The current recession has presented many challenges, but it also creates myriad opportunities for shared services teams.

 
By Phil Searle
 
Recently, FAO Today caught up with Jim Ward, vice president Shared Services International at Eaton, to talk about Eaton’s Shared Services Center in Glasgow, Scotland, and more specifically about how the current recession has presented both challenges and opportunities for the Shared Services team.
 
FAOT: What is the background of Eaton, and what is the nature and history of its shared services operations?
 
Jim Ward: Eaton is a global power manufacturing company and has more than 70,000 employees worldwide, including 15,000 employees in Europe, with more than 200 manufacturing sites in 30 different countries. We sell products in 130 countries. In 2008 Eaton had global sales of $15.4 billion.
 
Eaton’s Shared Services Center in Glasgow, Scotland, employs 80 finance staff and 20 IT staff. It operates with one Oracle database covering the globe from Mexico to New Zealand. The center supports 386 ledgers across 42 countries. The center also supports multiple language requirements including most European languages plus others including Mandarin, Cantonese, Arabic, Urdu and Hindi.
Services provided from the center include:
 
Finance Services
• Bank, AP, AR (including credit), FA (shared), net worth and some intercompany;
• Statutory preparation;
• Budgets (optional);
• New implementations and divestitures (integration on to financial system);
• Interfaces to legacy systems; e.g. payroll, manufacturing etc.;
• Transmission of results to Corporate; and
• Cash-flow enhancement
 
IT Services 
• European network management;
• Development of customizations—business requirements and statutory;
• Unix support for Europe (optional);
• Change management;
• Production support (interfaces); and
• Database administration (finance, manufacturing databases)
 
FAOT: What was the main driver for setting up shared services at Eaton, and how has this changed over time and during the current recession?
 
JW: Back in 1995 Eaton took a look at its administrative cost base and at a percentage of sales. This showed that we were too high compared to our peers and best in class (as classified by The Hackett Group). A typical Eaton business unit has turnover in the range of $20 million to $50 million. The opportunity for economies of scale through shared services was real and achievable.
 
There was no single accounting platform throughout the company. In addition, Y2K was approaching, and there would have been a huge cost to upgrade approximately 30 disparate accounting systems. We also needed a scalable platform to support growth and M&A activity.
 
As a result, we moved forward with shared services, and the Glasgow SSC was established in 1997.
 
Over time, and also as a response to the current recession, we have seen a number of changes, including:
• Increased focused on shared services as a control hub;
• Internal audit;
• External audit;
• Sarbanes-Oxley compliance;
• Increased focus on cash flow;
• SSC is pivotal to control of cash and plays a key role linking to supply chain management (SCM) and credit functions to partner for cash flow enhancement;
• Ability to data mine to maximize spend, terms, discount, etc.; and
• Renewed evaluation of additional services shared services can provide cost-effectively.
 
FAOT: In your view, how can effective shared services assist companies during tough economic times, and is there a difference between using shared services in a downturn and turning to SSC when times are better?
 
JW: As well as what I have covered in the answer to the second question, Shared Services has been able to add even greater value during these current recessionary times through a range of ongoing initiatives, some of which were already in play but have been even more important recently.
For example, we have been able to:
• Further eliminate, streamline and rationalize the transaction base;
• Automate the transaction base;
• Data mine for business benefit, e.g. cash flow, profit improvement (discount, bank
charges);
• Leverage Eaton Lean Six Sigma, value stream mapping and business process improvement;
• Facilitate finance function efficiency and effectiveness;
• Leverage standard processes;
• Reduce functional costs;
• Expand into other functions and across existing functions;
• Expand into new geographies; and
• Train other functional and operational staff in Lean methodology.
 
FAOT: Has money for specific investments in Shared Services been tougher to come by recently (e.g. for training, business process improvement projects or for new technology enablement)? How have you worked around this?
 
JW: Money has remained available for key internal control points, to fund operational synergies, to integrate acquisitions or migrate our businesses to the standard shared service platform and for business process improvement events, especially where an attractive payback can be demonstrated.
 
On the flip side of this, we have needed to work with and around a number of constraints recently. These have included minimizing discretionary spend (e.g. on external consultants) and generating internal productivity savings of 12 percent per annum through Business Process Improvement (BPI) deployments.
 
FAOT: In what ways can shared services improve working capital? Can you provide some specific examples?
 
JW: Shared services can be a very powerful enabler for working capital improvement. Some specifics around Receivables and Payables, key components of working capital, include:
 
Days Sales Outstanding (DSO)
• Leveraging the sales and credit functions to enhance collection activities;
• Setting collection targets for all parts of the business; and
• Swift escalation to executive leadership of customers with payment difficulties.
 
Days Payables Outstanding (DPO)
• Leveraging supply chain management via data mining to:
• Extend vendor terms and
• Rationalize vendor footprint.
• Consolidating spend and levering price reductions;
• Taking greater discount from vendors;
• Review payment frequencies; and
• Deploying a joint balanced scorecard between SSC and SCM to make end-to-end process improvements and improvements in business results.
 
FAOT: Are there particular concerns that shared services practitioners should be aware of in times of recession that might be unique to shared services teams?
 
JW: During recessionary times shared services teams need to be cognizant of and alert to:
• Not investing in process improvement and staff development;
• Failing to execute, e.g.
• Synergies,
• Productivity,
• Integration,
• Automation, and
• Capacity and capability;
• Missing opportunities for growing the shared service franchise; and
• Staff morale and knowledge management retention.
 
FAOT: What’s in the future for shared services at Eaton?
 
JW: We intend to continue to build on the success we have achieved over the last more than a decade. Specifically, we will:
• Continue to invest in our superb staff;
• Enhance cash flow;
• Support growth of our shared services in Asia;
• Integrate all businesses on to a shared service platform;
• Enhance internal controls for the corporation via financial platform deployment;
• Build a global governance framework for the shared services family;
• Accelerate cycle times of all major SSC processes;
• Continue our journey to world-class processes from an effectiveness perspective;
• Build volume independent processes; and
• Increase business partnering and value chain progression.
 
 
Phil Searle is a member of the Advisory Board for the Shared Services and Outsourcing Network and SharedXpertise. He is a founder and managing director of Chazey Partners.