approach, and will be heavily guided by the potential cost savings as documented in the business case.
3. Migrate non-Finance processes.  Even though this is a Finance blog, the reality is that many companies have moved beyond the single function SSO and are leveraging their existing infrastructure to drive additional value.  IT and HR are two common functions, but companies are moving beyond that to look at Procurement, Customer Service, Facilities Management, Logistics and more.  As a company moves further away from the traditional functions of Finance, IT and HR, they can expect more and more push back from the Business Units.  They'll tell you that they're unique and that those processes can't possibly be moved to an SSO.  The reality, however, is that there are companies today doing just that.

The Steering Committee that has overall governance oversight is ultimately responsible for driving additional value.  However, they'll depend on the Process Councils as well as other interested stakeholder groups to identify processes that are logical candidates for the move to Shared Services.

After the Go-live: Ten focus areas for effective Shared Service delivery - Part 6 - Benchmark to Monitor Performance

When a Shared Service implementation is performed correctly, a benchmark exercise will have been completed as part of the current state discovery process.  At that point in the transformation effort, baseline performance metrics are established to understand the gap to high-performing companies and to help prioritize the road map for the journey to high-performance.  It also sets the baseline for monitoring performance and ensuring that the Shared Service Organization fulfills the goals set out in the business case.  This is valuable information and should be leveraged as part of the performance monitoring process.

A benchmarking exercise should be conducted on a regular basis after the go-live.  A successful benchmarking program will have clearly defined metrics to measure both the effectiveness of service delivery (i.e. cycle time, defect rates) and the efficiency of the processes (i.e. the cost and organizational structure required to deliver the services).  It's important to create a specific focus for the benchmarking exercise.  While it's possible to benchmark the entire Finance function, it often makes sense to benchmark a specific process or activity.  For example, benchmarking the Accounts Payable process is much more manageable that a far broader scope. 

One of the biggest challenges in a benchmarking project is deciding which benchmark data to use to evaluate the Shared Services operations.  There are a number of consulting companies and industry organizations that have benchmark data available.  A question I often get is if it's necessary to benchmark against a strict set of peers in a specific industry rather than a cross-industry set of data.  My belief is that while benchmarking against a limited peer set can have value, there is also great value in benchmarking across industries.  If your company is in an industry that is not very progressive, you might be shooting for mediocre performance instead of truly world-class performance.  Organizational complexity such as lines of business, number of products, and the number of countries the company is operating in are better factors for determining a peer group than is the idea that only companies in a specific industry are valid comparisons.

One consideration that shouldn't be overlooked is the idea of benchmarking against an internal peer group.  A global company could easily have at least one Shared Service Center in each major region they operate in (i.e. North America, Europe, Latin America and Asia).  Successful companies have used the internal benchmarking perspective to evaluate where their operations are strong and how those lessons learned can be transferred to other internal operating units.

A final consideration (for this post anyway) is that the systems must be configured to automate the majority of the data collection.  Otherwise, the demands and associated costs of collecting the information will soon outweigh the benefits of the benchmarking program and the program will eventually be dropped.  Consequently it's important to select performance metrics that can be measured without a large amount of manual effort.  If you know it's going to be near impossible to collect data for a specific metric, look for a proxy measurement that may be easier to measure.

Benchmarking is an important activity within a Shared Service Organization to understand how existing performance compares to that of leading companies.  There is a specific skill set around benchmarking that should exist either within the Shared Service Organization itself or in the broader company.  By benchmarking regularly, a company has a realistic understanding of where it performs well and where potential opportunities for improvement exist.  This is critical as part of the continuous improvement effort to attain world-class performance.

After the Go-live: Ten focus areas for effective Shared Service delivery - Part 5 - Invest in Training

Training is one area that often gets short-changed as part of the Shared Services process.  Personnel are often left to learn on-the-job or to be taught by another person in the department without the benefit of a standardized training curriculum. 

A formal training program is always relevant, but particularly so when positions are moved offshore and processes have been substantially transformed.  In an offshore move there is typically little to no continuity of personnel, and the tribal knowledge that has been built up over time is lost.  Formal training will be required to ensure that the personnel driving the processes are performing consistently with the processes as designed for the new service center.

Also remember that the Shared Service Organization will be working to perform to the Service Level Agreement and silence any remaining critics of the move to Shared Services.  It’s critical that employees understand not only their job but also the commitments of the Shared Service Organization and the expectations of the Business Units as codified in the governing documents. 

Equally important is an ongoing commitment to training to bring new recruits up to speed and to keep existing employees’ skills fresh.  Too often new employees are taught by the existing employees.  Sometimes that works out but far more often the training becomes diluted and further away from the original vision.  The training curriculum should be standardized so that new employees are receiving the same instructions as the existing employees.

After the Go-live: Ten focus areas for effective Shared Service delivery - Part 4 - Standardize and Optimize Technology

Note: This is the fourth post in a series focusing on the continuous improvement of Shared Services. You can read Parts 1, 2 and 3 here.

4.  Standardize and Optimize Technology

Just as processes are not completely standardized during the transfer to the Shared Service Organization, technology may sometimes not be standardized as part of the move to Shared Services.  While it’s true that a Shared Service Organization is often created or enhanced as part of an ERP implementation or upgrade, there are times when the business case for shifting resources independent of a technology implementation makes sense.  This is particularly true when positions are moved to an offshore location. 

The strategy around optimizing technology will depend heavily on which strategy was used to transfer processes to the Shared Service Organization.  In a "Lift and Shift" transfer, the focus will be on rationalizing the core ERP systems to create a common technology architecture and standard processes.  If the processes were transferred as part of a "Transform and Shift" strategy, it's much more likely that the focus will be on the introduction of additional technologies as a bolt-on to the core ERP system(s) to enable process optimization.

If the "Lift and Shift" strategy was employed, it's likely that there is not a common ERP for all of the business units.  Shared Service Organizations in this situation are often required to support multiple ERPs and processes until the ERP systems can be rationalized.  In this case, the focus of the organization should be on selecting a single (ideally) ERP package with a single instance.  This of course is an issue much bigger than just the SSO and will involve a number of stakeholders.  In addition to the rationalization of the ERP packages, there needs to be a focus on creating a single set of master data, including the vendor and customer master records, the inventory master records and the chart of accounts.  By rationalizing the core technology platform and creating a single set of master data, it will be much easier to create a common set of processes.

If the rationalization of ERP platforms and the creation of a single set of master data occurs as part of a "Transform and Shift" strategy, then the focus in the Shared Service Organization will more likely focus on additional bolt-on technologies that can lead to the optimization of already standard processes.  Once example could be Optical Character Recognition around vendor invoices.  An even better step could be the implementation of an Electronic Invoice Presentment and Payment solution.  These types of bolt-on solutions should improve the efficiency of the SSO and can also facilitate the virtualization of the SSO so that activity can be shifted across Shared Service Centers based on changing business needs.

After the Go-live: Ten focus areas for effective Shared Service delivery - Part 3 - Standardize and Optimize Processes

Note: This is the third post in a series focusing on the continuous improvement of Shared Services. You can read Parts 1 and 2 here.

3.  Standardize and Optimize Processes

Processes should be standardized as they are transferred from the Business Units to the Shared Service Organization.  However, even under the best of circumstances there will still be more work to do.   Once the processes are actually being serviced from the SSO, additional opportunities to standardize the processes will be identified.  Additionally, opportunities to optimize the processes to enhance service delivery and reduce costs through the elimination of non-value added activities should also be identified.  If processes were not transformed as part of the shift to a Shared Service Organization but were part of a "Lift and Shift" strategy, then the SSO really has work to standardize the disparate processes transferred from the Business Units.

One framework for evaluating and improving processes is Six Sigma.  Pioneered by GE and other organizations, Six Sigma uses the DMAIC methodology to either create standard processes or optimize existing processes.  DMAIC can be broken down as follows:

1. Define- This initial stage focuses on defining the customer of the process, their business requirements for the process, and the decomposing the actual process into individual activities along with the organizational titles responsible for each step (e.g. Accounts Payable processing).
2. Measure- This stage creates a measurement dashboard that incorporates both effectiveness and efficiency measures (e.g. processing error rates and invoices processed per FTE per annum).
3. Analyze -  This stage analyzes the processes in detail to understand the root causes of inefficiencies and bottlenecks.
4. Improve- This stage focuses on the development and execution of initiatives that are designed to address the inefficiencies identified in the previous stage.
5. Control - This stage maintains the controls necessary to maintain the process improvements over time.

Ideally this framework would be employed as part of the design process prior to transferring the processes to the Shared Service Organization.  However, even if there is standardization of processes as part of a "Transform and Shift" strategy, there will inevitably be opportunities for improvement once the processes are up and running in the Shared Service Organization. 

After the Go-live: Ten focus areas for effective Shared Service delivery - Part 2 - Monitor Compliance with Service Level Agreement (SLA)

Note: This is the second post in a series focusing on the continuous improvement of Shared Services.  You can find Part 1 here.

2.  Monitor Compliance with the Service Level Agreement (SLA)

In every shared services project there are those in the organization, particularly in the business units, that doubt the promised benefits will materialize and that the service center is truly capable of providing the level of service the business units enjoyed when they had their own support services.  Don’t prove them right.  Once the service center goes live it’s time to hit the ground running and live up to the promises made.  This means living by the service level agreement and constantly monitoring the Center’s performance against the service level metrics.

Monitoring a Service Level Agreement is not without its challenges.  One challenge is that the actual agreement can be interpreted differently by different parties.  What may be clear as day to you may actually mean something different to the other party.  That's why is extremely important to develop the SLA in as a partnership between the Finance organization, the Business Units it serves and any other relevant stakeholders in the organization.  The SLA should very clearly spell out the performance metrics that will be measured, how often they'll be measured, by whom they'll be measured and how often they'll be reported.  The SLA should also define how disputes around these issues and the overall performance of the Shared Service Organization are resolved.

Another challenge often encountered by SSOs is the actual collection of data.  Don't define performance metrics in the SLA if it's virtually impossible to collect the data at the level of granularity defined.  If you have to hire a group of people to do nothing buy collect and report on the performance metrics in the SLA then something is wrong.  Remember, this is an operating agreement between units in a business; it isn't a legal agreement that enables you to sue someone if they don't live up to your expectations.  Keep the metrics defined focused on service levels, cost and response times.  And put in place procedures to collect that data at the intervals defined in the SLA and report on it as promised.

Define the intervals at which the entire SLA is re-evaluated.  No agreement lasts forever.  As the SSO and the Business Units learn more about working together it's inevitable that some aspects of the SLA will need to be changed.  Use the governance process to revisit the SLA and make changes as necessary.

Finally, use the data collected as part of the SLA process to evaluate the performance of the SSO in light of continuous improvement efforts.  Are you better today than you were a year ago?  If not, why not?  Even if the SSO is meeting the promised levels as defined in the SLA, the SSO should be looking ahead to even higher levels of performance.  What processes can be optimized to improve service delivery and reduce cost?  What new technology can be introduced to support the efforts of the SSO?  How can the SSO improve response times and customer satisfaction?

After the Go-live: Ten focus areas for effective Shared Service delivery - Part 1 - Engage in Consistent Governance

Note: This is the first post in a series focusing on the continuous improvement of Shared Services.

Creating and deploying a Shared Service Organization is a major initiative that requires substantial commitment from an organization.  Yet the deployment of a Shared Service Organization is only the beginning of the journey to create a high-performing service organization that partners with the Business Units and continuously creates value.  True value creation occurs over time.  As part of an on-going commitment, the following ten areas should receive management’s attention to drive value creation in the Shared Service Organization.

1.  Engage in Consistent Governance

As part of the planning process for the Shared Service Organization, a governance structure should be created to ensure appropriate oversight of the Organization.  If the Shared Service Organization has multiple service centers globally, the governance program will guide the entire Organization as well as the individual centers.

Governance committees should exist for the entire Shared Service Organization and for the processes within the organization.  The Steering Committee should be comprised of senior level executives with overall responsibility for the Shared Service Organization.  They resolve issues that haven’t been resolved at lower levels, provide continued funding of the organization,  and guide the expansion  of the Organization to incorporate additional functions that will drive valuation creation.

Process councils should be created to give oversight to each major process handled by the Shared Service Organization.  For example, the Procure-to-Pay process would receive oversight from executives in Procurement and Finance to ensure that global processes were as consistent and efficient as possible, to help resolve any conflicts that arose between organizational units, and to continue evaluating additional improvements that will drive efficiency while delivering value to the Business Units.

Five mistakes that damage the effectiveness of Shared Services and how to avoid them - Part 5

Note: This is Part 5 in a 5-part series.  You can click here to read Part 1, Part 2,  Part 3 and Part 4.

5.  A strong governance structure is not implemented.

The creation of a Shared Service Organization is much more than the consolidation of processes.  It involves creating a distinct organization that is committed to creating value in the company by providing support functions more effectively and efficiently than if they were embedded in the business units.  For this to be accomplished, the Shared Service Organization must be guided by a governance structure that provides the oversight and control that enables Shared Services to achieve its vision. 

The top governing body for Shared Services should include representatives from the major business units and IT as well as representatives from the major support functions such as Finance, HR and Procurement.  This body typically goes by the name of Steering Committee, and it is responsible for ensuring that the Shared Service Organization is fulfilling its mission.  They do this by giving oversight to the SSO, providing adequate funding, and resolving high-level issues that prevent the SSO from performing at its expected level.  The Steering Committee also has responsibility for providing an on-going vision to create value as additional processes are migrated to the SSO.

Another governance body that enables the SSO is the Process Council.  This council is comprised of subject matter experts (SMEs) for a given process, such as Procure-to-Pay.  In this example, experienced personnel from areas such as purchasing, inventory management and accounts payable would lend their expertise to ensure that this process worked as efficiently as possible.  Process councils meet regularly (typically once a quarter) to resolve any process-level issues and to evaluate additional opportunities to enhance the efficiency of the process.

Regardless of the committee or council, it is essential that the representatives of these governing bodies have the organizational and moral authority to get things done.  If these roles are delegated to low-level employees then the governance structure will not be effective.  A truly effective Shared Service Organization is guided by a coalition that has the authority, experience and dedication to drive the SSO to high performance.

Five mistakes that damage the effectiveness of Shared Services and how to avoid them - Part 4

Note: This is Part 4 in a 5-part series.  You can click here to read Part 1, Part 2 and Part 3.

4.  Comprehensive change management is not a priority.

Creating and sustaining change in any organization is difficult.  Too many companies focus on the mechanics of creating a Shared Service Organization with little thought to the human element.  Companies that have successfully reaped the benefits of Shared Services understand that a comprehensive and consistent change management program is essential to the successful deployment of Shared Services.

An important component of change management is identifying and engaging significant stakeholders early in the process.  When discussing Shared Services, the leaders of the company’s business units must be included.  Without engaging the business units in the change effort, the move to Shared Services will be seen as little more than the centralization of support services with only token input from the business units that will ultimately be the customers of the Shared Service Organization.

Creating a sense of urgency for change is important.  The fact is that the bar for efficient finance processes is being continually raised.  What passed for strong performance in previous years is now considered average performance.  As new offshore centers continue to mature, new opportunities to drive out costs appear.  The truth is that many competitors are reducing their cost structure and there is an urgent need to maintain a competitive cost structure.  As part of change management, it's up to the Project Sponsor and those entrusted with the message to effectively communicate the need and urgency of change.

Another essential component of change management is knowledge transfer.  Much of the knowledge in organizations isn't found in a binder.  It's captured in the minds of a company's employees.  It's critical to establish up front which employees are key to a successful transfer of knowledge and to integrate these key resources into the project.  Programs to establish job shadowing to enable the transfer of knowledge is essential.

While there are many other components of change management, the point is the companies that are successful in transferring processes to a Shared Service Organization understand the importance of the human element and incorporate it as an essential part of the overall program.