Shared service centres: the road to success? Stephen Skipwith MICM (Grad), MBA European Credit Manager TaylorMade

1. Shared service centres: the road to success? Stephen SkipwithMICM (Grad), MBAEuropean Credit ManagerTaylorMade adidas Golf

2. Themes • Drivers & Barriers to Shared Service Centre’s (SSC’s), both in terms of inception & sustainability • How does the GCC economic area compare against these drivers and barriers • Focus on Order to Cash Cycle, possibly the greatest area of competitive advantage an SSC can deliver • Credit Management & its evolving role in SSC’s & the Order to Cash cycle

3. Shared Service Centre’s • Vehicle to standardise and optimise organisational operations to achieve competitive advantage • Support functions in one location • Transactional processing in one location • Management of internal business processes in one location • An attempt to combine the benefits of centralisation and decentralisation • Concept is nothing new having been around since the mid 90’s

4. Shared Service Centre’s • 80% of Fortune 500 companies have SSC’s • New technologies have given SSC’s a second birth

5. Drivers for the SSC concept • Economies of scale • Research & Development • Marketing • Logistics & Operations • Tax Benefits • Headcount efficiencies & removal of duplication of efforts • Reliability & consistency through greater standardisation • Elimination of costly cross border transaction • Learning Organisation • HOWEVER SCALE OF THE ORGANISATION MUST BE RIGHT • Ernest Young survey; 74% of organisations cited the need to reduce costs as a driver for SSC’s, runner up at 64% was the need to improve services

6. Drivers for the SSC concept • Need to compete with globalized competitors • Stakeholder Pressure • Debt to Equity Ratio • To tap optimal locations for activities and resources • To maximise knowledge transfer across locations • To exploit clusters and convergences in end customer tastes and buying patterns. In essence facilitating adaptation to local market conditions whilst exploiting standardisation benefits • Especially in EMEA markets

7. Barriers to the SCC concept • Inability to cultivate trust amongst team members • Lack of clear SLA’s • Cultural differences not addressed • Poor leadership • Goal misalignment • Poor communication of strategic aims • Lack of clear SLA’s • Poor leadership • Inability in achieving changes or sustaining the pace of change • Leadership • Resources • Failure to re-engineer processes • J P Morgan 2004 – Success in SSC’s comes on the back of best practice, most cost reductions come from process re-engineeering as opposed to exploitation of geographical locations

8. Barriers to the SCC concept • Deficits in knowledge & skills or the ability to attract or develop them (especially when set against potential losses of local/SBU based knowledge) • 38% of EY survey cite need for labour with technical skills • 28% of EY survey cite need for labour with language skills • Lost contact with local market conditions • SSC’s looking for processing advantage could lose sight of local market • Ability to react to local commercial pressures • Danger of SSC and SBU/local level losing contact, risking misalignment of strategies • Geographical barriers • Physical & logistic considerations, 41% of EY survey site availability of property projects as the key driver on location • Political considerations • Considerations of time • Cultural barriers • Technology

9. Shared Service Centre’s & their viability in the GCC Economic Area • Growing number of international SSC’s & Call Centres, Alcatel, CISCO, Dell, Ernest Young, GE, IBM and Microsoft now located in the wider Middle East. Focus for these on Call Centres, IT & BPO functions. • Favourable time zone position • Favourable tax position • Infrastructure in place, on-going investment and locations available • Access to educated technical workers and proven ability to attract imported workers • History gives linguistic exposure to English and other European languages • Low compensation costs

10. Shared Service Centre’s & their viability in the GCC Economic Area • A very strong environment for outsourcing organisations but does this translate into the ideal location for an SSC with wider functional coverage? • Are GCC economies now the low risk choice to house SSC’s over India?

11. The SSC / Order to Cash Challenge – Key Areas • Customer attraction, capture & credit analysis • Order capture & accuracy • Order fulfilment, accuracy and timings • Invoicing integrity • Effective dispute resolution • Effective and commercial collection processes • Accurate revenue recognition and receipt application • Customer retention & knowledge capture

12. The SSC / Order to Cash success story…… MEETING THE CHALLENGE GIVES: • High customer satisfaction, attraction and retention • Enhanced Customer Services – Internal & External • Optimal bad debt losses and DSO, improved debt to equity ratio • Leading edge marketing and product development led by customer knowledge • Economies of scale through improved processing, logistics and required headcounts

13. Acid test for success & relevance of Credit Management in an SSC/Order to Cash Environment • If you want to see what is wrong with an organisation look at its unpaid invoices • “Accounts Receivable (AR) is the place customer problems come to die” • Information capture & transfer across locations • Getting the correct balance between lending decisions, collection processes and internal / external customer services

14. Credit Management & its evolving role in SSC’s / Order to Cash Process

15. Credit Management & its evolving role in SSC’s / Order to Cash Process • Support for Sales and Marketing functions through data custodian role & the supply of fit for purpose data • Innovation in terms of credit terms and payment methods • An often over looked area that has the true potential to assist organisations break new markets and manage cyclical peaks and troughs • Improved sales disciplines • Enhanced dispute resolution role in the order to cash cycle • Policing trading terms & related compliance roles • Knowledge capture and the commercialisation of the same • Vital input into evolving organisational strategies • And of course…. risk assessment and the provision of effective collection processes

16. Credit Management & its evolving role in SSC’s / Order to Cash Process – Case Support • TMaG decided to re-locate all European credit, customer services and logistics operations in one SSC • Four outlying offices closed • 45% reduction in Credit Team staff • Bad debt losses reduced by 1000% year -2 and 500% year -1 • DSO reducing by approx 20% year on year • Bad Debt & DSO improvements cited as one of key factors for the divisions return to profitability • Formalised training in place for Credit Team with a tangible professionalisation of the team • Balance between standardised and adapted/exception based processes forming • Improved external customer services especially in relation to sales, marketing and customer services functions • Knowledge capture feeding marketing and payment terms innovation

17. The death of functional responsibility & management? • Credit Management feeding into all aspects of the order to cash cycle • An overlapped & wider view of all organisational functions feeding into the order to cash cycle • Order to Cash as one process? With the inevitable amalgamation of Credit, Customer Service, Sales Support & marketing support

18. The eternal argument to gain competitive advantage by outsourcing or by gaining internal efficiencies by creating SSC’s? • Is it really a choice, or is a blended approach closer to reality • If the most important aspect of SSC’s contribution to economies of scale is by gains relating to process re-engineering are they in effect a precursor to greater use of outsourcing?

19. The Road to SSC success….. • The creation of an SSC structure and environment that promotes clear and open communication to create trust and universally accepted goals • Highly effective staff development and recruitment mechanisms. With lower head counts individual performance and skill sets are vital to success. In essence doing more with less but better people • Never losing sight of the SSC concept by remaining close to and servicing local market and business needs • Getting the balance between standardisation and adaptation right across cultural and geographical barriers • Creating the optimal balance between SSC functions, outsourced functions and local market presence • Provision of highly mobile Managers with strong negotiation & collaboration skills who can play on both the SSC and local stages • Ability to capture knowledge and the creation of mechanisms to do so, across all functions, that can be accessed by all and feeding this back into the organisation to promote efficiencies and innovation. Ultimately adding to evolving organisational strategies • SSC’s are a well established concept but to survive in an increasingly competitive and globalised market they will need to adapt continuously and never forget goods and services are executed at a local / SBU level

20. Conclusions • SSC’s are not some form of panacea for all an organisations ills • But they do represent a tool for releasing the wider organisation from the pressures of transactional processing to concentrate on core business functions (with of course the benefits of Economies of Scale!) • However the future holds challenges for the SSC model in the effect of IT developments and climate change • Almost inevitably the success of SSC’s in cost reduction through process re-engineering open the door to the greater use of outsourcing thereby diminishing the scale of the SSC and the realisation of more virtual SSC models

21. Acknowledgements • Ernest Young (2004) • Gupta & Govindarajan (2001) • J P Morgan (2004) • A T Kearney (2007) • Prahhalad & Ramaswamy (2000) • Trompenaars & Wooliams (2003) • Hassam, Craft & Kortam (2003)