Point of view* Shared Service Center - the 2nd Generation Taking the next step to reach a more efficient level of evolution.

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1 Point of view* Shared Service Center - the nd Generation Taking the next step to reach a more efficient level of evolution.

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3 Shared Service Center - the nd Generation Improving Shared Service business Center through - the intelligent nd Generation sourcing individual responsibility Improving business through intelligent sourcing individual responsibility The challenge The challenge The challenge Shared Shared Service Service Center Center (SSC) (SSC) are are internal internal service service providers providers which which bundle bundle competencies provide provide stardized stardized services services for for different different business business divisions divisions Shared Service within Center the company. (SSC) are The internal main service goal of providers implementing which bundle within the company. The main goal of implementing shared services shared is toservices is competencies to achieve a higher provide level stardized of service services quality at for a different lower cost business level. divisions achieve a higher level of service quality at a lower cost level. This has This prompted has within the company. The main goal of implementing shared services is to prompted companies companies various industries different countries move achieve a higher in various level of industries service quality different at a lower countries cost level. to move This has towards prompted shared towards services companies shared in in the various recent services industries years. in the But recent leveraging different years. countries their But benefits leveraging to move the towards their long benefits run shared in the long requires services run in more requires the recent than more just years. a than one-off But just leveraging effort. a one-off Companies their effort. benefits Companies which in the have long which already run have already established requires more a than SSC just are a confronted one-off effort. with Companies a a number which of of challenges have already (Figure 1). 1). established a SSC are confronted with a number of challenges (Figure 1). Internal external Company Internal challenges external Company challenges Corporate strategy Corporate Competition strategy cost Competition pressure cost Improvements pressure in technology Service Improvements Cost development in technology of Service requirements Cost locations development of Business requirements SCC Changes locations in legal regulations Business units Service delivery SCC Changes Labor turnover in legal regulations units Service Labor M&A activities turnover (according delivery to service M&A Organic activities (according growth levels) to service Organic growth levels) Figure 1: Challenges for companies Figure 1: Challenges for companies In In order order to to overcome overcome these these challenges challenges generate generate sustainable sustainable benefits, benefits, a a a SSC needs to to constantly review review the the services services it provides, it it provides, including including the the service the service levels (Figure ), as well as as their their organization. Finance Procurement HR HR IT IT Sales Sales Accounts Administrative Applicant data data Application Billing Billing payable procurement administration development Complaint Complaint Accounts receivable Contract Payroll Personnel Hosting Hosting Operating of of Customer Customer Credit Logistic data data data data service service collections goods administration processing processing Order Order Financial Travel center, Travel center, data data reporting Purchase Purchase accounting collection accounting collection Technical Technical Fixed Fixed asset Order data asset Order data filing filing support support accounting processing User accounting processing help User help General Supplier desk General Supplier desk ledger ledger Intercompany Intercompany reporting reporting Planning forecasting Planning forecasting Figure : Examples of Shared Service Center offerings Figure : : Examples of of Shared Shared Service Service centre Center offerings offerings To ensure a long-term added value, the the SSC SSC needs needs to anticipate to anticipate changes changes in in requirements To ensure a long-term furthermore added to value, to adjust adjust the its SSC service its service needs portfolio portfolio to anticipate in in effective an changes effective in efficient requirements way. furthermore to adjust its service portfolio in an effective efficient way. This point of view aims to present adequate solutions to face these challenges. This point of view aims to present adequate solutions to face these challenges. This point of view aims to present adequate solutions to face these challenges. 1

4 Design implementation of implementation of a Shared Service Center Shared Service Center Design implementation of a Shared Service Centre Problems of existing Shared Service centre Problems of existing Problems of existing Shared Service Center Shared Service Center Companies state two major reasons for implementing a SSC: Companies state two major reasons for implementing a SSC: 1. Increase of quality. Reduction of operating costs 1. Stardization Increase of quality optimization of. Human Reduction resources of operating costs costs Stardization processes optimization of Human Infrastructure resources costs costs processes Improvement of services Infrastructure costs Improvement of services The first step towards implementing a a SSC SSC is is to to determine determine which which services services shall shall The be provided. first step Generally, towards implementing all transactional a SSC processes is to determine which can which be stardized services shall be be provided. are provided. suitable for Generally, Generally, migration all all transactional transactional into a SSC. The processes processes second which which step is can can to conduct be be stardized stardized are are suitable analysis to determine for for a migration migration which into into process a a SSC. SSC. steps The The should second second be step step performed is is to to conduct conduct by the an an SSC analysis to which should determine remain decentralized. which which process process SSCs steps steps are should should often be be separate performed performed business by by the the units SSC SSC with which which an own should should organizational remain remain decentralized. decentralized. operational SSCs SSCs structure. are often are Therefore separate often separate the business business SSC may units even with units with an decide own an to organizational own transfer organizational selected operational processes operational structure. to an structure. external Therefore service Therefore the provider. SSC the may SSC even may even decide decide to transfer to transfer selected selected processes processes to an external to an external service service provider. provider. Company External Company service External provider Accounts payable service provider Business SCC Accounts payable receivable Business units SCC Accounts Financial reporting receivable units Organizational structure Financial Fixed asset reporting accounting Organizational structure Payroll Fixed asset accounting Processes Payroll... Processes Documentscanning... IT-infrastructure Documentscanning Services IT-infrastructure Selective communication Services Workflow- Outsourcing Selective communication Workflow- Outsourcing Payroll Feedback Control monitoring Requirements system Payroll Feedback Control monitoring Requirements system Figure 3: Organizational set-up of a Shared Service Center Figure 3: Organizational set-up of a Shared Service Center Figure 3: organisational set-up of a Shared Service centre In order to deliver the services defined in service level agreements (SLAs), it is In essential order to to deliver implement the services an adequate defined IT infrastructure, service level a agreements workflow (SLAs), it is essential system to implement an information an adequate IT infrastructure, system. Focusing a workflow on these major system implementation an information issues ensures that all services system. Focusing communications on on these these major provided major implementation are performed via issues clearly ensures defined that interfaces. all services communications provided are performed via clearly defined interfaces. In order to deliver the services defined in service level agreements (SLAs), it is essential to implement an adequate IT infrastructure, a workflow implementation issues ensures that all services communications provided are performed via clearly defined interfaces. Requirements will change over time which often leads to a compromise in the quality Requirements will change over time which often leads to a compromise in the Requirements cost quality cost will objectives. objectives. change over Increasing Increasing time which transaction transaction often leads volumes volumes to a compromise or changes or changes in in in the the scope quality of scope of service, service, cost objectives. for example, for example, Increasing can result can result transaction in increasing in increasing volumes costs costs or per changes per unit or unit or to in to the a a decrease scope decrease of service, in quality in quality for if if example, the organizational the organizational can result structure structure in increasing processes costs processes per unit are are not or not to aflexible enough. decrease This enough. This in quality quality quality if loss the loss organizational in turn could in turn could entail structure entail increases increases processes in: in: are not flexible enough. processing This quality time, loss in turn could entail increases in: system processing downtime, error system rates, downtime, costs error rates, per unit. costs per unit. Furthermore, SSC optimization often focuses only on narrowly defined service Furthermore, SSC optimization often focuses only on narrowly defined service requirements. Furthermore, requirements. SSC If If changes changes optimization to to these these often requirements requirements focuses only occur, occur, on narrowly processes processes defined have have service to to be be requirements. adjusted adjusted hoc. ad If hoc. changes As a As consequence, a to consequence, these requirements corporate-level corporate-level occur, stardization processes stardization have to be benchmarks adjusted ad hoc. cannot As be a be consequence, sustained. The The corporate-level capability capability to to avoid stardization avoid these these critical critical issues issues depends benchmarks on the cannot level be of of sustained. evolution of The of the the capability SSC. SSC. to avoid these critical issues depends on the level of evolution of the SSC.

5 Evolution process of a Shared Service Center Evolution process of a Shared Service centre The evolution of a SSC can be divided into multiple levels (Figure 4). The evolution of SSC can be divided into multiple levels (Figure 4). 1 Local departments 3 SCC (no SSC) Optimized SSC 4 nd Generation- SSC Focus Characteristics Duplication of effort Inconsistent service stards No consistent culture Redundant structures Process optimization - Bundling of competencies - Economies of scale - Stardization harmonization Implementation of - Performance Measurement System (incl. KPIs) - Service Level Agreements (SLAs) - Workflow SSC operations are stable Continuous improvement process Development of Performance Measurement System (incl. KPIs) Quality Refinement of controlling tools/instruments Reward incentive systems Selective sourcing SSC operations are efficient effective Establishment of service culture Modular expability of services Professionalization of Quality improvements through Six Sigma Self dependent optimization Systematic human resources development SSC maximizes added value for entire company Figure 4: Evolution process of a Shared Service Center Figure 4: Evolution process of a shared service centre In recent years a new trend in in SSC implementation (Level (Level ) has ) has been been observed, namely that the the frequent decision to base to base site site selection selection aspects on aspects of of quality quality rather rather than than cost cost tends tends to provide to provide far better far better possibilities possibilities to realize to arealize a continuous improvement process. Typically, once once the the SSC SSC is implemented, is a a continuous improvement improvement of processes of processes service service levels levels is initiated is initiated by the by SSC the SSC (Levels (Levels 3). On 3). the On one the h one a h review a review of the operational of the operational structure, structure, together together with identification with identification exploitation exploitation of optimization of optimization potential, is key. potential, On the is other key. On h the the other organizational h the organizational structure including structure staffing including is put to the test. In order to provide services of significantly optimized cost quality, staffing is put to the test. In order to provide services of significantly optimized appropriate payment models structures should be established. These cost quality, appropriate payment models structures should be measures are essential in order to keep staff motivated its future established. These measures are essential in order to keep staff motivated development at a high qualitative level. its future development at a high qualitative level. If the SSC is optimized to to the the extent that that all all the the processes are are performed efficiently, the SSC can extend the the scope of of the the services it provides. it provides. This This stage is typically the the starting point point for for considering selective selective outsourcing outsourcing of of specific services. According to to our our experience, however, however, selective selective outsourcing outsourcing often proves to to be be less less beneficial than than expected. expected. Major Major reasons reasons are are the profit the profit margin of of the the outsourcer, loss loss of of business business flexibility flexibility a number a number of specific of specific risks related to to outsourcing. A nd Generation SSC SSC goes goes one one step step further further (Level (Level 4). 4). Its Its focus focus is is no no longer longer limited to to internal SSC optimization - it - it encompasses added added value value for for the the entire entire company. The SSC develops into an an internal service provider which which increasingly assumes the role of an operational strategic consultant. The The basis basis for for this is this the establishment the establishment of a service-oriented of a service-oriented culture through culture the through systematic the systematic development of human resources. Thus the the SSC can can gain gain competencies in in anticipating changes related to to a a company's company s service requirements. Moreover, the SSC is able to implement service adjustments on on its its own own authority to introduce process optimization proactively. 3

6 In order to to assess the the level level of maturity of maturity of an of internal an internal service service provider provider PricewaterhouseCoopers has has developed developed a SSC-Capability-Maturity a SSC-Capability-Maturity Model Model (Figure 5). (Figure 5). 4 Business processes Systems Technology Human resources Internal customer relationship Local departments (no SSC) No stardization, harmonization or automation Multiple systems Inconsistent, non-uniform Inconsistent, non-uniform SCC Wide stardization harmonization Partially stardized system environment Concentration of competencies focus on professional know-how Stardized routine processes transactions Optimized SSC Optimization automation of business processes Stardized system environment Professional know-how development of Focus on efficiency effectiveness within the SSC nd Generation "Independent company" Crossorganizational optimization Optimized modular designed system environment Establishment of service-orientated culture leadership Focus on added value proposition for the entire company Figure 5: SSC-Capability-Maturity Model Figure 5: SSC-Capability-Maturity Model The assessment of of the the maturity level level is based is based on four on four key key criteria. criteria. 1. Business process optimization The first criterion is is the the level level of business of business process process optimization. optimization. Before Before shared shared services are implemented (Level (Level 1) most 1) most processes processes are performed are performed locally locally are often are often neither neither stardized stardized nor harmonized. nor harmonized. In the course In the of business course of business process transfer to to a SSC a SSC (Level (Level ) a ) stardization a harmonization harmonization of the of the relevant processes should be be realized. realized. Stardization includes, includes, for example, for example, the implementation the implementation of of company-wide charts of of accounts, accounts, costs costs centers centers or or software software stards. Harmonization focuses on the optimization of processes, stards. Harmonization focuses on the optimization of processes, systems systems interfaces between departments. The main objectives of both interfaces stardization between harmonization departments. are The quality main improvement objectives of both cost stardization reduction. As soon harmonization as the SSC are has quality been implemented improvement is operating, cost reduction. the focus As soon as the SSC changes has to been a continuous implemented improvement is operating, of the internal the provision focus changes of services. to a continuous improvement Depending on of the the SSC internal maturity provision level the of initiative services. for Depending optimization on is taken the SSC either maturity level by the the internal initiative customer for optimization (Level 3) or is by taken the SSC either (Level by the 4). internal At this level customer the SSC(Level 3) is working by the autonomously SSC (Level 4). on At the this continuous level the optimization SSC is working of cross-organizational autonomously on the continuous process structures. optimization of cross-organizational process structures.. Systems technologies The systems technologies in use in use represent represent the second the second assessment assessment criterion. Level 1 1 is is often often characterized by a by heterogeneous a system system environment environment including pre-systems, including ERP-platform pre-systems, ERP-platform workflow solutions. workflow The solutions. The implementation of the SSC of the often SSC leads often to a leads stardization to a stardization consolidation of consolidation the systems (Level of the ). systems For example, (Level proprietary ). For example, applications proprietary are replaced applications by are modular replaced stard by modular software which stard simplifies software the restructuring which simplifies of processes. the restructuring Level 3 comprises further optimization, automation possible expansion of of processes. Level 3 comprises further optimization, automation possible the systems. SSCs which are confronted with changing service requirements expansion have to reflect of the the changes systems. in SSCs their existing which system are confronted lscape. with The changing more service requirements modular systems have there to are, reflect the the easier changes it is to make in their adjustments existing system to the service lscape. The scope more content. modular A systems SSC at level there 4 implements are, the easier adjustments it is to make autonomously adjustments to provides the service an added scope value to the content. entire company. A SSC at level 4 implements adjustments autonomously provides an added value to the entire company. 3. Human resources An essential condition for a sustainable enhancement of SSC competencies is

7 3. Human resources An essential condition for a sustainable enhancement of SSC competencies is the development of human resources. At level 1, before implementing the SSC, the development of human resources is performed locally often not according to company-wide stards. At level shared services are established the focus is moved to the accumulation of specific knowhow in order to control operational processes thus enable a more efficient provision of services. Level 3 is characterized by the fact that in addition to specific know-how, the development of in particular becomes more important. Vital for the success of shared services are both the professionalization of the establishment of a serviceoriented culture. Therefore at level 4 the emphasis shifts to leadership, as a principle of responsibility for the entire SSC staff. The s focal points are the strengthening of employees competencies motivation in order to encourage proactive customer-oriented behaviour. Suitable actions to develop strong human resources retain qualified staff are for instance the implementation of: A Performance Measurement System (including KPIs) in order to track benchmark employees performance, performance-related remuneration, team compensation, involvement of the team in the recruitment process in order to improve teamwork, flexible working hours (work-life balance, individualized working hours, home office), or improvements to the working atmosphere (e.g. through increased responsibility for processes process reengineering). Appropriate human resources measures as stated above, a service-oriented culture, the proactive quest for improvement are all crucial in stepping up a SSC to the nd Generation level. 4. Internal customer relations The final criterion is the internal customer relation. While the of customer relations at level 1 is often non-uniform, the interfaces communication channels of the SSC its internal customers at level are broadly stardized. The SSC emphasizes on the delivery of operational stardizable transactions processes. SSCs which have achieved level 3 already implement measures to optimize internal customer relations by the utilization of customer surveys, complaint suggestion systems. At level 3 the focus is still on improvements of the SSC internal efficiency effectiveness. SSCs at level 4 have gone one step further focus on added value to the entire company. At this stage, the SSC is now acting as a professional service provider optimizing its operations strictly with regard to the customer s benefit. All four criteria together determine the medium- long-term cost service quality level of a SSC. The development of the cost quality trends in relation to the SSC s maturity level are illustrated in Figure 6. 5

8 systems. At level 3 the focus is still on improvements of the SSC internal efficiency effectiveness. SSCs at level 4 have gone one step further focus on added value to the entire company. At this stage, the SSC is now acting as a professional service provider optimizing its operations strictly with regard to the customer's benefit. All four criteria together determine the medium- long-term cost service quality level of a SSC. The development of the cost quality trends in relation to the SSC's maturity level are illustrated in Figure 6. Local Departments SSC Optimized SSC nd Generation-SSC 1 Cost/time per unit Phase 1 Phase 1 Performanceadvantage ngeneration- dssc Service/quality 1 Scenario for an "as is"-ssc Scenario for a nd Generation-SSC 1 Increasing SSC maturity Costadvantage ngeneration- dssc Figure 6: Cost quality trend of a Shared Service Center Figure 6: Cost quality trend of a Shared Service Center 6 The figure shows that at the beginning, learning curve effects economies of scale lead to decreasing costs to increasing quality. If, however, the SSC is confronted with changing service requirements in Phase 1, this could result in an unwanted development. In this case two different scenarios can be distinguished. Scenario 1 is typical of a SSC which is not sufficiently prepared to anticipate changes to service requirements. The organizational structure of the SSC has been designed optimized at a particular time for an efficient effective provision of all contracted services. As a result of company growth a need for adjustment can arise. If a specific transaction volume is exceeded, the lack of human technical resources results in a backlog of optimization measures. As a result of this lack of resources - insufficient flexibility - various tasks concerned with implementation, adjustments optimization can only be executed partially. In the course of time this leads to sub-optimal service delivery under utilized synergies. Consequently, improvements in efficiency quality can not be fully realized. Scenario - in contrast to scenario 1 - illustrates a nd Generation SSC which anticipates changes in requirements over time which is able to adjust its internal structures flexibly autonomously. This is a significant basis for the sustainable realization of medium- long-term cost quality objectives. Characteristics of a nd Generation Shared Service Center To ensure that a SSC is able to anticipate future service requirements reacts adequately, it is important to develop the SSC gradually into an independent organization by focusing on the following issues: implementation of a customer-oriented service culture, expansion of decision-making authority in order to carry out service adjustments proactively autonomously (e.g. adjustments to the service portfolio), development of human resources to safeguard improve internal competencies, implementation of a professional customer to optimize further develop customer relations (e.g. implementation of a complaint system), commitment to continuous process improvement as an ultimate objective. 6

9 Service Center expansion of decision-making authority in order to carry out service adjustments proactively autonomously (e.g. adjustments to the service portfolio), development of human resources to safeguard improve internal competencies, implementation of a professional customer to optimize further develop customer relations (e.g. implementation of a complaint system), commitment to continuous process improvement as an ultimate objective. The combination of of multiple SSCs SSCs into into a service a service organization organization which which provides provides different services seems to to be be favourable from from an organizational point point of view of view (Figure 7). The scope of of services delivered by by such such a service a service organisation can can be exped far beyond finance accounting. Generally almost almost all non-core all core operations operations such as such IT, tax, as IT, treasury tax, treasury or HR are or HR feasible are feasible options. options. Customer C 1 C Chief Finance Officer Group department Strategic relations Chief Service Officer Chief Operation Officer Supplier S 1 S Service organization Transactional/operational relations SCC 1 SCC... Figure 7: Integration of a Shared Service Center into the entire organization Figure 7: Integration of a Shared Service Center into the entire organization Over time an SSC could gain the ability to deliver a broader scope of services. A Over service time organization SSC could adds gain value the to the ability entire to company deliver a broader by enabling scope local of services. A business service units organization to focus on adds their value core to business. the entire The company SSC evolves by enabling together local with business the entire units company to focus as an on integral their core component business. accordance The SSC evolves with corporate together with strategy. the entire company as an integral component in accordance with corporate strategy. 7 7

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12 Your benefit Our expertise About us A number of advantages benefits can be realized by companies which develop their SSC towards the nd Generation stard. The company is able to focus on its core competencies. The SSC optimizes itself autonomously, itinitiates the implementation of new technologies it acts as a professional service provider. On the other h the extension of the SSC competencies is a basis for further internal SSC optimization future make-or-buy decisions. The adjustment of SSC services according to the changing service requirements of the company enables safeguarding of long-term cost quality advantages. Therefore a nd Generation SSC is particularly suitable for ensuring a holistic end-to-end process view. Companies which have already implemented a SSC are confronted with the question of how to ensure the long-term cost quality advantages of their SSC. PricewaterhouseCoopers has been supporting clients for many years in implementing operating Shared Service Center. Our emphasis on high quality is complemented by our future-oriented thinking on behalf of our clients. This means going beyond the mere completion of a task to anticipate their needs provide a forward-looking solution. In doing so, we give our clients added security in an increasingly complex world. PricewaterhouseCoopers ( provides industry-focused assurance, tax advisory services to build public trust enhance value for its clients their stakeholders. More than 155,000 people in 153 countries across our network share their thinking, experience solutions to develop fresh perspectives practical advice. About us Paul Horowitz Principal Tel.: paul.j.horowitz@us.pwc.com Charles Aird Managing Director Tel.: charles.l.aird@us.pwc.com pwc.com 008 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP. (US) DH