Target operating model. Exploring the what and how in business services design and delivery

Transcription

1 Target operating model Exploring the what and how in business services design and delivery An FDE round table produced In association with: An exclusive report featuring executive insight from Bayer, Beiersdorf, Genpact, McKinsey & Company, Metro Group, Merck, Novartis and ThyssenKrupp.

2 The following report was created from the insights shared at the Q FDE round table held at Frankfurt Airport s Hilton hotel. Participants consisted of business leaders from the DACH region. Led by Tiger Tyagarajan, president and CEO of Genpact, and moderated by Dr Patrick Beitel, partner at McKinsey & Company. Companies present included Bayer, Beiersdorf, Genpact, Merck, Metro, Novartis and ThyssenKrupp. I hope you find the following report, which documents key discussion points from the meeting, useful as you design and develop your own target operating model. Steve Dunkerley, associate editor, FDE Reporting by Jack Wittels Tiger Tyagarajan co-host president and CEO, Genpact Dr Patrick Beitel moderator partner, McKinsey & Company Jörg Bermüller, head of cash and risk management, Merck Kamila Grembowicz head of project office, Novartis Service Centre Switzerland, Novartis Pharma Dr Frank Claassen group head of finance standardisation and transparency, Beiersdorf Ahmed Mazhari SVP global sales and client relationships, Genpact Javier Sánchez y Garcia CEO, Global business services, ThyssenKrupp Group Udo Rahenbrock SVP global accounting operations, Bayer Stephan Göppert VP Germany, Genpact Dr Oliver Wolff managing director, Metro Services, Metro Group 14 Finance Director Europe

3 Opening remark Co-host: Tiger Tyagarajan: We are living at a time when volatility and uncertainties are a given, and finance directors are finding it more difficult to predict revenue. Global multinationals around the world, irrespective of where they are headquartered, are looking in the mirror and wondering what they should change, and how they should change their target operating model. When developing a new operating model for support services, two key considerations are what services to include and the extent to which services should be delivered by a third party in either an outsourcing or hybrid arrangement. I am keen to find out the appetite for outsourced and hybrid delivery within Germany and its neighbouring countries as well as the extent to which global business services (GBS) models are providing value, particularly when data and cross-functional collaboration can be leveraged to generate business impact. Current road maps Dr Patrick Beitel: Let s start off with an introduction to where you are on your shared services journey so far. Kamila Grembowicz: Our journey began ten years ago with the outsourcing of IT and then slowly moved to finance. Now, our total outsourcing and offshoring is around 10,000 people probably more, in fact, because there are some local deals. They are spread across a range of functions, including HR, commercial and medical support, near business and finance (which have people in various places). For us, it s not all about cost anymore. We re also looking for the right location, one that works for our business centre, and houses the best and right people for the job. Where, for example, do you find 700 people who will do medical research? Javier Sánchez y Garcia: Our history started four years ago when we were hit quite hard by the recession. At the time, some business areas were working with shared services especially in finance and HR while others did not. My task was to concentrate them into one location. We had to choose Essen, Germany, in order to avoid layoffs. The operation delivered 20% savings and created a platform for our evolution. We are now running through a restructuring programme and developing a new target model. Currently, Bayer is in the middle of a transformation in the area of accounting. Udo Rahenbrock Dr Oliver Wolff: Metro has quite a long history of shared services, only we always called it bundling (though it s pretty much the same). We have bundled IT operating out of Bucharest and Bangalore, and we have third party BPO providers for our IT key issues. Finance Director Europe 15

4 Caption Oliver copy Wolff here of caption Metro Group copy and here Genpact s caption Ahmed Mazhari. Dr Frank Claassen of Beiersdorf. We re also still running one SSC in Germany, and run a similar operation in Poland, though it s a bigger centre there. Udo Rahenbrock: Bayer has been working with a shared services model for more than 13 years and accounting was one of the functions we began with. At this time, we created the IT services within Bayer, which now comprises approximately people. We also had, in the pure service functions (non-it), shared services in Germany and Spain, with 700 people for accounting and around 400 performing HR activities in Germany. Currently, we are in the middle of a transformation in the area of accounting, at the end of which we will have about 70% around 1,500 accounting employees working in shared services. However, the pure financial and functional controlling will remain separate and within the business. As part of this transformation, we are building up shared services in the Philippines and Poland, and have been through the necessary processes with EU representatives. Dr Frank Claassen: Compared with the giants around the table, we are very We have plans to go hybrid and have started planning accounting services outside Europe. Dr Frank Classen small. Ten years ago we started our journey, mostly with IT. Now we have global shared services and are starting to outsource certain parts of IT, with Indian partners customising things. Our European accounting also began Jörg Bermüller of Merck. in captive shared services around the same time. The question was always how to go global, and we always came to the conclusion that we lacked critical mass outside Europe. At the moment, our captive shared services are in Hamburg in Germany, but we have plans to go hybrid, and have started planning accounting services outside Europe with an external partner, operating in Latin American countries. Jörg Bermüller: Merck has a mature shared services organisation in Germany and is serving its German subsidiaries with IT and accounting services. In 2007, Merck established a European SSC for accounting and some years later in the US for North America. We have further plans for Asia and Latin America, but first of all the basic groundwork has to be provided by the homogeneous ERP roll-out; one system of globally standardised processes to get more efficiency afterwards. Today, I m interested in future standardised processing trends; from creating a payment file in the accounting system, and the IT service around it, to the execution of the payment itself in the external world. The same applies for the incoming payments. 16 Finance Director Europe

5 The how : decisions on delivery Dr Patrick Beitel Tell us about the thought process and conversations you had with your management team that led you to develop either a captive, outsourced or hybrid operating model. Udo Rahenbrock, Bayer: From the beginning, we wanted a clear, functional perspective and therefore made a clear decision about whether to select BPO (business process outsourcing), a hybrid model or a captive model, and opted for the latter for the accounting function. The question we asked ourselves was whether we had the capability to perform the shared services in-house and we do. We had been performing shared services in Europe for ten years when we decided to expand the concept worldwide, taking shared services to the next level. Likewise, we had experience in managing transitions and could free up people throughout the entire global organisation to run these Udo Rahenbrock of Bayer. migration projects. Additionally having business operations in countries such as the Philippines or India, preferred locations for shared services, meant that we could envisage building up alongside, and with the support of, our existing structures. Of course, if you don t have these existing structures in a preferred location, then this build-up is a lot more complicated. Likewise, if you don t have experience in shared services or in transition management then you would probably come to the conclusion to work with someone who s done it many times in order to speed up the learning curve. The hybrid option Kamila Grembowicz: We felt hybrid was the best option for us. At first we wanted to keep a number of processes in-house. Our hearts and feelings supported a captive, but when we looked at the numbers, it didn t make sense. How can you build a centre with a few hundred people without strong service brand, experience and skills in the organisation? We had great operational teams, but they ve never done transitional projects before. So our mentality changed from where to build our captive to the model Tiger was discussing. We do still have Swiss services and they will never go away but we now work with various partners outside Switzerland. For example, in finance, the captive and outsourcing parts of the business work as one final scheme. There s the finance transformation programme, with process owners that I created before, with global standards and systems. It s working well together as a hybrid. Sometimes you don t know who s the Hybrid delivery in action Diageo and Genpact are engaged in a hybrid shared services centre model whereby employees from both companies work together at the same site in Bogotá, Colombia. The centre employs 150 trained people at the present time servicing Diageo and other CPG companies. Genpact and Diageo are partnering to optimise Diageo s comprehensive finance and accounting operations which to date have been managed across multiple Latin American countries and consolidating these into a new facility in Bogotá. This centre will serve Diageo s large and growing Latin American businesses, and is a sign of the confidence in the future and potential that Colombia represents for the company. Kamila Grembowicz of Novartis. Novartis employee if you don t look at the badge. It took us some years, and I agree with Udo that every company needs to find their own model. It s a matter of migrating one function first and then the rest. IT, HR, commercial operations they all follow. Stephan Göppert: We ve found that for any company headquartered in a large economy like Germany, capable of starting a shared services journey, a local captive is a good option. This means that social costs can be minimised. Besides, people typically don t like jobs moving away from where they have been based. The day a company decides that they want to tap global delivery then a hybrid model can be most effective. For example, when a company is growing its business in Latin America and lacks certain capabilities, they may need a partner to support them from a back office perspective. Or they may want to move their back office to Manila, but don t know Manila. I also have found that companies running their own captive may like the way we run Asia or Latin America and want to leverage our capabilities but don t want to hand over their operations. So it becomes a new form of a hybrid where you inject talent, methodologies and frameworks. You almost run it as one platform, supported by a BPO provider as partner. It s a model that s evolving and changing according to specific situation or needs. Javier Sánchez y Garcia: The expression the operating units use to tell us hands off in our company is Finance Director Europe 17

6 ThyssenKrupp Group s Javier Sánchez y Garcia. The expression our operating units use to tell us hands off in our company is business critical. Javier Sánchez y Garcia business critical. When we designed our target operating model we asked ourselves whether it s better to constantly restart again and again, taking some function which is not as business critical as some people think (like accounts payable and receivable), Hybrid scenarios A third party can play a key role in supporting a client shared services organisation (SSO) by: delivering services for the client in specific geographic markets moving support services offshore for the client and then delivering the services through a provider from offshore delivering specific processes for the client that may require a high level of expertise where the organisation might not have the required capability at scale delivering commodity type transactional process for the client (while the client keeps control of higher value processes) embedding its staff into the client s operations embedding the client s staff into its operations. or, if we should establish a target model that has an end point within three to four years. In my opinion, we should be clear about the target model because four years ago we started with waves which is similar to phases but we never left the first wave. People tried to convince us that the first wave wasn t complete. Udo Rahenbrock: Waves can be spread out over the time you need to achieve the final targeted organisation. You can t just turn everything upside down in one year. I wouldn t, however, consider doing the first wave, and then change strategy and decide to adopt a hybrid or BPO model. I think you need to show people the final goal if you move targets, you risk losing the trust of employees and create nervousness, which can be critical to the success of the function. While you use the term business critical, we tend to talk about leading or best practices. In functional areas such as accounting, defining these business critical processes is relatively easy and therefore discussions are generally less heated when establishing the scope of what can be shifted into the shared service organisation. However, when you get into fields such as controlling, for example, what is considered as business-critical, it is more open to interpretation and can result in lengthy discussions. The question is how to define and clarify these business critical processes internally and above all how to convince people it s the right thing. Patrick Beitel (left) of McKinsey & Company and Genpact s Stephan Göppert. 18 Finance Director Europe

7 The what : defining process scope Dr Patrick Beitel Have you got a cross-functional target model you re working towards? Kamila Grembowicz: We do. If you are a good finance analyst you can also be a good HR analyst. One key consideration is the extent to which a process is considered transactional, tactical or strategic. Dr Frank Claassen: Not all functions should migrate to the shared services centre (SSC). For example, why move the supply chain function to SSC; just keep it close to the business line function, maybe even as a separate legal entity, but in-house. Kamila Grembowicz: We don t even call it shared services. For example, with indirect procurement, we decide based on type of work. Transactional sourcing is done with the partner, tactically it s a mixture, and the strategic part stays fully internal; we also look at proximity to the business. Udo Rahenbrock: In the end, I think it s always the same discussion. First, you ask whether certain activities can be bundled in a shared service centre on a regional or global level. The culture of the company is really important in deciding how close the functions are to the business; some would regard a function as integral, while others would see it as purely administrative. Genpact s Ahmed Mazhari highlights ten critical levers for a future finance operating model. Source: Genpact Where you need clarity is in what the company believes should be a service and what should be kept in-house, but reaching such conclusions can be pretty complicated. You can t just take a blank sheet of paper and then say ok, let s draw a picture. You need to evolve the concept over time and prove it s going to work. Tiger Tyagarajan: The focus for many companies is now global business services (GBS), where multiple functions such as finance, IT, HR and procurement come together as a unified global operating entity. GBS serves as the cornerstone for any target operating model and can help firms improve existing sourcing structures including captive, outsourced or hybrid models. Decoupling business functions industrialises operations across the process chain and can improve scalability, lower costs, increase control, and provide a better-quality experience for the end client. If GBS is done well, organisations can enable better decisions, pursue growth and adapt to market contractions more nimbly. Dr Frank Claassen: An end-to-end approach to process is becoming increasingly important to Beiersdorf. Our captive operation has so far focused on improving efficiency and not the end-toend process. Going forward, our approach will be focused on effectiveness and the value that can be achieved from greater visibility and cross collaboration. Ahmed Mazhari: Further to Tiger s point about global business services. In developing an operating model, one must consider the corporate culture and strategic objectives of the company, as every one is unique. Also, existing operations have varying levels of maturity and specific processes may need to be closer to the business than others. When considering the optimum finance operating model, Genpact has identified ten critical levers of effectiveness (see image, left) that span the four broad categories of F&A operations: the corporate centre, planning and managing the business, operations, and speciality services such as treasury, tax, reporting and audits. Our clients find that this approach reduces cost, increases productivity and helps drive success. Summary Dr Patrick Beitel: Every company needs to define its own model what s best for the company, considering its specific background. It s important to have a clear vision of where to go, and this vision must be aligned and communicated clearly. Often a step-by-step approach works best in order to get internal alignment. Moreover, it s important to be clear about the benefits, cost savings, consider outcome and ownership responsibilities, and ensure that you ve built up your people specifically in a service centre. We discussed how you do this; where you can benefit as a worldwide company from existing global structures, and where you seek synergies across functions and how you don t want to lose benefits from having said something in one function you ve mentioned in another. We discussed the relationship between business critical functions and SSCs, along with allowing such centres to make their own contributions and have some agency. Also, we considered the merits of standardising processes across businesses and effective people management. Having a global perspective is pivotal. Driving management change and culture is a multiyear journey. Finance Director Europe 19

8 GeneratinG $22 billion in Global impact We help transform and run business processes and operations. Superior process science + Lean Six Sigma, over 4500 processes + Advanced analytics and targeted IT = US$22 billion of business impact for 700 enterprises globally. generating impact SM 2013 Genpact. $22 billion is a cumulative figure since 2006.