E x c e l l e n c e i n Le a d e r s h i p
issue 15 2010 ÂŁ12
Excellence in Leadership Outsourcing and shared services
Outsourcing and shared services
Share and share alike Finance leaders from Saatchi & Saatchi, Shell and Network Rail on the future of shared services
issue 15 2010
Plus: GSK, Future Publishing and GE Healthcare discuss the pros and cons of outsourcing
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Excellence in leadership Outsourcing and shared services
Avoid the frost and cloud Practices such as outsourcing, offshoring, and business partnering are blurring traditional organisational boundaries. Companies can now plug into the skill sets most able to deliver the best results, whether it’s technology, expertise or infrastructure, and whether they’re based in China, India or Europe. There is no doubt that the use of business process outsourcing (BPO) and shared services centres (SSCs) in particular has increased dramatically in recent years. But it appears that these emerging forms of collaboration are going through a period of re-evaluation by the wider business community. For some, the recession has made the idea of creating greater efficiencies through the use of shared services centres an attractive proposition. However, many are put off by upfront transition costs, while others are attracted to the value-adding services but discouraged by stories of the myriad difficulties involved in setting up these new relationships. To put these issues into a clearer perspective, we talk to some of the movers and shakers in the world of SSCs and BPOs. Two award winning academics from Loughborough University Business School, Ian Herbert, a lecturer in accounting and financial management, and Will Seal, a professor of management accounting, set the scene by outlining the evolution and development of shared service centres and how the concept compares with outsourcing (page 58). The clear message from many of our articles is that SSCs and BPO can have a radical effect on reducing costs and improving performance. But a successful transition often boils down to three Ps: planning, preparation and patience. Johann Xavier at Saatchi & Saatchi highlights the obstacles to overcome when creating a successful shared services centre for a finance function (page 36), while Adam Williams
at the Co-Operative Group, stresses the need for a sensitive approach to employee engagement if organisations are to avoid a lot of frost and cloudiness during the transition process (page 42). Business process outsourcing is not a universal remedy but cutting edge organisations are using selective, well-executed and wellmanaged providers to drive finance efficiencies and enable finance professionals to focus on business partnering and financial leadership.
‘SSCs and BPO can have a radical effect on reducing costs and improving performance.’ At pharmaceutical giant AstraZeneca, Karen Mansell, the company’s head of corporate procurement, discusses the long-term benefits of moving into BPO and the value its BPO centre of excellence has brought in ensuring thorough governance and the evaluation of the knowledge and experience gained from working with outsourcing partners (page 24). Taking a more technical line, Steve Swientozielskyj, head of financial shares services at Network Rail, looks at some of the technological factors to consider in setting up a shared services centre. These include ensuring security of data and preparing for the latest innovations in cloud computing (page 15). One of the most important effects of implementing BPO and SSCs is to allow finance professionals to focus on value creation rather than cost-cutting. With this in mind, Adecco’s Dominik de Daniel discusses how organisations can effectively turn accountants into business
partners – and what finance functions might look like in the future (page 76). I hope that this issue of Excellence in Leadership will blow away some of the uncertainty surrounding such ambitious changes to the corporate structure and that our insights will leave you with a more sunny picture of the advantages that both SSCs and BPO can bring to today’s organisations. Meanwhile I look forward to seeing you later this year at the largest gathering of finance professionals at WCOA 2010 in Kuala Lumpur, where we will be delving further into the subject of sustainable value creation. ■
Charles Tilley, CIMA chief executive
Your feedback is important. If you have any thoughts about the articles covered in this issue or suggestions for features that we could address in future editions, please do not hesitate to contact the editor: firstname.lastname@example.org. To download selected articles published in Excellence in Leadership, please go to www.excellence-leadership.com
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Excellence in leadership Outsourcing and shared services
Tough task GE Healthcare CFO Ulrich Borgne on how facing complexity head-on can maximise the value of an outsourcing strategy.
Joined up thinking Johann Xavier at Saatchi & Saatchi on how M&A can produce value through the synergies of shared services.
Why keeping the cash close at hand is an emotive issue for Future Publishingâ€™s CEO Stevie Spring.
Maintain momentum Network Railâ€™s Steven Swientozielskyj speaks to Phin Foster about how the speed and scale of change keeps companies developing.
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EXCELLENCE IN LEADERSHIP
Excellence in leadership Outsourcing and shared services
ISSUE 15 2010 £12
EXCELLENCE IN LEADERSHIP Vital statistics
42 Two into one
45 Outsourcing after the storm
46 Accountability by process
12 Carbon control under the new coalition
Lloyds TSB Commercial Finance
14 Cash control
Paul Blackburn of GlaxoSmithKline explains to Ian Duncan how successful finance and accounting outsourcing relies on strong support.
BPO is becoming a more powerful factor in shaping the strategic vision of many large companies, which rely more heavily on outsourcing partners to deliver cost savings, innovation and flexibility. Jim Banks speaks to AstraZeneca’s Karen Mansell.
Bharat Vagadia, director of the National Outsourcing Association and author of Outsourcing to India – a Legal Handbook, explains how the recession is forcing a reassessment of business models, making outsourcing an every day priority.
31 Don’t pay the penalty
32 Vested interest
A collaborative business model can bring transformational value to the firm that is outsourcing and its service provider alike. Kate Vitasek, author and researcher in the concept of vested outsourcing, explains all.
36 Joined up thinking
M&A can produce value through the synergies of shared services. Johann Xavier at Saatchi & Saatchi, who was involved in linking up shared services for the finance function after the company was acquired by Publicis, speaks to Steve Coomber about his experience.
40 The future of trade credit – an insurer’s view
Consolidating common services into a discrete shared service centre, where expertise and technology can be brought to bear, is a growing trend. Loughborough University’s Ian Herbert and Will Seal investigate.
Also in this edition:
28 On the agenda
As SVP for F&A operations at WNS Global Services, Arul Sivagananathan is responsible for F&A outsourcing across India and Sri Lanka. Here, he sizes up the challenges of the shared services model.
Share and share alike Finance leaders from Saatchi & Saatchi, Network Rail and Shell on the future of shared services Plus: GSK, Future and GE Healthcare discuss the pros and cons of outsourcing
Excellence in Leadership Issue 15 2010 Editor | Michael Jones email@example.com Chief sub-editor | Elliott Aykroyd Production manager | Dave Stanford Group art director | Henrik Williams Designers | Catherine Douglas, Mehmet Sem Client services manager | Derek Deschamps Sales manager | David Chai firstname.lastname@example.org Head of sales | Richard Jamieson email@example.com Circulation manager | Linda Burgess Publisher | William Crocker Editor-in-chief | John Lawrence firstname.lastname@example.org
58 Share and share alike
24 Force for change
The Salamander Organisation
54 Model behaviour
RBS Global Transaction Services
23 Best of both worlds
Network Rail’s Steven Swientozielskyj on how the speed change can force companies to keep moving; and how this accelerated, sustained approach can build a business culture far stronger than anything created in stasis.
53 A model of good practice
22 Multi-bank solutions in a risk-focused world
How does the world’s eighth largest company, operating in 140 different countries with over 100,000 employees, organise its outsourcing strategy? As Royal Dutch Shell’s Ian Robertson tells Phin Foster, it’s all about the process.
50 Maintain momentum
Future Publishing’s Stevie Spring tells Elly Earls that outsourcing may be crucial in some areas but there are two things that should be kept in-house: core competencies and credit control.
18 All together now
ISSUE 15 2010
It is not easy to address the challenge of bringing efficiency to a finance function that has evolved through the acquisition of diverse businesses. GE Healthcare’s Ulrich Borgne looks at how embracing complexity will often quickly prove the value of taking on an outsourcing strategy.
Of the many stages in the establishment of a shared financial services centre, consolidation is probably the most important, according to the Co-operative Group’s Adam Williams. Outsourcing and shared services
Outsourcing and shared services
64 Breaking glass
Women account for a growing proportion of senior executive roles, but statistics show they are still greatly in the minority. Is the glass ceiling as impenetrable as ever? Jim Banks investigates.
71 High-performance leadership
Aston Business School
72 From ledgers to leadership
The CIMA Centre of Excellence at the University of Bath School of Management looks at how business competency is vitally important across all finance roles.
76 Healthy aims
The finance function has moved away from its traditional focus on reducing costs and improving efficiency to target value creation. Jim Banks asks Adecco’s Dominik de Daniel, where it will take the finance function next.
80 Next issue 82 Directory
Excellence in Leadership is published by Global Trade Media, a trading division of Cornhill Publications Ltd, and is an official publication of the Chartered Institute of Management Accountants (CIMA). Registered address: John Carpenter House, John Carpenter Street, London, EC4Y 0AN, UK Tel: +44 207 753 4200 Fax: +44 207 724 2089 Email: email@example.com W. www.globaltrademedia.com www.excellence-leadership.com Registered in England No. 01564127 Chartered Institute of Management Accountants (CIMA) 26 Chapter Street, London SW1P 4NP, UK T. +44 (0)20 7663 5441 Ana Barco, CIMA, Senior Product Specialist E. firstname.lastname@example.org ISSN 2041-2444 ©2010 CIMA and Global Trade Media Every quarter Excellence in Leadership brings you the latest thinking from top industry practitioners and thought leaders. To subscribe, go to www.getthatmag.com or email email@example.com. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying or otherwise, without prior permission of the publisher and copyright owner. The products and services advertised in Excellence in Leadership are not necessarily endorsed by or connected in any way with CIMA. The editorial opinions expressed in the publication are those of individual authors and not necessarily those of CIMA or Global Trade Media. While every effort has been made to ensure the accuracy of the information in this publication, neither Global Trade Media nor CIMA accept responsibility for errors or omissions. Further copies of Excellence in Leadership are available from Global Trade Media at a cost of £12.00, €13.00 or $18.00 per copy. Printed by Warners (Midlands)
Editorial advisory board
Jeff van der Eems
David Blackwood is group FD of Yule Catto & Co plc. Formerly he was the group treasurer at ICI. He qualified as an accountant with Deloitte before joining ICI in 1985. After a spell at EVC in Brussels he joined ICI Films as CFO in Brussels.
Jeff van der Eems was appointed CFO of United Biscuits in 2005 and additionally became COO in 2006. Born in Canada, he joined United Biscuits from PepsiCo, where he worked for 12 years in a series of senior finance and strategy roles in EMEA and the US.
Bev Hampson has been with Volvo for 16 years; in the UK in various finance roles for both the car company and Volvo’s finance company. She also had a twoyear assignment living and working in Sweden at the Volvo Global headquarters in 2004–2005.
Keith Luck Sriram Kameshwar
A past president of CIMA, Claire Ighodaro’s board roles include nonexecutive director of Lloyd’s of London, the Banking Code Standards Board and UK Trade & Investment, trustee of the British Council, and council member of the Open University.
Sriram is a graduate in commerce, associate member of the Institute of Cost & Works Accountants of India, qualified Chartered Financial Analyst and an associate member of CIMA. He heads Knowledge Services for Prudential UK’s subsidiary in India.
Keith Luck is director general of finance at the Foreign and Commonwealth Office. His background is in telecommunications, consultancy and banking. He was finance director for two London boroughs before returning to the private sector in a business development role.
Kai Peters is chief executive of Ashridge, the business school located in Berkhamsted, near London. Prior to joining Ashridge, Peters was director of MBA programmes and then dean of the Rotterdam School of Management (RSM) at Erasmus University in the Netherlands.
Sara Shipton is a fellow of the Chartered Institute of Management Accountants and has a BA (Hons) in Accounting and Management Control. She runs her own consultancy business based in the East Midlands and is working on a number of projects for CIMA.
As SVP for F&A operations for WNS Global Services, Arul Sivagananathan is responsible for transitioning over 400 full-time accounting workers from the largest insurer in the UK to a green site centre in Colombo. He is responsible for F&A across India and Sri Lanka.
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7 Sponsored by
Vital statistics Sound bites ‘If anyone had told you a few years ago that Wipro would have a market cap of more than $30 billion, you would have made a few discreet calls to their doctor, or perhaps their maths teacher.’ Phil Fersht, BPO and ITO veteran and founder of the Horses for Sources outsourcing blog
‘It’s survival of the fastest, not survival of the fittest, and outsourcing, in the broadest sense, can play an important part in that if it helps companies to maintain flexibility.’ Stevie Spring, CEO, Future Publishing
www.atradius.co.uk 0800 21 21 31
And the survey said... BPO and innovation Ineffective change management and communications
Not giving internal retained staff the rein to steer toward innovative initiatives
Source: ‘Nasscom IT-BPO Sector in India: Strategic Review 2010’.
21%20% 13%20% 20% 10% 20% 30% 40% 13% % Enterprise buyers (significant influence over BPO decisions)
Waning executive support after the contract is signed
Great concern 10%
Source: HfS Research and Shared Services & Outsourcing Network (SSON), May 2010 % Enterprise buyers (significant influence over BPO decisions) Great concern Analytics
Achieving innovation with BPO reality versus potential Procure-to-pay Industry-specific process (i.e. insurance, banking,Analytics life sciences) Procure-to-pay Customer care Industry-specific process Supply (i.e. chaininsurance, management banking, life sciences) Order-to-cash Customer care Recruitment Supply chain management Document management Order-to-cash Payroll / compensation Recruitment Record-to-report Document management General accounting Payroll / compensation Benefits administration Record-to-report General accounting
Enterprise buyers of BPO services
Benefits administration 0%
Significant innovation achieved today 25%innovation50 Significant potential in 2475 months Enterprise buyers of BPO services
Significant innovation achieved today Significant innovation potential in 24 months
Source: European Outsourcing Association (EOA)
• Total industry revenues: $73.1 billion. • BPO sector employment: 2.3 million, up 90,000 employees. • Export revenues: $50.1 billion • Share of exports: 26%. • Sector as a proportion of Indian GDP: 6.1%.
Waning executive support after the contract is signed Misaligned compensation for your service delivery executives
Reports are predicting that the outsourcing market will grow by more than 600% over the next decade in the global and pan-European spheres.
Indian BPO market showed resilience in 2009
Unempowered governance teams unable to drive the relationship toward innovation The wrong composition of skills among the provider’s client Ineffectiverelationship change management andyour communications m’ment and governance teams Unempowered governance teams unable to drive the Misaligned compensation for your service delivery executives relationship toward innovation Not giving internal retained staff the rein to steer toward The wrong composition of skills among the provider’s client innovativeteams initiatives relationship m’ment and your governance
Source: HfS Research and Shared Services & Outsourcing Network (SSON), May 2010
CIMA is gold sponsor of the World Congress of Accountants (WCOA) 2010. From 8–11 November, WCOA brings together over 6,000 high level international finance professionals to explore the cutting-edge of accountancy. WCOA 2010 promises to be one of the most relevant business events of 2010. For more information, visit www.wcoa2010kualalumpur.com.
CIMA Research Initiative Beyond recession Confidence in free markets and business ethics has been rattled and regulation and better governance are required. CIMA funds research that is relevant to management accountants and responds to current business conditions. Research proposals, employing any appropriate research methodologies and with a remit addressing these issues are invited. Grants are typically between £5,000 and £40,000 depending on the scope of the project and its outputs. Further information: www.cimaglobal.com/research
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Tough task It is no easy feat to address the challenge of bringing efficiency to a finance function that has evolved through the acquisition of diverse businesses. Yet embracing that complexity will often quickly prove the value of taking on an outsourcing strategy despite the disincentives that arise in the early stages, as Ulrich Borgne, GE Healthcareâ€™s finance director for the UK and Ireland, reveals to Jim Banks.
When a business has grown by knitting together diverse companies, there often comes a point when the processes in the finance function need to be standardised to ensure they are running with optimum efficiency. Finding simplicity where once there was complexity can often be achieved through outsourcing, which can help a business achieve
better performance at a lower cost and improve the performance of the organisation as a whole. Despite the advantages it may bring, there is no easy time to make the shift to a new model in the finance function, but many companies have shown that the longterm benefits outweigh the problems that
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arise in the short term. Among them is GE Healthcare’s UK division, which is still in the midst of transforming its finance processes, but has already seen significant improvement in performance. It has seen both the challenges and the benefits of a well-constructed outsourcing strategy. ‘It is a tough environment today, so we need to look at the efficiency and quality of our processes,’ says Ulrich Borgne, GE Healthcare’s finance director for the UK and Ireland. ‘My business had bad processes – we had late or double payments to suppliers. The benefits of the transition are already starting to manifest themselves. We are now paying our suppliers once a week and we have regular, formal processes for following up on purchase orders.’ GE Healthcare is a leading provider of medical technologies and services that are vital for patient care, whether it is in the field of medical imaging, IT, diagnostics, patient monitoring systems, drug discovery or pharmaceutical manufacturing. Its products play a crucial role in the diagnosis and treatment of cancer, heart disease, neurological diseases and many other conditions. Headquartered in the UK, it is a $17 billion division of the General Electric Company (GE), with a global workforce of over 46,000 people in more than 100 countries. The UK division employs over 2,000 people and looks after the distribution of GE Healthcare’s products in the UK, which amounts to $600 million of equipment annually, from CT scanners to small monitors and incubators. Although the UK company has grown from the 1990s through many acquisitions, and therefore brings together infrastructure that has evolved along very different lines over time, it nevertheless operates a central finance team of 30 people, mainly based in Hatfield, Hertforshire. Within this, it handles all general accounting processes, budgeting and forecasting for threemonth, three-year and five-year business cycles, and all order intake and invoice processing. Other elements, however, are outsourced to other service providers. ‘We outsource all inter-company transactions, including invoicing, reconciliation and payments. We are also in the process of outsourcing all accounts payable processes. We gathered different businesses together, which had
different finance functions, but now we have a common platform for processing invoices. We closed everything we had abroad that some of these companies had established,’ says Borgne. Given the diverse nature of process and protocols that have built up within the different elements of the company, the decision to outsource selected finance processes meant confronting the complexity of existing infrastructure, and forced some tough decisions about where, and to which organisations, processes should be handed over. Ultimately, the company closed sites in France, Hungary and India, where invoice and AP processes had been handled, and brought these activities back to the UK.
change. Even now, we are still doing the implementation, so further challenges may still arise,’ he says. ‘Perhaps the toughest decision was to get the owners of the best processes – which was another business within the GE group – to take on more work. They saw more cost, more work and more people to manage, but we had tough discussions to make about having “one GE”, which would make us more consistent in our processes.’ In the end, all outsourced processes were handed to companies that are also part of the GE group, or to Genpact in India, which was created as a spin-off from GE. As a result, intercompany processes are still handled in
‘Every company is familiar with the processes they have and may not want to change.’ ‘Now we can save money, reduce errors and save time. There were processes that were very manual, including the scanning of invoices, but we have brought these processes together into a single platform,’ Borgne explains.
Through the pain barrier Making such a major transition in the way finance processes are handled is no easy feat for any company. There are many stumbling blocks and disincentives along the way, but for GE Healthcare the difficulty of transition was worth all the effort to see a marked improvement in process quality and cost profile. Borgne believes that once a business comes out of the other side of this period of transformation it will become clear that battling through the complexity will have been worthwhile. For him, the most challenging part of the process was in the very early stages, when the initial decisions were being made about how to organise the new model of the finance function and who to engage as service providers. ‘The transition seems easy now, but it was difficult to get agreement on exactly what we wanted to do. We had to carefully choose what process to follow and examine all of the businesses to see which one had the best processes. That was the difficult part, because every company is familiar with the processes they have and may not want to
India, while ‘know-your-customer’ processes are handled in Paris and the remaining elements are dealt with in the UK. The current challenge is to complete two phases of IT systems integration, which should be finalised towards the end of 2010, meaning the full benefits of the company’s outsourcing strategy are expected to become clear in early 2011. Nevertheless, tangible benefits are already apparent, which proves that once the initial challenges are overcome, with the right will and determination, a business can come to see advantages relatively quickly.
Keeping it in the family GE Healthcare’s outsourcing services are provided by companies within the GE group, except for India’s Genpact, which until 2006 was itself part of GE. Genpact provides: • transactional F&A processes: accounts payable, order to cash, general accounting, closing and reporting, treasury and tax, financial planning and analysis • finance process transformation and optimisation • six Sigma and Lean process improvement methodologies • support to numerous GE businesses in diverse locations around the world.
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‘Everyone must see the benefit of making the switch to a new outsourcing strategy. You have to convince the sceptics and show people how the change will affect them.’ The lesson for other companies is that once the initial decision-making process has been dealt with and clear goals set for an outsourcing strategy, they can soon start to improve the performance of the finance function. While complex and challenging tasks will still remain after that first phase of project definition and goal-setting, efforts to complete subsequent parts of the project will be supported by the arrival of real savings and efficiency gains, which will help to build further momentum.
to provide valuable insight into what is needed for such projects to succeed in any organisation. The most important lesson is to establish clearly why the company is outsourcing elements of its finance function and define the processes that will improve most when handled by an external service provider. Perhaps equally important, however, is to ensure that any strategy is fully backed by the company’s senior decision-makers in order to provide sufficient impetus to get the project moving in the early stages.
‘What takes time is the systems implementation behind it. So, you need a strong business case, factoring in all the pros and cons,’ says Borgne.
‘You need to have the right reasons to start with, as well as the right processes and tools. Furthermore, everyone must see the benefit of making the switch to a new outsourcing strategy. You have to convince the sceptics and show people how the change will affect them. For that to happen, the outsourcing
Buy-in from the business From his experience of GE Healthcare’s outsourcing strategy so far, Borgne is able
strategy must be driven from the highest level, so you need to secure buy-in from HQ. In our organisation we were also able to benefit from the experience of people who had done outsourcing before,’ says Borgne. ‘The move was driven by the business, so we have a central team that supports implementation. When you have the idea about outsourcing you must talk to HQ, which comes back with its feedback and support. We have an independent finance function here, so we can take opportunities to increase efficiency and reduce costs. We just need to get HQ on board.’ With the company’s CEO and senior executives backing the transition, GE Healthcare’s UK division is not only able to forge ahead with cost reduction
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‘It depends on where processes are. Outsourcing may not always be the answer. You must look at things process-by-process.’ and process improvement, but is also able to use its experience to establish a model that will benefit the company’s operations in other countries. Following the success of the UK project, the company will then look to Spain and France to follow a similar path. The implementation of a successful outsourcing strategy in one location can help to highlight any challenges and, with any luck, their solutions. It can also provide the evidence of tangible benefits that is needed to secure buy-in at an early stage when other territories consider a similar move. With a concrete example of success, it should be easier for the finance function in another region to get through those initial tough discussions and build momentum behind the transition.
‘Some companies outsource everything, including budgeting, but for us that needs to stay close to operations. However, people have different views on outsourcing. For instance, although GE itself is a big holding company that is driven by the finance function, some companies within the group outsource everything and have no finance function of their own. For us, we need a finance function, and we need it to do more than just produce reports – we need it to work closely with operations and the CEO.’ ■
Ulrich Borgne Ulrich Borgne is UK & Ireland CFO, General Electric - Healthcare. He joined GE in October 2004 as EMEA financial controller and is currently CFO for the UK & Ireland. Borgne started his career as a financial auditor with KPMG in Paris in 1997, then moved to their London office in 2001 where he stayed another two years. Borgne is a French Chartered Accountant and holds a degree in Accountancy, Management and Finance from EM Normandy.
‘The UK was the first in the queue for this strategy. We needed bad processes replaced, so we saw a case for big savings to be made. Other locations are waiting for us to complete the outsourcing process, then Spain and France are likely to follow,’ says Borgne. Nevertheless, Borgne sounds a note of caution, reminding us that outsourcing is not a blanket solution, and business divisions in other locations should not necessarily follow a carbon copy of the project that was successful in the UK. It is vitally important to tailor the transition process to the specific needs of each jurisdiction. ‘It depends on where processes are. Outsourcing may not always be the answer. You must look at things process-by-process. That is why we don’t use outsourcing for SG&A or general accounting, which we do in-house; they are already optimised processes. Also, you have to revisit your processes – whether in-house or outsourced – on a regular basis. If, for instance, we acquire another business, then that would change the dynamics of what we need,’ says Borgne. Excellence in Leadership
Carbon control under the new coalition Over the past few years, green issues have come to the fore and, because the new coalition government has pledged its commitment to developing a low-carbon economy, businesses are now under increasing political, social and economic pressure to move the environment higher up their agenda, explains Simon Featherstone, MD of Lloyds TSB Commercial Finance. The recent downturn may have seen firms focus on other priorities but, as the economic recovery gathers pace, it’s important that companies consider what approach to adopt in order to achieve sustainable success in a lowcarbon economy. Most businesses will need to make significant investment in their operations over the coming years, which will require up-front capital outlay, but for many firms emerging from the recession, implementing a ‘green’ agenda may put significant pressure on their cashflow. We’re seeing asset based finance, which includes invoice finance, hire purchase and leasing and asset based lending (ABL), increasingly used to fund business’ green strategies, whether it’s for cutting waste, driving efficiencies, complying with new regulations or developing new ecofriendly products or services. Asset-based finance can be used to leverage the value of existing assets, ranging from the sales ledger, right through to stock and unencumbered machinery, in order to make environmentally-focused, business critical investments.
Financing for green strategies There are several advantages that come with using flexible asset based finance packages. Invoice finance, which includes factoring and invoice discounting, leverages the value of a firm’s invoices and releases the necessary cash to enable it to invest in developing new sustainable products and services. This allows a company to capitalise on growing demand from increasingly environmentally savvy customers and will bring long-term benefits in a low-carbon economy.
Factoring in particular also has an additional credit management function to control a firm’s debtor book, meaning the provider will issue statements and reminder notices on the business’ behalf. This reduces the administrative burden and allows an eco-conscious firm to concentrate on other areas of business development such as executing its marketing programmes to highlight their environmental track record. These green credentials are likely to become an increasingly important differentiator in the minds of customers and suppliers and it is therefore vital that businesses effectively highlight their sustainable practices.
‘Green credentials are likely to become an increasingly important differentiator in the minds of customers.’ Another product that is increasing in popularity amongst green businesses is asset finance, which enables a company to obtain funding for the purchase of significant assets such as the latest hightech, low-carbon plant and machinery. These facilities ease the strain on cashflow and allow a firm to make regular payments over an agreed period of time. Businesses which invest now may find that the improved efficiencies this generates create significantly lower operating costs and improved margins.
Spotting and seizing opportunities Asset based finance also allows a business to seize opportunities created by new environmental legislation, such as waste regulations and landfill tax, by making crucial operational developments to capitalise on demand. For example, companies have a legal obligation to pre-treat waste before it goes to landfill, which provides an added incentive for firms to recycle and reuse materials, along with the reputational issues and importance of being eco friendly. Lloyds TSB Commercial Finance recently funded the expansion of a fast-growing recycling business, Lawrence Recycling and Waste Management, to support the ongoing development of Europe’s largest material recycling facility (MRF) in Kidderminster. Jon Myerscough, associate director business development at Lloyds TSB Commercial Finance, says: ‘The market that Lawrence Recycling and Waste Management operates in is growing at a fast rate in line with landfill tax, which is currently increasing by £8 per ton per year, recently rising to £48 a ton.’ The recycling plant, owned by Lawrence Recycling & Waste Management is known as The Forge and recycles 250,000 tonnes of building and commercial waste per annum, cleaning and sorting materials
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The Forge’s 16 acre site is large enough to process 250,000 tonnes of waste.
such as metal, plastic, sand and stone, to prevent them having to be sent to landfill. To develop the site to its full capacity and help the enlarged group to reach its target turnover of £15 million, Lawrence Recycling & Waste Management, based in Worcestershire, UK, approached Lloyds TSB Commercial Finance, which provided a tailored asset based finance facility. This funding package allows the group to execute its expansion strategy by releasing the significant value of the combined business’ three sales ledgers. Lloyds TSB Commercial Finance was introduced to Lawrence Recycling & Waste Management by James Grenfell at Orbis Partners LLP, which acted as lead advisor to the management team in the raising of £10 million of development capital in early 2009, from funders which included Maven Capital Partners (previously the private equity division of Aberdeen Asset Management) and the Advantage Transition Bridge Fund. This investment was required to complete the refurbishment of The Forge, which has been fully operational for almost eight months and is expected to create 70 new jobs by summer of this year. When we spoke to Calvin Williams, financial director of Lawrence Recycling
‘We aim to recycle 99% of the commercial and industrial waste that is currently brought to the site.’ & Waste Management, he said: ‘When you’re a company with ambitious growth targets, it’s important to have the right funding in place to support your expansion strategy.
building materials can make sure that the gravel, shale, bricks and stones that we need to build new houses can come from recycled sources.’
Funding in a low-carbon economy ‘We have a significant opportunity to develop our business further and aim to recycle 99% of the commercial and industrial waste that is currently brought to the site, ensuring it doesn’t have to be sent to landfill. ‘Last year we received a £10 million capital injection and, in addition to this, we wanted to make the most of the significant volume of debtors. The asset based finance facility from Lloyds TSB Commercial Finance effectively unlocks the balance sheet, releasing working capital at a rate to suit our growth and putting us in a strong position for the future.’ Prime Minister David Cameron, who visited the site when the project was first announced, said at the time: ‘It looks very impressive, and to have more recycling of building materials makes perfect sense. An enterprising scheme like this to recycle
Whether it’s to facilitate a firm’s investment in efficient equipment or to help develop new products for the emerging low-carbon economy, asset based finance has quickly established itself as an increasingly viable financing option for environmentally aware businesses. We are confident that, with the economy beginning to stabilise, it will have an even bigger role to play in a post-recession green landscape. If you have any clients who are looking at how to fund their growth strategies, please get in touch and we will be happy to discuss further. ■
Further information Lloyds TSB Commercial Finance www.ltsbcf.co.uk Excellence in Leadership
Cash control Rapidly changing consumer behaviour and an unstable economic climate mean that companies need to be light on their feet and quick to adapt. Outsourcing is a huge part of this for Future Publishingâ€™s CEO Stevie Spring, but, as she tells Elly Earls, there are two things that should be kept in-house â€“ core competencies and credit control.
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Heart of the matter
Stevie Spring Businesses worldwide are operating in an undeniably tough macro-economic environment. Faced with everything from financial crises to unstable governments, rapid technological advancements to increasingly stringent industry rules and regulations, stability is difficult to maintain within today’s global economy. Moreover, consumer behaviour is changing at an unprecedented rate, meaning that it has become essential for companies to remain flexible and light on their feet in order to survive. ‘It’s no longer about straight evolution, it’s about Darwinism on speed,’ says Stevie Spring, CEO of Future Publishing, an international specialinterest media group. ‘It’s survival of the fastest, not survival of the fittest, and outsourcing, in the broadest sense, can play an important part in that if it helps companies to maintain flexibility, allowing them to adapt their business more quickly to keep up with consumer behaviour.’ Corporations need what Spring describes as ‘the maximum flex’ and outsourcing is an attractive option for any company that is looking to re-engineer its business models to become ‘fit for the fight’. According to the TPI Index of Q4 2009, the outsourcing industry had its best performance in six quarters at the end of last year, perhaps signalling the start of a gradual recovery in the global market. The report, which helps industry participants, enterprises and organisations keep pace with the latest outsourcing trends, found that the total contract value (TCV) reached $24.7 billion, the highest since Q2 of 2008. But for Spring, outsourcing is a tricky term. ‘My definition of outsourcing is almost any service that we buy in rather than doing in-house, but an awful lot of that isn’t seen as traditional outsourcing,’
she explains. ‘Call centres tend to take all the stick when it comes to outsourcing, and people get terribly confused about offshoring and nearshoring. ‘Frankly, I think all of those terms become increasingly irrelevant when we’re talking about 24 hour economies. When you think about outsourcing as anything that is contracted that could feasibly be done in-house, you start to look at it in a very different way.’
‘It’s no longer about straight evolution, it’s about Darwinism on speed.’ According to Future’s chief executive, a line needs to be drawn; it is incumbent on leadership to recognise and describe what a corporation’s core competencies are. ‘It would be surprising if there was wholesale outsourcing of those core competencies, because the company would end up as a front door with nothing behind it – a façade,’ she notes. ‘It is about describing, owning and putting your arms around your core competencies. If you’re outsourcing things that somebody else can do better, more cheaply and more efficiently than you can, that’s fine. But there needs to be some core competence that you do better than anyone else; otherwise, why are you in business?’ Spring, who has been CEO of Future Publishing since June 2006, believes that even if a company outsources that core competence and manages it, value is still being added to the process at the front end. ‘If you’re not adding any value, you don’t have a reason for being and you pack up and go home,’ she remarks.
Future Publishing’s core competencies focus on content production and the company outsources those skills for partners including Microsoft, Nintendo and Odeon. ‘We use our core skills and lend them to other people,’ Spring says. On the other side of the coin, the company outsources print, disc production, subscription fulfilment, as well as some web development and content writing. ‘We outsource a lot, but equally other people use us to outsource, so it’s a virtuous circle. Where we have a centre of excellence, we make it available to other businesses,’ Spring notes. ‘Outsourcing is all about specialisation and although some businesses lend themselves more to partnership, frankly, I can’t think of a business that doesn’t outsource some processes to a third party contractual supplier. ‘The degree to which you do things inhouse and out-of-house is actually more a question of scale and complexity than anything else. Often companies outsource processes as part of an introduction to a new market or a learning curve and then take them in-house when they are of a scale and experience that it becomes realistic.’ When Spring expounded her views on treasury and cash management and the importance of keeping both in-house on BBC Radio 4 business conversation programme ‘The Bottom Line’ in February 2010, she received an unexpectedly strong response. ‘I got a very strange reaction from all and sundry,’ she recalls. ‘I had about 100 emails from India and China telling me how wrong I was.’ The CEO’s opinion on outsourcing treasury functions does clash with her insistence that anything that isn’t a core competence can logically be outsourced, as she readily admits. ‘I wouldn’t dream of saying that cash management is a core competence and, therefore, rationally I can say it is something that can sensibly be outsourced,’ she says. ‘But emotionally I want to be so close to the cash that I can’t envisage what would make me comfortable outsourcing it.’ The events of the past couple of years have clearly cemented her opinion: Excellence in Leadership
‘Companies that have gone down have gone down not because they are bad companies, but because they have lost control of the cash,’ she insists. And although outsourcing treasury processes to providers who can offer advantages of efficiency, cost and scale could potentially increase the ‘flex’ of a company, Spring refuses to relinquish control, and believes other CEOs should consider her point of view.
management and it looked like the best idea on the planet on paper, I would have a huge emotional response to letting it go. I know it doesn’t necessarily stand up to scrutiny, but who’s to say that I’m wrong?’ Spring does, however, appreciate the pertinence of such rational arguments. ‘It’s exactly the same arguments as for any other service provider which can offer scale and expertise and the
thing, and I think that is largely about an increasing recognition, as labour laws become more and more onerous, that it can be advantageous to outsource some of the headaches,’ she acknowledges, adding once more that, although she is happy to outsource almost any business function that is not a core competence, when it comes to the treasury, she would still rather have credit control sitting at the end of a corridor.
‘Emotionally I want to be so close to the cash that I can’t envisage what would make me comfortable outsourcing it.’ ‘I’m speaking as someone who has no qualms about getting involved in credit control twice a year; at half year and year end, I’m happy to hit the phones and write emails to make sure our cash collection is spot on,’ she explains. ‘I care about cash flow forecasts in a way that many chief executives don’t but should. So even if I was given a sensible and rational argument for outsourcing cash
economies that go with that,’ she notes. ‘You can concentrate on the business of doing the business rather than cash collection.’ Moreover third party service providers can offer enhanced technology and services including end-to-end data security. And as regulatory requirements become increasingly strict, compliance expertise is another benefit. ‘Outsourcing is a growing
Look before you leap When a corporation makes the decision to outsource, it should not be taken lightly; choosing the right partner can result in the sort of flexibility necessary in today’s volatile economic climate. ‘It’s actually quite a cathartic exercise,’ Spring says. ‘Any contractual negotiation forces a company to define the service provision it’s looking for. It makes management concentrate on what’s important, what’s
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not important, what’s necessary to have, what’s nice to have and where another company is better placed to deliver a better service at a lower cost.’ For Spring, the starting point should always be cost and flexibility, although she emphasises that consistency also plays a huge role in the decision process. But perhaps even more important than this is definition of the service provision. ‘It’s about the control environment,’ she explains. ‘It’s essential for the company contracting to be very, very, very clear about what they’re buying, what their expectations are, what the KPIs are and what the service standards are, and I think that any investment upfront taking into account the minute details of those contractual issues pays dividends. It’s where you haven’t set those definitions properly, where there is a delta between expectation and delivery, when the trouble starts.’ Future Publishing is a member of the FTSE4Good index and corporate social responsibility is another factor, which often comes into play when choosing outsourcing partners. ‘We’re hugely committed to being responsible corporate citizens and are very aware of our suppliers’ and contractors’ role in that,’ Spring notes. ‘I think it’s important for companies to be aware of their potential for doing good and this might mean not necessarily choosing the cheapest supplier, but the best all round in the broadest sense.’ Yet Spring can’t help but return to one line of argument. ‘In this tough macro environment, you need the maximum flex,’ she emphasises. ‘And Asian outsourcing is a significant part of that; there is a large, intelligent, well-educated, low-cost provider in the Asian continent that is a huge part of the industry.’ With this sort of solution come inevitable issues. ‘There are problems not only with second language but also with cultural references,’ Spring says. ‘And this is multiplied when you go trans-continent. Moreover, people get confused between offshoring and nearshoring and begin to ask questions: Where does it matter? Does it matter that you can’t see the whites of the eyes of the people that you are contracting with? Does it matter that you can’t pick up the phone and say ‘Be in my office in half an hour’?’
Asian wage inflation is another factor that companies must begin to take into account. ‘With the growth rates as they are and an ever-expanding middle class, the delta between cost of labour in Asia and in the developed world will diminish and some of those amazing cost savings of outsourcing labour may be depleted,’ Spring observes.
‘It’s essential for the company contracting to be very, very, very clear about what they’re buying, what their expectations are, what the KPIs are and what the service standards are.’ The Market Vista report, conducted by the Everest Research Institute, aims to highlight key trends and developments in the global outsourcing market including health of captives, location risks and opportunities and supplier developments; and its Q1 2010 edition demonstrates that the growing captive market and the aggressive hiring plans being implemented by many outsourcing suppliers in India has already started impacting attrition rates and wage inflation in the India offshore services industry. There is no optimum outsourcing level, in Spring’s opinion: ‘It absolutely depends on scale, management and a company’s core competencies,’ she summarises. ‘Adjusting the level of outsourcing depending on circumstances is one of the key skills of good management.’ While outsourcing is undeniably an appealing option in today’s volatile macro environment, for Spring, there are clearly two aspects of a corporation that must be kept in-house: control of treasury functions and a business’s unique core competencies: ‘If you aren’t adding value to your core competencies, you need to pack up and go home; thank you very much,’ she emphatically concludes. ■
Future posts strong Q1 2010, editorial outsourcing up 20% Future has increased its dividend for the first time in three years amid increasing confidence that its fortunes are on the up. The company’s adjusted pre-tax profit rose 13% to £3.6 million, despite revenues dipping in the six months to the end of March compared with the same period last year. Chief executive Stevie Spring is cautiously optimistic that the firm has weathered the worst of the recession. Despite its revenues having dipped seven per cent to £71.4 million, the company’s board has had sufficient confidence to increase its divided from 0.4p per share to 0.5p per share. It is the company’s first dividend increase since 2007. While Future’s circulation and advertising revenues are down 5% and 13% respectively, its editorial outsourcing business is up 20%. Spring says: ‘These early signs of market improvement, our tight operational and strategic focus, and the talent and commitment of our people, all give me the confidence to say that we remain on track for the full year and as wellpositioned for the future as we can be.’
Stevie Spring Stevie Spring graduated in law and spent four years in marketing, and two years launching breakfast television before starting a 16year career in advertising agency management. During that time she worked at various agencies including Grey and Young & Rubicam. From 2000–2006, she was UK chief executive of Clear Channel, the world’s largest out of home media and live entertainment company. In June 2006 Spring joined Future to become one of the very few women running fully listed public companies. Future produces 150 consumer magazines, websites and events – and is both the largest exporter and the largest licensor of magazines from the UK. The company employs 1,500 people in London, Bath, New York, San Francisco and Sydney.
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All together now In the first of two articles on outsourcing in the pharmaceutical industry, Paul Blackburn of GlaxoSmithKline explains to Ian Duncan how successful finance and accounting outsourcing relies on strong support, rather than handing processes over to a third party and letting them get on with it. Our second pharmaceutical outsourcing discussion is with AstraZenecaâ€™s Karen Mansell on page 24.
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Outsourcing providers often claim to have near-miraculous abilities to improve or even transform finance processes. While it is true that their services have developed over the past five years, it is not only vendors who have been responsible for the change. The corporations that seek out their abilities are not hopeful supplicants looking for oracular wisdom to be dispensed, but engaged and active partners with clear ideas about what they want to achieve. Global pharmaceutical giant GlaxoSmithKline (GSK) has seen the benefits of working closely with its vendor and driving progress collaboratively. The company was among the first to embrace bringing in a third-party supplier to handle large chunks of its finance operation, contracting with a major Indian provider in 2004. Paul Blackburn, the group’s senior financial controller, has overseen the process from the start and he has a clear conception of the relationship. ‘They’re not a black box for us,’ he says. ‘We don’t just measure outputs, we work closely with their people to develop them and improve them.’ When it was formed by the merger of Glaxo Wellcome and SmithKline Beecham in 2000, GSK set about established internal shared services in the UK. This process
The weakness of this method is that it retains any deficiencies in the in-house operation and the vendor needs to be equipped with the diagnostic and improvement tools to iron out any wrinkles as the deal evolves.
Slow approach In recent years, a number of major corporations have tried to achieve transformation through outsourcing in a single grand gesture, but GSK’s approach has been slower, very deliberately advancing in stages as objectives are met. The UK business led the way, with other subsidiaries following behind. The measured pace of progress should not be confused with excessive caution. The extent to which the company has been prepared to hand over processes has been bold: Blackburn describes the philosophy as ‘the whole process goes unless there is good business reason for elements to be retained by GSK’. For example, after a risk assessment, the decision was made to entrust the supplier with the whole record-to-report process. Many other companies prefer to hold on to at least some of this work. ‘I know one of our competitors has kept ledger reconciliations and submission of financials into group consolidation in-house whereas we’ve outsourced it,’ Blackburn explains. ‘They made a call
‘If you run the process properly there will be a lot of interaction with the suppliers and there will be chances to get to know more about them and their culture.’ gave the company a solid foundation from which to begin considering outsourcing to a third party. The experience of centralising finance and administration provides a business with an understanding of what a vendor can realistically achieve and enables a like-for-like comparison between internal and external handling of processes. ‘We compared running them in-house in terms of efficiency and benchmarked that against what we could do with our chosen supplier,’ Blackburn explains. ‘We were never able match their performance ourselves.’ But the groundwork the company had laid allowed its provider to ‘lift and shift’ its existing operation, speeding up the transition.
around the confidentially of financial information and judged it to be high risk; we thought it was relatively low risk.’ Once the success of the experiment was proven in the UK, there was pressure from GSK’s executive team for other operational regions to follow suit. Moving step-by-step gives a company greater control, but it also risks introducing complexity into the relationship with the vendor. Creating an easily replicable model and ensuring it is followed closely by a group’s financial organisations can greatly streamline an ongoing outsourcing programme. ‘A supplier could be running 15 record-to-report processes for a single company and each one is different,’ he
Indian BPO market showed resilience in 2009 • Total industry revenues: $73.1 billion. • BPO sector employment: 2.3 million, up 90,000 employees. • Export revenues: $50.1 billion. • Share of exports: 26%. • Sector as a proportion of Indian GDP: 6.1%. Source: ‘Nasscom IT-BPO Sector in India: Strategic Review 2010’.
says. ‘I’m not sure that’s an efficient way of doing it. Our view is that once an operating model is agreed, we try to implement it commonly across all geographies.’ In addition to the standardised operating model, the company has a fixed migration methodology to ensure consistency of service during the transition period. For one handover it tried to take some shortcuts but found the process much more difficult to complete. A clear understanding of the ultimate scope of a deal colours the choice of vendor because it will have to gear up to meet the more complex needs in the later stages of the programme. A rigorous request for information (RFI) and request for proposal (RFP) process allows clients to get a better feel for the market and assess the various offerings of suppliers. A lengthy review period – in GSK’s case it lasted a year – enables the client to not only consider the technical capabilities of the various vendors but to get a feel for how the softer aspects of the relationship will work. ‘Besides capability and experience, sometimes it comes down to cultural fit and how the partners get on as they go through the RFI and RFP,’ Blackburn explains. ‘If you run the process properly there will be a lot of interaction with the suppliers and there will be chances to get to know more about them and their culture.’ This is, if anything, more important today. With more providers in the market, the task of sizing up a galaxy of suitors and narrowing it down to a more manageable number of candidates is even greater. But the current crowded market is not without its opportunities. ‘Companies are signing up for a service but they also want Excellence in Leadership
competitive pricing and most corporates will want some tension to try and get a good financial deal,’ Blackburn says. ‘If a vendor knows they’re the only one in the running, then they’ll be less inclined to sharpen their pencils.’ He cautions, however, that it is important not to chase cost all the way down to rock bottom. The cheapest supplier might not have the expertise or the capability to grow into the relationship with the corporate partner. Even in the short term, low-budget solutions can mean quality dipping below that of an inhouse finance operation. ‘There has to be a balance between the cost and quality objectives,’ Blackburn says. ‘If the focus is only on the former, it means going to the cheapest locations in the world and they might not be where the best capabilities are.’ Once a company has settled on a supplier, its expectations are usually laid out in a series of service level agreements (SLAs). Initially at GSK there was an extensive list of both critical and non-critical targets for the vendor to hit, focused on quantitative goals such as meeting deadlines. If
‘If numbers are submitted into our consolidation system and they don’t look right, we instinctively go and look them again,’ he says. ‘What we’re trying to do is build our vendor’s capacity to be a bit more challenging and perform that check themselves. If we were running this ourselves and just pumped stuff out and never reviewed or assessed it, we could end up publishing a lot of incorrect financial information.’ A simple example of this process in action would be to have an additional set of eyes look over a report before it is published, something which Blackburn contends might not currently be the case. Companies cannot yet completely abdicate responsibility for the management of outsourced processes, although this ability is developing in major suppliers looking to perform more effectively. Another major limitation of SLAs is that they do nothing do address the few bad experiences that a company’s clients suffer or compensate for when a process does fail. This is especially true in purchaseto-pay where improperly processed invoices and late payment can alienate suppliers. The difficulties in this area highlight that, while only non-core functions are outsourced, in many cases they are
‘If a vendor knows they’re the only one in the running, then they’ll be less inclined to sharpen their pencils.’ critical objectives were not met, then the corporation would impose a financial penalty on the vendor. Over time, it has become clear that these agreements were not serving the company’s purpose as they had originally been intended to do. ‘What we’re doing at the moment is moving towards fewer SLAs,’ Blackburn explains, ‘because the reality is in the last six years there have been very few penalties paid. Instead our focus has shifted more towards quality and making sure that comes through at the levels we want.’ In order to meet deadlines, vendors can be too keen to pass on figures and reports to their clients without adequate review. The challenge, as Blackburn sees it, is cultural and he has worked hard to instil the same standards in GSK’s vendor as the company would adhere to internally.
extremely close to core business activities and arriving at a fix requires effort on both sides of the partnership.
Difficult aspect Blackburn admits that he thought purchase-to-pay would be one of the most straightforward aspects of his company’s finance operation to outsource, but it has proven to be one of the most difficult. ‘On average, customer satisfaction looks good and service levels are being achieved,’ he says, ‘but the thing that is of concern to me are the 50 to 100 transactions that we get completely wrong. We can process 590,000 invoices in a year perfectly, but it is the ones that we don’t get right that generate the most friction.’ Outsourcing has, Blackburn makes clear, improved service levels overall, but as processes are off-shored to India,
suppliers become more sensitive to errors, believing they know the root cause of problems. In reality, the difficulties are more likely to originate within the client company’s organisation, which will still handle invoices for a considerable proportion of their lifecycle. For example, processes within GSK’s business units are not standardised: invoices might come in electronically or on paper, and employees occasionally fail to raise proper purchase orders, preferring instead to work with favourite local suppliers. The UK will again be used as a test-bed for innovation as the company enforces electronic invoicing to try and iron out some of the problems. Employees will be required to use only favoured suppliers and an online portal will track an invoice’s progress through the various approval stages and provide details of when it will be paid. Blackburn hopes this will speed up processing, and claims that early analysis shows a 96% success rate in paying invoices on time using these techniques. While these kinds of initiatives require action by the corporate partner, the vendor has a critical role in ensuring their success. In GSK’s case the outsourcing supplier is empowered to handle not only the transactional functions but also has responsibility for compliance with policies. If an employee tries to procure materials without adhering to the proper process, an agent will query their action. The aim is to create a virtuous circle in which effective handling of invoices boosts supplier confidence, further strengthening the company’s negotiating position. These benefits can be mirrored in other areas and GSK is beginning to work with its supplier on the order-to-cash process. ‘Looking at the collection of receivables, it’s very much geography-by-geography, and it’s not a particularly professional or robust process that we follow,’ Blackburn admits. ‘I’m sure there’s opportunity to improve our cashflow through better ways of managing the process.’ Further on the horizon, there will be opportunities for companies to develop more intimate relationships with vendors as their capabilities grow. Outsourcing suppliers are keen to tout their advanced offerings in terms of analysis and value creation, but Blackburn believes core issues such as employee attrition still
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need to be addressed before some of this potential can be unlocked. ‘In reality these vendors employ a lot of resources running inefficient processes for corporates,’ he says. ‘The problem is that if you employ a lot of people, they maybe relatively cheap, but the work is pretty boring and they have a high attrition rate. We should be trying to run these processes as efficiently as we can so there’s only 20 people involved, and even if attrition is five or six of them a year, that’s a manageable number to replace.’ The focus of more mature suppliers on improving processes suggests that they have seen a vision of their own future where labour arbitrage alone is not enough to entice multinational clients. This could mean more complicated structures being created with a combination of near-shore and offshore facilities having a role to play. Despite the declining relative importance of access to a cheap workforce, the ability of specialist providers to train up large numbers of employees quickly will continue to be important. Even the largest corporation might lack the resources or the will in-house to overhaul a function or start a new programme. ‘The big plus with a third party BPO organisation is that
if you want to initiate something, they can hire resources to do it very quickly,’ Blackburn says. The risk is that the more valuable an employee becomes, the greater the cost associated with losing them to a competitor, a real problem in a high attrition environment. Even so, outsourcing providers will have little option but to invest in their staff if they want to tap into the highest value deals and provide more advanced services to large corporations.
Ultimately, any evolution in the role of vendors will have to be matched by a willingness on the corporate partner’s side to hand over more control to make deals work. Taking a slower but steady-footed approach to outsourcing has obvious benefits in this kind of environment. Diving in head first to a transformation type deal might bring great initial savings but leave the partnership with little room to grow: working closely with an experienced supplier allows a company to think strategically and derive long-term benefits. ■
Paul Blackburn Paul Blackburn is currently SVP financial controller at GlaxoSmithKline, a position he has held since April 2005. His responsibilities include internal/external reporting, forecasting and planning, S404 compliance and compliance with IFRS. Prior to his current position he was corporate controller for six years. Blackburn joined SmithKline Beecham in September 1977 as a financial analyst and has held multiple finance positions of increasing responsibility in the UK, Ireland, the US and Belgium. All these positions supported commercial
management. Before joining SmithKline Beecham, he was an auditor with Cadbury Schweppes. Blackburn has a degree in Management Science from Warwick University and is a member of the Chartered Institute of Management Accountants.
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Multi-bank solutions in a risk-focused world As corporates review their banking partners and business processes for opportunities to improve working capital, getting the right bank and account structure with standardised connectivity is the key to success, Vanessa Manning, head of market management for international cash management at RBS explains. The decision to create or increase the scope of a shared service centre or payment factory structure for a corporate is usually driven by the implementation of a single accounting or enterprise resource planning system, or a network solution that allows different accounting systems across the organisation to share standardised data. Currently there are numerous market, economic and regulatory forces converging, driving corporates to evaluate opportunities to automate. These include the limited availability and cost of credit, uncertainty around supply chain partners, transition to SEPA and XML and counterparty risk. Corporates are seeking to: • connect physical and financial value chains together in a single online environment for visibility • risk-proof treasury, commercial, trade and short-term market transaction processing • increase cash conversion and cash application ratios • mitigate counterparty risk through use of bank-independent connectivity and multiprovider portals.
One bank fits all? A fundamental decision will be to determine whether the shared services centre will handle payments and collections internationally or whether separate centres will be established for different currencies. Based on this, decisions as to where commercial bank accounts are needed can be made. Many companies choose to retain local banking relationships for activities that may best be handled locally, such as payroll, expenses and the like, but find benefits in bringing supplier and other commercial payments and collections into the shared services centre, as well as centralising liquidity management under treasury control. An overlay structure supported by automated liquidity management can be the answer; accounts are set up locally with an international cash management bank. These
are automatically swept to a treasury account at end of day and re-funded the next day in line with local needs. In turn, payments can be made to accounts with local domestic banks, or funds from those accounts transferred to the overlay accounts, as required.
Connectivity options Connectivity decisions are closely tied to the size and extent of the shared services structure and whether or not an overlay structure is in place. The most common solution is to use a proprietary electronic banking service from the cash management bank providing the overlay structure. The choices here will be between a secure online service or perhaps a host-to-host link. It is also possible to receive balance and transaction information from third-party banks direct to these proprietary banking services, by requesting the third-party to report in via SWIFT – the banking network used for payments and reporting between banks. But some companies prefer not to tie themselves closely to any one cash management bank, a stance that is more popular since the banking crisis. In other cases, the company’s particular business model may make multiple domestic accounts and banks difficult to avoid. In these cases, it becomes impractical to manage an increasing number of proprietary electronic banking services, making reliable centralised balance and transaction reporting difficult. Where true multi-banking and improved visibility of funds at multiple banks is required, it may be preferable to connect via the SWIFT network using one of the routes available to corporations.
technical infrastructure required. This can be a very practical and cost-effective solution. RBS recognises that, for customers requiring a multi-bank solution, SWIFT connectivity is an increasingly popular choice. As well as acting as sponsoring bank for a number of large corporates wishing to access SWIFT directly, RBS has also added its own SWIFT Service Bureau to its suite of cash management solutions, offering some additional practical advantages to customers: • an integrated on-boarding and support model, makes it simple to get started, and removes the need for the user to become an expert in SWIFT. • a customised solution for individual client needs, for example providing reports in any client-defined format, for importing directly into an ERP or treasury management system, or even to Excel. • the reassurance of dealing with a large global bank, rather than a small technology company. Where once a single or regional banking partnership was considered the only efficient solution for shared services, today multibanking using SWIFT is also a viable option, worthy of serious consideration at the planning stage of any new project. ■
SWIFT services – standalone or supported? A company may set up the technical infrastructure needed to access SWIFT directly, or access SWIFT indirectly via a third-party bureau service, effectively outsourcing the
Further information RBS Global Transaction Services www.rbs.com
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Best of both worlds Outsourcing does not have to mean losing visibility and control over processes. Sohrab Sharghi of Kimberly-Clark tells Excellence in Leadership about the benefits of the company’s hybrid deal with global leader in business processes and technology management Genpact.
When it comes to outsourcing, there are many possible ways to construct a successful deal. Hybrid deals allow companies to pick and choose which functions to transfer, tapping into the efficiency benefits that come from working with an expert third-party vendor, while unlocking potential in their own organisation. Leading health and hygiene product manufacturer Kimberly-Clark has done exactly that in a five-year programme with global leader in business processes and technology management Genpact that began in 2007. Processes across a range of finance functions have been divided between the two companies, opening up routes to greater efficiency and cost savings. Sohrab Sharghi, European director of customer financial services (CFS) at Kimberly-Clark, is responsible for overseeing the company’s order-to-cash process. His department’s work is split between an in-house operation in Brighton, UK and a Genpact centre in Bucharest, Romania. For Sharghi, the key to making the hybrid model work has been building a strong partnership. ‘Many companies make the mistake of thinking they can just push a process to the outsourcing provider and not worry about it,’ he says. ‘They’re providing a service and being paid to do it, but it cannot be a slave and master relationship.’ In practical terms, the Genpact operation primarily handles transactional and repeatable functions, which frees up time and resources for the in-house unit to concentrate on analytical and customer service work. This division of responsibility has enabled Sharghi’s team to better manage credit and contractual terms with clients, while the offshore unit has improved the efficiency of cash applications.
Initially, a number of the company’s processes had significant deficiencies, which were brought into sharp focus by the outsourcing handover. Genpact was involved in what Sharghi describes as ‘fire fighting’ in the early phases of the deal in order to keep the order-tocash function running. Over time, the two companies worked together to isolate the weaknesses and develop solutions to overcome the problems.
‘One lesson learnt is that running a hybrid model is just as much about the relationship between people as between systems.’ The next step As the relationship has evolved over the past three years, Kimberly-Clark has grown in confidence and Sharghi is now looking at other roles Genpact might be able to perform, including some of the higher-end analytical work. In some areas this has already started and the company is currently moving collections for more than 80 of its clients over to the Bucharest operation. While cooperating to optimise the processes themselves has been important, the other major lesson Kimberly-Clark has learnt is that running a hybrid model is just as much about the relationship between people as between systems. A little over a year and a half ago Sharghi instructed his team members to refer to the Bucharest and Brighton offices simply as CFS, rather than making a distinction between Kimberly-Clark
and Genpact. It was a small shift but it has helped foster a deeper sense of integration between the two units. ‘This “one team, one objective” concept has become the cornerstone of our relationship with Genpact,’ he says. To further break down barriers, managers from the UK operation regularly visit Romania. Sharghi himself makes the trip twice a year and the aim is for someone to go over at least once a month. Kimberly-Clark’s clients have also been invited to see the Genpact-run centre to get a clearer idea of how the relationship works. Ensuring channels of communication are wide open has built trust and allowed any problems to be addressed quickly when they arise. Developing an effective hybrid outsourcing model takes effort but the rewards can be great. A supplier such as Genpact is able to offer the benefit of its expertise and insights without the client having to completely sacrifice control. By introducing an element of tension into a programme, both partners are forced to critically consider the way they work, leading to improved process outcomes, higher levels of customer service and, ultimately, boosting the client’s bottom line. ■
Further information Genpact www.genpact.com Excellence in Leadership
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Force for change BPO is becoming a more powerful factor in shaping the strategic vision of many large companies, which rely more heavily on outsourcing partners to deliver cost savings, innovation and flexibility. Jim Banks speaks to AstraZeneca’s Karen Mansell about how the demands on service providers are growing, requiring closer relationships than ever before.
For large, global companies it is not always easy to achieve the flexibility necessary to respond to changing market conditions and competitive forces, or to optimise their cost profile. For many, business process outsourcing (BPO) is a vital tool in achieving both those aims, and they look to a future shaped by more involved relationships with their BPO service providers. As BPO becomes an important option for many companies, the major challenge is to ensure that outsourcing relationships are managed for optimal efficiency across many different parts of the organisation to deliver maximum business value. Finding clarity amidst the complexity of outsourcing contracts means the real
benefit is not one of lower cost labour, but finding the right partners who can bring the latest ideas and innovation to those processes in which they are expert. ‘BPO is important and the majority of my time is spent on BPO issues, including building [our capability] in our centres in India,’ says Karen Mansell, head of corporate procurement and business process outsourcing at leading pharmaceutical company AstraZeneca. ‘These centres undertake a great deal of work for us, so we need local support and a good understanding of local issues.’ AstraZeneca is a global, innovation-driven biopharmaceutical company active in over
100 markets worldwide. Its scope for the discovery, development and manufacture of prescription medicines covers many of the most serious illnesses including cancer and cardiovascular disease, and its annual R&D spend is over $4 billion. With over 62,000 people in a globally dispersed workforce, the company is now building its presence in emerging markets like China, India and Russia. As a major player in a highly competitive and rapidly evolving market, AstraZeneca is a clear example of a global company that recognises the value of BPO, and works with service providers to reduce cost and improve performance of a broad range of processes. It has outsourced elements of its IT requirements,
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including application management and development, as well as pharmaceuticalspecific services such as clinical data management and vigilance services. Furthermore, it also works with external service providers on internal activities around knowledge processing, sales and marketing, commercial back office facilities, and more recently HR, transactional finance processes and payroll. ‘In the financial area, we are moving towards more sophisticated transactional and analytics, too. We are just starting to implement this approach with big contracts across all markets now, which means we need a lot of local language capability,’ Mansell remarks.
A focal point for BPO Since it was formed in 1999 by the merger of Sweden’s Astra AB and the UK’s Zeneca Group, the company’s strategy has focused on extending its global reach, building a strong R&D platform for innovation and growth, and achieving better financial performance to drive long-term earnings and reduce costs. At a time when the pharmaceutical industry is facing unprecedented challenges, the issues of cost and flexibility have become clear priorities. To support its long-term strategy, it is crucial that BPO delivers value and helps the company to respond dynamically to changes in the market. BPO must help to reduce costs, but also help the company to push forward as its core markets evolve. ‘We face pressure on margins from areas such as generic drugs and expiring patents. We want BPO to deliver variabilisation of cost base, so that we can be more flexible in terms of our costs. We also want access to innovation, which helps us to make the best use of our internal resources. There is obviously the cost issue, too, but we are also looking for more accountability and transparency, which our BPO experts can help AstraZeneca to achieve,’ says Mansell. ‘BPO can support the strategic development of the company. The company looked at where we want to win and we found that we were driving greater externalisation. Our service providers are sophisticated and offer gains around the flexibility of our operating model, this is not primarily driven by cost.’
procurement amongst the requirements of R&D, sales and marketing, operations, HR and the companies US business needs. She also oversees the low-cost country service team in India and, crucially, leads the BPO Centre of Excellence. Among her many responsibilities, the BPO centre of excellence is of prime importance, as it acts as a focal point for the company’s outsourcing activities. This not only ensures thorough governance of all BPO contracts, but also serves as a clearinghouse for the knowledge and experience gained from working with outsourcing partners. Although it only became a reality in March last year, the team has already helped to deliver tangible and sustainable benefits. It now defines the company’s outsourcing activities and helps to frame all BPO contracts firmly within the context of what different parts of the business need in order to deliver better performance for the company as a whole. As a model, it holds many lessons for other global companies, regardless of the industry in which they operate.
‘We want BPO to deliver variabilisation of cost base, so that we can be more flexible in terms of our costs.’ ‘Through the BPO centre of excellence we have already seen many benefits. For instance, we have replaced external advice from consultants, which saves on cost, and we have learnt to reuse key principles from BPO contracts, so the cost of new contracts has come down dramatically,’ says Mansell. ‘Having a pan-AZ perspective on outsourcing has many advantages. If we have one vendor with many different contracts, it can look at corporate overheads and rationalise them, so that we get better deals across the whole company. We have also developed tools and templates that allow us to move more quickly on new BPO deals.’
Tools and techniques Mansell has many different roles within AstraZeneca, in part voicing the needs of
The team in the BPO centre of excellence is small, but it performs a vital role in
the broader organisational structure that oversees outsourcing deals. It reports to a steering group that includes the chief procurement officer Jonathan Kirby, and which meets regularly to look at BPO synergies across the company and assess outsourcing contracts in light of overall corporate strategy. Each of the company’s business lines has input into this committee to ensure their needs are taken into consideration.
BPO: the pursuit of flexibility AstraZeneca’s strategy of outsourcing has seen many parts of the business come to rely on external service providers for activities that are crucial to support its overall business performance. • R&D facilities are spread across Sweden, the US, Japan and India, including a $40 million process R&D facility in Bangalore, which focuses on a new treatment for tuberculosis. • AstraZeneca was the first major pharmaceutical company to establish an entire research unit in India. • In December, 2009, the company finalised a five-year financial BPO deal with Indian company Genpact to improve SAP-based processes. • Genpact will manage finance and accounting systems and processes covering over 50 countries, including Sweden and the UK, where AstraZeneca has its headquarters • The key focus for financial processes will be procure-to-pay, record-to-report and order-to-cash functions • In 2008, AstraZeneca signed a fiveyear deal with Infosys to support applications in areas including manufacturing, supply chain and human resources • In 2007, the company began a deal worth over £800 million with IBM to provide email, hosting, networking, PC management, server, storage and service management support • AstraZeneca has a £47 million contract with Cognizant for centralised data management services
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Taking this input, the team can marry the needs of the organisation to its knowledge of BPO tools and techniques, which it applies to existing and new BPO deals. So far, it has rationalised its set of tools developed over many BPO contracts, tested them on existing deals and, where they worked effectively, formulated them into standard tools for use within the organisation, sometimes tweaking them to suit the pharmaceutical industry’s specific needs. It has also rationalised the metrics it applies to BPO, enabling it to arrive more quickly at a clearer picture of how a contract is delivering value. ‘We use metrics on many levels. We apply some across the whole company to test the value of a business case and tailor other, more detailed metrics around supplier performance, development opportunities, customer satisfaction and further KPIs on a deal-by-deal basis. The important thing is that suppliers must know what the metrics are. They understand how to approach joint development, and how to report across the relationship they have with our company to ensure that different BPO deals work together,’ explains Mansell. The BPO centre of excellence also helps AstraZeneca to marshall its internal resources around BPO, enabling more people to become involved in defining new contracts. ‘People want to be involved, so we are spreading knowledge of BPO internally to
procurement and project managers. There is real interest, and our structure makes it easy to manage. As sourcing strategy emerges in a given area of spend we build people’s capability; coaching and consulting approaches are working very well. We have robust tools and techniques to support our people and the appetite for involvement has been very heartening,’ Mansell remarks. ‘The key success factor is to boil down our knowledge into clear tools and techniques to leverage the capability in our network. It helps to avoid duplication of effort, and to reduce operational and regulatory risk.’ By bringing together the internal knowledge across different business lines and coupling it with its company-wide experience of BPO, AstraZeneca has created a team that will greatly help it achieve the flexibility and responsiveness it needs to compete as a major player in a challenging and fast-moving industry. It can ensure the new projects deliver and that existing contracts are optimised to keep pace with the speed at which the business is moving. Furthermore, it enables the company to have more confidence in the BPO relationships on which it is relying more heavily. New outsourcing deals can be set up more efficiently, more rapidly and deliver more value. ‘You can’t take too long on a BPO deal. You have to be robust in negotiating the contract, but not slow down the strategic interests of the business,’ stresses Mansell.
Its focus on reviewing, learning and applying knowledge of BPO to optimise existing deals and get more value from new contracts also enables the BPO centre of excellence to ensure that sufficient resources are devoted to each new BPO contract. Its role in managing the knowledge and experience inside the company will become evermore important in an organisation pursuing greater externalisation, and it could serve as a useful model for many large, complex companies that do business across the globe. ■
Karen Mansell Karen Mansell joined AstraZeneca in 2008. She holds the position of head of corporate procurement, responsible for corporate category management and BPO globally as well as the India sourcing team. Her time is split between India and London in support of the BPO/ India and corporate roles. Mansell started her career at British Aerospace and she worked in a number of different positions within procurement around the commercial, military and corporate business units.
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0247Ledgers to Leadership CIM015_Cimaglobal.indd 1 Excellence v1.indd 1
18/5/10 22/6/10 15:53:05 11:38:19
On the agenda Bharat Vagadia, director of the National Outsourcing Association and author of Outsourcing to India â€“ a Legal Handbook, explains how the recession is forcing a reassessment of business models, making outsourcing an every day priority.
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It would be an understatement to say we’ve been through an incredibly challenging time. But it is at such times that innovation thrives. If large organisations were to start anew, most wouldn’t build the organisational model they have now. Outsourcing gives companies a framework to re-engineer themselves using a model that is in tune with today’s technologyenabled and converged environment.
core business of an outsourcing service provider; that means treating it as a profit centre, not a cost centre. This usually means it is a cheaper option. Following this logic, one would have assumed that this increased focus on cost savings would lead to significantly more offshoring which, contrary to popular belief, is currently just a small part of the overall outsourcing industry.
What this recession has done is to accelerate the transformation of industries and business models.
However, what we are seeing is a very focused and selective strategy for offshoring. As the industry matures, organisations understand better which processes and functions are more appropriately aligned for offshoring. In fact, what we have seen is that some processes and or functions that had been previously offshored are now being brought back in-house.
In many respects this cycle is not too different from Darwin’s natural evolution theory; a change in the environment leads to changes in demand, changes in the nature of competition and the ways of doing business. During this evolution, some business models and processes become either more common or rarer; standing still is not an option. As the recession has tightened its grip on business, outsourcing has increased in popularity as a cost saving business strategy and has risen in importance on the boardroom agenda. For a growing number of businesses of all sizes, struggling to pay rents, rates and staff salaries, the idea of outsourcing, even for those that viewed it with suspicion in the past, has taken on a new saviour image. Even the public sector is now examining the role that outsourcing and shared services can play in an era of reduced funding and tough choices. Interest in outsourcing has grown over the last few years, by over 20% in the last year, according to our most recent global survey. However, this has not necessarily translated into more outsourcing. Many have been reluctant to pursue this path; with the uncertainty of the economic recovery hovering over executive’s heads, many sought to put their heads in the sand. Most couldn’t justify the upfront transition costs involved in outsourcing. However, as the wave of optimism spreads, many executives are taking their heads out of the sand and seriously thinking about what lessons they have learnt from the recession; taking the opportunity to transform their costs and business structures.
All eyes on cost The activity that distracts someone from their core business should be the
If the right processes and functions are offshored to the right destinations and the right service providers, this has the potential to dramatically change business economics through its significant impact on cost and quality, and the availability of huge talent pools.
strategies are more difficult for the midmarket to comprehend.
Mixed fortunes The ingredients are there for the outsourcing industry to benefit from the recession. However, the industry must raise its success rate if it is to prove that outsourcing and offshoring are sufficiently mature to be considered viable business strategies. The fear is that in the current economic climate the focus has been brought back to simply cost cutting, without the necessary strategic focus on the wider opportunities presented by an outsourcing programme. This has meant the broader benefits of outsourcing, such as flexibility, reengineering and transformation, have dropped down the agenda – something that may have longer-term consequences. Although the primary driver for outsourcing and certainly offshoring has always been cost, what we have seen is a dramatic shift in attitude to cost; transformation, core competencies and time to market have been downplayed during this difficult financial period.
‘Nobody wants business transformation, they all just want lower costs.’ Benefits for SMEs For an SME in a battle with a multinational corporation with significant resources at its disposal, the SME, with somewhat limited resources (human, technical, legal, financial and global reach) may find the battle somewhat difficult and short lived. However, it could be argued that the time has now come when, operationally at least, the many David’s of the world can compete with the few Goliaths that have dominated the markets until now. Outsourcing is nothing new and most large corporate organisations around the globe have embraced it in one form or another over the last decade. Midmarket companies must now embrace outsourcing and offshoring as means of survival but also to level the playing field with larger competitors. However, although the benefits and drivers for outsourcing are fairly clear, operational execution and risk mitigation
Business transformation was the mantra a few years back; vendors claimed to be able to enable clients to be more flexible, innovative, and respond to market changes more quickly and efficiently. However, the mantra hasn’t really materialised, some vendors just jumped on the bandwagon without the necessary domain expertise, or indeed the resources to be able to commit to large scale transformations, without concrete financial returns from the contracts; outsourcing relationships in the vast majority of cases are still very transactional. This is not to say that some vendors cannot deliver transformational change, but that it requires a very different relationship and a very different approach to the whole outsourcing decision, an approach that both parties and their respective stakeholders agree and commit to. However, nobody wants business transformation, they all just want lower costs. Excellence in Leadership
Another dramatic change has been the expectation of cost savings. Whereas organisations were happy to outsource and offshore, investing up-front in transition activities with payback within three to five years, customers now expect payback within 18 months, and ideally don’t want to spend any money initially, not quite fitting the business model that vendors and indeed advisors are familiar with. With the success rate of outsourcing somewhere in the range 40-60%, it will be really unfortunate if this focus on costs extends to governance; both decision governance as well as programme governance.
Lawyers may well argue that it is possible to have longer-term contracts that are flexible but, as one lawyer said to me, from a legal perspective, flexibility comes at a cost. The pretence of flexibility can be easily defined by woolly clauses like “agree to agree” but without real teeth it remains just that – pretence. Given the new mantra of our times, “prudence”, organisations have sought to cut out expensive and what they may have deemed unnecessary advisory support services. Many have reverted to the long dispelled belief that outsourcing is just another form of procurement and therefore something that can be done
‘Deciding what to outsource, where to outsource and identifying the right provider are simply the opening challenges.’ This focus on costs hasn’t just affected new outsourcing service users. Those organisations that have outsourced are now demanding that suppliers live up to the partnership hype that they emphasised during the sales and negotiation phase. They are being asked to share the pain and pressures that customers are facing (many have sought to renegotiate their contracts during 2009), asking suppliers to deliver more for less, while also seeking to deliver substantial cost reductions from the previously agreed rates (figures between 1520% have been claimed). However, it has not been such a bad year for outsourcing lawyers.
Changing commercial models In a bear market, most suppliers felt they had no real choice but to respond to customer demands (some may well have lived up to the partnership model, others forced). Most suppliers secured longerterm contract extensions in exchange for short-term pain, where suppliers (e.g. offshore call centres) have profit margins between 20-30%, which could afford to give a little. However, what this period has shown is that the longer-term contracts typical within the outsourcing industry can themselves lead to less flexibility, contrary to the common perception that outsourcing delivers greater flexibility. There will no doubt be pressure on the industry for shorter-term contracts.
quite adequately within the organisation. This may well save costs in the short term and the organisation may well find suppliers that can deliver some cost savings, but the likely longer-term impact will be a dysfunctional organisation, with narrowly focused decisions being imposed by one department or sponsor on others. The wider organisational benefits will be brushed aside; all the potential options that could deliver substantial benefits in the longer-term will be ignored in favour of immediate readily identifiable cost savings. Within this environment, all the risks and possible risk mitigation strategies will not be fully evaluated or clearly communicated with the wider stakeholders and intransigent outsourcing fiefdoms will rein supreme.
Getting it right Deciding what to outsource, where to outsource and identifying the right provider are simply the opening challenges. Making outsourcing happen provides further potential pitfalls; it calls for strong project, change and governance management skills that probably don’t exist internally. The outsourcing decision making process although the opening challenge, must, be done correctly, otherwise you end up fighting a lost cause, trying to stop a runaway juggernaut. The decision making process must be all-encompassing, assessing all options; for outsourcing is not always the answer.
What next? Looking forward, an uncertain recovery in economies is expected in 2010. Within the outsourcing industry, we will see an upturn, as many customers take that leap of faith and head down the outsourcing route hoping for significant cost savings and process efficiencies. Customers will still continue to put pressure on suppliers for lower prices, but suppliers are more likely to hold firm as general demand picks up. Demand will not only be driven by new initiatives, but re-invigorated initiatives that may have been put on hold during the last year. There will continue to be difficult choices to make between partnerships (requiring longer-term contracts) and the requirement for flexibility (shorterterm contracts). A movement away from partnerships towards short term, adversary relationships with emphasis on strong legal contracts, may well perpetuate the poor historic success rate of outsourcing deals. Adding ghee to the fire (as our Indian suppliers say) will be a general reluctance to use outside help or best practice advice; with preferences for in-house resources – focus yet again shifting to the cheapest suppliers ticking all the procurement boxes – with the procurement departments driving the organisational reigns. An appropriate decision making process is called for, more so than ever before. ■
Bharat Vagadia Bharat Vagadia is a board director of the National Outsourcing Association. He is also CEO of Op2i, a niche business improvement firm specialising in outsourcing, the founder of a Softwareas-a-Service decision support tool, and an advisor to the International Telecommunications Union on policy and regulatory matters. He has been involved in ICT and managed services for over 12 years, and has advised governments, regulatory authorities, and businesses in the UK, Western and Eastern Europe, Kenya, Bahrain, Jordan, KSA, Egypt, Morocco, Oman, Qatar, the UAE, and India.
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Don’t pay the penalty Global business consulting and internal audit company Protiviti assesses the new UK HMRC penalty regime regarding the personal obligation of senior accounting officers at large companies, which is intended to ensure that businesses make certain adequate processes and supporting controls are in place to guarantee accurate tax reporting. In the UK, HM Revenue and Customs (HMRC) has introduced a new penalty regime through the introduction of Schedule 24 of Finance Act 2007 and Schedule 40 of Finance Act 2008.
accounting arrangements. The company will judge who best fits this definition; in most cases, this will be evident from the established governance arrangements.
It applies to all companies operating in the UK, came into effect in April 2010 and significantly increases penalties HMRC can apply if a company is found not to have taken due care when preparing a tax return. These penalties are in addition to the payment of additional tax and interest charges:
• Inaccuracy penalty – this relates to inaccurate tax documents and returns and covers a wide range of taxes. HMRC will not penalise a company if it can prove it has taken reasonable care to ensure its tax filing is accurate. • Failure to notify penalty – HMRC can apply a penalty for failure to notify a tax obligation timely. The failure to notify penalty will be a percentage of the tax, VAT or duty the company does not pay because of the failure. • VAT and excise duty wrongdoing penalties – new wrongdoing penalties can be charged against a company or an individual if they; 1. issue invoices that include VAT they are not entitled to charge 2. handle goods on which excise duty has not been paid or deferred 3. use a product in a way that means more excise duty should have been paid 4. supply a product at a lower rate of excise duty knowing it will be used in a way that means a higher rate of excise duty should have been paid. HMRC has, however, clearly stated that penalties applied will be reduced if a company can demonstrate it has taken reasonable care to ensure its returns are accurate. To comply with the legislation, companies must appoint a senior accounting officer (SAO). The SAO must be a director or officer with overall responsibility, as appropriately delegated, for the company’s financial
To help understand what constitutes reasonable steps when filing tax returns, it is helpful to review the requirements of Schedule 46 of the Finance Act 2009, which was introduced to ensure that SAOs of large companies are personally responsible for ensuring and certifying that appropriate tax accounting arrangements have been established and maintained.
‘If SAOs fail to take reasonable steps to ensure appropriate accounting records, then they are personally liable.’ According to the Schedule 46 draft guidance, reasonable steps could be described as those the SAO would normally be expected to take as a prudent official to ensure risks to tax compliance are managed properly and to enable the various returns to be prepared with an appropriate degree of confidence. Such steps should include consideration of relevant evidence available to provide assurance that systems objectives are being met, and financial accounting systems are fit for purpose and enable materially correct completion of tax returns. It is important to note that what is considered appropriate and reasonable will also vary for different types of taxes and duties. From the SAO’s perspective, there is no obligation to include taxes that are not in scope for Schedule 46 but are in the
scope of the new HMRC penalty regime within the certificate presented to HMRC. However, the SAO focus should be on the significance of the transaction, system and tax, and the relative size of these items in terms of the business. HMRC is not interested in small or insignificant errors so it is important to concentrate on significant areas of risk.
Personal liability If an SAO fails to take reasonable steps to ensure the qualifying company establishes and maintains appropriate accounting records, then they are personally liable to a penalty of up to £10,000, although the SAO is only personally liable to penalties for taxes that fall under the scope of Schedule 46; there are no penalties that relate to the SAO for other taxes. The SAO will also still be liable for proper tax reporting even if the processes in scope are outsourced to a third-party provider. There are also no personal penalties applicable to the SAO if errors are found within the computation or filings of these taxes. However, the company could be subject to significantly increased penalties under the new penalty regime if HMRC concludes the company has been careless in preparing its return. As such, it is vital that SAOs ensure accurate tax reporting. The following is a suggested roadmap to compliance for Schedule 46: 1. Define a tax library – prepare an analysis of taxes potentially subject to Schedule 46. 2. Perform a risk assessment based on the information compiled in the tax library. 3. Define key controls based on the risk assessment. 4. Establish an ongoing monitoring process. ■ Further information Protiviti www.protiviti.com Excellence in Leadership
Vested interest A collaborative business model can bring transformational value to the firm outsourcing and its service provider alike. Kate Vitasek, author and researcher in the concept of vested outsourcing, explains all.
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In 1994 I was given the challenge to develop a worldwide outsourcing strategy for Microsoft’s marketing programmes. At the time, Microsoft was a $4 billion company working to realise Bill Gates’ vision of putting a computer on every person’s desk. In order for Microsoft to achieve this objective, it needed to reach as many people as possible through as many venues as possible, so marketing was a big deal at Microsoft. The programmes were great for sales, but operationally speaking they were a nightmare because each one had different customers in different parts of the world, with different operational requirements and materials. To help solve these problems, Microsoft turned to dozens of outsourcing providers worldwide.
their customers their all to make the customers happy; as a result, the company was a customer serviceoriented firm. Customers would repeatedly ask business managers to bring proactive ideas to make the business better. After all, the customers had outsourced to the experts, and different dynamics would occur. The first dynamic had to do with the type of ideas that were generated. For example, if the business manager found ways to bring efficiency to the client, management often frowned because it would reduce revenue. When a smaller number of activities are performed, revenue is lower, or when the cost to perform services decreases, revenue decreases.
At Microsoft’s one-time major outsourcing partner Stream International, the goal was always the same: sell as much as you can with the highest profit margin possible, which would maximise revenue and preserve profit margins. In almost all cases, the company charged its clients a price for each ‘activity’ performed, which was customary for the industry.
Being efficient was just bad business. Over time, a culture developed where business managers would focus their improvement ideas on areas that would generate more revenue for Stream International. These revenuegenerating ideas were termed ‘value added activities’.
For example, there was a cost per minute to answer calls and provide technical support to the clients’ customers; there was a cost per ‘touch’ to manufacture the customer’s product; there was a price per pallet to store the customer’s product. In short, the more activities performed, the more money Stream International got paid. And since the sales reps were on a commission plan, the more revenue they booked, the more they made.
‘By nature, the company that is outsourcing and the service provider have the same goal: to make profit.’
If the customer pressed for lower prices in one area, it was the sales rep’s job to shift the pricing around to keep Stream International’s profit margin ‘whole’. As such, the sales reps gave it their all to maximise revenue and profitability for the firm because when the company won, they personally won. The operational and business management teams within Stream International had profit and loss (P&L) responsibility for accounts. The goal was simple: meet customer service levels and meet P&L targets. Business managers had to live with the clients for daily interactions, so for the most part, they would give
A good business manager was very clever at identifying ways to perform an activity that would solve a client’s problem. Once again, business managers gave it their all. Stream International solved the problem, and in return it was rewarded with billable activity. More activity meant more revenue. The second dynamic also evolved over time. When a business manager developed an idea that would have a positive impact for clients, clients often discounted the idea or chose not to approve the improvement initiative. Clients often said: “That is not the way we did the work before. Please do the work we have outlined in our standard
operating procedures.” In essence, the clients had outsourced to the experts, but they were not open-minded to change the way the work was done. Another common reason clients gave for not wanting to approve improvement initiatives was because they would have to get another group involved that controlled that part of the process. Companies such as Microsoft and Accenture were pioneering how to approach outsourcing in their transformational OneFinance deal. If everyone was giving it their all, what was the problem? The problem, as I saw it, was that, while each party was giving it their all individually, the overall solution was far from optimised. Decisions were made in a vacuum to optimise the individual firm’s goals rather than looking at the total picture. I came to call my observation the ‘mole’ theory because the effects were similar to the Whack-a-Mole game children play. When a child whacks the mole in the game, the mole is never really eliminated but is chased somewhere else. Everyone was working to achieve what was in their own best interest rather than work together for a much broader definition of success.
Vested is better By nature, the company that is outsourcing and the service provider have the same goal: to make profit. However, they approach this goal from opposite viewpoints. Cost to the company that is outsourcing is revenue to the service provider. My premise is that they should create a business model where both the company that outsources and the service provider are able to maximise their profits. Doing this means creating a culture where both parties work together to make the end-to-end process efficient regardless of what party is performing activities. This means creating an approach where service providers are rewarded for reducing their revenue. To be successful, companies would have to change the lens through which they look at problems. In short, my plan would pay the outsourcing provider to meet service levels while making the overall operations of what is being outsourced as efficient as possible. The more Excellence in Leadership
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‘Vested outsourcing helps companies move beyond professing partnership and the elusive win-win; it teaches companies how to contract and govern a successful partnership.’ efficient the process, the more profit the outsourcing provider. Under my vision, companies and people would not be rewarded for giving their all to solve their immediate problem and improve their individual position. All for one, one for all. In 2003 I joined the University of Tennessee to spearhead a multi-million research project funded by the United States Air Force to study some of the world’s best outsourcing arrangements. My work validated my premise – companies that worked together, creating an agreement with economics that created a vested interest in each other’s success could bring transformational efficiencies to how work would get done.
steeped in research. It is crucial that today’s CEOs push their organisations to apply innovative thinking that can help drive transformational results. Vested outsourcing helps companies move beyond professing partnership and the elusive win-win; it teaches companies how to contract and govern a successful partnership. Following the vested outsourcing rules develops a collaborative business model so powerful that it drives efforts to solve for an optimised, complete solution, bringing transformational value to both the company outsourcing and their service provider.
Making the investment Companies such as Microsoft and Accenture were pioneering how to approach outsourcing in their transformational OneFinance deal, which won the Shared Services and Outsource Network award for Best Mature Outsource Services Delivery. Our findings were codified in the book Vested Outsourcing: Five Rules that will Transform Outsourcing, which teaches companies the fundamentals for structuring their outsourcing relationships as well as providing an implementation process
For many, vested sutsourcing will seem like heresy to tried and true procurement methods, while for others it will seem like a fresh approach to help companies achieve better success with outsourcing. Microsoft and Intel – both known for their innovative cultures – are early advocates for vested outsourcing, and the former has successfully used the approach for outsourcing facilities management and accounting. Leading service providers UPS are also fans. The firm’s Brad Mitchell, president of Distribution and Logistics, has proclaimed
that “companies will take a vested interest in vested outsourcing”, projecting it will be one of the top five trends. The University of Tennessee’s findings are clear: companies that invest in applying vested outsourcing’s ‘five rules’ can drive transformational improvements for both the outsourcing company and the service provider. ■
Kate Vitasek Author, educator and business consultant, Kate Vitasek is an innovator in the practice of supply chain management and outsourcing. Vitasek’s approaches and insights have been widely published in more than 75 articles and five books. She is a faculty member at the University of Tennessee’s Center for Executive Education and is the Founder of Supply Chain Visions - a Top 10 Boutique in supply chain consulting.
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Joined-up thinking Mergers and acquisitions can produce value through the synergies of shared services implementation. Johann Xavier, chief financial officer, Europe, Middle East, and Africa, at Saatchi & Saatchi, who was involved in linking up shared services for the finance function after the company was acquired by Publicis, speaks to Steve Coomber about his experience.
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When it comes to creating value, mergers and acquisitions have a patchy record. While these deals often look good on paper, the evidence suggests that many fail to produce the benefits expected. One area where M&A activity can produce value is through the synergies of shared services implementation. However, it is essential to approach this challenge in the right way, according to Johann Xavier, chief financial officer, Europe, Middle East, and Africa, at global advertising company Saatchi & Saatchi.
Moving with the times The way that shared services are perceived within organisations has shifted in recent years, says Johann Xavier, chief financial officer, Europe, Middle East, and Africa, at Saatchi & Saatchi. Originally, shared services were seen just as a means of avoiding duplication and creating synergies, boosting internal controls such as SOX compliance and risk management, reducing the incidence of fraud, implementing best practices, and achieving cost reduction.
Xavier was involved in setting up shared services for the finance function after Publicis, the giant French advertising and media services conglomerate, acquired Saatchi & Saatchi in 2000 on its way to becoming the world’s third largest communications group through a series of deals. Prior to the acquisition Saatchi had its own limited shared service model for the finance function. This covered tax, treasury, group reporting and legal, and was based inhouse in New York and London, with about 50 people in total.
A problem shared
Although the acquisition was in 2000, Publicis did not begin to implement a shared services model that incorporated its new acquisitions until 2003, after the purchase
There are, says Xavier, three critical stages to navigate when setting up shared services: planning, implementation and monitoring with continuous improvement of processes.
Traditionally, the operation was cost neutral, with the savings passed onto the business units. More recently, however, research has shown that companies
specialised, except for in tax and legal, whereas now we have people specialising in many areas – in the minute details of treasury, for example.’
‘When you are planning for shared services and bringing things together to be standardised, you need to make sure that the people involved understand the different cultures.’ of US communications giant Bcom3, when it set out to build on the in-house solution it had already set up in France. ‘The underlying principles in setting up shared services at Publicis were, broadly speaking: avoid duplication, focus on cost reduction – partly as a result of synergies and also from avoiding duplication, internal control through risk management and compliance, the implementation of best practice, and increased specialisation,’ says Xavier. ‘Although we had shared services at Saatchi & Saatchi before Publicis, it was more general; people were not
However, as he points out, there are bound to be problems, for instance in the planning stage, when bringing multiple brands or business units into one common platform. ‘When you are planning for shared services and bringing things together to be standardised, you need to make sure that the people involved understand the different cultures, the DNA in the organisation,’ says Xavier. ‘At least initially, you have to make sure the different brands, or business units, involved are given some respect for their individual identities before gradually beginning to implement the standardisation process, because this
have begun to view the shared services operation as a profit centre in its own right. This may be essential to keep the high level of service and attract good talent. ‘Shared services tend to be priced in three ways: based on revenue in the business units, cost base or head count. If it is based on cost, for example, then the lower the cost base (in the business unit) the lower the shared services cost would be,’ says Xavier. ‘If an organisation model reflects profit in its pricing strategy, then this puts pressure on the shared services to provide an excellent service. This has to be transparent to the users. The cost of the service offered should be priced so that it is competitive in the marketplace.’
will help build collaboration and buy-in, as opposed to abandoning what they have been doing for the past 15 years and right from the start saying, ‘now you’re going to do it this way’.’ Organisations planning shared services should, therefore, think carefully about where they source their staff from, says Xavier. ‘For example, the people hired may well be new to the processes, have not worked in that particular type of business, or are not familiar with that type of culture. That is why it is useful, as much as it is possible, to hire from within.’ The issue of managing staff morale and motivation must also be considered ahead of implementation. When people are moved from a position in finance where they are closely linked to the business, to a shared services centre, they may feel isolated in a back-office function, away from what they perceive as the main action in the business. Tied to motivation is the issue of pay and remuneration. The context of shared services is about doing things cheaper, faster and better. However, if shared services is primarily associated with cost reduction, rather than with revenue generation, there may be a negative impact on pay. Implementing shared services successfully requires a concerted effort and the right attitude from everyone involved, says Xavier: ‘Getting buy-in from all the different business units, Excellence in Leadership
or brands involved is vital. Otherwise everybody gets protective, and people do not communicate; they hold back critical information. The shared service centre relies on brands sharing critical information, otherwise it is unable to do its job.’ It is sensible to approach implementation in stages, states Xavier: ‘Some of the most important advice I would offer someone implementing shared services is not to try to take it all over at once. Instead, adopt a phased approach. So, let’s say you are taking payables across multiple brands, then don’t take payroll or human resources as well. Make sure that your payables are implemented and functioning properly first and only then take over the next component.’
doesn’t have to cope with the same volume of transactions across the different disciplines in a business unit, all at the same time. Integration is crucial, especially when it comes to areas such as the IT platform. When dealing with multiple systems, and trying to standardise them into one, then do it component by component. ‘The first year is likely to be difficult, it can’t be helped,’ says Xavier. ‘There will be personality conflicts. For example, people are protective, especially in the business units. It usually takes about two years to get it all right. So anticipate problems, without a doubt, at least in the early stages of the implementation phase. Once they are identified, quick fixes do not pay off, take the time to fix these issues so nothing falls between the cracks.’
users and the providers,’ he says. ‘The users of shared services need to know how the shared service functions, just as the shared service people should understand how the business functions.’ In the early stages people may be reluctant to engage in a frank exchange of opinions and ideas. This may be a result of mistrust due to anticipated job losses or in response to an attitude of “I know best”. To avoid this, senior management from both sides (users and providers) should create an atmosphere that encourages open dialogue, says Xavier. This minimises mistrust and, over a period of time, people grow more comfortable, relations improve, and trust starts to build between shared services and the business units.
A layered approach
‘Some of the most important advice I would offer someone implementing shared services is not to try to take it all over at once. Instead, adopt a phased approach.’ Patience, especially when the process in its infancy, is vital from a user perspective. After all, notes Xavier, if there are six or seven different brands, and each brand does things differently, how can they all be brought together and standardised in just a few months? At least if a phased implementation is adopted then one
According to Xavier, another key aspect of integration is cross-training. When Publicis introduced the new shared services systems at Saatchi, combined training sessions were held for both the shared services people and the service users. ‘It was not isolated training, which is good, because everybody knew what was happening, including the
Key factors for implementing shared services From his experience at Saatchi &Saatchi, following its acquisition by Publicis, Johann Xavier has identified a number of factors integral to the implementation of shared services: • Hire from within where possible. • Respect different cultures early on. • Cross training of both shared services staff and service users is essential. • Shared services is not just a service connected to the business aspect of the business unit - it has to be accountable in its own right. • When you standardise processes across multiple countries, business units or brands, things are bound to
fall between the cracks. Go through the process very gradually. Documentation is critical. • Have an open and very simple pricing structure. • Have lines of communication set up to resolve disputes. • Embrace the change, don’t fight it. • If you don’t have a good relationship between service provider and users you won’t get the performance, so continue to build trust. • Ultimately, be mindful of your clients and customers, as shared service implementation should have a positive impact on them.
As part of the monitoring process a steering committee was set up with the task of resolving disputes and improving processes that were not working as intended. ‘It is basically an open line of communication,’ says Xavier. ‘It is a committee that meets quarterly, may consist of very senior people from the business units side and the shared service side, who can make decisions and who have the authority to change things. This works very well because when things are not working the committee is able to discuss it and make the changes in processes that are needed.’ In addition to the steering committee, there should also be appropriate key performance indicators to assess the performance of the shared services. ‘The KPIs are set up in collaboration with the people in shared services so that we can obtain feedback, monitor their performance and make sure that they are performing as expected.’ It is better if KPIs are agreed early on in the process, says Xavier, rather than addressing the matter later on after problems have emerged, although, inevitably, there will be a period of adjustment. With Publicis and Saatchi, it took roughly two years before the new systems were in place, and it is still an evolving process as the model is not static and adapts to the increased globalisation of business. Publicis keeps the users in mind and is always striving to improve the processes, says Xavier.
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centre worldwide will be synergised, but with some aspects remaining in the shared service operation in the local countries.’ With value chains and organisations more stretched globally, the increasingly competitive environment continues to put pressure on managers to drive down costs while increasing value at the same time. As a result, shared services catering for a broad range of corporate activities, including finance, are likely to become commonplace in large organisations. Many organisations are just embarking on the shared service challenge as others continue to explore the various implementation models available, striving to deliver maximum effectiveness and efficiency from their shared service operations. For these organisations the experiences of people like Xavier, who have been closely involved in the setting up of shared services, are invaluable.
‘Always be mindful of your clients and customers, who should be sheltered from the growing pains of setting up shared services.’ People tend to think of shared services operations as incorporating a single centre for pooled activities. It may be more effective, however, to use a layered shared service operation, rather than using one centralised location. There are three layers to the Publicis model. Firstly, there are country-specific shared services where the market is of a sufficient size to warrant it, such as in the UK and Italy. So shared services for the UK, located in the UK, handles activities such as procurement, tax planning, reporting, foreign exchange hedging, off balance sheet commitments, credit risk, processing bank statements and bank reconciliation, payroll, employee benefits and so on. Then there are also regional shared service centres that manage multiple markets. So there is a regional shared service centre in France, which not only manages
France but also Belgium and some other countries that are close geographical, for example. A centre in the US, meanwhile, may manage all of the Americas, including Canada and South America. Finally, centres of excellence are being set up in countries such as Costa Rica where various repetitive processes can be carried out at low cost.
SSC consolidation In the future, Xavier believes that the prevalent tendency will be towards fewer shared services centres. ‘While certain functions have to be situated locally, especially in the bigger markets, I think that shared services will become increasingly regionalised, and then globalised – so fewer shared service resources, and more geared towards servicing globally. Activities that are easy to take out and park in a global
‘Ultimately it is about dealing with change,’ he says. ‘Building a shared services operation for the finance function is a major challenge. Successful implementation requires all those involved to embrace change and to manage that change carefully, from the perspectives of the service provider and the user. ‘And remember that, although the changes are taking place internally, you must always be mindful of your clients and customers, who should be sheltered from the growing pains of setting up shared services. Indeed, the process of transition should have a positive impact on your clients.’ ■
Johann Xavier Johann Xavier is chief financial officer Europe, Middle East, Africa at Saatchi & Saatchi, the global advertising agency. Prior to taking up the CFO position Xavier worked as global compliance project director at Saatchi managing Sarbanes Oxley Compliance for 14 offices worldwide, and chief operational officer at Saatchi & Saatchi Canada. Xavier began his career as an accountant at KPMG.
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The future of trade credit – an insurer’s view Until 18 months ago, those who used trade credit insurance were the only ones who had really heard of it. Even then, many didn’t fully understand the value of providers such as Atradius in economic circumstances as turbulent as those to which we have all been recently exposed.
Trade credit insurance exists to guide traders away from risks that may damage their businesses, and then to pay out if they get it wrong. If you imagine a ratings agency which would pay up if they rated a business incorrectly, it isn’t too far off the mark. So how do trade credit insurers assess these risks? Well, they use huge amounts of data. Trade credit insurance provider Atradius, for example, has information on 52 million businesses, much of it less than three months old. You may be supplying widgets to a company and hold trade credit insurance. Your trade credit insurer is likely to be insuring other suppliers to that same business and will build a detailed picture of their credit behaviours over a numbers of years; in some cases they may cover thousands of suppliers into the same business and have day-to-day information on their payment behaviours in each case. So a trade credit insurer gets tremendous insight into what is happening in the world of credit, right up and down the supply chain. This month, Atradius shares its birds-eye view of the world of trade credit in its white paper, The Future of Credit, which explores precisely how businesses are using credit in the current climate and the future role of credit in business, given the unprecedented nature of recent events. In order to set the scene, let’s first look at this quote from 1923, when WC Shluter, an academic from the University of Chicago, in his publication “Factors Determining Terms of Sale” defined credit thus: ‘A trust, faith or confidence that reposes in a man or “house”, which gives him or it a business reputation of willingness and ability to
pay obligations and, therefore, confers the power or ability to acquire goods or funds upon the promise of future payment or repayment.’ While the language seems a little archaic, the sentiment still holds true. Credit is not just a payment term, it is three things: trust, faith and confidence. These factors make up the foundation of economic stability but when they disappear the natural rhythm of credit is
‘Credit is not just a payment term, it is three things: trust, faith and confidence. These factors make up the foundation of economic stability.’ lost, as we’ve seen during the recession. Firstly, the economic downturn has placed stresses on the supplier/buyer relationship, increasing pressure on research and development, cashflow, and investment. The balance of the business relationship has, in many cases, shifted in favour of powerful buyers who can demand extended credit terms, while at the same time, suppliers that would traditionally have offered credit terms are demanding cash up front. But credit is still essential to trade, despite its application becoming more complex.
Institute of Credit Management, for example, says that the economic crisis has led to businesses taking a positive discriminatory approach and following the insurers’ lead by demanding more in exchange for credit. This has had a profoundly positive effect on the entire business community. It means opening books and sharing management accounts, orders and other details that can demonstrate that they are going to be able to pay up, so that the supplier can ensure that they will use any credit they grant responsibly. But the flip-side of the coin is also apparent. If a lack of trust leads to a supplier demanding payment in advance, this can place the buyer in a precarious position: short of cash, with a heightened borrowing requirement, leading to a poorer credit rating and escalating risk, which means further borrowing at an increased rate of interest, and, at worst, insolvency. This impact is felt throughout the supply chain, so that everybody – including the supplier – suffers. And all because of a lack of trust, faith and confidence. One of those who shared his views in the Atradius study was Rob Nijhout, director of ICISA, the International Credit Insurance and Surety Association:
Credit where it’s due
‘A relevant factor is the change in behaviour of banks,’ he says. ‘The lack of necessary lending has forced buyers to demand longer credit terms to help them survive. And this is further complicated because the lack of financing has made these buyers higher risks and therefore more difficult to insure. For some this has resulted in a downward spiral.’
The credit industry has been vocal in its support of trade credit, arguing that it remains essential for trade. The
There is further anecdotal evidence to suggest that many businesses are turning to one
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‘While it might be assumed that, rising battered and bruised from the recession, businesses would think twice about offering credit terms in future, many see credit as a vital way of regenerating flagging markets.’ another to source credit instead of resorting to traditional bank lending to help with cashflow. The beauty of this, of course, is that while cash is finite and its quantity controlled by banks, credit is limitless – any business or individual can decide to give another as much or as little credit as they deem fitting. If this route is followed recklessly, as in the case of the infamous toxic mortgages, the result is disaster. But when the credit risks are understood and properly managed, the result is successful profitable trade for all concerned. Another participant in the white paper, leading US credit consultant Abe WalkingBear Sanchez, puts it like this: ‘While the supply of money is limited by how much of it governments print, credit is essentially unlimited; in fact the more of it that is created/extended, the greater the demand created for products and services. Credit, properly understood and managed, allows for the expanded movement of products and services and
for economic growth and prosperity. Credit is a lubricant of commerce and oils the wheels of business.’
Renewed interest Further evidence from businesses across the world gathered during research for the white paper has revealed some unexpected opinions. While it might be assumed that, rising battered and bruised from the recession, businesses would think twice about offering credit terms in future, the survey found that the majority of respondents see credit as a vital way of regenerating flagging markets and to demonstrate continuing trust in their good customers, while allowing those customers additional breathing space to finance their purchases. Could this lead to a resurgence of what is known as supply chain credit? The signs are certainly positive and it gives us confidence that the rhythm of credit sales is back on track. Not just because, as credit sales increase, so does the demand for credit insurance and that’s
good for Atradius because credit is critical to our economy: • as a spur to innovation and entrepreneurship • as a driver of economic growth • and as a way in which everyone in the supply chain can succeed. In short, we need credit for our economic revival. And within the credit process, from our perspective as a credit insurer, businesses will benefit from openness – between buyer and supplier, credit insurer and bank. In order to achieve this we need to set store in those three important words: trust, faith and confidence. You can download the Atradius white paper, ‘The Future of Credit’ at the address below. ■ Further information Atradius www.atradius.co.co.uk Excellence in Leadership
Two into one Of the many stages in the establishment of a shared financial services centre, the very first, that of consolidation, is probably the most important. Adam Williams, the Cooperative Groupâ€™s head of shared financial services, reflects on his experience of the process with Nigel Ash.
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Prior to the creation of the shared financial services centre (SFSC) Independent business units in the Co-operative Group enjoyed full responsibility for the transactional processing as well as core accounting activities. It is refreshing to note that the same businesses still feel joined at the hip with processing after it has been integrated into the SFSC.
in terms of people, processes, systems and timescales for delivery.
In such circumstances, says the Cooperative Trading Group’s head of shared financial services centre Adam Williams, carrying off that transactional processing operation to a SFSC has to be done with patience and sensitivity:
In common with others who have embarked upon the radical consolidation of transaction processing into a single SFSC, Williams discovered that the cost and efficiency argument did not always sell itself for each element of processing that was being consolidated. In some areas he had to influence the breaking down of the culture that majored on the belief that transactions had always been managed very well within the business and that ceding their processing to another body, even if it was a part of the whole organisation, would inevitably
‘During these integration projects it is essential that the SFSC work with business unit processing colleagues, gaining their trust and confidence as well as listening and drawing from their knowledge and experience. The objective is clear and all parties understand the opportunities and risks this presents to them. This initial engagement is a vital element of the shaping process that allows the smoothest transition of processing activity from business unit to the SFSC. ‘You simply have to work with the stakeholders to identify and then work out how you are going to achieve common goals with no loss or impairment to service. There can be no “us” and “them”. You have to have a personal engagement with your team and the business unit otherwise you run the risk of creating barriers to success. Everyone needs to be totally engaged with a shared vision that achieves the integration objective.’
Consolidation challenge In 2007 the Co-operative Group merged with United Co-operatives who had already established for itself a SFSC. The challenge for the enlarged Group was to consolidate the transaction processing of its autonomous trading businesses into an expanded SFSC. The diverse nature of Co-operative businesses and their specific financial processing systems added significant complexity to the integration project. The key to success was early engagement with key stakeholders to agree how processes and activities would be integrated and precisely what that meant
‘The overarching key consideration from the start of the exercise was to ensure that stakeholders were absolutely happy that the changes were not going to fundamentally upset the balance of their business and the financial controls around it.’
‘I finished school on the Friday and started working for the Co-op on the Monday,’ he chuckles. ‘Cut me in half and you will find Co-op written there.’ He says he is open-minded about the outsourcing of transaction processing, which Somerfield had begun to do before the acquisition. He also finds it interesting that the two leading AngloDutch multinationals, Shell and Unilever, have taken diametrically opposite approaches to shared services. While Unilever is outsourcing, he notes that Shell has established in-house shared services. Unilever believes it has established partnerships with its outsource providers that will grow with the needs of the business and will not be confined to the original signed core service level agreements. Shell, by contrast, takes the view that by running its own SFSC, it can reap the efficiencies and economies while still maintaining total control of the relationship.
‘You simply have to work with the stakeholders to identify and then work out how you are going to achieve common goals with no loss or impairment to service.’ bring about a loss of important controls. Williams reiterates that successful transformation of transaction processes to a central point simply has to address the ‘ahh buts’ that come up: ‘Our approach was inclusive, open and honest and when we were completing the exercise the final recommendation was supported by the businesses. ‘The recommendations are based on how transactions can be brought into the current workflow of the SFSC without any loss of integrity or financial control. At the same time the same and ultimately better level of service should be secured. We reviewed each recommendation together shaping it into something that ultimately we all agreed with and, therefore, all parties were totally engaged with the delivery. It simply has to be a joint effort.’
Career path It may have been fortunate that apart from a six-year break, Williams has spent his working career in the Co-op:
His view is that when e-invoicing finally takes hold and transaction processing becomes in theory at least, entirely systems-driven, it is arguable that business process outsourcing (BPO) will become redundant. This chimes, he says, with last of the four stages of the creation of an in-house SFSC: ‘First you have the consolidation stage, which is what we have done at the Co-operative. Then you move to the standardisation of processes, which are the exercises we are now embarking upon. Once you have this harmonisation right then you move to the optimisation, to screwing the full value out of it. And then finally you come to the virtualisation.’ It is the virtualisation that Williams believes may very well render the whole exercise of business process outsourcing redundant. Indeed, he wonders if businesses that have not retained control of transaction processing, through a SFSC, might not Excellence in Leadership
‘I don’t mind making use of good ideas gathered from other shared service centre colleagues but, once you have put together what you believe is the right set, it has to be applied uniformly and rigorously.’ in the end be better placed to capitalise on straight-through processing than those who have invested management time and cash in setting up enduring partnerships with BPO providers. When automated transaction processing becomes a reliable reality with e-invoicing the standard, the cost savings by working with providers in low-cost countries is effectively done away with. The SFSC input will only be necessary for mismatches and errors. A properly set up in-house SFSC ought to be able to handle that with as much, if not greater, effectiveness than a third party, because they will have immediate and authoritative access to all of the parties involved. ‘On our goods for resale invoicing for instance,’ says Williams, ‘approximately 90% is already electronic, which feeds into our systems that autogenerate any queries relating to price and quantity. Queries still need to be answered by receiving depots or stores or buyers for price. Therefore there is a pause in the
process because of the human intervention. ‘However, we are moving our systems forward to accept booked quantities and file prices and raise appropriate financial transactions end to end without intervention. If some of the data is wrong the supplier query resolution process will manage to a conclusion.’ Williams has a team of 275 in his SFSC. This already represents a major saving in staff numbers from those previously used to process transactions in the separate Co-op business units, which also now has shared corporate IT and human resources centres. Williams says that to bring off the creation of a best-in-class SFSC it is crucial to maintain clear measurement of how well it is serving its customers: ‘We are pulling together with our customers what we believe are the right performance measures, which will ultimately enable our joint effort to drive improvement in overall efficiency and cost.’
‘You have to benchmark your measures and get information from similar organisations,’ he says. ‘You also need to network to share industry knowledge and experiences from like minded peers in other businesses. I don’t mind making use of good ideas gathered from other shared service centre colleagues but, once you have put together what you believe is the right set, it has to be applied uniformly and rigorously.’ ■
Adam Williams Adam Williams’ career includes 25 years with the Co-operative Group who, through continued investment in his development, appointed him as head of shared financial services centre in July 2009. In this role Adam leads the development of people, processes and systems associated with the delivery of efficient, cost-effective transactional finance activities for the group’s diverse portfolio of trading business. Williams says the mission for his team is to ‘ensure we help the Co-operative succeed’.
He doesn’t believe that organisations should be shy about looking outside.
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Outsourcing after the storm As we emerge from one of the sharpest recessions in living memory, we’re able to reflect on some valuable lessons learnt, explains Susir Kumar, chief executive officer and managing director of Intelenet Global Services. Prior to the recession, outsourcing had already reached a level of maturity whereby clients expected immediate cost savings with initial improvements in service quality followed by a long-term strategic business impact. So what is this strategic impact? Take the example of a large insurance company that, for cost savings, moved work to India six years ago. From a 45% cost arbitrage, they have moved to a quality improvement of 12% and a productivity improvement of 22% on account of Six Sigma deployment for process re-engineering. Thus they could offer their customers a reduction of 60% in the time taken for claim settlement, and even go on to win an industry award for best customer experience.
New models As a leading global BPO provider, Intelenet’s experience during the recession is that expectations have changed. Companies now want their bottom line impacted positively from the day they outsource. If Intelenet could normally give clients a 50% cost reduction after 18 months, could we give them a 30% cost reduction right now? Companies are making faster decisions to outsource, with lead-time shortened from 12–18 months to just 6–12 months. Prior to the recession, 7% of managers felt that a cost reduction due to outsourcing as an option was desirable, now that figure has doubled to 14.6% – a big change. Clients, who had outsourced about 15% or 20%, wanted to increase this percentage to get their costs down and quality up. Before the recession, companies would not make an outsourcing decision if savings were less than 40%. In the new environment, we see companies take a decision even with a saving of 15%. Companies are seeking financially structured deals as compared to a per-FTE price or a per-transaction price. They want
us to fund redundancy and set-up costs and even take on outcome-based pricing. Companies are telling us: “Just take our operation lock stock and barrel, and you guys decide the onshore/offshore mix. This is what we want as outcomes.” This means that we would need to take on the risks of a new investment, including employee pensions etc. In the last six months, we have carried out five acquisitions of companies’ back-end operations. Companies that work with us can ‘turn the tap on or off’, which is easier to do than in the client’s own environment, which is more expensive or more highly regulated.
‘Organisations will need to align their business needs to the right destinations and invest time with the right provider to embrace the benefits of globalisation.’ Because of these reasons and the fact that we are offering clients capacity as a value rather than just cost, there has been a growth in our existing and new business. Clients are seeing growth in cards issued, mortgages provided and people traveling. Even clients that downsized over the last six months, are seeing growth potential in the next 6–12 months.
are emerging as specialists in particular processes. Sri Lanka is attracting business, particularly for finance and accountancy, while the Philippines is emerging as a popular destination for voice processes catering to the US. Meanwhile, Poland is emerging as a near-shore destination with multilingual capabilities for the UK and EU. Given this trend, service providers will need to build scale and size across different geographies and consider acquiring or building a mix of onshore, near-shore and offshore destinations to increase delivery capabilities. Organisations will need to align their business needs to the right destinations and invest time with the right provider to embrace the benefits of globalisation. Though some governments are turning towards protectionism, the reality is that it has no place in the new global community. The concerted, collective effort for nations to get back from the brink of recession has demonstrated that we are stronger when acting together. It is no different for businesses and it is logical to assume that, now we are set on this new path of global collaboration, it will ensure symbiotic benefits to clients, suppliers and end-users the world over. ■
New markets The outsourcing landscape is continuously evolving. India used to be second to none as an outsourcing destination for companies in the US and UK. However, new areas
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Accountability by process How does the worldâ€™s eighth largest company, operating in 140 different countries with over 100,000 employees, organise its outsourcing strategy? As Royal Dutch Shell EVP finance operations Ian Robertson explains to Phin Foster, itâ€™s all about the process.
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In an effort to save money, standardise and streamline the accounting function, a solution that results in business service centres (BSCs) in Guatemala, Glasgow, Krakow, Athens, Chennai, Kuala Lumpur and Manila might appear counterintuitive. And when you discover that the executive vice-president with overall responsibility for its success works out of Singapore, the natural response is to wonder just how disparate the old way of doing things must have been. But in this instance we are not talking about any old company. As well as being listed as the world’s eighth biggest corporation by Forbes, Royal Dutch Shell operates in more than 100 countries. Its remit is global in the truest sense of the word and any solution must therefore follow suit. However, in the six years that have passed since the petroleum giant committed to a new, strategic intent to make more use of shared services, the manner in which these centres go about their business has shifted markedly. They may still be responsible for tasks ranging from accounts payable and receivable to credit analysis and tax and treasury sub processes, but, as well as a number of unforeseen benefits, the past two years have also witnessed the migration from a framework where responsibility was defined by country or region and by business or function to a focus towards global accountability by process. The man responsible for this journey has been Ian Robertson, EVP Finance Operations. Initially posted to Singapore as the head of finance for the Asia Pacific and Middle East region of Shell Oil Products, he has been a key part of the strategy since its inception and has over 30 years’ service with Shell in a variety of roles and locations. ‘It may look disparate,’ he says of the BSC’s geographical structure, ‘but don’t forget that Shell has been in some of these countries for a significant period of time – over 100 years in the case of Malaysia. The company has strong experience in running businesses all around the world. People in Shell are experienced and comfortable when it comes to working across different cultures; it’s part of our DNA.’ This certainly helps when scoping out potential locations and leveraging
expertise outside the finance department, but within the organisation it gave Shell a head start putting its BSC plan into action. ‘You cannot overstate the value of local knowledge,’ Robertson believes. ‘It means we’ve had technical infrastructural assistance in terms of securing real estate, performing due diligence in the market place and knowing the best recruitment agencies to contact. I was recently talking to a large player in the UK looking to consolidate by going into a country it hadn’t operated in before. That’s tough.’ Around 50% of finance staff at Shell now work in shared services, and Robertson estimates that 80% of the work being performed by them matches the original goals of the strategy of more use of shared service environments. But some key differentiations have evolved over time, the most noteworthy perhaps being the shift towards managing by process rather than regional business coverage
‘If you’re operating globally by process and you’ve got your targets set against a world class benchmark it’s a huge advantage.’ ‘The model we built upon and replicated in the initial years was very much one of moving all the work from proximate customers or sending customers to the most geographically appropriate centre,’ Robertson explains. ‘Our people in different locations doing the same kind of work –accounts payable, say – were then encouraged to collaborate and look towards ways of improving it.’ Although this did see relative success, Shell’s aspirations were still not being met. Robertson and his team recognised the need to transform accountability, but it would not have been possible had the centres not bedded in so quickly. ‘Once you have done the benchmarking at the total function level and the sum of the parts still doesn’t add up to what you know to be an enterprise best practise
model, it’s time to examine the process,’ Robertson believes. ‘Do that on a countryby-country or business basis and there are so many variables that it’s impossible to get an unambiguous measurable target; people are able to avoid accountability. ‘But we know how many invoices per day an employee processes within our organisation and what the best companies achieve. We were already encouraging people to learn best practise and apply continuous improvement and, for the most part, they were well intentioned in doing it. However, with the prime historical affiliation being the regional centre, it was perhaps not always top of their agenda. If you’re operating globally by process and you’ve got your targets set against a world class benchmark it’s a huge advantage. I wouldn’t advocate this for every aspect of every function, but in the world of finance operations going down the process route is certainly the best model.’
Smooth operation Of course, such a seismic transformation will be impossible unless the BSC infrastructure is already well established and trusted throughout the organisation. Among the other unforeseen benefits cited by Robertson is the sheer speed with which this happened. He acknowledges that the financial climate was conducive to getting the process off the ground, believing it would have been far more of a slog had they embarked down this route 18 months ago. He is also keen to stress the importance of stakeholders at all levels buying into the overall vision. ‘Intuitively, one might fear resistance, disengagement or even sabotage around work being moved from country ‘x’ to centre ‘y’,’ he begins, ‘but the process was actually hugely collaborative. Even though people knew the work was going, they invested in us as much as they could the corporate memory and knowledge that needed to go with it and even performed a great deal of hand holding for some time afterwards. ‘I recognised an interesting human dynamic: if you know that some bright young spark in Manila will soon be doing your work and there’ll be joint scrutiny of the preparedness to move, the evidence of catch up on account reconciliations, data clean up and clearing backlogs is staggering. It proved a real catalyst for Excellence in Leadership
people getting stuff in far better shape than it had been in some time. The fear was that we’d get into a terrible tangle trying to take on work which had been performed in Shell for decades by effectively the same people into new environments, bed it down and gain people’s confidence. Success was made possible by the engagement of people we already had within the organisation.’ Conducting an open dialogue is also a fundamental component of ensuring that the transfer of work runs as smoothly as possible. ‘You must operate a migration process that is as robust as if it was going to an outsourcer,’ Robertson believes. ‘We have four key-stage meetings, with a very senior set of executives on the receiving and sending sides scrutinising developments and jointly agreeing on when we’re ready to move. That can result in a high degree of work getting the process into shape or an admission that we’re not ready to go yet and that some extra help or resources are required to get us there.’ In the Scotsman’s eyes, such engagement also creates a culture of success as early converts and tangible signs of progress bring more reticent stakeholders into the fold. ‘When you are able to build up a scale of activity and demonstrate that things are operating fairly well relatively quickly with some of the more willing and optimistic people onboard, it certainly builds up the confidence of those waiting further down the queue,’ he explains. ‘Once you have that momentum it’s a very powerful tool.’ Such momentum may also account for another successful development: a strong culture of continuous improvement using ‘lean sigma’, a fusion of lean management and “Six Sigma” methodology. ‘It was something we were initially somewhat hesitant to embrace because of a fear as to what such a commitment might mean,’ says Robertson. ‘We are now in a position where we have 400 to 500 green belts, tens of black belts and ten to 15 master black belts who are deploying a programme for us that is targeting world class, top quartile savings delivery somewhere in the 10% to 15% year-onyear range. If you’d asked me in 2004 whether I believed we’d have that up and running in the timeframe and fashion we’ve managed, and whether we’d be
‘If you can get the organisation of the work and its management and supervision optimised, the results are transformative without the core design and programming needing any overhaul.’ seeing the impact so quickly, I’d have had my doubts.’ This move towards ever greater efficiency and productivity is compounded by BSCs acquiring ownership of the design and standardisation of some processes as well as their operation. It is another sign of an increasingly mature model, which will only develop further as the level of inhouse expertise grows exponentially. ‘We’re starting to see end-to-end accountability,’ Robertson acknowledges. ‘There is a formal structure in place whereby the process executive has control of the design and any transformation activities must follow that to some extent. What’s been particularly
impressive, however, is to see the huge amount one can do without major alterations to the ERP design. If you can get the organisation of the work and its management and supervision optimised, the results are transformative without the core design and programming needing any overhaul.’ This is invaluable for tasks envisaged for the BSCs from their conception, but there are also processes now being undertaken that were not part of the initial blueprint. The most notable example is in their handling and reporting of data, as well as an ability to provide an ever increasing amount of management information to different parts of the organisation that has served to cement the BSCs’
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position as an integral business partner. Management information was one of the drivers behind opening the centre in Chennai; they are now producing an ever higher degree of management information and analysis, defining with the respective businesses and functions what is required and how best it should be delivered. ‘It is an area of key strategic importance for the enterprise and I quickly came to the realisation that finance was by far the best equipped to deal with it,’ explains Robertson. ‘We now have people focusing exclusively on master and reference data. ‘Although it was quite painful having to accommodate this alongside everything else we knew we had to execute, it’s definitely been the right thing to do. If you don’t get the data right everything else is undermined structurally.’
Horses for courses An ability to address new demands must also be matched by an ability to migrate existing ones. As the centres and personnel evolve over time, who is best suited to take on the work can change also. Robertson is clear in his belief that you must never stand still. ‘Our strategy VP will be constantly looking at best practise and where we stand in terms of benchmarking,’ he says. ‘The strategy is therefore refreshed each year and part of that has to be asking yourself what activities you want to do where.’ A recent example at Shell has been a concentration of accounts payable activity in one BSC. Robertson believes that any decisions which will see a migration of work needs to be presented in as transparent and upfront a manner as possible. ‘You must manage the situation very sensitively and the communication needs to be clear,’ he believes. ‘We try to prepare for any such moves a long way out so that our people fully understand the direction we’re going in. It gives staff the opportunity, if they are continuously improving their own capabilities, to post for positions coming into the centres and also to benefit from the turnover model operated in the shared service world. Our employee turnover rate means that the impact of local jobs of work needing to be moved from one
centre to another at certain times can be mitigated in large part also by allowing natural turnover to take place and slowing up on recruitment.’
function and businesses. It is therefore important that we share a value system, even though the business model operated here is quite different.’
The BSC turnover model is certainly a key differentiator from other, long-established business units and there is a tradition of BSCs being seen as completely different entities, divorced from the business as a whole. For Robertson, however, there should also be cultural similarities and it would be foolish not to leverage the strong identity and pulling power he has at his disposal.
Being aware of those differences also necessitates an appreciation of potential pitfalls unique to the BSC model. While the numbers of centres and staff envisaged in 2004 has proven accurate thus far, Robertson and his team know that the size and remit of each unit requires ongoing monitoring.
‘There are certainly many differentiating factors,’ he begins. ‘We are having to deliver efficiencies and continuous improvement and the value proposition
‘You want to avoid becoming too big in any one environment,’ he declares. ‘Otherwise you become the market and that’s not a pleasant experience, with everyone feeding off you. It’s also essential you manage the flip side of
‘You want to avoid becoming too big in any one environment. Otherwise you become the market and that’s not a pleasant experience.’ is therefore different to what existed previously. The range of jobs within a BSC is also quite different. ‘But what I strongly believe, and it’s borne out by the data, is that the attraction of a captive shared services organisation as opposed to BPO is that the power of the brand means people join us not only because of the technical aspects of the accounting we might do or the growth we’ve enjoyed, but because they recognise Shell is a good company to work for and that they are working as part of teams of people elsewhere in the Shell finance
the advantages of economy of scale: an exposure to concentration of risk. For certain processes of critical importance, it’s best to have them carried out in a number of locations rather than bundling them just in the one place.’ For a man with seven centres at his disposal this should not pose too much of a problem, although there is one thing Robertson makes abundantly clear: however global your reach, when it comes to developing a world-class finance shared services strategy, a singular clarity of purpose is invaluable. ■
Ian Robertson Ian Robertson has worked for nearly 30 years in the energy business for Royal Dutch Shell, building extensive experience of the downstream, upstream, transport and trading elements of the business. He has worked in diverse cultures and environments, managed significant transformation programmes and operated at country, regional and global levels. His roles have not solely been financial in nature but as an active participative member of the management team and various boards. Robertson is executive vice-president for finance operations, a global organisation
of 5,000 staff mainly concentrated in large scale shared service centres. The objective of finance operations is to deliver operational excellence for key financial processes and associated data. Finance operations encompass process design, standardisation and continuous improvement alongside the operational delivery. Excellence in Leadership
Maintain momentum Network Railâ€™s Steven Swientozielskyj speaks to Phin Foster about how the speed and scale of change can force companies to keep moving; and how this accelerated, sustained approach can build a business culture far stronger than anything created in stasis.
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Tales of triumph borne from adversity represent a well-trodden, frequently hyperbolic genre of business fable. In the world of shared services, offshoring and outsourcing, where priorities are more often than not cost savings and process optimisation, narratives framed in such a way can seem overstated and disingenuous; efficiency is a fundamental business driver, but it is also a subject unlikely to get one’s blood racing. A fight for survival, on the other hand, is blockbuster material. It forces the protagonist to take risks, break rules and keep moving. The margins for error are slim, often non-existent, and the price of failure catastrophic. Success, however, can build a culture and modus operandi far stronger and more robust than anything created in more conventional circumstances, laying the foundations for accelerated, sustained success once crisis has been fully averted. ‘Forged in fire’ may be another business cliché, but that does not make it any less powerful an experience. Network Rail’s shared services organisation (SSO) was established following the collapse of Railtrack. Within a timeframe of only six months, the unit was charged with driving down costs across accounts receivable, accounts payable and financial accounting processes, consolidating more than two dozen finance locations and 35 separate finance systems into a single centre and onto one platform. The man charged with this hugely ambitious task was Steven Swientozielskyj, head of finance shared services at the company, responsible for managing the UK’s railway infrastructure. ‘Take a typical case study of how one goes about setting shared services up and imagine the absolute opposite,’ he says of the early days in 2004. ‘We had come out of administration following a corporate failure and there simply wasn’t time for going about things in the normal way: think, plan, do. For us it was more a question of do, plan, think. We had no alternative but to go for it.’ If these were not the most auspicious of circumstances in which to proceed with such a mission-critical transformative undertaking, a study of the role of shared services within Network Rail six years on provides an array of evidence that priorities
have come a long way from mere survival. Technology standardisation, end-to-end process orientation and effective talent management have all been factors in Swientozielskyj creating an SSO he defines as ‘arguably the world’s best’, a model that has moved beyond being a necessary cost centre and become a core competency and strategic partner, driving world-class performance across the SSO. The past months have seen multinationals such as Canadian Pacific Railways and McDonalds arrive in Manchester on fact-finding missions, looking to pick up on ideas and processes from a global leader in the field.
‘I defined myself as a good idea kleptomaniac. The ideas already exist in some form or another, but you have to go out to find and steal them.’ The genial financial controller has no problem sharing his expertise with peers – in his eyes, it is the only way to achieve sustainable success. ‘In the first phase I had to be quite autocratic, dictatorial even,’ he reveals. ‘We were dealing with a significant burning platform and there wasn’t time for niceties. Like Cortes setting his boats on fire, there could be no going back; I led and others had no choice but to follow. ‘After about 18 months or so, however, corporate failure had been avoided and we knew we had to move from a crisis model to something more sustainable: “what are the best practises and how do we get there?”’ Swientozielskyj decided to use what he calls ‘the Japanese car model’, borrowing ideas and processes from a range of bestin-class businesses and translating them back into the Network Rail SSO. ‘I defined myself as a good idea kleptomaniac,’ he chuckles. ‘You don’t have to reinvent the wheel. The ideas
already exist in some form or another, but you have to go out and find them. More importantly, you have to implement them and that’s where a lot of organisations fall down. We kept at it with the same pace and urgency evidenced in the first phase and that meant we were not only imitating but also innovating and doing it better. You shouldn’t be too proud to use others’ ideas, but that should only be the beginning.’
Stay on track This culture of urgency remains within the SSO to this day and Swientozielskyj sees it as invaluable when it comes to driving further success. Once the initial processes had been installed, productivity doubled and resources were halved. This resulted in an 87% cost reduction and reducing that remaining 13% has been the target ever since. In order to get the entire unit focused on this goal, achieving an optimum state of staff engagement has been necessary – not always a high priority in the shared services model and something that would have been unimaginable in the early days at Network Rail. ‘Pick any member of my team at random and they can tell you what “world-class” is all about,’ Swientozielskyj declares. ‘I’ve got teenagers opening the post who can do that. Take a look at where this organisation has come from and you’ll see that we’ve never lost our momentum. It is our most valuable asset, the ability to mix speed with efficiency. People appreciate how far we’ve come and not only feel proud of the fact but also want to remain part of the journey. There is a very low level of staff turnover here and that has a positive knock on effect when it comes to our relationships with suppliers and customers.’ This sense of ownership translates into the processes themselves. Moving finance activities into shared services gave Network Rail an opportunity to get the right technology in place from the off, but a high degree of technology leverage and methodology for end-toend process improvements, as well as an ability to innovate quickly, has enabled a culture of continuous improvement and legitimised the decision to keep each process whole and entirely in-house. During that journey, Swientozielskyj has spent no money on consultants and continuously benchmarked performance against best-in-class operators and external providers. Excellence in Leadership
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‘The reality is not to over-engineer technology to business requirements because that will only encourage costs,’ he begins.
never dismissive of outsourcers, the only time you should ever use one is when they can do something better than you.’
The right signals ‘Where we were previously focused on end-to-end processes, I’m now looking at segmental processes. This can seem like rather a contradiction in terms, but if you take a fundamental process such as paying invoices there’s actually about three or four slight variations. Some need to be entered manually, others scanned and some are entirely processed electronically. This has seen us take a very close look at the technology mix and engage our suppliers in dialogue.
This ability to be cheaper and quicker stems from the drivers for success being quite different and could be interpreted as the fundamental long-term benefit of embarking down the shared services route rather than outsourcing. As the model matures, so too does its role within the larger organisation. ‘Everything we do is geared to the company’s strategic objectives,’ explains Swientozielskyj. ‘The SSO is aligned in such a way as to be seamless. This
‘The SSO is aligned in such a way as to be seamless. This is not a box attached to the side of the organisation; it’s an engine within.’ ‘Your technology must be somewhat in line with your customer mix – the florist will be less interested in electronic invoicing than BT might be – but you need to get your various segments tuned in to the benefits of technology. What we’re looking at is not the cost per se, but the defects. Removing defects from the endto-end process will drive costs out.’ Swientozielskyj talks excitedly about his efforts to move to a point where there is no physical touch, with invoicing and payments being conducted entirely electronically at zero cost. Once again, he is keen to stress that the technology already exists elsewhere, but it is the magnitude and time targets that make such an undertaking unique. Technology plays a vital role in the SSO’s efforts to whittle away at the remaining cost base and helps drive the strategy that its leader believes most differentiates its motives from those of an external provider. ‘They look to reduce cost, but my priorities are quite different,’ he declares, ‘I don’t want to have any costs at all. We’re now cheaper in terms of processing costs than India. If cost and processing times can’t be improved, why outsource? We have ten million transactions a year and can close our accounts down within a day – world-class is three days. No external provider can do that and, although I’m
is not a box attached to the side of the organisation; it’s a team within. Offshoring and outsourcing models can fail in the medium- to long-term because of a lack of integration – people get disconnected from the business. ‘When you’ve got creative shared services it engenders an ability to react immediately to activities that the business is doing. Over time, and this is the point where we now find ourselves, you hope to develop the skill to be proactive, anticipating what might go wrong rather than reacting when it does so. If you’re outside the box all you can ever hope to do is react, but you’ll often be the last to know that there’s anything to react to. Our motive is getting it right for the business, not how much profit we can tap or worrying about contract risk.’ While the culture within some SSOs is actively encouraged to be quite distinct from that of the larger organisation, Swientozielskyj believes his team of 100 personify the qualities sought throughout Network Rail, ‘disciples’ of its corporate goals, values and management principles. The SSO is becoming responsible for ever more detailed processes, including project accounting and decision making support, as it becomes an ever more trusted partner and the benefits of standardisation and centralisation continue to speak for themselves.
Along with lean management, Six Sigma techniques, exhaustive benchmarking and a magpie mindset, technology has played a vital role in the journey. For Swientozielskyj, however, it always comes back to the people. ‘All the provider software is out there,’ he says. ‘What makes the real difference is the combination of the business process element with the people element – that’s the Holy Grail. Technology will never drive continuous improvement alone.’ Three years ago, Swientozielskyj declared before his team that he wanted to develop an SSO that would be recognised globally as a leader in its field. Considering where they had only recently come from, some audience members might have been forgiven for rolling their eyes at such an audacious rallying cry. The journey has not always been easy, but success says as much about the spirit forged in those difficult times as it does about the clarity of one man’s vision. ‘You have to dream,’ Swientozielskyj declares. ‘There are always surprises, and I’m honest enough to admit there’s been a few nightmares along the way, but we’ve surpassed that aspiration of three years ago. Reflecting on that is satisfying, but our momentum means attention must always be firmly focused on the future and meeting and supporting the company’s goals.’ ■
Steven Swientozielskyj With more than 15 years experience in the rail industry, Steven Swientozielskyj has been instrumental in leading the design, development and implementation of shared services for Network Rail. He also has expertise in large-scale change management programmes and systems implementations. Before joining Network Rail as financial controller, Swientozielskyj worked as a management consultant with Pricewaterhouse Coopers.
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A model of good practice With organisations suffering from data overload, there is a need for solutions that can cut through information to deliver true business insight, enable clear decision-making, and provide a structured environment for business governance and performance improvement. Director George Davies explains how Salamander’s MooD Active Enterprise technology is a solution tailored to your business model. Many organisations are dealing with an everincreasing amount of data, a trend often driven by huge implementations of supply chain and reporting systems. Add to this a still volatile economic climate and it becomes absolutely critical for company executives to be able to control and govern the decision-making process across all areas of their business. For George Davies, director of The Salamander Organisation, it is essential to be able to identify which data is important and how that impacts on enterprise performance; this is what sets Salamander’s offering apart from many of the other solutions on the market. ‘We’re not about data warehousing or reporting more information; we deliver a solution using a business model that is specific to your enterprise, which pulls in selective operational data necessary for the decision-making process,’ he explains. Salamander’s MooD Active Enterprise software allows companies to build a multi-dimensional model of the way their business operates. MooD considers many aspects of business performance, including processes, people, performance metrics, assets, infrastructure and systems. ‘We use a tailored business model that details the piece of your business where true insight is required. We then start in one specific area, prove the value and build out from there as required,’ Davies says.
Many of Salamander’s clients operate in industries with stringent regulatory requirements – from defence to oil, utility to banking; it is, thus, essential that the company’s closed-loop governance system can be applied to the area of compliance. Datapoint, a systems integrator and services provider to the enterprise and call centre communications market with a substantial customer base in the financial services sector, has worked in collaboration with Salamander to create the compliance and performance governance ‘Catalyst’ solution.
‘MooD considers many aspects of business performance, including processes, people, performance metrics, assets, infrastructure and systems.
But most important is the relationship between the different dimensions and whether they are working correctly together or not. When Salamander has created the business model, it can be viewed by the company directors via a dashboard; they can then explore how the business operates from multiple points of view.
As the customer contact environment is highly regulated, particularly within financial services, it is essential for Datapoint’s clients to establish and maintain compliance to certain rules. Catalyst is essentially a business model of the elements that make up the contact environment, and this forms a platform from which solution modules can be configured to address a particular business issue such as industry regulation.
‘It creates transparency in the enterprise both across, and up and down,’ says Davies. ‘Our approach is only suitable for the leader who isn’t afraid of creating that sort of transparency, the person who realises that it is an effective way of achieving clarity and accuracy of decision-making.’
The compliance and risk solution evaluates the business model against a set of compliance rules, which allows for the identification of gaps and subsequently risks to the organisation. Once the gaps and risks are identified, it provides a closed-loop approach to mitigate and track the impact on compliance over time.
Solutions such as this can easily be adapted to a wide range of industries. ‘It’s very flexible and the different rules for the different regulatory bodies can be applied to the same core systems,’ says Davies. ‘You can build a business model and customise it to the specific way an organisation wants to operate. It’s certainly not about saying: “Here’s a blueprint; thou must do it like this”.’ Moreover, Salamander can offer companies vast time and cost savings. ‘We can have a solution up and running for a client in three to four months,’ Davies notes, adding that considerable economies can be made when it comes to human resources. ‘One particular case where we have implemented the governance solution has enabled efficiency savings of 25%.’ As Salamander’s director looks to the future, outsourcing solutions are coming to the fore. ‘A key focus will be on how businesses commission services and solutions from third parties, and how third parties show they can and are delivering that service,’ he forecasts. ‘The chasm between what the customer requires and what the third party delivers is an area where much tighter control and insight is required. There is too often a gap between what a customer wants and what a supplier is providing.’ ■
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Model behaviour As SVP for F&A operations at WNS Global Services, Arul Sivagananathan is responsible for F&A outsourcing across India and Sri Lanka. Here, as a member of the Excellence in Leadership editorial advisory panel, he sizes up the challenges of the shared services model.
The decision to offshore non-core activities has been a global trend for over 20 years. In the finance and accounting (F&A) fraternity the tradition has been to offshore transactional processes such as accounts payable, accounts receivable, and claims processing. However, more and more multinationals have built strong partnerships with BPO companies to offshore more complex, high-end F&A work, including analytics, actuarial, research and analysis, to name a few. The philosophy behind the shared services model is to leverage different competencies of the business and drive efficiencies and economies of scale. An organisationâ€™s approach to pursuing a shared services model is often driven by potential for financial savings in highvolume, low-risk, low-complexity and lightly regulated processes. However, for some, the aim of the model is to drive a centre of excellence for high-end F&A processes, creating a niche market (see Figure 1, far right, top). Based on this matrix, it is clear that organisations should continue to have their highly complex, highly regulated, high-risk and high-control processes in-house, to mitigate any risk. Even if the processes are less complex, due to regulatory issues and risk, they may not qualify to be offshored completely. In which case the new trend is to nearshore but continue to have the processes regulated and controlled from corporate headquarters. This is also the trend for multilingual processes, in which the offshoring model involves dealing with multiple locations with local languages. Excellence in Leadership
Shared services methodology The high-level methodology to centralise from multiple locations to co-location is a three-phase approach (see Figure 2, right, below). Depending on the complexity of the processes, the period from consolidation to transformation may take anything between 9-18 months. For Phase 1, the idea is primarily to co-locate services at a single location, managed by a single service delivery manager (SDM) and to consolidate people and similar processes along with possible efficiencies and cost reduction. In Phase 2, the plan should be to unlock best practices in different business units and divisions and standardise these processes to deliver optimum results with operational excellence. This should be scaled up to migrate similar processes of all business units to provide end-to-end services for the F&A practice. Finally, in Phase 3, value needs to be created through forward and backward integration of the processes, benchmarked to world-class delivery standards, simultaneously optimising the ERP solution to maximise investment.
Four factors to consider The main areas to consider when setting up a centre of excellence are process, people, location and technology (see Figure 3, overleaf).
approach to a standardised method of delivery. This requires agreement with key stakeholders and auditors, and sometimes even with regulators.
People The biggest change is to the mindset, because it is a paradigm shift in the way people will work and manage. The move from a functional division to a comanagement approach is a big change, with multiple reporting lines and delivery to multiple stakeholders and business units. However the cost benefit will be achieved through specialisation and removal of inefficiencies.
Multinationals can reap huge benefits by moving to a single location for their centre of excellence. They will be able to provide world-class, streamlined services across global locations from a single site. The quality and standards will be the same across the world, with innovative reporting, optimising the time zone differences.
Technology Each business division will have its own legacy systems and multiple ERP systems for reporting and for data warehousing. The accountants will continue to input data into spreadsheets for analysis and reporting.
Figure 1: Strategy to offshore High Niche market centre of excellence (offshore and outsource)
Corporate functional model (in-house)
Global shared service centre / centre of excellence (offshore and outsource)
Regional / country shared service centre model (near-shore and outsource)
Control / regulatory / risk
Figure 2: Three-phase approach to true shared services Phase 1 • Co-locate: transition current similar processes offshore. • Co-manage: bring different business units / divisions / countries under one management / service delivery manager (SDM).
Phase 2 • Simplify and standardise processes across the business units, unlocking best practices. • Review the onshore / offshore footprint and scale-up by converging similar processes within the SSC from all business units.
Process Most of the time the processes will be completely different at different locations, countries and units. Therefore the processes need to be changed from a localised
‘True offshoring and shared service centres can be developed for low-risk, less controlled and less regulated processes.’
However, true offshoring and shared service centres can be developed for lowrisk, less controlled and less regulated processes, where the complexity of the processes are of a transactional nature. For such non-core activities a true global shared service centre can be built at an offshore location to provide better service with cost benefits. But for highly complex work that is less regulated and for low risk processes, niche offshoring with specialised skills can be developed because the work produced will be unique and will vary for individual companies, countries and locations. Hence a centre of excellence can be created but individuals will be specialised in specific processes such as actuarial, research and analysis or analytics.
Phase 3 • Review the entire core process end-to-end and exploit capabilities to add value through backward and forward integration. • Benchmark processes and performance against worldclass functions. • Optimise ERP to its maximum potential and eliminate waste. Transform
9-18 months (depending on complexity)
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Standadised processes Single platform
Multiple systems / Legacy systems
Optimisation (centre of excellence / shared services centre)
Single location / country
Benefits of shared services can range from cost reduction through economies of scale to organisation’s ability to accommodate business growth and volume fluctuations. Some of the benefits include: • location strategy – from multiple locations to a single location, where there are labour arbitrage and abundance of qualified staff to provide better service • economics of scale – where it allows to right size its onshore operations and reduce high labour cost • tax benefits – through investment incentives available in developing countries, one leading UK insurer was able to get a tax holiday by providing jobs in the offshore locations to skilled professionals • system improvements/IT – with an offshoring strategy, many legacy systems were converted to ERP solution and brought on to a single platform • savings on infrastructure and associated indirect costs including floor space and building maintenance costs • ability to bolt on global processes on to the shared service and provide world class service globally with streamlined processes and reduced time lines • mitigate key talent skills through process standardisation • common service level agreement (SLA) across business units • resource capacity management during peak and trough due to fluctuation in volume depending on onshore requirements.
Multiple managers / Inefficiencies
Benefits of shared services
Figure 3: Optimisation of shared services
Co-management / Manager
One of the biggest benefits is to use technology across these different systems and move them all on to a single platform to perform F&A tasks and increase the synergy of the organisation. This will reduce manual interference and reduce labour intense processing. Through innovation and automation, reporting can be made to be more efficient and accurate. It will also pave the way to customise the reports as required for corporate needs.
Multiple locations / countries
Location in a shared service model will need to report to multiple stakeholders in different business units, who become equally important to all. Whereas previously, a single business unit head would have recieved the 100% attention of the SDM, staff can become too specialised in a single process and not be aware of the overall objective. Segregation of duties and controls needs to be tightened. There are also risks arising from a single location strategy. Necessary recovery centres and a stringent business continuity plan need to be in place. Multiple business units compete for staff attention during month end and year end and deliverables need to be managed by planning the peaks and toughs of the resource allocations.
Challenges of shared services
For some, the biggest challenges faced during the pilot phase of shared services are uncertainty of job losses, change of reporting lines from business units to matrix structure, ensuring stakeholder buy in and developing service level agreements. However, most of the concerns can be addressed through an established change management process and constant communications at both ends.
As with anything, there are limitations to shared services, especially at the pilot stage. The biggest challenge is people and structure. This requires careful planning, onshore and offshore, to set expectations right and to get the buy in of key stakeholders. A change management team is vital to ensure a smooth transition to a centre of excellence. A matrix reporting structure is also required because the SDM
It is also important to have senior and junior level buy in and to identify key influencers early on to help make the transition. The service level agreements need to be benchmarked, critical processes are identified and controls put in place to mitigate any risks to delivery. Monthly and quarterly surveys should be conducted among internal customers to measure performance and to
receive feedback to continuously improve the services provided to the client. If a centre of excellence in India and Sri Lanka for finance and accounting services proves to be a success, it will help clients concentrate on their core competences. With the global recession beginning to abate, using their strategic partner to deliver world class services across the locations will no doubt help companies provide better services to their customers. The next generation of shared services will be born through innovation and business process re-engineering, where IT will play a key role in changing the way the accountants and leaders work in the future. ■
Arul Sivagananathan As SVP for F&A operations for WNS Global Services, Arul Sivagananathan is responsible for transitioning finance and accounting work from one of the largest insurers in the UK to a green site centre in Colombo. He is also responsible for F&A operations across Chennai (India) and Sri Lanka. Sivagananathan is also a member of the Excellence in Leadership editorial panel.
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Share and share alike Consolidating common service activities into a discrete shared service centre, where expertise and technology can be brought to bear on work processes and information flows, is a growing trend. Loughborough Universityâ€™s Ian Herbert, lecturer in accounting and financial management, and Will Seal, professor of management accounting investigate.
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A quiet revolution in back-office services is taking place, one that is not only reshaping the way in which individual tasks are undertaken, but has the potential to impact the way in which we think about the design and operation of large organisations: the rise of the shared service centre (SSC). Proponents for the SSC claim that significant efficiency savings can be achieved through business process re-engineering (BPR), the elimination of duplicate systems and moving to a cheaper location. While similar claims are made for outsourcing, the SSC enables a quasi-market feel to relationships with customers in the business units but crucially allows management to retain control over service activities. Based on research conducted over the last five years, we have looked at the SSC journey of two companies in the UK, not realising when they first started just how fundamental the SSC model might one day prove to be in the public and private sectors alike. Financial support from the Chartered Institute of Management Accountants has since allowed us to expand the enquiry to around 12 organisations and to visit SSCs located in eastern Europe and the Far East. Our findings take the form of a series of questions and answers.
What is a shared service centre? The typical SSC sees a range of support services, such as finance, HR, purchasing and IT, taken out of front-line business units and aggregated into a new, purpose-built facility located either in a cheaper part of the home country or offshore (see Figures 1 and 2, right).
And the not-so-typical form? Well, that could include almost any activity, in any form. For example, two or more divisions sharing responsibility for property maintenance between them is a shared service, but that begs the question: “Isn’t that just a traditional functional set-up?” An SSC should have its own management team, with a reporting line independent of any one division and the freedom to operate in a quasi-commercial manner. Essentially, governance of the arrangement will be through a formal service level agreement (SLA) and the full cost of the services supplied will be charged back to the participating divisions.
Figure 1. Conventional divisional structure (support services embedded)
Business unit 1
Business unit 2
Business unit 3
Figure 2. Shared service centre structure Top management
Business unit 1
Business unit 2
Business unit 3
Shared service centre
‘An SSC should have its own management team, with a reporting line independent of any one division and the freedom to operate in a quasi-commercial manner.’ Is this a new idea? Yes and no. At some stage, most organisations have found it useful to centralise certain activities; either because the need per individual division is low or infrequent, or that centralisation has enabled senior management to co-ordinate and control the wider organisation. A good example of both aspects is that in the 70s and 80s mainframe computers were very expensive and difficult to operate, hence they tended to be central facilities. Then in the 90s personal
computing and spreadsheets allowed IT to be pushed out to individual desktops. The new ethos was to be ‘close to customer’ and flexible. Effectiveness in terms of adapting to changing products and markets was paramount, hence a degree of inefficiency could be tolerated. Since the mid-90s, the trend has been to reconsolidate. For a multi-divisional organisation, the sharing of back-office processes is often a key way of delivering the ‘joined-up’ company, saving cost and strengthening strategic management. Excellence in Leadership
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‘The SSC concept is consistent with the current political mantra to make savings but still protect front-line services.’ Does this only apply to private sector firms? No. In the public sector, there are examples of several organisations coming together to share services through a new organisation with its own constitution and an objective to cover its costs, maybe to even make a small profit. These examples provide a more obvious shape to an SSC than might be the case in an individual firm although this puts a premium on finding mutually acceptable approaches to recharging and standardisation. The SSC concept is consistent with the current political mantra to make savings but still protect front-line services.
Is the prime motive for the SSC to reduce costs? Clearly cost is an important, if not the most important factor, for most companies. However, for some of our case studies, adding value through better levels of service is also a key goal. In these cases, the back office is seen as an opportunity to leverage the talents of front-line workers rather than just another overhead to be cut. For most
of our case organisations, the real benefit is that the SSC brings a new visibility and transparency to costs that were previously hidden within divisions. Indeed, even for those SSCs with a rationale focussed on cost reduction, actually quantifying how much cost has been saved can be problematic. When we press managers on how they measure the actual extent of SSC savings, we tend to get three responses. Firstly, they say savings are being achieved on the basis of reductions in headcount, or comparisons between the salary of a typical post before and after the SSC. While such metrics might appear somewhat crude, headcount is still a strong driver for organisations focused on the balance between core and non-core workers; frontline versus back-office workers in the public sector. Furthermore, costs of divisional support staff tend to be fixed. The use of contract workers in the SSC, where larger teams and more programmed processes can better assimilate short term workers, can make administration costs more variable than might have been the case previously.
Secondly, post migration savings achieved by the SSC in the second and subsequent years of operation. The ethos behind the re-engineering model is one of continuous improvement and cost reduction. Thirdly, savings may be achieved through benchmarking and sharing best practice with other SSCs. Once support services are centralised in a SCC, subsequent BPR and further investment in better equipment and systems can be evaluated on a more rigorous cost-versus-benefit basis with outcomes then compared with ‘world best practice’ .
Are the cost savings confined to the SSC? After efficiencies through aggregation, scale and BPR, the next stage in the cost-reduction strategy arises from the standardisation of procedures across divisional support systems. Running one system in place of umpteen different divisional systems is much more efficient. Standardisation also means that it is easier to move managers and other resources around a large group. However,
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this category of benefits arises at a corporate rather than either at a business unit or at SSC level and so tends to be less quantifiable.
Presumably there are also non-financial benefits? Yes, there tends to be a wide range of planned and unanticipated benefits arising from the SSC. For example, the SSC can employ specialist staff and resources. Often, a key driver in the rationale for the SSC is the adoption of enterprise resource planning systems (ERP). These systems, like the old mainframe computers, are expensive, difficult to set up and require a certain standardisation of input protocols and output formats across the organisation. This standardisation project fits well with the SSC and suggests a natural owner for the ERP system. Not only should the SSC provide for greater transparency across the organisation, it may have a better chance of driving continuous improvement in support services. Continuous improvement can be the mainstream focus for the SSC, rather than just another agenda that has to compete against other priorities for management’s attention in the business divisions. Moreover, the SSC can provide senior management with a powerful lever to drive through changes in corporate level policies and procedures across the whole organisation.
But can these benefits be achieved through conventional outsourcing? To some extent outsourcing can deliver similar benefits as the SSC. But risks arise from losing control of outsourced processes, plus a danger that the contract may not be sufficiently responsive to changes in business volume and operational needs. While a third party may have a vested interest in driving down the cost of its own processes, saving money for the business divisions through better systems may not be a priority.
But can the SSC really have a market-based ethos if its customers have no real choice? In a number of our cases, the divisions were given a choice as to whether or not they wished to participate in the early days of the SSC. Therefore, it was left to the SSC to sell itself, perhaps having to compete with third-party suppliers. This raises a key difference from other corporate change agendas,
which seek to address change through more fundamental reorganisation plans. SSCs tend to start small with tasks that are less contentious politically and operationally, such as payroll and bank reconciliations. But, once the SSC has achieved a critical mass and ‘steadystate’ operation, then there generally comes a tipping point at which divisions will be mandated to use the SSC. As the SSC’s service levels and its costs become a known quantity, these can be benchmarked against a competitive baseline, comprising other SSCs, to assess continuous improvement. This way, a degree of external testing is achieved. Additionally, divisions have considerable power to hold the SSC accountable, either through the SLA or political lobbying to senior management. Remember the SSC is still within the hierarchy of the firm and so the cost of monitoring and enforcing contracts is minimised in comparison to third party outsourcing. There is always an implicit threat that the SSC itself might be outsourced.
Is the SSC merely centralisation by another name? On the basis of our enquiry it doesn’t look that way. Some SSCs have developed centres of excellence comprising higher level specialists who diagnose issues occurring in the business divisions
When you say ‘mindset’, it starts to sound like another organisational fad. The managers in our case study SSCs would contend that the SSC model is much more visible and transparent than a head office-based facility is ever likely to be. Firstly, because the primary role of head office is to manage rather than to support business units and there is always likely to be an element of power-play between master and servant. Secondly, the SSC has to justify its recharges based on key performance indicators in the SLA and this drives a level of scrutiny that is absent in the traditional centralisation of services within a corporate head office. Thirdly, without their own support staff it is difficult for divisions to run duplicate systems that tend to create asymmetric information and therefore distrust between the central staff and divisional management. The new SSC partnership works because the SSC owns the processes while the business units still own the numbers, i.e. the commercial result. Our findings suggest that the SSC model is sustainable. We haven’t heard of any firm abandoning its SSC model!
OK, it might endure, but is the SSC merely a technical matter? You could be forgiven for thinking that and, yes, these could be early days. However, the key issue of the large multidivisional company persists: how
‘The managers in our case study SSCs would contend that the SSC model is much more visible and transparent than a head officebased facility is ever likely to be.’ then design and deliver solutions. A key difference in the SSC model is the emphasis on process rather than functional structures. For example, purchase-to-pay and hire-to-fire process streams cut across the conventional silos of different professional disciplines.
to co-ordinate disparate operations into a cohesive strategic form and, at the same time, control individual divisions to ensure that strategic plans are achieved. Through changing times and business contexts this still remains the holy grail of organisational design.
In the organisations that we examined, there seems to be a different outlook and feel to the way in which the SSC operates and thinks about itself, certainly when compared to a traditional head office arrangement that tends to become a remote ‘ivory tower’ embodying an overtly bureaucratic mindset.
The SSC enables the centre to have transparency and visibility of divisional businesses. Standardisation enables more direct comparison above the bottom line of individual divisions and less opportunity for political posturing based on asymmetric information. The SSC comprises a key element in what is called ‘enterprise Excellence in Leadership
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architecture’, that is the organisation’s knowledge and systems.
Presumably that would be lost with outsourcing? It’s a moot point. An outsource provider would argue that ownership of the business numbers and the ability to interrogate it is ultimately down to the organisation buying its services.
define the intellectual property of the division is its ability to manage a bundle of engineering projects and to deal with myriad customer transactions. While the SSC can be regarded as just a remote paper factory, along with the customer call-centres it is what enables the customer interface to work and is a key element in managing the relationship
‘Some SSCs have created such a level of intellectual property in the development of their systems architecture that the mother organisation has been able to sell the whole operation to a third-party.’ So the SSC is really a form of in-house outsourcing? That’s a good way of putting it, although again it’s probably a matter of degree. Some organisations prefer to see the SSC as more of a mutually co-operative venture across divisions. While some people argue that conflict can be constructive in some circumstances, our case study organisations were generally keen to avoid the tensions that might arise through over zealous application of market principles. The shared service model retains control and ensures that the service continues to improve and adapt to the business.
Presumably the SSC is less contentious as regards staff issues? That’s right. Outsourcing, especially when going offshore, can be an emotive issue. The SSC model avoids this in the first instance and subsequent evolutionary reductions in headcount through BPR are more gradual and can usually be managed through natural turnover.
Is there a danger of the SSC driving the company? Certainly. But perhaps that is not so much a threat as an opportunity. A division in one of our case study companies found that over time its core engineering service has become less significant in defining its business. Sure, that’s how it earns its money, but now the capability necessary for the core engineering tasks can generally be bought in from a range of third-party subcontractors. What is starting to
with the industry regulator. Increasingly, it is the activities in the SSC that define customer experience. Nowadays, the core product, energy, tends to be taken for granted; it is largely a commodity bought at a price. However, customer issues such as moving address or chasing progress are what the customer sees. It can be this more personal experience that influences future choices between competing suppliers. Taken together, lots of small evolutionary changes in the hitherto ‘peripheral’ back-office could see a more
revolutionary reappraisal of the design of the multi-divisional form.
And the future? It would appear that the UK has something of a lead in shared service organisation and technology. The next phase is likely to see an expansion of the scope of the SSC, perhaps into higher level activities, so-called business partnering, such as providing advice to management and designing corporate policy. Indeed, looked at from a knowledge management perspective, some SSCs have created such a level of intellectual property in the development of their systems architecture that the mother organisation has been able to sell the whole operation to a third-party, and then buy back the service on contract. This can be attractive once the all-important business support processes have been stabilised and a track record of performance and cost has been established. The development of shared services across all parts of the public sector is likely to be a massive project in the next few years. In terms of the overall global knowledge economy, the setting up of SSCs and business process outsourcers in China and other Pacific rim countries, as the manufacturing wave continues to move inland and a new service-based economy fills in behind, is likely to open up further opportunities for cost reduction. ■
Ian Herbert gained extensive experience in accounting and general management roles in industry before moving to higher education in 1990. He teaches accounting and financial management at Loughborough University Business School on under-graduate and postgraduate courses.
Before joining the Loughborough Business School in 2005, Will Seal lectured at the universities of Nottingham, Bath, Nottingham Trent, Sheffield Hallam. More recently he has held chairs at the universities of Essex and Birmingham.
His main research interests are the evolving role of the finance function and the impact of shared services on the design of the multi-divisional company.
As well as shared services, Seal’s current research interests include accounting for hotels and hospitality, supply chains and relational contracting; management accounting in local government; and management control and corporate governance.
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22 November 2010 | Royal Lancaster Hotel | London
Celebrate the sound of success at the CIMA Annual Awards 2010 Whether a soloist or group, step into the spotlight and be recognised for your winning performance. Nominations have opened for this yearâ€™s prestigious CIMA Annual Awards 2010 and we want to encourage you to make a nomination. The CIMA Annual Awards 2010 acknowledge excellence in management accounting and celebrate the talent of people who are leading the way within our profession. To nominate and for a full list of categories, along with judging criteria and entry forms, visit the website www.cimaglobal.com/awards The deadline for nominations is 15 July 2010. Winners will be announced at the awards dinner on 22 November 2010 in central London. For further details visit www.cimaglobal.com/awards Best of luck! sponsored by
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Breaking glass There was a time when it would be accepted that men would dominate the board of any large company, but is this changing? Women account for a growing proportion of senior executive roles, but statistics show they are still greatly in the minority. Is the glass ceiling as impenetrable as ever? Jim Banks investigates.
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A past president of CIMA, Claire Ighodaro’s board roles include nonexecutive director of Lloyd’s of London, the Banking Code Standards Board and UK Trade & Investment, trustee of the British Council, and council member of the Open University.
Since January 2009 Helen Weir has been group executive director retail for the enlarged Lloyds Banking Group. She joined Lloyds TSB in 2004 as finance director. Previously she was group finance director at Kingfisher. Before joining Kingfisher in 2000, she was finance director of B&Q for five years.
Bernie Cullinan has been involved in business, primarily the software sector for a number of years in both executive and non executive director roles. She is CEO of Clarigen, a company providing an outsourced solution for companies in the small and medium enterprise sector.
Whether through the changing attitudes of successive generations or legislative action, there is no doubt that attitudes to gender in the workplace have changed significantly over the years. In many work environments, except those such as the trading rooms of financial institutions, it is no longer unusual to see women in positions of authority. Yet, at the most senior level, the statistics tell a different story.
for women to get to the top, but it is accepted that women can lead,’ says Claire Ighodaro CBE, past president of CIMA, whose long career at BT, along with numerous board memberships including the British Council, testify to these changing attitudes.
‘The glass ceiling is a rapidly diminishing issue. There are fewer organisations where being a woman holds you back.’ In the UK, only 12.2% of FTSE 100 directors are female. So, despite a major shift in corporate culture to broadly embrace gender equality, does a glass ceiling still prevent women from becoming senior decision-makers? ‘The statistics for women in large companies are not brilliant, but there is not the sort of glass ceiling there was ten or fifteen years ago. Back then, it was far stranger to see women in leadership roles, and that was accepted as the norm. Now, it is still difficult
‘In my experience, I don’t find that women are treated differently. It is perhaps a paradox that the boards of large companies are not felt to be in any way sexist, but the statistics have not caught up with reality,’ she adds. Ighodaro is not alone in seeing a maturing attitude towards women in leadership, even if the empirical data does not yet reflect the trend. ‘The glass ceiling is a rapidly diminishing issue. I’ve never experienced it. There are fewer organisations where being a woman holds you back. In fact, quite the reverse because organisations want more diversity. I run a retail business and around the table I want people who represent my customers,’ says Helen Weir, group executive director of retail banking at Lloyds and former finance director at LloydsTSB. ‘Things have changed because of a commercial realisation of the need for diversity of views within a business. Also, more women have worked through to a senior level. Our board is nearly 50% women. Women can thrive here, Excellence in Leadership
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and they serve as role models in senior positions,’ she adds. A sign that equality is being embraced more broadly is the perception among women in senior roles that they do not necessarily have to work harder than male colleagues to get recognition, as was once the case, and do not have to behave like men to succeed in a male-dominated arena.
Ogilvy & Mather Worldwide's Shelly Lazarus on the gender gap As one of the most powerful executives in advertising, Ogilvy & Mather Worldwide’s chairman Shelly Lazarus joined the organisation at the tail end of the fabled ‘Mad Men’ era in the early 1970s. She rose through the ranks of account service to hold positions of increasing responsibility in the management of the company, including president of O&M Direct North America, chief operating officer, and CEO of Ogilvy & Mather Worldwide. Michael Jones caught up with her at the British American Business Council Conference in London to discuss the role of women in business. Michael Jones: How much of a concern is it that there are so few females in CEO positions in Fortune 500 / FTSE 100 companies? Shelly Lazarus: I think of course you have to be concerned when you just look at the figures but I think it’s also fair to keep
fight the fight and put in the time and the travel, etc, but we have to get the numbers up. If there is anything that concerns me it’s the number of extremely talented and capable women in their thirties who are choosing by their own will, and happily, to leave the workforce to go home. On one hand I think it’s wonderful that women feel free enough to make these choices because that’s the ultimate freedom, to say: “I understand that I could be a CEO, but what I’d prefer to do is to go home and take a break now in my professional career and spend time with my children”. On the other hand the more women who opt to go home the smaller the pool is going to be. When you are thinking of a pool of potential CEO candidates, it’s not that large, so we have just got to figure a way of getting women to want to stay in the game.
‘The amount of progress that I have seen just in my professional lifetime has been remarkable.’ some perspective. When I first came into the business world in the early 1970s I used to be the only woman in the room – a long way away from conversations about women CEOs. The amount of progress that I have seen just in my professional lifetime has been remarkable. But you still have the issue of low women leader numbers so I think it’s good to be impatient as well. Keep life in perspective – but continue to be impatient. MJ: What do companies need to do to change the situation? SL: It is a bit of a numbers game and you have to have a big enough pool of women who are willing to stay in, play the game,
MJ: How sympathetic are boards to women looking for the need to balance work and family life in your experience? SL: I don’t think boards should be sympathetic to balance; that’s not a board issue. The board issue is retaining talent and making sure that the environment in which the talent works is as conducive to success as possible. One of the things I have found is that you can fit into your life all those things that you love to do, but you can’t fit in so easily what you find tedious. If you love your children and you love your job it all becomes do-able, you just have to figure out the balance, day to day.
‘I don’t think it is necessary to emulate my male colleagues. Things like professionalism, leadership, good decision-making and strategic thinking are not necessarily male characteristics. Most women may feel they do have to work harder than men, but that may be just their perception. It could be that women have a different approach to being diligent, so they naturally work harder on important things. Perhaps anyone who needs to be noticed will put in 10% extra,’ says Ighodaro. Given this positive trend, it might seem unnecessary to include passages on gender equality in the UK’s new code for corporate governance. Nevertheless, the low proportion of women on the boards of the UK’s largest companies shows there is room for improvement. Furthermore, outside the UK, the experience of other women in senior leadership roles suggests that some parts of the corporate world have not moved on from the old days. ‘The glass ceiling is still an issue, and a lot of it has to do with the fact that women take time out to have children,’ says Bernie Cullinan, past president of the Irish office of CIMA and CEO of Clarigen. 'It is hard to build a business and keep continuity, especially in a small business, if people take large periods of time out. It is not sexism, and it is not necessarily about not being given opportunities. There is not a huge difference to 20 years ago in terms of the percentage of women in senior roles, at least in Ireland, so not much has changed.’
A biological roadblock? The issue of whether women’s role in starting a family and the potentially lengthy absence for maternity leave is the major obstacle to their advancement to the boardroom is a contentious one. Cullinan believes it is the major reason for gender imbalance in the boardroom.
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‘At the end of the day, business priorities have to prevail,' she remarks. 'If a senior woman who is a key decision-maker has time out then it could be very difficult for the business. Some CEOs have told me that they don’t want women in senior positions because maternity leave has cost the business, and I understand their concern.' In contrast, other female directors with children feel starting a family does not have to hinder professional advancement. ‘Some women could argue that childbirth should not get in the way of a career as a senior executive, but the reality is that there is an impact,' says Ighodaro. 'But the impact can be managed, especially in large organisations. I am a mother myself. There is also the fact that some women don’t want to have it all - a high-powered career and a family life. Having children is not necessarily the main driver for women leaving an organisation. Many leave for bigger
opportunities and challenges, or to experience a different culture.' ‘It is hard to believe that having children is the major barrier to women achieving senior executive roles. I see women in the City, accountants and lawyers, who have children and come back as effective as before. They, and their organisations, have managed around it,’ she adds. All agree that planning and preparation can enable a company to work around the absence of a key executive for maternity leave. ‘The best situation is that a talented woman has an open dialogue about her plans and the company works with her to plan for her absence, so that everyone has a clear understanding of what will happen,’ says Cullinan. ‘The issue of having children needs better planning and more compromise on both sides. When I had my last child I was on the board of a FTSE 100 company and I was off for only four months. Any longer might have been problematic. It requires give and take, and it might be harder at middle management level before you get
Norway’s gender equality laws force change • In 2003, an amendment to Norway’s Gender Equality Act became law, demanding that public authorities and employers make systematic, targeted efforts to promote gender equality’. • In 2002, only 6% of boardroom jobs were held by women; now 40% of director posts in Norway are held by women. • Norway has the world’s highest proportion of female non-executive board directorships. • In 2008, Norway was ranked first by the World Economic Forum in its gender gap index.
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Women in leadership in the news Red Cross executive team reaches gender balance For the first time in its history, the International Committee of the Red Cross has become gender balanced: four new members were appointed to the executive team for a four-year term by the committee’s new director general, Yves Daccord. Three of the four appointees are women, balancing the six-person executive team. All three women are married and have children, offering a useful role model in Switzerland where work-family conciliation is still too often seen as an obstacle. 33% quota for women in Indian Parliament A bill dubbed the ‘Women’s reservation bill’ is making its way through India’s legislative
onto the board. Life is about compromises and trade-offs,’ says Weir. Ironically, the process of managing around family responsibilities becomes easier when a woman is in a more senior position. ‘The work/life balance is a huge challenge for women, who have a strong predisposition to feel the strong pull of family life, and it is extremely difficult to manage if they are
system. The bill aims to reserve one-third of the seats in both India’s state and national legislatures for women, in a historic attempt to introduce more gender balance into the political representation of the world’s biggest democracy. Costa Rica elects first female President In early May, Laura Chinchilla took over as president of Costa Rica. After an overwhelming victory in February, the 51-year-old former vice-president became the country’s first female head of state and the third in Central America. As the representative of the centre-left National Liberation Party, Chinchilla got 47% of the vote, 22 points ahead of her runner-up. Source: 20-first, 2010
working full-time. If a woman is very senior, then it might be easier, as they can afford full-time childcare, but if they are not, then it is very difficult. In Ireland, it costs €2,000 a month to have full-time childcare, so you need to earn €4,500 a month for it to be possible,’ says Cullinan.
‘As a younger woman, a job that requires a lot of foreign travel may be more difficult if they have a family, but now men are more involved in family life and caring for children. The work/life balance is more important for both, and that is now recognised,’ remarks Ighodaro.
That said, the balancing work and family is an increasingly important issue for men as well as women.
This blurring of traditional roles in family and professional life is accentuated as younger generations make their way up
CIMA’s Women in Leadership campaign The finance industry has traditionally been a male dominated environment. It is not surprising then that all the accounting institutes have more male than female members. But this is changing. It is encouraging that CIMA has one of the highest growth rates in female students and members of all the accounting institutes. More female students are studying for CIMA qualifications than ever. But when it comes to women progressing to high-level jobs, there is still much room for improvement. This is why CIMA is acting, launching the Women in Leadership campaign, of which this article is the first instalment. CIMA’s Women in Leadership campaign is a commitment to support the progression of our female members into senior roles, as well as to promote the accounting profession to female students internationally.
Why? Having women on the board, or in senior management roles, makes good business sense. There is a body of evidence that demonstrates the corporate governance and bottom line benefits female leaders bring to organisations. McKinsey research shows that having more women on boards and in senior executive roles is linked to stronger financial performance. Their research showed that women more often than men demonstrate five our of nine leadership traits that have a positive impact on corporate performance: things like being inspiring, building a collaborative team, defining expectations and rewarding performance. And a study by the Finnish Business and Policy Forum showed that companies led by a female CEO are circa 10% more profitable than a corresponding organisation led by a male CEO. How? From CIMA’s most distinguished and senior women we’ll understand how
they developed their careers, the issues, challenges and barriers they encountered and overcame, and what advice they can offer other women who wish to follow in their footsteps. An international survey CIMA has commissioned will tell us more about male and female leadership styles. And CIMA will be looking at employee policies that have helped women, and men, balance work and caring responsibilities. All of this, with a view of developing best practice on female career progression. CIMA hopes that these learnings will also be of value to men wanting to progress their careers. Look out for CIMA’s report due in the Autumn where successful female business leaders share their secrets about how to overcome barriers and reach the top. In the meantime make your views heard in our blogs on Women in Leadership: http://community.cimaglobal.com/ node/33259
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the corporate ladder, reflecting a broader societal change. ‘More men now take time off to have kids, so increasingly it is a non-gender issue. Twenty years ago it might have been acceptable for male executives to see their families very little, but that is not the case now. To be a senior executive you have to make trade-offs. You can’t have everything, so you may not be able to get home in time to pick up the kids from school, especially if you manage a large number of people. Senior roles require commitment, so in my view, it is misleading to think you can have it all. You can’t miss meetings because the nanny hasn’t turned up, but that is not a gender-specific issue,’ comments Weir.
role and develop those people for senior positions, whatever their gender. The ideal situation would be to look at skills, experience and competencies regardless of gender, but it is also important to have diversity. Women might bring something different to men. Having said that, it is not helpful to look at gender characteristics in a broad way when looking at who will be a good leader. In terms of character and behaviour, there
is more overlap than difference between women and men,’ says Ighodaro. ‘The important thing is to have a level playing field and development opportunities for both men and women, and the right challenges to make them into successful leaders. As women, we must be part of the solution by putting ourselves forward for those roles. We should not worry about not being accepted, we should just get on with it,’ she adds. ■
A question of law? Given that statistics for female directors do not yet match the prevailing attitude towards gender equality, should the law step in to address the imbalance in the UK as it has elsewhere? [see boxout]. ‘Legislation is not the answer, although it has been successful in places like Norway and South Africa. It would be sad if the only way to get intelligent and committed women into leadership roles was through quotas. Some women might feel there should be such legislation but I don’t want to the things I have achieved to be seen in a tokenistic way. If there is a level playing field and proper development opportunities for both male and female staff, then equality can be possible,’ believes Ighodaro. Weir agrees: ‘Legislation has no impact at the most senior level, though it in terms of wage equality it has made a difference. There is stronger legislation in Scandinavia and Southern Europe, but there are questions about this approach. I prefer to look at individuals, not at males and females, so I prefer not to have positive discrimination, although in Norway it has helped to push women forward. Valuing what any individual can bring to an organisation is the yardstick a company should use. Some business cultures are less accommodating or welcoming of diversity, but it is their loss.’ The future for gender equality may indeed rest on the ability of the boards of large organisations to look beyond gender to the abilities of the individual, though there may be some merit in considering the different strengths that men and women might bring to leadership roles. ‘Management needs to take a deep breath and look for the best person for each
Mum’s the word: Future's CEO Stevie Spring on the work/life balance For Future Publishing’s Stevie Spring, technological advancement will play an important role in creating flexibility for senior women in the workplace. Senior women in business have not fared well during the recession according to Spring: ‘There are certainly fewer female Plc board directors now than there were 18 months ago,’ she observes. Moreover, there are still markets in Europe where she believes it is ‘almost impossible to get a job’ if you are a woman at a certain stage of life. ‘If you go to Germany or some of the Scandinavian countries, employers
that senior corporation life demands, particularly when they’ve just had children,’ she notes. ‘Why would you?’ Yet the swift advancement of technology is going some way towards making life easier for women in senior positions. ‘You’ve got this fantastic freedom of technology, which allows time shifting and geographical flexibility; for me, it’s liberating,’ she remarks. ‘And although I’m a firm believer in eye balling and face-to-face collaboration in teams, technology does make a difference.’ Spring is hugely driven by output, rather than input. ‘As a CEO my preference is
‘Frankly, many women don’t want to make some of the sacrifices that senior corporation life demands.’ privately admit that they look at women of childbearing age and say: ‘You’ve got to be joking’,’ Spring says. ‘And I think that’s a disgrace.’
to give people flexibility to get the best output we can within confines,’ she says, adding that employer practices can be very useful in facilitating this.
One of Spring’s pet hates is the assumption that the world falls neatly into two types of people – men and women. That said, it is a biological fact that women have to deal with child bearing and child care, that children need routine and that most senior jobs are very routine unfriendly. ‘Frankly, many women don’t want to make some of the sacrifices
‘I think the more senior you get, the more flexibility you can put in your life as diaries have to fix around you rather than the other way round,’ she concludes. ‘My life is incredibly privileged and if I can use some of the influence that goes with that privilege to help other people then it’s incumbent on me to do it.’
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High-performance leadership Cora Lynn Heimer Rathbone, director of executive education (The Centre for Executive Development) at Aston Business School, suggests that today’s greatest leadership challenge is the creation of high-performance teams, a particularly poignant message as we observe the early days of a high-octane blended Cabinet with the arrival of the first UK coalition government since World War 2. Three themes dominate today’s leadership conversations: how can we innovate more, better manage change and build high performance teams to excel in our unpredictable, complex and interconnected global reality? As leaders, we do one of three things: create vision, take action and engage people. Our opening three themes relate directly as vision fuels innovation, action demands change management and engagement is exemplified in highperformance teams. As leaders, to succeed, we need to juggle all three combinations concurrently. Yet most of us start with a preference for one. Mastering the triad is not easy. Moreover, the shift from, say, engaging followers to forging highperformance teams is not self-evident. High-performance teams are often composed of high-performance individuals; alpha-males and alpha-females. Often leaders in their own right, they are by definition ambitious, confident, determined and competitive. How can we engineer it so that they engage with others to create a sum that is greater than their individual parts? How can we lead them to freely share the glory? An industry giant recently reminded me: “Leadership is easy if you don’t mind who gets the praise.”
Quick thinking How do we develop high-performance teams of the Formula 1 pit-stop variety? Certainly we must emphasise collaboration in addition to personal bests. And this is where the rubber hits the road. After all, traditional leadership journeys disproportionally reward the latter. Leaders often emerge by being technically excellent, great at their métier. They excel as disciplinary experts, top guns who take action “better than all the rest”. Roots of such leadership are indiscriminate. Marketing and sales exemplars stand shoulder to shoulder against finance, HR, R&D and operations experts. Exceptional
workers attract followers who, at worst, bask in reflected glory, at best, learn how to do better. At a recent banquet, an ambitious middlemanager asked the eminent after-dinner speaker: ‘How can I impress my boss?’ Momentarily hesitating, he replied: ‘Do your job exceedingly well.’
‘High-performance leaders create unique collectives of virtuosos to share a greater glory.’ Figure 1. The leadership challenge Create vision Innovate (choices)
Manage change (conflicts)
Engage people Take action High-performance teams (shared ownership)
However, as many can testify, technical expertise, while necessary, is not a sufficient clause for sustainable leadership. To ascend the corporate ladder, character increasingly matters. Thus, even as they attract attention, technical leaders must broaden their appeal. To retain engagement and inspire the contribution of followers, they must build an enabling working environment, within which individuals feel sufficiently valued to energetically contribute. This is a hallmark of high-performance cultures. Additionally, to endure, technical leaders must see beyond personal expertise to their wider interdependent organisation. Like chess masters, they must map the impact of their decisions across multiple
remits and align objectives to establish shared meaning. This too is a hallmark of high performance cultures. Consequently, leaders also arise through the charismatic and visionary route, promising better things for followers. Yet, without excellence in doing, such expertise is also insufficient, even insubstantial, as many CEOs parachuted into unfamiliar industries have discovered.
Follow the leader Quite simply, leaders arise as individuals who, because of remarkable performance or how great they are to work with or because their vision inspires, attract followers. High performance leaders, by contrast, get things done through others and through teams. And that’s the crunch issue. Having started almost always from one of the three leadership angles, as virtuosos, the challenge for great leaders is not only to personally excel across all three. High performance leaders go further, creating unique collectives of such virtuosos to share a greater glory. In so doing high performance leaders sustainably deliver greater innovation, more efficient change and higher performance than any number of star players could individually accomplish. Now, is this not the greatest leadership challenge of the 21st century? ■ Further information Aston Business School www.aston.ac.uk email@example.com Excellence in Leadership
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From ledgers to leadership Based on research by the CIMA Centre of Excellence at the University of Bath School of Management, CIMA’s latest report, “From ledgers to leadership: a journey through the finance function”, looks in closer detail at how business competency is vitally important across all finance roles independent of the adoption of business partnering.
Finance professionals require a mix of skills and competencies and while technical skills are a critical requirement at the recruitment stage for organisations, there is definite evidence of a shift in requirements for business and commercial acumen across all finance roles. This interplay of competencies is not restricted to organisation-facing roles such as advisory or strategic roles, but is also in evidence across all role types including in general accounting and the specialist technical ones such as treasury, tax and audit. Finance professionals at all levels rate their business competency as being more important to their organisations than their technical competency, though the balance between the two competencies depends on the individual’s role, duties and seniority, and on the size of their organisations. Interestingly, non-finance senior management continue to rate finance professionals’ technical skills more
highly than their business skills in terms of the value they add to the organisation, the technical and financial skill-set and expertise being the finance professional’s ‘raison d’etre’. While this suggests there may be misconceptions among non-finance personnel about the wider functions and roles of finance professionals, it highlights that anyone looking to work in finance may need to develop financial technical skills first and foremost. It also reinforces the fact that many employers have finance competency development as part of their recruitment, learning and development strategies. There is perhaps a need for finance professionals themselves to continue to recognise and value their technical skills. It is important to note that while this interplay of competencies is evident across all finance roles, the importance of different skill types varies markedly and is dependent on the respondent’s characteristics. Thus, business skills become increasingly
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important as one moves from the types of duty with the lowest business orientation (general finance/accounting) to those with the greatest (where individuals see their work as directly relating to other functions/ units). Similarly, business skills (as well as technical skills) are more important for the more senior finance roles, and are more comparable to the skill-set required for senior non-finance personnel. Organisations are showing that, where the ideal finance candidate cannot be sourced, there is a preference for recruitment of people with the necessary technical skills first, the organisation then being prepared to train and develop the requisite business and management skills in post. It is important to note that the shift in importance of the more business-centric skills has not led organisations to look to recruit business people and train them into finance. It
seems that the worldwide preference is for professionally qualified financial professionals first and foremost – though the interplay of skill-sets cannot be ignored. This is reinforced in relation to the types of training option the research looked at by the fact that business post-graduate qualifications (such as MBAs) are the least in demand, deemed the least useful, by both finance management and non-finance senior management when they recruit for their finance functions. These skills are of course not just recruited into an organisation and both business and technical competency can be developed via training in post. Here we find that the attitudes of organisations have a number of inconsistencies. It is notable for instance that while organisations view ‘learning through doing’ as being the most useful development
‘It seems that the worldwide preference is for professionally qualified financial professionals first and foremost.’
and training activity, in practice this is delivered to non-senior finance personnel much less often than its usefulness would indicate – and this is true also of other training methods that are rated as useful. Cost and the need for time off away from the day job clearly put many organisations off investing in training and development, in particular external training. Often the less valuable but cheaper and quicker training tools or activities may be used where return on investment is pushed towards the bottom of the criteria. We also see less enthusiasm among senior finance personnel for external education, including training for professional qualifications, than one might expect given the ongoing importance of technical competency. However, we see a large proportion of organisations buying these professional qualifications and skills at recruitment, rather than developing them in-house. Furthermore, respondents do still rate external education (including for a professional qualification) as ‘important’, and building on qualification through continuing professional development (CPD) is also seen as very valuable. This may
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indicate that there is a need to enhance the practical value of training and qualifications, particularly in the earlier years of training. Furthermore, it is possible to conclude that technologically-based methods of delivering training are not being used widely and are also not being found as useful as may have been expected given the vaunting of e-learning etc in recent years. This, however, is an area identified as having great
potential in the future with scope for further development of the methods used. Finally we see a marked disparity between what support organisations plan to provide in terms of time off and financial support, such as course fees, and what non-senior finance personnel actually experience. Our consultations illustrated that often this is an area for organisations to focus and improve on in order to develop the
Naveen Agarwal, Global Wealth Management at Merrill Lynch, discusses finance transformation. Merrill Lynch’s Global Wealth Management (GWM) group is one of the leading providers of a broad range of both proprietary and third-party wealth management products and services globally to individuals, small and mid-size businesses and employee benefit plans. ‘The idea of the CFO as an active business partner has been gaining mileage,’ says Naveen Agarwal. ‘While the CEO is the visionary with big picture, the CFO as a business partner is the one who sees the complete picture. Most organisations now see this partnership as inevitable and organisations with finance as business partners experience significant value add in quality of their decision-making after being fully aware of the financial implications of their decisions and risks involved. Finance still needs to focus on traditional responsibilities of ‘cost reduction’ and ‘efficiencies’ but in the current age these traditional responsibilities are only a small set of a larger paradigm that today’s CFO need to cater. However, this shift in focus is largely still restricted to large organisations. A true partnership can have four stages; financial advice about results; performance advice with expected business scenarios; trusted advice by applying industry knowledge to proposed investments and strategic advice in defining business vision and long-term strategy. While finance true partnering is rare it does exist. In my opinion, we are currently half way and there’s definite value in continuing to progress to become true business partners and value creators for the business. However, finance professionals are and will still be accountable for transaction accounting, financial statements, reporting and so
on even though some may have been outsourced. Business and commercial acumen is an added advantage but technical expertise is a must. A finance professional should be finance trained but qualifications alone do not transform a professional into world class CFO. Analytical, people management, inter-personal, influencing, partnering, leadership and strong communication skills are needed. An MBA with strong financial understanding may turn out to be a good CFO but such people by far are in the few. In my opinion, a Masters in business or MBA is useful to somebody who has completed their primary finance qualification and has some experience.
‘Old-school finance executives may be slow to move away from the traditional role. They continue to focus on getting the numbers.’ Old school finance executives may be slow to move away from the traditional role. They continue to focus on getting the numbers right rather than analysing to support decision-making. This weakens the benefits that the organisation may have gained from transformation and reduces its ability to identify and exploit new opportunities. But often it is also organisations that fail to estimate the benefits and put adequate structure to this transformation. As a result, finance professionals are left with a role wide
open to interpretation. Without a clear frame work, people tend to fall back to their ‘skills comfort zone’. There’s no value in presuming that the finance professionals will compromise their independence and objectivity in being business partners, it does not mean supporting business in any wrong doings but rather supporting the business in informed decision making and enhancing profitability with adequate risk controls in place. Often, it is people outside of finance that think working closely with the business may compromise with their core principles but it’s more perception than the reality in my experience. Learning is an on-going process and training is the key to professional development of any individual. However, very often the finance professionals fail to give adequate importance to their development. Being engrossed in regular responsibilities, some professionals do not see any immediate value add of the training and fail to set it as key priority. For many organisations, training is an employee motivation tool rather than for their development. Budget per employee is fixed as per their hierarchy in the organisation rather than professional requirements and organisation needs. To be more effective, professional training should be aligned to problem solving and commercial thinking. Workshops should be organised with senior and experienced finance professionals for practical and reality based experiences. Sponsoring development programs alone do not help. Training and professional development clearly should be a priority of the management and I think CFO/ CEO performance should also be measured on this parameter.’
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value creation skill-sets through training. However, there are also other areas to focus on, namely that the organisation needs to ensure that such programmes and training opportunities are communicated and cascaded throughout the organisation. Often it seems finance staff are simply unaware of their employer’s training offerings. It is very notable, however, that organisations with a higher degree of business partnering deliver more training and development support. Companies that want to follow this transformation and shift into business partnering roles in their value creation journey need to evaluate the training and development policies and offerings carefully. Learning and development are not issues that are limited to the organisation however; individuals also need to take responsibility. The consultations illustrated a minority of finance professionals who have good intentions where training and development is concerned but cite lack of time, adding pressure on existing workload, encroachment into personal time or simply lack of will as restraining factors. Finance professionals need to take the lead in this time of transformation to ensure that they have the required interplay of business and technical skills to progress in their careers and to be the value creators of the future that organisations are demanding.
While technical competency is still the starting point for recruitment of finance professionals – they are nothing without technical accounting skills – when it comes to the recruitment of future leaders and the choice between two similar candidates the research makes clear that personal characteristics are actually the key distinguishing criterion. We see that technical
the right mix of technical and business skills and the recruitment of such talent remains a challenge. On retention, we see that qualified staff do not leave their organisation because they feel there is a lack of development opportunities; the key reasons for non-retention are finance employees being lured away by higher salaries and promotions.
‘Organisations with a higher degree of business partnering deliver more training and development support.’ skills are still critical, as next in importance are professional finance qualifications above work experience. Interestingly degree-level education is not so much a distinguishing selection criterion, and post-graduate qualifications such as MBAs are rated the least important recruitment factor of those that were identified for rating. The most common compromise at the recruitment stage is that, if given a choice between a technically competent person who lacks business skills and a businessoriented person who lacks technical skills, organisations tend to select the technically competent one. While organisations rate business competency very highly, this compromise is perhaps made because technically competent people may hit the ground running and add value from day one, and can then be trained to gain more business and commercial skills.
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From ledgers to leadership a journey through the ﬁnance function
Consultations have illustrated that being technically competent is essential because these skills are fundamental to the core activities, so organisations will more often compromise on business skills in order to get the core foundation of technical skills that remain essential in the finance function. However, when looking at the areas in which existing finance professionals most need to improve in it is the business competencies – communication, interpersonal skills and strategic skills – that shortfalls are most keenly felt. The recruitment process is taking slightly longer and is involving slightly more compromises than heretofore, but this is expected to ease as the global recession means fewer organisations are recruiting and more candidates are available. However, consultations illustrate a clear lack of people with
The research would point to clear actions for organisations but also for individuals who are looking to get into finance roles and have leadership ambitions. Those who develop and possess a technical skill-set, in particular with a professional finance qualification, but who can also demonstrate business and management competencies will more often win out in the recruitment race. Training and development in these skills throughout a professional’s career, as well as exposure to business experience, are critical to gaining this mix of competencies. We see that finance professionals in strategic and advisory role types, alongside management accounting ones, demonstrate the mix of competencies that is associated with those identified for leadership development. Moreover, it is these individuals who will be more attractive to organisations’ leadership programmes and who will, on the whole, be the finance leaders of tomorrow. ■
From ledgers to leadership A JOURNEY THROUGH THE FINANCE FUNCTION
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Healthy aims In recent years the finance function has moved away from its traditional focus on reducing costs and improving efficiency to also target value creation as one of its prime goals. This trend has already brought new skills to the fore and changed the requirements and role of finance. So, asks Jim Banks, where will it take the finance function next? Adeccoâ€™s Dominik de Daniel has the answers.
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If we were to bring a group of CFOs from 20 years ago into today’s business world many of them would not recognise the way the finance function operates in many large companies. To them, the increasingly familiar image of the finance team as a business partner that works closely with other parts of the business, exerting greater influence on strategic and operational decisions, might seem unfamiliar and, perhaps, uncomfortable. Today, the demands on finance professionals have evolved a long way from their traditional focus on cost reduction and efficiency gains, and their target is now also to create value for their business by bringing finance, strategy and operations closer together and providing a common language in which to frame a company’s goals. This shift inevitably requires that finance professionals acquire new skills, and that organisations adapt to ensure finance
The organisational structure at Adecco that de Daniel describes is also a result of the company’s move in 2006 to make Economic Value Added (EVA) the dominant force in driving the business forward. Over the last four years, the organisation has achieved a good balance between finance, strategy and operational decision-making by becoming a truly value-orientated business. ‘Whether you are making decisions about invested capital, payment terms, reducing invoice collection times, financial systems or delivery models, finance has a big influence in creating sustainable value for the company. It also has input into the pricing of our services. So, business sees finance as a very important partner,’ he remarks. ‘Adopting the EVA principle was a big change and a challenge. It changed the way we balanced invested capital, market share,
‘The big question for any organisation is whether its strategy will allow business partnering. The organisation must be set up in a way that allows it.’ can become a true and effective partner for the rest of the business. ‘The move towards value creation is not new. It started five or even ten years ago and now the trend is accelerating, driven by the learning’s from the recent downturn. The big question for any organisation is whether its strategy will allow business partnering. The organisation must be set up in a way that allows it. There must be a focus on value creation and the manager in each country must have the right attitude towards partnering with finance,’ says Dominik de Daniel, CFO of market-leading recruitment agency Adecco. ‘The organisation must accept finance as a business partner so, in each country where it operates, the CFO must have the authority to make decisions with the CEO. In our organisation all of the regional financial people report to me as the group CFO and all regional heads report to our CEO. The information streams come together through us and we are in discussion about the strategy in each country along with any other function that we need to invite. That is business partnering.’
growth and profitability. But the people in the business were open to it. They saw the advantage that would come from having a value-orientated culture, rather than focusing on market share, so they were very supportive. Today it’s a competitive advantage.’
New skills frontier To fulfil their new responsibilities, finance professionals require a very different blend of skills to work effectively with operational areas of an organisation and to exert a greater influence on a company’s strategic thinking. Research undertaken by CIMA in the October 2009 report “Finance transformation: the evolution to value creation” highlighted that the new mix of skills and competencies required in finance puts greater emphasis on an awareness of business and commercial issues in all roles. CIMA’s research also found that, while finance functions are shifting towards a value creation focus, they are still retaining a portfolio of roles. Critically, with all roles requiring a strong technical foundation but also an increase in business acumen, finance and senior management very clearly state their preference for professionally qualifications however also cite the lack of
talent available that also bring commercial and communication skills. Today, finance is not only about tracking the numbers, but also about a deep understanding of the implications the numbers have for the future of an organisation. ‘Technical skills are the base of finance, and every finance professional needs them. But on top you need management skills and an in-depth commercial understanding, which are not always easy to find. That means it might take you longer to find the right people, but that is OK. It is better than hiring someone quickly who doesn’t have those skills,’ says de Daniel. Of course, those new skills are critically important at the higher levels within a finance team, while elsewhere the emphasis will require a different mix and may be on technical finance competencies. The key is
Opportunities for outsiders The changing blend of technical, interpersonal and commercial skills needed to operate effectively as a finance professional, partnering with other business functions, raises an interesting question for the future: could members of the finance team come over from other disciplines, such as IT or marketing, with finance skills bolted on? ‘Overall, do I care if people have a finance background? Yes, I care a lot, and they must have it. Some jobs in the finance department are very process-orientated, so it is possible that someone with an IT background could take them on if they had additional financial skills, but even then they would be in the minority, especially in a large, global business,’ says de Daniel. ‘Coming to finance from marketing or sales is less common, though not impossible. Investor relations needs a very solid understanding of finance but you also need communications skills. Similarly, if someone has an MBA, then I would say that is all very nice on paper, but what is behind it? My focus is to look at the skills that fit the job. I would always look for a background in finance, the experience and achievements. The success though comes always in a great team with complementary skills.’
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to match the skills of an individual to their role and level of seniority. ‘At the country level you need to be more business-minded than at group headquarters, where technical skills are more important. In country teams you certainly need business acumen at management level, but there must be a balance between the commercial skills of the country CFO and the technical skills that are needed for processes like accounting,’ de Daniel remarks. As finance evolves, so must the rest of the organisation, which must adapt to accommodate business partnering with the finance team. ‘Every operational manager must have a basic understanding of finance, though they do not need detailed technical skills. It is the task of the finance team to give those managers the tools to understand finance better. Operational people don’t have to become finance people, but they must understand the long-term value a finance function delivers,’ believes de Daniel. Finance is still about understanding the
numbers, but it is also about leadership, communication and the ability to effectively present financial data and the decisions it supports to non-finance people. The analysis is quantitative, but the decision-making it supports is qualitative, so it is important to ensure that people outside the finance team understand its goals. That is the key to business partnering. It is certain that some people in the finance team may feel they are stepping outside their comfort zone as leadership, interpersonal and communication skills increase in importance. These people should not fear for their ability to work effectively in finance, as the function will continue to have a portfolio of different roles and there is great value in their skills in specific analytical or process-orientated tasks. However, all finance professionals will require an increasing level of interpersonal and business skills, those that resist developing in these areas have to accept that their capacity for promotion in the finance function may be more limited. ‘Those people will develop further within their specific function. They may not want
or need the new skills sets, but they will still be very important in traditional areas of finance, or in shared service centres. Technical skills are, after all, the foundation of the finance team, but to evolve further people will need to acquire new skills,’ de Daniel explains.
An objective view of the future One of the fears our hypothetical group of CFOs from the past may have about the current incarnation of the finance function is that its objectivity, which for many is its prize asset, may be compromised as it becomes more closely entwined with operations. The ability to stand outside operational and strategic issues and provide objective and independent analysis of how a business is performing or what decisions it should take is vital to the decision-making process in any large organisation, but does business partnering really put this ability in jeopardy? For de Daniel, the ability to provide objective analysis is precisely what gives the finance function its strength as a support to the strategists and operational managers in an organisation.
‘Every operational manager must have a basic understanding of finance, though they do not need detailed technical skills.’
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‘Finance is a good business partner because it can be objective. Perhaps there is a risk of it becoming less objective in some businesses and that depends on how you organise the finance function in relation to the rest of the organisation. In our company, there is strong co-operation between the CFO and the CEO and the reporting lines lead to them at group level, which allows us to maintain our objectivity,’ he states. ‘You need to remain objective for internal audits, and to perform the tasks of the CFO that relate to implementing controls and business policies. You can’t forget those responsibilities. An organisation must be set up so that the finance function can remain objective because that is what enables it to be a good business partner, who drives value for the company.’ In building a mutual understanding, operations and finance can help each other. Finance must be able to communicate the meaning of its analysis to decision-makers within the business, and those operational managers can help the finance team as it incorporates a more analytical and decision based approach to complement its traditional quantitative analysis. The CIMA research indicates that, on the whole, regardless of where they operate, finance staff retain a link or reporting line to a finance function or finance head and this may be critical in ensuring that objectivity and independence is retained. CIMA’s research found that a large majority of finance professionals who participated in the CIMA research programme see themselves as operating as part of the finance function. At the same time, nearly half of all finance function professionals see themselves not as general or specialist accountants (back office) but as business-facing (front office). But where front office finance professionals consider their duties primarily to be with other functions/ units, a substantial majority of them still remain as part of the finance function. Today, that objectivity must be coupled with flexibility. The pressures and challenges a business faces are constantly changing and the finance function, along with the organisation as a whole, must be ready to adapt. Shifting economic circumstances, business models and legislative developments, for instance, will bring different concerns to the fore and demand different skills within the finance function. ‘We have seen a lot of movement towards shared services, in part to benefit from labour
cost arbitrage, but the last downturn has shown that risk management and treasury functions are becoming much more important for many companies – not least the banks. Also, tax laws are developing, so tax issues will be an important area of focus in the years ahead,’ notes de Daniel. To maintain its flexibility and respond to such challenges, the finance function needs to ensure that there is sufficient investment in training and education for its personnel. Research by CIMA in the 2010 study “Ledgers to leadership: a journey through the finance function” has revealed a clear negative disparity between what senior management perceives as the level of time and support available to support staff in terms of education, training and CPD, and the uptake of this training. Clear processes and structures are obviously required to redress the balance, but de Daniel is clear about how investment in training and education should be targeted.
‘An organisation must be set up so that the finance function can remain objective because that is what enables it to be a good business partner.’ ‘It is a very important priority to train the finance team, but there needs to be a return. We can’t just do it for the interests of the staff - there must be a return for the business. You need the right blend of skills for the organisation and for the individual. It is easy just to put people in external courses to sit exams, but I focus a lot on internal training, for on-boarding people and for developing people already in the team,’ he comments. Training and development in these skills throughout a professional’s career, as well as exposure to business experience, are critical to gaining this mix of competencies. We see that finance professionals in strategic and advisory roles, alongside management accounting ones, demonstrate the mix of competencies associated with those for leadership development. It is therefore likely that these individuals will be engaged in organisations’
CIMA on finance transformation
KVajZi]gdj\]eVgicZg^c\ Based on finance transformation research by CIMA and supported by the Adecco Group
For more information about CIMA’s research and thought leadership on finance transformation and business partnering visit www.cimaglobal.com/transformation leadership programmes and who will, on the whole, be the finance leaders of tomorrow. ‘For all functions, including finance, we have a talent pool. In my area, the finance managers recommend people to be part of that. We look at the skills they already have, and at what skills we need to build the business in the future. We build those skills through training, but also through stretch projects, which helps to show them that they have a career in finance in this organisation. We also put a lot of emphasis on mentoring,’ says de Daniel. A focus on value clearly means many changes for the finance team in a company like Adecco, but with the right organisational structure, a focus on building new skills and the right means of communication between finance and operations, tangible benefits can quickly be realised. ■
Dominik de Daniel Dominik de Daniel joined the Adecco Group as chief financial officer (CFO) in April 2006. This followed Adecco’s acquisition of DIS Deutscher Industrie Service, Germany’s leading professional staffing services company, where de Daniel had been CFO since 2002. He joined DIS in 2000, and was appointed to the board in 2001 with responsibility for investor relations, M&A and strategic controlling.
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Excellence in Leadership Issue 16, September 2010
Value creation: the accountant of the future Special edition for The World Congress of Accountants 8-11 November 2010, Kuala Lumpur, Malaysia.
In our next edition Creating the accountant’s future What will accountants be like in 2020? What will they be doing and what skills and competencies will they need most to be successful? The changes are so great that some even believe the word “accountant” might disappear from job titles in 20 years from now. Some believe the accountants of the future will increasingly be asked to transform information into knowledge for organisational success. So what are the new opportunities for accountants in the next ten years? Charles Tilley, CEO, CIMA and Dr Ian Ball, CEO, IFAC Sustaining value creation Accountants lead strategic teams, are charged with creating value and safeguarding assets, are an important part of organisational governance, and provide regulators and society with assurance that business has operated to the highest standards. How can input into value creation be sustained by the finance professional? Wim A Van Der Stede, CIMA professor of accounting and financial management, London School of Economics and Political Science
governance focusing on performance and value creation. Is there a need for corporations to move from parameterdriven, rule-based corporate governance into principle and values-based human governance? Alfred Ramosedi, Nedbank Netherlands Strengthening the accounting profession in the emerging economies Regional organisations and development agencies play key roles in strengthening the accounting profession. What is the future of the role of the accounting profession in economic development and support? Anthony Hegarty, chief financial management officer and head of financial management sector board, The World Bank Opportunities in emerging markets Why companies need to think ‘glocally’ (global where possible, local where necessary). Patrick Clackson, chief financial officer, Barclays Capital
Human capital The finance function of the future: attracting, retaining and rewarding next generation talent in your finance department. Plus: how the CFO can drive recruitment from the top. Lee Raybould, head of financial management, Nationwide Building Society
How the East will redefine the West and the way in which Europeans do business We look at seven key macro and micro factors occurring in the East which should influence the strategic decisionmaking of any European business to identify how European businesses should adapt to dealing with the East or risk getting left behind. Alan Keir, HSBC group general manager, global co-head commercial banking
Enterprise governance: the balance sheet Enterprise governance constitutes the entire accountability framework of the organisation. There are two dimensions of enterprise governance – corporate governance focusing on compliance and good practices as opposed to business
Mapping the future: G20 and beyond From a macro-economic point of view, what will the global banking system of the future look like? Díaz Jiménez, visiting professor of economics, IESE Business School, Universidad de Navarra
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BRIC investment With an estimated 600,000 foreign visitors expected for the World Cup alone, 12 World Cup host cities to prepare, and a Summer Olympiad in Rio to deliver, Brazil is facing a huge challenge. Estimates of the investment in infrastructure required to prepare for 2014 range from £10 billion to £30 billion. The next few years will be an exciting time for Brazil as it prepares for two of the greatest sporting events on earth. To realise these spectacles, the country is investing billions in infrastructure, from stadia to airports, rail and roads. The know-how and expertise of Western companies means that firms well-placed to take advantage of these opportunities have it all to play for. Rachel Azevedo, UKTI manager for sports and infrastructure, the British Consulate General, Rio de Janeiro China’s economic growth engine With its economy growing at close to a double digit rate versus about 1-2% growth rate for Japan, China looks set to catch up and overtake Japan to become the second largest economy very soon. Assuming that the global economy will grow at a slow rate, exports will not be a key contributor to economic growth in 2010, so what will drive China’s economy? Christina Chung, senior portfolio manager at RCM, Allianz Global Investors Alternative financial models The economies of the Muslim world are growing rapidly, in particular the oil-rich states of the Arab Middle East. This is seen in the surge of Islamic hedge funds, the booming trade in Sukuk (Islamic bonds), retail and corporate lines of Islamic credit and derivatives as well as mortgages, auto financing, consumer finance, along with Islamic credit/charge/debit cards across the world. Atsede Woldie, senior lecturer, University of Glamorgan
WCOA 2010 – The Olympics of accountancy CIMA is gold sponsor of the World Congress of Accountants (WCOA) 2010. Taking place from 8–11 November, WCOA brings together over 6,000 high-level international finance professionals to explore cuttingedge issues on the future of accountancy. The global forum, which is held under the sponsorship of the International Federation of Accountants and is this year hosted by the Malaysian Institute of Accountants, will consist of a number of plenary sessions and workshops that will be chaired and delivered by highly experienced business leaders. WCOA 2010 will feature headline speeches by CIMA chief executive Charles Tilley and CIMA professor of accounting and finance at the London School of Economics, Wim A Van der Stede. WCOA 2010 promises to be one of the most relevant business events of 2010. For more information, or to reserve a place, visit www.wcoa2010kualalumpur.com
Excellence in Leadership Excellence in Leadership is a series of official quarterly publications specifically designed to address the CPD needs of the top tier of CIMA members. Excellence in Leadership is a must-read for this elite audience of CIMA members, helping to manage their career development while maintaining professional competence and employability. Visit www.excellence-leadership.com
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