Case Study: Creating a Finance Shared Services Centre
When John Henderson embarked on a project to set up a shared services facility for regional finance and accounting in Manila three years ago, he did not expect it to become the 500-strong global centre it is today.
“We must have done something right,” says the Asia Pacific CFO of Regus, a global provider of business centre office space that had revenues of US$1.9 billion in 2011. Finance and accounting processes that used to be done in Belfast and Dallas have been moved to Manila, as have IT services. The cost of the finance function in Asia has fallen from 2.6% of revenues to just about 1.8% today.
In this second part of a three-part interview, Henderson tells CFO Innovation’s Cesar Bacani how Regus farmed out transactional work to free in-country finance teams for value-added tasks. Excerpts:
Tell us about Regus’s decision to create a shared services centre for accounting and finance.
We went through a restructuring in the finance arena starting in Asia about three years ago. Because we were starting to grow, we weren’t getting leverage and efficiency out of our existing finance structure. It was dispersed across multiple markets and small groups and we decided we needed to look at how to create a function that supported a growing business.
So we set up a shared service environment from scratch. That was in Manila, because of cost arbitrage. Our objective was to put as much as possibly we could put into that structure – A/P, A/R, invoicing, customer contract management, treasury, GL, accounting, accruals, provisions, all transactional [functions] are now sitting in Manila.
Our thinking was that we could take it further. But we’ve had some challenges with that. Pretty much informing our structure [now] is to leave strong commercial financial resource in-country [instead of in Manila or in regional headquarters in Hong Kong].
They can cover compliance issues, tax issues, company secretarial, all these sort of things, and at the same time, support the business’s growth initiatives by looking at acquisitions, looking at growth potential, evaluating investment opportunities, looking at how to restructure best to build an efficient platform in that market.
So Manila will remain purely transactional?
It’s not to say we aren’t looking at the opportunity [to optimise]. We’re going through another cycle at the moment to look at whether we’ve done enough in Manila. People in the local market tend to want to double check everything [done by shared services], so you have a certain amount of duplication that we want to get rid of out of business.
How big is the shared services centre today?
It’s become quite of a size, about 500 people now. We started it off just for Asia. Now they’re doing [accounting and finance] globally. We must have done something right.
Our shared service first of all started under my control. I was working very much hands-on with the entire team in Manila. Then once it became clear that it was creating a fairly stable backbone for transaction processing work, Group started to look at it as an opportunity to migrate Group’s back office.
We have a shared service centre in Belfast that’s moved to Manila. And we actually moved a lot of processes from Dallas in the States into Manila. We moved our IT as well. There’s a lot of people there now because they’re covering global processes. We built a platform that [Group] thought was sufficient to build global processes on.
Our Group Financial Controller is directly responsible for our shared service environment. It runs as its own operation. Obviously through inter-company charges, it’s trying to cover its costs and make a small margin. That’s how it operates as a separate business entity.
There must have been a fair bit of angst in the process of rolling out.
There were lots of teething issues as in any major process change. It’s very much more stable and settled now.
We took a lift-and-drop approach. You can either engineer all of your processes and then move processes, or you can move countries. We moved countries.
We assigned a couple of key Australian finance team members into Manila and recruited around them. They understand our business very clearly and they worked very closely to build talent and mentor and to identify strong people and make sure we held on to those people.
We put all of the accounting for Australia there, then market by market, added [the rest of the 16 countries]. But we had to get all of our markets moved on to the same systems platform first, which is an enabler for the process. Obviously you need to be on one consistent platform.
So you weren’t on one systems platform three years ago.
We were on the same software, but on stand-alone installations, and to be honest, on different versions of the software, different updates. It gave us an opportunity to standardise and also to scrub a lot of data.
What about the chart of accounts?
We report all of our management accounting through HFM, which is a Hyperion software platform. But the group actually has a couple of different types of base-ledger software. Asia runs on Sun Accounts, which is not a very big platform, but it works for our purposes at the moment.
We put everybody onto the same version [of Sun Accounts] and onto the web-based version, which is hosted in the UK. That then is mapped into our group standard chart of accounts, which sits in HFM. Global shared services in Manila maintains the mapping.
Maintaining those mapping links is very important and we spend a lot of time reconciling and checking. But this is something that nicely fits into a shared service environment. They can do the reconciliation; they’ve got the manpower and the bandwidth to do it.
But ideally you shouldn’t need to do any mapping?
Ideally, yes. But I have 16 countries, each one has certain local requirements, and some countries have entirely their own standard chart of accounts they want you to follow. So, you’ve got to work with being able to provide for local statutory requirements, at the same time being able to map that back again into Group’s requirement.
You always are going to have some element of mapping systems and [different] charts of accounts [in Asia].
Shared services helped bring down the cost of Regus’s finance function in Asia to less than 2% of revenues. Are there other benefits?
What [finance resource] you can afford to have in a country is quite small. It can mean that you have one person maybe doing accounts payable. If that person is sick or on leave, or leaves the company, all that knowledge goes away as well.
And when you grow, when do you add another person? You might get too much capacity [initially], and then you get too little capacity if you grow further. You can manage that capacity much more efficiently in the shared service environment.
You get shared knowledge, consistency and common messaging, and standardisation of process. You can push through that much more effectively than if you are trying to do it remotely in multiple markets. You’ve got one vehicle to manage and therefore that efficiency drive is much easier to do, than if it’s spread all over the world.
There are also gains from freeing the in-country finance team from transaction work.
With the shared service environment, all of that transaction work has been pulled out [from in-country]. We’re working very hard as a business to try and not bury our stronger finance talent in transactional work.
Get them free of that to focus on real value-add through modelling out acquisitions and other opportunities, looking at our pricing, looking at our forecasting, looking at our strategy and looking at financial structures that work best in that market, and at the same time still being the gate-keeper on things like compliance and cost control. Finance is a little bit of everything.
That’s interesting, that you don’t want to bury your strongest financial talent in transaction work. Does this work the other way round? Would you be recruiting from the 500 or so shared services staff for value-add work?
You’ve got management accountants as well as pure AP/AR, so you’ve got a real mixture of skill sets within the Manila shared service environment. One of the things with a global network like Regus – we have over a hundred countries now, with an enormous network of business centres – is that we’ve got lots of opportunity for people.
So good people coming out through the shared service environment have the opportunity to move into field roles, while people in the field have the opportunity to move around within the global network.
CFO Innovation did a survey of financial and accounting outsourcing in Asia, and 22% of respondents said they’re looking at outsourcing financial planning and analysis. Is that something that Regus is contemplating?
FP&A is definitely something that I would align with the local market [and not in Manila] because each of our market is very different, whether it’s the cost structure of the market, the property industry in that market, just what is an affordable level for our product in the market.
There’s a huge amount of variability market to market. You really want to be doing your planning around conditions of that market, understanding it, understanding what’s happening with the economy, understanding what’s happening with the supply at the market, competition and all these things. I think it’s much easier to get a read on if you’re sitting in the market.
Everybody has a little bit of planning, a little bit of reporting, a little bit of analysis in each sub-region. We’re trying to look to see where we can get better efficiency, and to centralise and standardise as well. You’ve got people with their own way of doing things and as a global business, we want to be much more aligned with a common set of standard operating procedures, reporting and so on.
So the FP&A report would be done in-country or regionally, and then it will be consolidated into a report?
If we’re talking about financial results themselves, they’ll all consolidated through Sun Accounts and then mapped into HFM. Both Sun and HFM are capable of producing various business reports that are useful for the business community.
If you’re talking about planning per se, a lot of our planning is off-line at the moment. Everybody has their own little planning models built in Excel. We have Excel files that are automatically linked into our database, they draw live data and up-to-date data in.
But of course, Excel is Excel. It’s fraught with formula errors and override errors and you name it, you can have lots of issues with those. So we are looking to see how we can improve that and standardise our planning. There’s a global initiative that’s looking at this.
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