The Moreira Chronicles: How To Succeed With Shared Services In Today’s World Interview by Pedro Moreira, with Tom Bangemann, The Hackett Group, and Kai Zabel, Heraeus Group

Role of Shared Services Organizations, Evolution and Future Trends

Over the course of 2016, Pedro Moreira published a series of columns on SSON's site, summarizing his experience in rolling out an enterprise SSO model to a subsidiary, emphasizing the pros and cons of this approach.

Following the conclusion of that series, Pedro interviewed two well-known practitioners – Tom Bangemann of the Hackett Group and Kai Zabel of Heraeus Group, both highly respected practitioners in the field of Shared Services, with decades of implementation experience behind them.

This is a transcript of those interviews, which cover the role of the SSO; evolution and future trends; implementations; operations; a discussion around GBS; and new robotic technology.

Pedro Moreira: How do you view the evolution of SSOs over the past 10 years, and how do you see their role in today's organizations?

Tom Bangemann (TB): We’ve been talking about this shared services or global business services topic for about 20+ years, now. We’ve had quite some development over those decades and obviously, depending on who you talk to today, there are people who started more recently who will have very different views and very different questions, compared to somebody who started 20 years ago. Nevertheless, it’s a significant transformation in terms of the topic itself because when we started it was, in most cases, about individual models of shared service centers or transactional activities, mostly in accounting in the beginning. Back then, you put 5,000 people into one location and produced accounting for a selection of countries, or a selection of sites even within a country, normally within one business unit or division. It was not really dramatic, but the basic idea of running activities from a consolidated environment was good and it’s been growing. Nowadays we are far removed from that. I don’t think there are many companies left who only do Subledger accounting, for example. I mean, they were originally doing Subledger accounting but nowadays we have a lot of General Ledger included.

"We've been talking about this shared services or global business services topic for about 20+ years, now."

Anyway, these developments mean that, today, most companies are in some sort of GBS model (Global Business Services). We can get into what that is later. They basically run multi-functional shared services type activities. It doesn’t mean everything is included but it often covers parts of different functions and they will often have several centers, although it’s a limited number. It’s not going to be 27 centers anymore – it’s maybe between 3 and 10 globally, if you have local operating companies.

The biggest change is that companies are increasingly moving into something more sophisticated, and are focussed on skills- and knowledge-based activities that provide more value or added-value type outputs. Depending on your organizational maturity level, what comes out of this can be more or less exciting.

"It’s not going to be 27 centers anymore, it’s maybe between 3 and 10 globally, if you have local operating companies."

So the concept has been well established and, basically, any type of company, out of any region, any size, any industry, would look at this service delivery model and utilize it as much as possible, but they still come up with their own solutions.

Kai Zabel (KZ): This might be a good point at which to explain the current situation at Heraeus. We are one of the late adopters of shared services. We started with two individual shared services centers at different locations. In the meantime, we developed into a global organization with five centers of equal scope, focused on transactional finance. Furthermore, we started to expand our service scope into more sophisticated processes like General Ledger.

Over the course of our journey the relevance of the shared services organization increased within the company. We were one of the forerunners at Heraeus when we started. Everyone looked to us to find out if the concept worked. It did, and we showed that we can deliver the benefits. The relevance of the SSC therefore increased in line with our scope enhancements.

PM: So shared services organizations are supporting the business more, and integrating more. While 10 or 20 years ago it was mostly cost-efficiency, maybe optimizing some processes, now it’s much more dynamic and flowing with the business?

TB: Yes. If you take the drivers, in the first stage is efficiency, which translates into cost mostly; after that it is effectiveness, which translates into quality of service level; and the last level is value, or added-value, outputs, which are really useful from a business point of view. That’s when you’re often not purely in support activities anymore but you are actually closer to the core business.

"If you take the drivers, in the first stage is efficiency, which translates into cost mostly, and after that it is effectiveness, which translates into quality of service level."

PM: For an organization that has no shared services and wants to start, do they have to go through all the steps? Start with cost efficiency, and process optimization, until they can move on to the next stage? Or, with the current level of accumulated experience and knowledge, can they move directly to a more advanced stage?

TB: In reality, in this space you can’t really take quantum leaps. It is very difficult. You would normally run through the same logic. Of course you can learn from others and then, as you pointed out, you can deploy at higher speed, running through it, but the reality tells us that most companies will run through very similar life cycles of transformation journeys.

If you start today, you can go out there and look at a center that has a solution that has been developed over 20 years ago. The problem is that if you do that, you’re going to see something that is impossible for you to achieve, it’s so far away.

PM: So, you can benchmark but you’ll have to go through all those phases, even if at much faster speed that other companies did in the past?

KZ: I believe that in general, when an organization starts a journey of shared services or alternative sourcing, you have to go for acceptance within the organization and you have to prove that that concept works. This drives your journey. You have to quickly show benefits and to prove your concept in your own organization.

"You can’t bypass the initial steps. Prove the concept, implement it, show the benefits and get acceptance in the organization."

Once you’ve achieved that, you can consider a different journey. But you can’t bypass the initial steps. Prove the concept, implement it, show the benefits and get acceptance in the organization. You will manage all this if you start with a huge scope, which the absolute forerunners in SSCs developed. That’s my belief and maybe that’s the reason why I think it is important to run through each phase.

PM: From your perspective, what trends can we expect in shared services over the next 5 to 10 years? Tom was mentioning the GBS model for instance?

TB: Just to explain what I meant with GBS: the vocabulary in this model is used slightly differently; so, depending on who you talk to their meaning might be slightly different. What we mean by Global Business Services, or GBS, is a more mature version of shared services but it’s also a bit broader in terms of being multi-functional, and including all sourcing types. If you have a hybrid model, then GBS would include anything you do yourself in captive centers and anything that you have outsourced, because you would run it from your GBS organization. It would also include all types of centers – transactional shared services centers but also what we call COEs, Centers of Expertise or Centers of Excellence. Some people call them Competence Centers. These are center-type units, which are consolidated and which perform certain tasks, but they might not be transactions. You might have, for example, a sourcing COE that is looking into your sourcing strategy and making agreements and selecting suppliers, and so on. It’s not necessarily transactional. You might have controlling type activities that are in the COE. You might run your planning processes out of the COE. So you might have different activities like that, which are maybe transactional, but overall people would not consider them transactional. But you can still do them from a consolidated environment.

"If you have a hybrid model, then GBS would include anything you do yourself in captive centers and anything that you have outsourced because you would run it from your GBS organization."

Long story short, you can have different types of centers but all of these centers would be included in a GBS approach. So, GBS is mostly about the governance. That means: I’m not having 17 centers across the globe and every region or business unit does whatever they want, but rather, I have a holistic, enterprise-wide concept and I have all of these under the one umbrella. That is my GBS organization. They ultimately all do report to one person. You can also have GBS without solid reporting launched into one place. But the point is that you have set up and thought about your overall governance – that’s GBS. In terms of your question about trends, we already have GBS today to a large extent. We actually have a majority of companies already in GBS.

In terms of new trends for tomorrow there are many we can mention but just to throw out a few ... I think the most exciting topic currently is technology, because if you look at this shared service/GBS topic over the last 5 years, whenever we got a new GBS study or piece of research, I always read it as, kind of, “this one is past its life in consulting” view. You know, there are always new numbers, but it is really always the same stuff. You update your numbers, you update your slides, there are slightly different weightings and topics and so on, but it was always very similar, for the last few years. Now, in the last 1 or 2 years, it’s getting more and more exciting because there is so much technology development going on and it’s not only things like robotics, although that’s one of them. There are also things like language translation and all those things you customize under SMAC [social, mobile, analytics, cloud], etc. It’s quite exciting, because there is lots happening and the outlook is either very exciting or very disturbing, depending on who you are.

For example, on the robotics topic, there are great studies in the market from McKenzie and others on how many jobs are going to be eliminated by robots in the next 10 years. If you look at those studies, they’re really scary in some ways You’re sort of going to ask “what is everybody going to do, then?” It’s very exciting from a business case or a company point of view, but from an individual’s point of view working in this environment, it might be grimmer.

"There are great studies in the market from McKenzie and others on how many jobs are going to be eliminated by robots in the next 10 years."

KZ: I might have a slightly different view of history and the future. Shared services in general was actually enabled by technology. One of the key drivers in the past as well as in the future is technology. I strongly believe that this makes automation one of the key drivers in future as well.

A lot of companies do not have a well-developed global GBS organization. So I think that one of the trends in the future will be that those companies which are not the forerunners in shared services will follow, and they will extend their scope. The scope development is exactly what Tom described: moving away from transactions and moving more into value based services. Automation will be one of the future trends with IT developments, and I expect that location itself will become less important, due to the fact that automation will become more important.

PM: So do you see, for example, companies moving back for to the US or to Europe instead of staying in low wage countries where they were in the past?

KZ: A macroeconomic fact is that there will be salary arbitrage every now and then, but the magnitude will decline. If automation becomes more important and salary arbitrage is shrinking, location is less important. At that stage the value based services become much more important. The question is whether you can get the right talent, rather than whether it is cheap or not.

TB: On that topic I think it’s a huge trend, but I think you need to split it up into a few things. So, one is: if you think of the transactional environment, then much of the transactional environment will be automated, with robotics and with other automation. So in general, staff that work in that environment reduces. But I don’t think the model reduces, and I don’t think it will be taken back, because those people that govern the activities that are mostly done by robots are still going to stay, wherever they are today. So if they sit in Poland or China today, they’re not going to get those people back. That’s one thing.

"The question is whether you can get the right talent, rather than whether it is cheap or not."

Secondly, when you think about the added value piece, the more skilled or knowledge-based piece that is added ... more of that might be onshore and not offshore as before. That’s because you’re getting higher and higher in skills and knowledge, and depending on where your activities come from, sometimes you actually do struggle with certain capabilities in certain locations. Not yet with things like controlling and so on, but with other things like supply chain activities or marketing activities or IT activities.

To give you an example, Statoil is a Norwegian oil company. Nowadays, they produce the software that runs their robots on the sea bed of the North Sea, looking for oil, and they program the software in their GBS. Now, that is pure core business for an oil company and it’s coming out of a GBS. The logic is: if I have all the technology capability, programming capability and education maintenance capability in this organization, why the heck would I set up another unit somewhere else, to have people do something like that instead of utilize the pool of technology capability for that too?

It’s a very core process. In this case it’s located in Norway and I doubt that they would move it to some other location, even if they moved transactional activities into some other location. So, I do think there are some activities that are not going to migrate, or which might even move back (Europe/US), but I don’t think they are the transactional ones, I believe they are more of the value added ones. We don’t know for sure, this is our guess…

PM: Since we are on this: is there a risk that companies running shared services at “cruising speed” might plateau and additional benefits don't outweigh the costs of obtaining them? Meaning, whether the benefits of robotics/automation or upgrading your organizational model (e.g. GBS) will cover the costs of implementing them, in future. Or do you always foresee a next step, where you can get more benefits that outweigh the costs?

TB: To some extent we have that situation because theoretically you can always automate everything and the question is exactly as you pointed out: is it worth it? If my process/activity is too complicated or I am automating around all kinds of things and the benefit is very small, putting in some tools might cost more than the benefit I get out of it for the next 100 years. So then I’m not going to do it.

"I do think there are some activities that are not going to migrate or which might even move back."

That for example, is one reason why this robotics approach is working, because robotics enables the automation of smaller volumes, and is very scalable and very low in implementation cost. So, it’s not rocket science. Robotics doesn’t do anything else other than what a person did before, so the robot is performing a repetitive operation just as was done before. Now robotic software is keying it in. That enables us to automate something which was previously not automated, due to exactly what you said – there being no business case for it.

That has happened before and will happen again and therefore, yes, there will be a point where process-by-process, area-by-area, you know there is something to improve on the process but it’s not going to pay off; and then it gets trickier to get benefits out of it.

Another option is that you move that process to a lower cost location. The basic shared services philosophy has been always the same and it’s very simple: you have wage arbitrage and you have productivity improvement. You have these two levers and you’re doing nothing else other than working with them. Either you can get wage arbitrage or you can get productivity improvement, mainly through automation. If I don’t get automation, I can try wage arbitrage. If I’m done with wage arbitrage, I can do productivity improvement. If, theoretically, I get to the point where I’m done with both, then I need to think in a different dimension. For example, instead of looking at the running costs you can look at working capital impact, or you could look at risk reduction, or you could look at expenditure reduction ... some other dimension that you can impact and that will bring you benefits. It could also be that you’re not reducing costs at all because you can’t, but you’re trying to get better output in effectiveness or value, happier customers or lower cycle times – some other metrics that you can focus on. But you’re absolutely right, in certain areas you will reach a point where you can’t do anything, at least with the business case, that pays off.

PM: What do you see in terms of future threats and opportunities for the SSO model?

TB: One trend in general is this scope enlargement. So when you look at what this Shared Services called GBS does nowadays – and Kai can give you a nice example on that – it’s often one function and bits and pieces of others; or maybe 2 functions; but there’s still more than half left. So it will take quite some time until this concept is pushed out across all the functions where it can be utilized.

The basic shared services philosophy has been always the same and it’s very simple: you have wage arbitrage and you have productivity improvement. You have these two levers and you’re doing nothing else than working with them.

We do have companies asking us things like, “How can we utilize this for marketing, for legal, for supply chain?” There are many areas where we can still think of how to utilize the concept, so scope expansion, in terms of functional and process expansion, is still significant – even within the processes you’ve got in-scope.

If you have a Subledger process out of accounting, say purchase-to-pay, order-to-cash, then you will never have 100% of the process. The split that we do there – we call it the central/local split, or process split – could be where you have 80% or 90%, but you can still do 5% more.

On some other processes like General Ledger, you might only be doing 50% in the center and the other 50% might still be decentralized in business units, so you can increase the split up, you can go broader and deeper still within the scope.

KZ: Maybe I can add a different dimension to this discussion. What I’ve seen in recent years is that more and more companies move into a system landscape which is based on one single global ERP system. That was one of the main reasons why we believed that shared services was the right approach for us. This drives the importance and relevance of shared services. These developments are a big opportunity for shared services and other more center-based approaches.

"What I’ve seen in recent years is that more and more companies move into a system landscape which is based on one single global ERP system."

That was exactly our motivation and why shared services was implemented at Heraeus. We currently get the biggest benefit out of that. We will see more global approaches, more global process thinking and more automation in future. And all this is driven and supported by shared services.

TB: Shared services is a great change enabler, if you want. When you think of transformation journeys in companies – all of these companies are constantly doing nothing else but transformation. If you didn’t have shared services or GBS, where would you drive these changes from? There is actually no other place, no other logical place to drive this from. So if we didn’t have shared services, we would be searching for somebody who we could ask to run a certain project. Not everybody likes the fact that transformation comes from there, but it’s a logical place to run transformation initiatives from and it is absolutely a change enabler. At the end, the benefit to large organizations is probably significantly higher than we estimate or calculate, as we do not calculate all of the effects, but you actually drive huge cultural change programs through shared services without calling it that.

PM: With regards to the professionals working in shared services centers, do you see their competencies changing in the future? Given what we discussed about future trends, I guess a stronger IT or computer engineering skill set will be required. How do you see the jobs in the shared services centers evolving in future, in terms of requirements and competencies?

KZ: I think two or three points are deriving exactly from what we mentioned before. So, first of all, you definitely still need your expertise in the area where you’re working. You definitely need more global thinking, you definitely need more process-driven thinking, and you definitely need more IT driven thinking.

If automation becomes one of the key developments, then that requires personnel that knows what they are doing, i.e., the process, and how to automate, how to improve it further. That is my view, coming from a finance-based shared services center. Maybe Tom can add to that, coming from a more GBS driven perspective.

"You definitely need more global thinking, you definitely need more process driven thinking and you definitely need more IT driven thinking."

TB: As far as talent management and skill assessment goes, our research indicates that quite a lot of things are changing. Taking what Kai said, and you could extrapolate that a bit, the biggest gap that we got out of our latest skills assessment was in the HR function, and it concerned skills that deal with data analytics. That is because HR doesn’t understand why it needs data analytics. But on the other hand, if you ask HR people, they never know exactly how many people they have or what skills they have and what they need tomorrow ... it’s quite surprising how little knowledge there is in large companies about who they actually employ and who they will need tomorrow.

So, how will HR bridge this gap? Obviously you will need much more follow up and technology savvy people. In a simple example, I recently had this discussion when I presented at an event with 50 HR people. The picture we painted was basically the HR department of the future, where you’ll have some HR people who are really good at communication and social skills and so on, but strangely, you will also have this room of techies who are working on computers, programming – something really crazy, related to data analytics and algorithms. These people actually don’t exist in today’s HR.

So it is exactly what Kai said: there are completely new types of individuals that we need in addition to what we had before, and the roles landscape is more split. You’ll have people programming, yes, but you can’t let those people go consulting on employees. On the other hand, you need somebody else to understand what this tool is doing but at the same time explain it in a way that the employees take on their journey. There will be more and more of this technology coming in and maybe HR is the most extreme example because it typically adds the least of it.

"You’ll have people programming yes, but you can’t let these people go consulting on employees."

The other thing that we find in our skills assessment is that certain basic skills are quite low, currently. For example, if you try to find people with language skills and a good working attitude, that is not really a big problem. But getting people who have managerial skills can be very problematic. A basic skill like managing others is something that people either can do or they can’t. You need to have a certain basis that you can build on. Obviously, you can teach a lot, but typically people need to have the basic abilities. Other things you can teach, like what we call business acumen – understanding what the company does.

We used to hire people that came from accounting for an accounting center, and then the next requirement would be a little local language. In future, I think we’ll take people that have certain technical abilities and a certain attitude, the rest we will teach them. The way that we look at the skill list and how we prioritize it is changing. It’s not that it’s completely different, but I think the weightings are moving.

PM: So the training people are receiving at universities, and certifications that prepare them for a profession ... will need to change. In the past, we talked about accounting, usually transactional related activities, as the entry point for an accountant. Seemingly, that will be eliminated in future, so that entry point will not exist. I guess that the training will also need to change in future to realign with the business needs?

TB: Yes, I think there will be different tasks, but there will also be the traditional tasks. If you learned accounting you can move into controlling, you can move into other things where there is a logical path for you to move.

The question that you pose is a tricky one: what if I don’t have any accounting people anymore and I am hiring people who have the right skills but don’t know accounting? How do I actually explain controlling? So I may need to provide them with certain skills/content that they otherwise might have had when they came in. But I am happy to do that because I value certain other abilities or skills more. For example, if they are really good at certain technologies or they can program things or they know several languages or whatever it is, I will weight these skills differently in the future. It’s not that everything changes from today to tomorrow, but it moves into a new direction. The actual technical skill of knowing how invoicing or posting is done becomes less relevant because I believe in a standardized process, in standardized systems. I can teach it more or less on an activities basis and I would want them to understand other things more. It’s not black and white – but as a trend it is moving in that direction.

"The question that you pose is a tricky one: what if I don’t have any accounting people anymore and I am hiring people who have the right skills but don’t know accounting?"

KZ: What I believe is that being purely an accountant doesn’t have a future any more. You need to have your foundation and you need to know where you’re coming from, but you should have an idea of other things as well, like languages, like inter-cultural skills, like technology ... just having one skill will not be good enough. However, what I see in practice is that these things are already changing. People applying for jobs, people we are hiring, they are not single-skilled any more. They’re coming with a more international experience already. They are not just specialized in one discipline, I would say. The young people often come with a basic understanding of technologies and also with an attitude of not doing things manually. Instead, they are looking for options to improve the process and drive automation.

TB: Basically, the accountant job will disappear in the next 10 years. If you read McKinsey Oxford studies from 2 years ago, I don’t remember exactly, but I think 95% of accountant jobs will disappear in the next 10 years and the way that estimate is done has very little error margin. Maybe it’s only 90%, but it is still going to be the same result: most of these roles are going to disappear. However, other abilities will enable staff to move into neighboring areas, or to the next level, as the low-end is going to disappear because of technology.

There is a significant change in terms of the skill profiles, and actually that is one of the things that the GBS organizations often don’t understand. They have their 100 FTEs somewhere in a center in Poland, and they’ve used the same recruiter for the last five years. They always have the same request, “I need 5 more people in P2P, same as ever.” Then they wonder why they don’t move up the maturity curve or why the stakeholders don’t see them as capable of doing more.

That’s a real danger for those centers and they have to move up the maturity curve because it’s an up or out game. If you stay with the 100 FTEs you would optimize 5% every year and do nothing else. The following year you would have 95 people and 90 people the year after. It just can’t work. You have to expand, you have to improve and you have to grow in terms of scope and maturity and there is only one way. You can only go up, otherwise you end up closing some day.

Shared Services Implementation and Operations

PM: I’d like to move on to implementation and methodology. Some companies prefer lift-drop-change, others prefer lift-change-drop. From your experience with multinationals, which is best? Does it depend on the organization? Does it depend on wanting to show results fast?

KZ: I can share the insights from our organization. Our migration into shared services is still ongoing and is running more less in parallel with the implementation of one single ERP system globally. With that situation, we decided from a strategic point of view to move entities with their accounting prior to the system migration into the shared services environment in order to move the effort for doing the system migration in the shared services environment.

Having said that, everyone more or less came to the same conclusion, that lift-drop-change is the right approach for us because the change will come with a single ERP system anyway, so why make the effort prior to moving it into the shared services? Wouldn’t make sense and doubles the effort. For us, in our situation, with our strategic road map in this area, it makes more sense to lift-drop and change afterwards, when the system is there.

"Having said that, everyone more or less came to the same conclusion, that lift-drop-change is the right approach for us because the change will come with a single ERP system."

TB: If you look at the numbers on that, there is no clear right or wrong, so companies will select different ways of doing this and different combinations. Most, about 2/3 if I remember the numbers correctly, lift and drop or lift and shift, then change the process, we call it lift–shift–transform. It’s the same logic and that’s what the majority does. However, there are others, a significant minority, that try to do it the other way.

Normally, the main driver is that you have a business case, as I pointed out earlier, that shows the benefits that you’re getting out of this. Therefore, when you run these migrations, you run on the basic logic as you try something small, so if something goes wrong, the damage is not too big. But after that you quickly move into the big volumes. The business is going to materialize quickly and as most shared services move into lower cost locations, you are getting wage arbitrage, and therefore the business case looks better than if you did it slower or moved large amounts of volumes later.

So, the normal way of doing it, to make the business case look good and scoop the benefit, is to move big volumes, as quickly as possible. That’s the best way to lift and shift and then you transform when you have everything in the center. Also, it is typically easier, to do some change work or redesign work on a process if you’ve got all people who deal with it in one room. Otherwise you need to do it in a dispersed environment and that is very difficult to do.

There are pro’s and con’s and it depends on who you ask. If you ask the head of the shared services center, they would often say, “I’d like to get the processes in after they have moved to the new ERP system and new process systems”. Because then they just take the same design and just add capacity. So, to receive work like that is easier. It's much more difficult is to do the actual transformation job.

PM: How important is a mandate for the reorganization of activities on a local level? Are many companies enforcing this mandate? How are local organizations reorganizing themselves?

KZ: From a theoretical point of view, and I think that is backed up by practice, one of the biggest mistakes that could happen is that you take those things away from the local organization, leave them alone and do nothing. The risk is simply that the processes break and then the whole thing doesn’t work. So from that point of view, it needs to be clear to everyone that changes will take place at the local organization, in addition to just taking away activities, so that they need to reorganize.

If it’s the shared services center that should reorganize it, that’s a different question. From an organizational point of view, from a company perspective, I need to be clear to everyone that a new set-up of the remaining organization is required and will very likely happen.

"So from that point of view, it needs to be clear to everyone that changes will take place at the local organization, in addition to just taking away activities, so that they need to reorganize."

PM: So you don’t see the shared services entity as leading the change in the local entity?

KZ: Not necessarily. I know that there are approaches where the responsibility for the whole process, end-to-end, including the part which remains locally, moves into the GBS organization. That also includes the reorganization of activities. But is that necessary? If you have an organization and then you take a significant portion of activities away, normally you won't stay with the same number of people, and you need to reallocate the remaining activities to people. These people need to be trained and they face a significant change in the remaining organization, as well. In order to make sure that the process runs smoothly, someone needs to take care of that. Depending on the approach, it’s either the local management that takes responsibility or it is the GBS organization, if it takes over the responsibility for the remaining local activities as well.

TB: You’ll have different solutions for that. Obviously, a mandate question is always a good one. You need a mandate to run this type of project in general and to get there is always a battle. I can tell you from experience, it is always like that. It’s not that simple because ultimately, you’re doing what Kai said – you’re taking away activities and workload and you’re effectively letting people go. One person is taking away maybe 100 people out of someone else’s functional scope or out of their teams and many people still think that the more people they have reporting to them, the more important their job is. Coming from that type of thinking, they often refuse to let go of most of their “troops”.

"An accounting shared services center maybe still works because you’re within the function and the CFO can basically decides how, within his or her function, that should be done."

It is a strong political battle up to the point where you set up something like a GBS. An accounting shared services center maybe still works because you’re within the function and the CFO can basically decides how, within his or her function, that should be done. You’ll still have the battle with the locals about moving things, but at least it is within the function. But when you have multiple functions and multiple regions and they have multiple business units, then it gets really messy and it can be quite a nasty battle.

Ultimately you have to have a mandate to do certain things. But in reality it is never black and white. You get a mandate but, of course, there will be lots of people waiting to shoot you on the way. It is like in politics: you have to somehow maneuver through it.

This is what happens in most multinationals: Initially, you are so busy with trying to get this thing done that you focus on what you are centralizing or consolidating. You’re responsible for that center, setting it up and running it, and it must work. That’s your biggest concern. What comes out of it has to be decent, quick and it needs to prove the benefits in the business case – that’s the main target. Therefore, the local side is often neglected, and is left for others to reorganize on purpose, for capacity reasons and because it is simply not the highest topic on the agenda.

Later, people realize that if they want to run end-to-end processes successfully then they have to get those locals aligned too. From a governance point of view, when you get into the GBS model, you will go through a rethinking process and recognize, “Well, yes it does run. Maybe it can run better if I have the local people, who are still out there, not reporting into the local MD solid line, but reporting into the GBS solid line – and only dotted line locally, to office or unit.” That’s what we see in most more mature GBS organizations. Again, I don’t think there is always a right or wrong. There are reasons why certain options and certain combinations might be more or less promising.

PM: Consider a medium-sized group, with sales revenue up to $1B, 5-20 business units. Could such a group obtain the same benefits as a large multinational? In many countries large corporations are nonexistent but you find many medium-sized groups. Can they have the same benefits? What is your experience?

KZ: I think size does not matter too much on this one, it’s more the question of number of locations and how broad the spread is. Definitely, it becomes easier the bigger you are in order to show the best business cases. I believe it is also a model which is valid for mid-size companies, if it fits to the strategy of the company, if it has a certain geographical spread. If it is just based in just one location, you wouldn’t consider it too much. If you have a certain geographical spread and a certain complexity in there, I think shared services works.

"If it is just located in just one location, you wouldn’t consider it too much. If you have a certain geographical spread and a certain complexity in there, I think shared services works."

Very often, in particular with very small entities e.g. sales offices, what they do with their accounting or their transactional work is that they outsource it. That’s my experience and if outsourcing works, shared services normally works as well.

TB: It works for large, for medium and increasingly also for small companies. Basically it works for anybody. There are obviously limitations, but because of technology developments, for example Cloud, it makes things more scalable and therefore we get better benefits even on smaller volumes.

We see a lot of centers being set up which are, sort of 30 to 50 FTE’s, which is not very big and companies with $1B have that easily. But companies with $300M also have that volume. Remember that you can do shared services multifunctional, so you might have 10 Finance, 10 HR, 5 Procurement and 5 IT helpdesk people in the room, and there you go. If it gets too small, just as Kai said, you just change its sourcing mix but the model is still going to run.

I’d say it is applicable to basically anybody. The question is then: “What kind of sourcing do I run?”

"There are obviously limitations, but because of technology development, for example Cloud, it makes things more scalable and therefore we get better benefits even on smaller volumes."

KZ: Smaller entities might need to include more of their organization into the scope in order to avoid the migration of x percent of one person.

TB: Interestingly, most of the smaller and medium-sized companies immediately start with a multifunctional scope, based on all that we said, and therefore they don’t even have to go through all this discussion of “Does every function run their own center or do we put it together?” In a way it’s a benefit to them that they can’t afford to have this debate, and therefore move directly into the multifunctional GBS environment. Also, they can’t select more locations than absolutely necessary because otherwise they split their FTE’s over too many locations.

So I’d say, small to medium-sized companies automatically come up with a sort of best practice solution, because nothing else works.

PM: Tom, back in 2011 you mentioned that the real migration was still coming, that only about 20% had been offshored, in terms of Western Europe. How has this process evolved and do you see it evolving in the future? What about robotics? How is the scenario now?

TB: You mean offshoring development vs technology development taking things back? There are different ways to answer that. One is you can look at all the work that exists and that you could potentially offshore, see where you are in the process, and just calculate how much is left, even theoretically. If you do that, even theoretically, then out of originally about 8,000,000 jobs in all western companies in support functions, you’re left with 1,000,000. The rest is transferable, is already moved or is already automated. So we’re left with this 1,000,000. It is still very significant and at current speed still takes about 8 years for this process to finish.

There is still a lot of offshoring going on, because 1,000,000 jobs moving into these countries is a lot of work, but it’s moving into the next stage over the next 5 to 10 years. After that, at some point in time, we we’ll be done with offshore. The only thing you can then do is you can move further; you can move from Poland to India to get additional 20% to 30%. That’s not going to happen in most cases, except for if it is within your company’s GBS set-up. If you have a center in Poland and if you have a center in India, you will be moving within those, but if I tell a company with a center in Poland that I have a business case to move to India, rarely are they going to do it for an additional 20%.

Offshoring is going to end at some point, but there are still big movements going on. Technological impact doesn’t cause things to move too much as most of the robotics automation implementations we see are being done within the existing service models. So, if I have a center in Germany, I put robotics in my center in Germany. If I have a center in Poland, I put it into my center there, I am optimizing the process and I’m not concerned about where it is.

The model and the location selection does not change too much, based on this technology impact. It could change in the future if this gets bigger. It could be that business cases are decided differently in the future but so far I haven’t seen anything in terms of major changes in location selection or decisions on how to place activities.

PM: Since you mentioned automation, what is your estimation for current levels of automation or process automation in shared services? Some years ago, you mentioned in an interview that between 20% and 40% would arrive at a level of robotics where you’d have 90% of the work or more automated.

TB: That was a broad average. Obviously you have different automation levels in different processes and different companies, but we are still at the level where most actually is not automated. In transactional finance you could have a higher level, you could be at 50%, 60% or 70%. Across all levels, you still have a lot of potential to automate more, otherwise we wouldn’t have all these millions of people doing the work. We’ve got almost 5,000,000 people sitting in shared services centers and we’ve got this 1,000,000 still left that can move, so we have got quite a lot of work still being done manually.

"Technological impact doesn’t cause things to move too much as most of the robotics automation implementations we see are being done within the existing service models."

KZ: That makes me even doubt the numbers of McKinsey, that 90% to 95% in the next ten years will be automated. It might depend on the basis that you calculate this percentage from; there might be some organizations which have automated 90% to 95% in ten years, but I doubt that the majority of all organizations will be up in that level in ten years.

TB: I would also doubt that these 5,000,000 jobs completely disappear in the next ten years. I think what always happens is that you eliminate a certain type of activity because of technology advancement. Then, at the same time, you generate one or two new activities. They might be completely different because they have to do with programming development or they might be something which is a neighboring area, so you move out of your existing activity into a slightly different activity.

I don’t think we’re going to move into a situation where we don’t need these people, but they’re going to do different things and these tasks are going to be changing quicker than before and that will also hit the world of shared services and GBS, so we just need to be more agile, more flexible. At least for the foreseeable future. Maybe it’ll end someday. I don’t think it can be faster and faster forever, because at some point we’re not going to be able to cope with that, but for the foreseeable future it’s going to be at an increasing speed. I agree with your estimates; people are not going to be all eliminated in a few years.

"I don’t think we’re going to move into a situation where we don’t need these people, but they’re going to do different things and these tasks are going to be changing quicker than before."

KZ: These are different things. One thing that we see in finance and accounting is that the international rules of how to do accounting are becoming even more complex, which somehow makes automation more difficult or even significantly more difficult. I think these trends of more transparency and more regulation might work against levels of automation.

Secondly, I have no idea if we will really continue on the path we've been following, where more and more things are harmonized on a global, or international, scale – or whether this trend is coming to an end and things will move to a more national level, which then gets into politics. I think the next ten years are not as foreseeable as these studies would lead us to believe us. So, from that point of view, flexibility is definitely required, but I think in directions that we do not even know about yet.

TB: I would second that. I think the only thing we know, is that we really don’t know much! Flexibility or agility is the only thing we can really build up to prepare, otherwise as we look forward, it gets more and more difficult. But I would agree, Kai, if we take your example and break it down to a simple picture: If you used to have 1 person working on the accounting rules and 1 person on the accounting systems and 8 people keying something in ... I think in future the ratio may be completely different. So, instead of 10, we’ll have 8, but not 0, people. Maybe 4 are programming, 3 are looking at rules, 1 is doing instruction handling and the rest is done by robots – a completely different mix. People are moved from keying to either higher level jobs in understanding the rules and translating them into technology, or programming, or exception handling, or overseeing the robots that do the job ... something in those terms. There’s still going to be work there, but not exactly what's there today.

KZ: We are currently building a foundation for the future, to drive more automation, to drive more standardization, moving onto one system, getting more transparency, getting more controls on the process. That’s where all our effort is focused. I believe the type of work we are doing and the way we are doing it will change. It will become more automated. Even though we currently don’t see it, the fundamentals are being built – the house is not yet there, but you get an idea of what the foundation is capable of carrying.


PM: With regards to smaller entities (4th quartile), how should you successfully integrate them in an SSO project so that you maximize expected returns, in terms of cost, performance and headcount efficiency? Do you think that a small entity should be fully integrated?

TB: Lately, I’ve seen a lot of clients set up small accounting centers with 20 or 30 people. They typically have a few hundred million revenues, but it obviously depends a lot on the business. In that space, I think it makes sense to set up a Shared Services.

The trouble that you often have with small volumes is that, if you are international and you want to outsource, and you go through one of those big outsourcing providers – given your small volumes you’re going to be such a small fish for them that they will probably not be really interested in giving you the best deal. You’re not one of their best customers and so, like in any other business, the solution is there but it’s not going to be very effective.

I would say, if you have 20-30 people I would do shared services because I’ve seen those set-ups lately and they work. If you have 10 people altogether, it’s really tricky. If those 10 are then spread out in groups of 2-3, I would outsource them locally, meaning find a local solution that takes over those activities. The problem is that then you need to manage several agreements, but apart from that it’s a good solution.

"The trouble that you often have with small volumes is that, if you are international and you want to outsource and you go through one of those big outsourcing providers, given your small volumes you’re going to be such a small fish."

You will experience some problems, but you can control which ones. If you select the big outsourcer, you have one contract but it’s not going to be very good. If you set yourself up with 10, you won't get any benefits. Now there might be other benefits than cost, like transparency, compliance, consolidated, flexibility ... and also in terms of the environment, there might be a lot of other reasons to do this, but purely from a cost point of view, 10 is probably not going to pay off. So if has to provide cost benefits, with 10 people I would outsource locally.

PM: In these cases, would it be better to eliminate jobs altogether and move them into the shared services center or still keep some FTE’s in the entity?

KZ: My beliefe is that, when you have an organization with large entities, with lots of finance people, and you want to migrate into shared services and for small sales offices, where you have only half a capacity or one capacity in finance, you can’t treat those two entities with the same approach regarding shared services.

Coming with a standard split of activities, with a standard delivery model of providing services, it does not normally work for the small entity. However, you can consider moving even these very small entities into a shared services center, if it fits the strategy of the organization.

We have seen some organizations where it makes sense to somehow cluster those entities in the shared services organization and provide them with a different approach. We are moving towards providing personalized finance and controlling activities to small entities and eliminating more of the finance function in those, compared to the big ones where you can also afford to have a certain split of activities between local and central.

"We have seen in some organizations where it makes sense to somehow cluster those entities in the shared service organization."

So you might start with a holistic approach for small entities and a split approach for large ones, and as you further develop the shared services organization you can move into a more holistic approach for the large ones, as well – but that depends on the development and what the scope looks like.

So I'd repeat that the standard model for big entities does not necessarily work for the small entities in the same way.

TB: Yes, you’ll have to see individually how it works but what I would try to avoid is to leave behind to many fractional FTE’s…

KZ: …correct.

TB: If you leave 0.1 FTE here and 0.2 FTE there, that’s not good for anybody. You’ll get loads of problems with that and you would have to combine those roles into full FTE’s anyway. But in addition, you’ll leave behind many centers and access points to the system that you cannot control properly, and there’s no point in that. Leave behind as little as possible.

PM: Kai, you've presented the concept of “Hybrid Structure” for Shared Services in smaller entities. Have you implemented this model and, if so, what were the results?

KZ: Compared to most other organizations all our entities are small. Considering that, I don’t have really a situation where I would take a significant numbers of FTE’s into one of our shared services. If there was already a concentration of a certain number of accountants, in our model they became a center. Coming from this background, I don’t have the issue of large finance organizations to be migrated into shared services.

"Coming from this reality, I don’t have the issue of large finance organizations to be migrated into shared services."

What we are doing currently, with implementing one global ERP system, is insource previously outsourced activities for very small entities. The reason for that is that for governance purposes, we don’t want to have the outsourced resources operating on our systems, so the consequence is that we have to integrate those activities into our shared services.

What we do have are a lot of non-productive legal entities that still require accounting services, and since there are not many people working for that organization, we do the accounting for them from a single team. To a certain extent we are, therefore, applying this hybrid model, however our organization in general is one that migrates small entities into shared services.

PM: If an entity is experiencing a continuous “hockey-stick effect”, where we start seeing increased performance, headcount and cost efficiency only 6-12 months after transition, what can a situation like this be signaling and what corrective measures would you recommend?

KZ: First of all, there is a local perspective and a company-wide perspective and those two views might not be consistent. Often, the local view is that there are no benefits, everything becomes more difficult and actually gets worse. From a global perspective however, we still might have the view that things have improved significantly.

Secondly, going back to the question, “what's the root cause for not reaching that performance, headcount effect, cost efficiency or the quality aspect?” – you need to work from a continuous improvement perspective in order to sort out these topics and eliminate them. I believe that by properly working together, issues can be eliminated.

The other thing is that it becomes difficult every time criticism turns fundamental, so if the attitude is constructive on both sides you’ll find solutions that move things in the right direction, which is good for the business.

PM: I was asking this question because when I did my case study on a small entity I found that the structure serving this entity was the same as that serving the larger entity. My view was that the structure needed to change and my recommendation was the adoption of a hybrid structure to improve efficiency. For example, different people from the SSC were approaching the same person on the same topic because they were coming from different departments. Also there appeared to be no financial gain locally, but perhaps the benefit was only visible on a higher organizational level. Can a change in the structure influence and drive benefits?

TB: I think there are a few different things on that topic. One is that you obviously try to standardize as much as possible. I think that the same type of service or activity split for smaller units is completely fine because there is no difference in how you do things. If you’re using a tool that is the same for everybody, then it should be similar regardless of whether they’re big or small entities, because it’s the individual activity that fits.

It can be that there are processes that are different for local reasons, and the tools or processes don’t work well. So if it's complicated and inefficient, especially if it’s not effective, then I think there should be changes to the process design.

"I think there are a few different things on that topic. One is that you obviously try to standardize as much as possible and I think that in many cases the same type of service or activity split for smaller entities is completely fine because there is no difference in how you do things."

The other point you make, looking at it from a financial point of view ... I don’t think there is a point in looking at it from a local perspective in terms of “does it make sense for me to change to this other system?”, because if you take that perspective, you’ll never do anything.

We had the same thing at Hackett, when Kai and I were working together. We had a very small payroll solution locally, which was very cheap and then we put in Oracle on a global basis. So, calculating for 30 people at the time, and figuring out how much Oracle would cost per person led to the fact that it was going to cost more than the local solution we had – but that’s not the point. The point is that for the corporation as a whole it made sense. From a local viewpoint I need to now compensate for having to use this other system, but it's not a benefit from an individual business case point of view.

I know that there are clients who do it differently. I’ve had clients who’ve done a business case for every single country, so that is possible but in my view the whole concept is based on the fact that you look at the holistic benefit. From a financial point of view, if it’s really bad for someone to join, then I need to see how I compensate them. The process point you make is a valid one: If I make people’s life miserable because they can’t work with this process or this tool, then I might need to give them something else to do.

"I know that there are clients who do it differently. I’ve had clients who’ve done a business case for every single country, so that is possible but in my view the whole concept is based on the fact that you look at the holistic benefit."

PM: Most shared services projects, to keep complexity low and drive results, adopt a standardized approach to all entities within the group. Is this the best scenario for integrating a small entity?

KZ: As I mentioned before, the important point is the momentum in the beginning, the ability to show benefits quickly in the beginning. You will not win the big prize with the smallest entities. If you can easily integrate them immediately, do it. If it comes with significant resource requirements, I would postpone it and try to adapt the approach.

From my perspective, the 80-20 rule applies in exactly in the same way as for other business decisions, to decisions related to sourcing or changing the sourcing model into a shared services based organization.

TB: I think that, in general, however you do it, you want to move the big volumes. They are the easiest ones to shift and the best for the business case, so smaller entities within the group are normally going to come, at best, at the tail-end, no matter how you do it.

Closing the Interview

PM: You both have published works that are valuable as a reference in the field of shared services. In terms of publications and works in the future, what can we expect?

TB: Well, from my side, I’ve probably written hundreds of articles but I do them when someone asks, it’s not something that I do as my main profession. Then, within Hackett, there is research here and there where I participate.

For the last several months, what I’ve been working on is a huge GBS training that Hackett is producing together with CIMA (Chartered Institute of Management Accountants). We’ve put our heads together with the logic that we have the knowledge on GBS, but we’re not a training company; and CIMA obviously is a training company known for its core qualifications in finance and accounting.

CIMA understands that they need to move into GBS now but that was not their core competency, so we merged our efforts and created a three-layer training program.* Two are now done, and a third one is in production. I spent six months developing and producing the second layer training, which was just finished, and am very happy with the result. It is essentially an e-learning, with lots of animations and pictures so that it’s easier to go through – but it’s a real training with testing, certification and designation, as you'd expect from CIMA. So, that’s what’s coming out of my head as a next product.

PM: This concept is extremely interesting and falls in line with what we were discussing before about preparing and training professionals for this shift in competencies. What are the benefits of these trainings, for the organizations and the professionals?

TB: This is the first GBS training in the global market. It enables individuals to train and develop and ultimately differentiate themselves in the market. For the employers, this training helps guarantee that everybody knows the basics, and the wording, and can utilize the knowledge to the benefit of employers. We have over 100 organizations already utilizing this training.

They use it to convince people to start an initiative, to train project teams and stakeholders, and to improve capabilities in operations. The management level training is taken by GBS Heads and center leads mainly, and enables them to become real experts on every dimension of this service delivery model. And there is a knowledge center that you can keep using after certification, to keep updated on developments.

Kai, Tom, thank you very much for this interview and for sharing your insights and experiences in the field.




Meet the contributors

Pedro Moreira, Shared Services Expert: This interview was part of an on-going series by Pedro Moreira, based on his experience at Siemens’ Shared Services operation, where one of the projects he ran was a migration within the company’s finance group. Moreira focused his Master’s thesis on the impact of Financial Shared Services, with a special focus on how shared services support the migration of smaller entities.

Tom Olavi Bangemann, Senior Vice President, Business Transformation at The Hackett Group‬

Kai Zabel, Head of Shared Services for Accounting, Heraeus Group

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