The evolutionof theSSCs -transitionfromthemultinational ... · The evolutionof theSSCs-transitionfromthemultinational totheglobalbusiness model-Hungarian Services and Outsourcing

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The evolution of the SSCs- transition from the multinational

to the global business model -

Hungarian Services and Outsourcing Association

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Agenda

1. About the Hungarian Services and Outsourcing Association (HOA)

2. Why Shared Services? (drivers and benefits)

3. Synergy and scale implications4. Services includes in SSC operations5. Governance structure and

implementation6. Recommendations

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About HOA

� Established in 2004

� 70+ members, (40% multinationals, 60% SMEs), 27 Shared ServicesCentre,

„HOA's mission is to promote the country's economic develo pment bysupporting the business services sector, through spreadi ngopportunities to increase efficiency offered by organizat ionalinnovation and in particular through uptaking the concept of

outsourcing.”Goals:

� Improve the operational enviroment for the sector such as legal, labor market, education, financial and tax conditions;

� Promote the possibilities and benefits of services sector and outsourcing;

� To support the expand of the Hungarian service industry share in theinternational market.

"Recognition of Knowledge Intensive Business Services (KIBS) Sector as one of Hungary’s strategic priority industries"

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Trainings for skilled workforce

Hungarian Services and Outsourcing Association (HOA)

HOA Training Centre (SZTMK)

Services sciences education, SSME – higher education+

Workforce modernisation, improve employeability, skillsdevelopment trainings – vocational trainings

Hungarian

Academy of Sciences

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The Globally Integrated Enterprise

“The globally integrated enterprise will require fundamentally different

approaches to production, distribution, and work-force deployment….New kinds of managerial skills are also

needed”.

Foreign Affairs magazine,

Sam Palmisano, former CEO and Chairman of IBM.

New choices in workforce organisation

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Evolution of the Globally Integrated Enterprises

HQ in one countrySell in manyExport/Import

Replicate operations in many countries (HQ, R&D, Manu, etc.)

Draw on global skills and global delivery.Tasks performed in one location for customers in many

International Multinational Globally Integrated

C19th C21stC20th

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Global integration

Global Resources Global Production

Enabling Culture and Legal Systems

Global Infrastructure

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What are Shared Services?

• Shared Services involves taking repetitive common processes out of the Business Units and moving them into a Shared Services Centre (SSC), freeing up the Business Units to spend more time performing higher-value-added tasks.

• This allows the SSC to achieve improved efficiencies and economies of scale while providing a high level of service to the enterprise.

• Shared services are more than just centralization or consolidation of similar activities in one location. Shared services can mean running these service activities like a business and delivering services to internal customers at a cost, quality and timeliness that is competitive with alternatives.

Types of functions that may be key candidates for S SCs include :

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High Volume, Routine Processing

Specialized Skills Enterprise-wide information

The key is the idea of 'sharing' within an organiza tion or group

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External Factors:

� Competitive Pressures

� Speed of innovation

� Industry changes/consolidation

� The rise of the global customer

� Technology Advances

� Liberalisation of trading blocks

� Global investors

Implications for organisations:

� Support revenue growth (organic and/or acquired)

� Need to reduce cost

� Enterprise wide control and information transparency

� Increase fraud safety

� Organise to service global customers

� Manage value across organisation

� Focus on core competence

� Speed/adaptability

Typical reasons companies are adopting shared services:

� More flexible/scalable model to support growth

� Reduces cost/leverages economies of scale

� Vehicle to standardise processes/data and improve service quality

� Supports “one face to the customer” and accommodates local requirements

� Leverages best practice/leverages technology

� Releases businesses to focus on core business

� Adaptability to changing needs

Shared Services can help to address critical business issues

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Shared services combines the benefits of both centralised and decentralised operations

Shared

Centralised

• No Business Unit Control of Central Overhead

• Inflexible to Business Unit Needs

• Remote from Business

• Unresponsive

• Higher Costs

• Different Control Environments

• Duplication of Effort

• Variable Standards

• Independent of Business

• Synergies

• Lean, Flat,organisation

• Dissemination of Best Practices

• Business Unit Maintains

Control of Decisions

• Responsive to Client Needs

• Economies of Scale

• Consistent Standards & Controls

• Common Systems & Support













• Economies of Scale






Decentralised

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Pre-Shared Services Post-Shared Services

Tangible:• Increased productivity• Economies of scale • Leveraged technology• Improved spans of control• Working capital improvements• Leverage purchasing from

consolidated vendors• Reduced tax burden

Intangible:• Adaptability/scalability • Enhanced customer services• Standardized processes & pooled

resources• One-company approach• More rapid transition by focusing on

“added value”• More effective maintenance of master

data• Improved accuracy and consistency of information• Better leverage of learning curve

Shared services benefits go beyond cost reduction…

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However, Shared Service Centers have very different characteristics from a normal “Support” function

Key Design Principles

• Run like a business & customer focused

• Mainly newly recruited staff - no “bad habits”

• Flat organization reflecting minimal management layers

• General management leadership skills rather than functional

• One leader for all shared services

• Special reward and recognition programs to drive behaviors

• Service Level Agreement maintained between provider and customer

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There are 3 major transition approaches

First implement all process improvement and new technology and then transition new processes to SSC. This option is driven by transformation projects and SSC migration needs to be fully aligned with this plan. This option cannot utilise labour cost savings (if moved to a lower labour cost location) in advance.

This option is very complex and very rare in demanding business environment. Doing both process transformation and migration together creates significant risk of failure

Option 2 - Transformation in parallel with process migration to SSC – SSC BIG BANG

This option enables to utilise labour cost savings quickly (if moved to a lower labour cost location) . This is quite common option due to smaller upfront investment, limited risk and lower demand of resources needed from an organisation

Option 3 - Migration first to SSC then process transformation - LIFT & SHIFT

Option 1 - Transformation first then process migration to SSC- FIX & SHIFT



Option 3 - Migration first to SSC then process transformation - LIFT & SHIFT



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Shared Service Centers transforming to a Center of Excellence

Centre of excellence means• To be recognized internally & externally as an exceptionally strong

and highly reliable function

• This can be achieved with:• Delivering great service to all customers internally and

externally

• Being a trusted & integrated business partner providing valuable insight

• Being highly efficient , ensuring economies of scale in delivery of all our processes

• Providing a quality service at a cost the business chooses to afford

• Becoming a great place to work

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SSC becoming Centre of Excellence –going through an evolution

• No SSC-specific targets, strategies , measures set

• Simple mass transactions

• Business processes not standardized, harmonized or automated

• Multiple systems are used, no standardization of ERP platform

• Some SSC-specific targets, strategies , measures set

• Simple mass transactions and some expert services

• Business processes mainly standardized and harmonized

• Partly standardized ERP platform

• SSC-specific targets, strategies , measures set

• Simple mass transactions and expert services

• Optimization and automation of business processes

• Extensive deployment of workflow systems

• Standardized ERP platform

• SSC-specific targets, strategies , measures set

• Total services in terms of holistic processes

• Optimization across the organization

• Organization-wide workflow systems

• Optimized, modular ERP systems

All SSC’s follow similar life-cycle model

Phase I. Setup Phase II. Growth Phase II. Expansion Phase II. Mature

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Platform to drive operational excellence

---------------------------------------------------------

• Mechanism to drive standardized

approach

• Improved data quality (fewer errors,

consistent information across BUs)

• Enhanced service levels to the business

(best practice processes, enhanced

technology / automation)

• Frees up business management to focus

on the business

• Frees up functional management to focus

on adding value to the business

• Headcount reduction (25 - 40% is

common)

• Operating cost reduction (20 - 30% is

common with more in low cost locations)

• Faster processing

• Future cost avoidance (scalable

operations for future expansion /

changes e.g. acquisitions / divestitures,

easier systems upgrade environment,

easier to introduce internal and external

changes e.g. policy change).

Sources of Savings and Qualitative Benefits

Cost Impact of Shared Services Implementation

The benefits of establishing a Shared Service Centre go beyond cost reduction..

They can build a platform for driving operational excellence and best practice

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Implementing shared services in global organizations presents many challenges

Typical Global or Cross-Border Challenges

• Multiple legal entities and tax jurisdictions• Traditional/national systems solutions• Varying legislative requirements - document retention, sales tax, customs etc.• Language/communications challenges• Cultural resistance• Multiplicity of systems• Multiple currencies • Chart of account variations and bridges to legislated accounting formats• Varying remuneration packages• Workers council/union relations• Restrictive and varying legislation over reductions-in-force• Lack of infrastructure• Risk due to political/social instability and/or acts of God

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Typical scope of finance and procurement services in an SSC moving towards more value added services

Overall Finance strategy

Period-end closing

Inventory accounting

Corporate controlling activities

Credit risk management

Supplier sourcing strategy

Customer contract strategy

General ledger accounting

Fixed assets

Cash journal accounting

Accrual accounting

Bank accounting

Tax and statutory accounting

CollectionsDispute managementCustomer billing

Contact centerPurchase order

Cash applications

Vendor Master Data

Va

lue

Ad

de

d

HighLowComplexity of Interaction

High

Low

Accounting Services

CorporateGovernance

Services

Travel & ExpensesData &Transaction Services

Contract and loan management

Accounts Payable

Majority of SSCs cover fi

nance and

procurement transactio

nal services

Purchase-to-pay

Record-to-re

port

Order-to-cash

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SSC Governance

DefinitionDefinition

Enterprise-wide oversight structure ensuring shared services operate with

appropriate mandate and direction

• Providing strategic direction / priorities

• Setting / enforcing performance targets

• Identifying / approving necessary investments

Organization of shared service centres ensuring services delivered as promised to

customers

• Managing SSC facilities and associates

• Developing / managing contracts with customers

• Performing services in accordance with SLAs

• Driving cost and performance improvement

Mechanisms ensuring effective day-to-day interface between customers and shared

service centres

• Maintaining on-going contact with customers

• Responding to specific customer requests / inquiries

• Managing resolution of issues

Operational

Tactical

Global

Operational

Global

Tactical

Operational

Global

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SSC Operational Governance

A comprehensive governance framework includes structure, processes, tools and metrics.

Performance Measurement

• Service level reporting

• Performance Measurement Tools

• Relationship management

• Financial management

• Contract administration

• Performance management

Strategic

Initiatives Council

Committee Structure

• Strategic direction & decisions

• Alignment with business strategy

• Customer representation

Executive

Steering Committee

Customer

Council

SSC Organization

• Shared Services Director

• Support Staff

• Operational Management

Service Delivery

• Demand Management

• Escalation/Issue resolution

• Service Level Agreements

Subject M Symant ecer Ex pertsBusinesses

Dedicated resources

from TMOC

• Reporting structure

• Roles and responsibilities

• Alignment with Functional Units

Reporting Lines

SSC Processes

Shared Services Executive

ProcessGroup

e.g. Finance Systems

ProcessGroup

e.g.Accounting Operations

CoEe.g.Tax

Functional Service Line

e.g. Finance


e.g. Procurement


e.g. HR

ProcessGroup

e.g. BenefitsAdmin.

ProcessGroup

e.g.Payroll

CoEe.g.

Recruit-ment

CoEe.g.

Training

ExecutiveTeam

SS Governance Board

Exists in 40% of SSCs

Could also be

organised regionally

Shared Services Support Team

Shared Services Executive

ProcessGroup

e.g. Finance Systems

ProcessGroup

e.g.Accounting Operations

CoEe.g.Tax


e.g. Finance


e.g. Procurement


e.g. HR

ProcessGroup

e.g. BenefitsAdmin.

ProcessGroup

e.g.Payroll

CoEe.g.

Recruit-ment

CoEe.g.

Training

ExecutiveTeam

SS Governance Board

Exists in 40% of SSCs

Could also be

organised regionally

Shared Services Support Team

Governance Model Service Delivery Model SSC Organization

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Key recommendations and lessons

� Get top management mandate

� Implement Governance Model

� Define clear scope and priorities

� Know your customers and your business

� Implement training and coaching

� Use project management and a dedicated owner

� Build KPI reporting structure, utilize scorecards

� Discipline and time

� Do not underestimate change management, communication

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Web: www.hoa.hu

E-mail: [email protected]

Tel: +36 1 205 3317

Address: 1065 Budapest, Andrássy u. 17

ThankThank youyou forfor youryour kindkind attentionattention !!Attila Suhajda

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The evolutionof theSSCs -transitionfromthemultinational ... · The evolutionof theSSCs-transitionfromthemultinational totheglobalbusiness model-Hungarian Services and Outsourcing