Shared Services Uniting to Create Value

News Article -- January 27, 2011

Cost reduction and operational excellence

The quest for economies of scale is often the primary challenge for this type of organisation. According to several recent studies, over three quarters of SSCs have made possible significant cost savings, greater than 20% in most cases. In 2009, Société Générale announced its goal of saving 1 billion euros thanks to synergies realised by 2012 “by optimising use of group resources thanks to SSCs”.

In addition to productivity, these groups are also turning to SSCs for quality improvement, thanks to management being more closely focused on their aspect of business and thus greater professionalisation of the staff involved. Standardised top quality at a lower cost, as it were.

Guiding change, the key to success

The putting in place of an SSC is always driven by a long-term vision. Such projects in general only become profitable after three to five years. The start-up investment is considerable, and the cultural changes (both within the SSC and client entities) always take time. In any case, the key success factors of such transformations are always the same: creating a framework for the relationship and its goals in a service level agreement (SLA), clear division of responsibilities, and a major change management effort, involving the mobilisation of HR departments and particularly close supervision in the start-up phase.

A growing trend

The other current fundamental trend concerns the type of services involved. SSCs are extending their scope of activities increasingly closer to companies’ core businesses. A prime example: customer relationship management, entrusted to internal or external call centres. Almost 40% of major corporations have set up a shared service centre in this area – an increase of 60% compared to 2007!

Other recent examples concern strategic information systems (see inserts), procurement, payment systems, marketing or even research. A major global pharmaceutical laboratory recently reorganised its R&D operations into a centre of excellence, providing services to ‘clients’ specialised in a variety of therapeutic domains.

These new SSCs are as yet rarely structured as investments in offshoring, and generally remain within the boundaries of the corporation. But nothing prevents them from providing services to other companies; the direction has been set, the model is open, everything is possible.

IT systems: A key lever to revitalise shared services

How can IT raise its game while simultaneously cutting costs and being consigned to an IT shared service organisations (SSO)? CSC Leading Edge Forum’s recent report, Revitalising shared services – the accelerating demand for efficiency and innovation, shows how CIOs can manage an SSO to reduce costs, while also still supporting innovation and broader forms of value.

In the current downturn, most firms are focusing on their core activities and sharply reducing the cost of support functions. These are increasingly being outsourced, off-shored, or moved into SSOs. However, technology continues to penetrate every corner of the business. The user and the customer are much more facile with technology than they ever were in the past, and they are using mobile and social networking technologies to change how they do business, even in some cases changing the very nature of the work itself.

Faced with these innovations, executives in many firms are also asking IT to raise its game and find new ways to add value.

Cutting costs through shared services

For most firms, instituting shared services is a means of reducing cost. First, the relevant functions and processes are centralised and the number of locations sharply reduced. Then the number of systems is reduced, in many cases to a single instance. While savings from SSO moves can be in the range of 20 to 30%, these savings are only likely to be persist if IT also succeeds in formalising and standardising the associated business activities and processes.

The most aggressive SSOs achieve additional savings by exploiting lower-cost supply technologies associated with Web 2.0, Software-as-a-Service (SaaS) and/or cloud computing. Such moves can also reduce the capital cost of setting up an SSO and accelerate needed business change.

Shared services as a source of new value

It is less often realised that IT SSOs can also play a large role in creating new value beyond cost control. They can offer specialised functions and platforms, such as eBusiness or portal platforms, on which empowered users can create business solutions. IT SSOs can also offer technology-enabled business services (TEBS), which provide customers with services that they traditionally did for themselves. This could be anything from processing particular types of transaction to supply chain coordination or inventory replenishment.

Some IT groups are adding capability in new geographies too, often accessing specialised local skills. One of the most powerful things that IT can do to add value is to integrate the IT associated with managing a business unit with the technology embedded in the product and/or service. Business – product integration is essential to support services associated with maintenance, training, or upgrades which can substantially raise the product’s value to the customer.

But the best IT groups are also discovering that such advanced forms of value can only be achieved if IT is able to field very capable business-facing staff to work with business partners and with the IT SSO on change initiatives. Though these business relationship managers (BRMs) are expensive, they are essential if IT aspires to add value and not merely control cost. Ideally the cost savings from IT SSO can help IT “pay for the magic” associated with a strong BRM capability.

Agfa HealthCare: Making its back office a global concern

Belgium-based medical imaging specialists Agfa HealthCare established its first shared services centre in 2000, when a demerger left it free to restructure its business.

At the time, the project savings from moving all its back office processes - financial services, invoicing and accounting activities into the SSC translated into a head count reduction of 35%.

Agfa’s first SSC was based in Belgium, close to the group’s headquarters and this center now handles its European business. With large customer bases in Canada, the US, South America and Asia Pacific, Agfa is now developing a network of four global SSCs to support its wider business, due to be complete by 2012.

Creating a network of SSC

Agfa HealthCare’s second shared services center, covering the Asia Pacific region, opened in Shanghai back in 2008, with a third centre, in Argentina, set to start supporting its South American business in mid-2011. Its network will be completed by a North American center in Toronto, opening a year later.

“For Europe we’ve have seen savings of 35% three years after implementation and for Asia Pacific, the figure since 2008 has been 15%,” explains Nico Van Meerbeeck, project manager for shared service centre implementation at Agfa since the initiative began back in 1999.

Having originally started out carrying out exactly the same work, the European and Chinese teams have begun working more strategically on different tasks. And once the first three SSCs are up and running, Agfa will start to fully exploit its network’s potential. “So, for example, all records to report work for the group will be done from one place,” Nico confirms.

Analyse the process to find the appropriate solution

When looking to place or outsource a process, it is important to consider whether it is a “think” or a “do” process, he explains. “Something that is 100% think should remain inside the company where specialist knowledge is, while something that is completely do can be easily outsourced.”

Some processes can be both think and do, requiring specialist local knowledge, such as interpreting regional financial reports or tax declarations. That’s what shared services is all about.

“It makes sense for closing activities to be handled in Europe, close to our HQ, while global accounts payable and receivable processes can be centralised,” Nico adds in explanation. “However centralising everything would create more problems than answers for us.”

Since 2000, Agfa’s financial shared services have not only delivered rationalisations but also improvements, thanks to better technologies and automation of processes. So employee expense claims for travel and entertainment, for instance, which used to be paper based, are now automated. And optical character recognition has revolutionised account payables processes. Innovations like these make operations more efficient, however Nico stresses that there is always a need for strong compliance management, to ensure that the operators, the SSC employees, can fulfill their side of the bargain.

“Good service level agreements are vital so that everyone has the same clear view of what is happening,” Nico concludes. “The front office needs to understand this too and ensure that agreements are reviewed on an annual basis.”

Focus

Cedicam - A “payments factory” on A European level

The recent Payment Services Directive opened the way for the Single Euro Payments Area. This area offers new perspectives for banks, as a truly continental market opens up for them. This shift naturally leads them to envisage the centralisation of payments management, while at the same time developing new services that will enable them to remain attractive when faced by competition from new payments institutions. “Major investments, but indispensable in order to be among the leading banking players of tomorrow,” states Claude Czechowski, CEO of CSC France & Southwest Europe.

It is in this context that Crédit Agricole is developing in cooperation with CSC its shared services platform for flows and payments. Set up as a GIE (Groupement d’intérêt économique – a consortium of related businesses which formally pool their efforts for competitive advantage), Cedicam brings together the regional banks, Crédit Agricole SA, Crédit Agricole CIB, LCL and Crédit Agricole Consumer Finance.

The result is a single, standardised and secure platform operating at a European level, encompassing all aspects of payments and handling financial flows. Cedicam manages the aspects traditionally handled in the back office, such as administration of payments infrastructure, collection or anti-fraud measures. Cedicam is also drawing closer to the end customer by providing payments products and services, up to and including the personalisation of bank cards issued by the group’s banks. Cedicam also ensures the security of payments systems by providing banks with tools to standardise their control and prevention systems.

Reanult-Nissan - The globalisation of procurement to support strategy and performance

Having re-oriented themselves during the last two decades on design, assembly and distribution, automotive manufacturers depend on a network of subcontractors for a large majority of the components of their vehicles. Procurement for production can represent up to 80% of the cost of a vehicle! The procurement function has thus become a very strategic function, for which operational excellence is an absolute necessity.

In 2001, Renault and Nissan created their first joint venture in this area. RNPO (Renault-Nissan Purchasing Organisation) takes care of the globalisation of procurement, selects the best suppliers (on the basis of quality, cost and lead time criteria), drives the standardisation of components and aggregates the order volumes of both brands. After being gradually scaled up, the joint venture enabled “the acceleration of procurement performance via a global management system”, emphasises the group. Since 2005 this performance has been underpinned by a global information system, implemented with CSC, which supports all procurement processes from sourcing to order management.

Since April 2009, RNPO has managed 100% of the procurement for Renault and Nissan, and the company has made a significant contribution to the positive free cash flow generated by the group in spite of the severe impact of the crisis on the sector.