How to get started

PERFORMANCE
How to get started
be no need for an Innovation Manager when there is no
real strategic goal for significant growth. This means,
the more the Innovation Manager digs into operational
business, the higher the risk to get into conflict with
Marketing / R&D activities. An Innovation Manager,
however, is of particular value when the company
strategy aims for a transformation like a second pillar
of its business. This is the point where Innovation
Management can add value because here the well
established knowledge and expertise within the company
reaches its boundaries.
Following is one successful example from a mid-sized
fast moving consumer business of how to get Innovation
Management initiated.
Establish an internal network
Making an announcement and publishing innovation
newletters is important but by far not sufficient.
Innovation Management lives from a broad acceptance
within an organisation. And this acceptance must
be gained through visibility and involvement. In an
organisation comprised of 15 departments, within eight
months, innovation workshops have been held. The effect
was that the participants felt to be part of the innovation
process. There is a saying that companies do not know
what they know. And there is no “tool” that can solve
this for an organisation. These innovation workshops are
one efficient step to practical knowledge management by
talking about (old and new) ideas and build an actionable
opinion about an idea or concept.
The Profile of an Innovation Manager
It seems more of an advantage, not being too much of
an expert in the field, i.e. to come more as an “outsider”.
The person responsible for Innovation at Villeroy &
Boch AG is an attorney by education. At first sight it
seems better to promote somebody who has grown in a
company mostly through Marketing or R&D and knows
the company inside out. But probably this person already
knows too much to maintain the necessary curiosity
and naivety. The ideal Innovation Manager should
demonstrate an abundance of soft skills and business
skills. (see graph)
Soft skills
Focus, patience, listening
skills, communication
skills at all levels, ability
to deal with apparent
contradictions, authenticity,
represent a role model for
innovation, professional
maturity, natural curiosity,
a high frustration tolerance,
credibility, enthusiasm, an
excellent team player
Bring together creativity and structure
Creativity alone is of no business value. Ideas have to be
developed further in a way a company can deal with it. A
structured innovation process is a necessity.
Business skills
Strategic thinking,
customer mindedness,
customer value
orientation, ability to
maintain an outside
view, a sense to scent
business opportunities
Identify innovation talents
Innovation Management must not be seen as an ivory
tower within the organisation. It is critical to identifiy
talents to multiply innovation efforts. These talents need
to be “nurtured” through shared interest and empathy for
their ideas. Monetary motivation alone may attract the
“wrong” people.
Communication on all levels
Innovation has a lot to do with thinking, trying and
opinion building. It is equally necessary to effectively
communicate to senior management as well as to
individuals at all levels in the organisation. Especially for
innovation in distributed environments- communication
or for that matter ‘knowledge Management’ is especially
necessary.
All in all, the ideal Innovation Manager should live and
breathe the passion for innovation.
The Pre-requisites for successful Innovation
Management
Performance and reward frameworks
Tie up the performance and reward systems to the
goals set for the program. It is not necessary to reward
in monetary terms, as Abraham Maslow and Victor
Vroom depict in their hierarchy of needs and theory of
Motivation respectively- self actualisation facilitated
in terms of involvement of individuals, recognition and
the fact that their inputs are taken seriously are an even
greater and meaningful reward!
Innovation Management must go in-line with a clear
commitment to innovation of Senior Management. If
this is only lived half-heartedly, it does not make sense
to establish an innovation management framework on
the first place itself. Innovation Management is not an
excuse for mediocre Corporate Management. It does not
keep senior management free from making necessary
entrepreneurial decisions that are associated with risk as
well. If strategy and leadership are not right, a new post
for Innovation Management also can not make it right!
Pitfalls of Innovation Management
It is not a one stop shop! Having Innovation Management
28
organised as a department can send misleading signals.
You can not break silos creating yet another silo! It may
be seen as “creativity has its place in the organisation
with no further input necessary”. It rather should be
organised as an open network with no formal reports.
Teams with members from various departments should be
formed as necessary until the project is done.
It is a continuos process.Innovation must not be focused
on the “big idea” only. Innovation has to be managed
in a way that there is a contiuous stream of new ideas.
For the acceptance of Innovation Management, smaller
but rapidly applicable ideas (“low hanging fruit”, quick
wins) are as important as the more ambitious, riskier and
profitable ideas.
smaller and greater ideas but it certainly takes time with
many underlying activities. Thus, particularly mid-sized
companies may lose patience and ultimately lose interest.
It always requires a strong, visionary management to
allow the development of Innovation Management.
Outlook
As mentioned above, too much knowledge in the specific
business field may become contra-productive for the
quality of output of Innovation Management. Probably,
the best way to keep Innovation Managers “sharp” would
be a concept of job rotation. This means, by keeping the
methodical skills in-house, Innovation Managers should
rotate every three years with another business unit.
It is a marriage of structure and creativity! Hence,
Innovation Management cannot “produce” output in
a predictable way. As said, Innovation has to deliver
Authors: Dr. Hans Günter Boldt, Gunjan Bhardwaj
29
PERFORMANCE
2.1REVENUE MANAGEMENT
AT DEUTSCHE POST
concept of Revenue Management is about building up
robust process and system environments, ensuring that
services or products are billed in a complete, correct,
timely and efficient way and cash is collected as fast as
possible.
Executive Summary
Introduction
How to improve corporate profitability in today’s highly
competitive market environment when all opportunities
of internal cost reduction have already been availed?
Revenue Management has proven itself to be a beneficial
concept to drive financial performance especially for
companies with high transaction volumes which are seen
to have leaking revenues to a significant extent. DHL
LOGISTICS, one of the leading providers in logistic
services and part of Deutsche Post World Net, initiated
a global Revenue Management program. The general
Companies with high transaction volumes such as
telecommunications, airlines, logistics and parcel services
face a high complexity of internal business processes
and IT systems. The offer to cash process as a core
process of a company often suffers from this complexity
and lack of transparency. This results in services or
products which have been rendered, not billed in a timely
manner completely or correctly; adversely affecting
the profitability and performance. Considering the fact
that the costs of delivering services have already been
30
Talent Hits A Target No One
Else Can Hit; Genius Hits A
Target No One Else Can See.
Case
Studies
– Arthur Schopenhauer
German Philosopher
incurred, so called “Revenue Leakages” have a direct
negative impact on profit. Revenue Management aims
at recovering those leakages in a sustainable manner.
In conjunction with collecting billed debts as fast as
possible, significant cash-flow increases can be realized.
The concept of Revenue Management was invented by
the telecommunications industry in the early 1990’s.
Caused by the market pressure after deregulation in
various countries, “telcos” had to maximize their profits
but were hardly in the position to expand the customer
base. It was observed that material amounts of cash were
lost due to weaknesses in the processing of service data,
inadequate processes and unreliable IT systems: data
records got lost or were rated with lower tariffs than
agreed. Following the “telcos”, internet service providers
and airlines have also adopted Revenue Management
concepts. Today Revenue Management gains importance
across industries. A recent study of more than 150
German companies from various industries clearly states
the potential:
●
●
●
70% of the companies estimate leakages
up to 2% of yearly revenues;
80% of the companies confirm high benefit
from conducted assessment of sub-processes
and systems of the offer to cash process;
Every 4th company is not satisfied with its
internal level of Revenue Management.
The aforementioned study confirms the trend by stating
that 94% of respondents consider Revenue Management
as business critical. Companies dealing with a high
volume and low margin business simply cannot afford
even small percentages of leaked revenues. The increase
of the effective margin by fixing revenue leakages is
tremendous for those businesses.
31
PERFORMANCE
Downturn of Revenue and Margin Due to Revenue Leakages
10%
All
%
100%
Attempted
Events Opportunity Billable
losses
Events
Potential Revenue Opportunity
Cash Flow
%
9%
Billed
Revenue
1%
Services
not
Correct
billed or
Charge
misbilled Adjustments
Uncollectible Expense
1%
3%
Allowance
Adjustments Write-offs
(Disputes) (Bad Debt)
1%
Fraud
90%
Collectible
Revenue
Typically cross-industry gap: 2 – 15%
Standard services in logistics such as freight forwarding
or warehousing have razor thin margins. Increasing
number of error rates in invoicing results in lost revenues
because the billing process in most companies is manual
and/or non-standardized.
“Especially in the contract logistics every site in every
country is individual and the chances for lost revenues
appear boundless. I am glad that we are in the right
place at the right time to take up the challenge with our
Revenue Management program.”
Andreas Hespe, Senior Vice President and Head of
Revenue Management DHL LOGISTICS.
Revenue Management at DHL LOGISTICS
The multi-phase Revenue Management program used at
DHL LOGISTICS in cooperation with Ernst & Young
started in 2005 with a profound analysis of the current
business situation and the probabilistic assessment of
revenue leakages. The focus was on process evaluation
by walkthroughs of the complete offer to cash process
and by system analysis based on mass data reconciliation.
Key root causes for revenue leakages were identified
through testing historic invoices. A selected sample
of invoices was reconciled against the underlying
agreements and services delivered. During the 5 months
of assessment phase at the Company’s stations worldwide
the gap between the potential and realized revenue was
quantified and subsequently a business case for a global
revenue management program was established.
DHL is the global market leader in international express,
overland transport and air freight. It is also the world’s
number one in ocean freight and contract logistics.
DHL offers a full range of customized solutions - from
express document shipping to supply chain management.
DHL LOGISTICS with its business units DHL Global
Forwarding, providing road, air and ocean freight
forwarding services and DHL Exel Supply Chain as a
full service contract logistics provider is characterized by
very complex and network driven operational processes.
Massive customer base spread across the globe sets
challenging demands on DHL’s service models. The
variety of services ranges from in-plant supply activities
at automotive factories to the management of customers’
web content management systems and sales support. On
one hand, some services such as forwarding activities are
time critical and require for real-time interaction between
stations worldwide making standardized operations key
to success. On the other hand, services like contract
logistics with highly customized supply chain solutions
jeopardize standardization.
In general Revenue Management programs, in a very
short time, can offset the efforts with additional revenues
and hence have a very strong business case.
To leverage the full potential at DHL LOGISTICS, it was
decided to roll-out the process and systems improvements
on a global level. The implementation in top-25 countries
of the Company started in mid program. Continuously
32
In General Revenue
Management Programs,
In A Very Short Time,
Can Offset The Efforts
With Additional Revenues
And Hence Have A Very
Strong Business Case.
33
PERFORMANCE
Typical Offer to Cash Process and Root Causes for Revenue Leakages
Potential
Revenue
•
•
•
•
Service
Definition
Contractual
Arrangement
Incorrect data formats
Inconsistent customer data
Lack of error processing
Incorrect presentation of
customer and conditions
hierarchy
Customer Care
• Interface problems
• Surcharges are not applied
• Errors in capturing service
data
• Manual calculation errors
• Establishment of a
contractual relationship not
ensured
Rating & Billing
2006. During the roll-out, the project team defined and
implemented work streams to address weaknesses in
different stages of the offer to cash process. Besides
local improvements in the countries, global initiatives
were initiated to cover areas of improvement within
the network. Some of the examples of those initiatives
include the description and definition of billing and
documentation procedures, improvement of master data
quality and set-up of information flow standards between
origin and destination stations. The experience gained
during the in-depth study of sub-processes and systems
was taken into account in strategic considerations about
standardization and centralization of parts of the billing
processes. Efficiency aspects like increased manual or
double work were another by-product having a mid- or
long-term profitability potential.
System
Input
Conditions
Management
Revenue
Realized
Capturing Service
Data
Also important is to have sound indicators to assess
continuous improvements. Examples of those Key
Performance Indicators (KPI) include the period of time
to bill and bill to cash, number of unbilled shipments or
number of invoices per FTE. Ideally, every sub-process
of offer to cash should be equipped with a set of KPIs to
identify deviations in the process from target values.
In the DHL project, sustainability was addressed as one
of the key elements of the overall Revenue Management
program. Continuously fine-tuned follow-up activities on
improvement have become a regular feature. Announcing
a Revenue Management organization, DHL LOGISTICS
finally put Revenue Management on the strategic agenda.
Financial returns and internal efficiency are not the only
gains: customers also recognize and appreciate billing
transparency and accuracy.
Revenue Management should not be considered as a oneshot activity. Changes in the service offerings, market or
customer structure or in the IT environment demand an
ongoing monitoring and assessment of possible revenue
leakages. Hence full potential can be unleashed through a
continuous and sustainable program.
Hespe outlines: “Keeping in mind that the LOGISTICS
division generates revenues of approx. 25 billion in 2007,
a sustainable recovery of even a small revenue percentage
results in significant financial benefits.”
After a year of great efforts taken to roll-out the program
towards a robust process framework, benefit and recovery
calculations draw a clear picture. At a business of this
The support of Executive Management is key to success
and therefore a business case outlining the improvements
and subsequent returns is a must.
34
size, program returns in the range of high double digit
million Euro are achievable over the next two years.
Amadou Diallo, CFO DHL LOGISTICS is convinced:
“Revenue Management is real value-added to the
business. We listen to the business needs and possible
problems. The mindset changes from the operations to
top management at all levels of the organization – a great
leverage for DHL LOGISTICS.”
Conclusion
The showcase of DHL LOGISTICS has proven the
valuable concept of Revenue Management. Developed as
a management tool for telecommunication companies, it
turns out today to be one of the most beneficial concepts
to improve the financial performance, especially for
the low margin and high volume industries. We believe
that upcoming years will show considerable progress in
embedding Revenue Management.
Authors: Andreas Bonnard, Matthias Heintke.
35
PERFORMANCE
2.2POST-MERGER
INTEGRATION: FINANCIAL
STATEMENT CLOSE
ASPECT IN ENEL
developing a set of recommendations as well as a design
of a program to support implementation. Slovenske
elektrarne, the target company, was thus able to introduce
a number of improvements into its finance and accounting
processes and get prepared for new requirements.
Information on transaction
In summer 2005, the Italian company Enel S.p.A.
(hereinafter - the Acquirer) was about to complete its
acquisition of Slovenske elektrarne, the Slovak energy
company (hereinafter - the Target). This acquisition was
part of the Acquirer’s strategy to position itself firmly
in the Central and Eastern European markets in its core
business – power generation.
Acquirer is Italy’s largest company in the power sector,
and Europe’s third-largest listed utility by market
capitalization. Listed on the Milan and New York stock
Executive Summary
Post Merger Integration activities are usually commenced
after transactions are made. The Management of Enel
decided to improve capabilities of its acquisition target
in financial reporting before completing an upcoming
transaction. All finance & accounting-related processes
were reviewed in terms of accuracy, timeliness and
compliance with IFRS. The review was followed by
36
The Pretension Is Nothing;
The Performance, Everything.
– Leigh Hunt
English Poet and Essayist
exchanges since 1999, Enel has the largest number of
shareholders of any European company, at some 2.3
million and market capitalization of about EUR 50
billion.
nuclear, hydro and thermal, which guarantees electricity
generation at highly competitive costs.
Integration of financial statement
closing process
On February 17th, 2005, the Government of the Slovak
Republic signed an agreement on the sale of a 66% share
in the Target to Acquirer (rest 34% is owned by the
National Property Fund of the Slovak Republic (“FNM”).
The closing of the transaction took place on April 27th,
2006 for a consideration of about €840 million.
The project goal was to ensure that at the time of
acquisition the Acquirer would be able to easily
consolidate the Target using reliable IFRS financial
statements in a timely manner. The focus of the
multinational project team with Czech, Slovak and Italian
team members was defined as to review, assess and
recommend improvements in the area of accounting and
reporting processes at Target. In total, 51 sub-processes
were identified for review and analysis. These were
categorized into 9 major finance & accounting related
processes.
The transaction marks Acquirer largest international
acquisition of generation capacity. Target is the major
power generating company in Slovakia (83% of the
domestic market) and one of the largest in the Central
and Eastern Europe, with approximately 7,000 Megawatt
capacity. Its well balanced asset portfolio includes
37
FSCP Process Improvement Priorities
Higher importance but
possible to change
Higher importance but
difficult to change
High
G. Enhancing the IFRS
Adoption process
A. IT Performance improvements
F. Accounting
principles &
procedures (How)
D. Competencies review
(Who, what)
Importance
C. Data processing
improvements
E. Accounting processes
set-up & Mgmt (When)
B. IT Governance
Low
H. Other
Low to medium
importance and difficult to
change quickly
Low
Low to medium
importance and possible
to change in short-term
Readiness to change
Project teams worked within the first 5 weeks to
understand the processes that were to be improved. The
analysis was influenced by the fact that the Target’s
operations were spread across the country and significant
part of the information needed had to be gathered from
decentralised locations.
High
The next phase of the project focused on identifying the
redundancies and shortcomings in processes. Based on
identified issues, recommendations for improvement with
special attention to on-time delivery of reliable financial
information were developed.
In early September 2005, the recommendations were
presented to and approved by the Steering Committee.
Specific model for prioritisation of initiatives was
developed in order to enable effective implementation:
The analysis included numerous structured discussions
with key personnel, review of the existing documentation,
assessment of the relevant IT systems and comparison
of the current situation with leading practices. At
the end of the analysis phase, the team reviewed and
described relevant processes including document flows,
responsibilities of involved departments and respectful
timelines.
Recommendations addressed a range of redundancies
related to the processes/procedures execution, allocation
of responsibilities as well as information systems. All of
the recommendations corresponded to a short- or midterm time horizon.
The approach used was based on the current thinking on
process–based improvements in corporate performance.
Left is an illustration of one of the processes of the Target
39
PERFORMANCE
The set of recommendations was discussed with
the management of the Target and a detailed
implementation plan was prepared. Most of the
implementation efforts were then executed by the
Target’s management.
In late December 2005 and January 2006 project
was reviewed to assess progress achieved in several
critical areas.
Conclusion
As a result of the project, Target was able to fulfil
the consolidation requirements of the Acquirer. The
project faced numerous intercultural interactions
(Italian, Slovak and Czech) and required cooperation of teams from various countries. The
project was a good learning experience for the
Acquirer in terms of integration of financial
and accounting processes in event of a merger.
Implementing such a project before the transaction
allowed the Company to save a lot of time and
resources on one hand and on the other hand
considerably reduce the risks of non-compliance
with reporting requirements of the joint company.
Author: Csaba Kiraly
40
41
PERFORMANCE
2.3BEST OPERATIONAL
PRACTICES
production, internal effectiveness and resource utilization.
UC RUSAL started a process of identification of the best
operational management practices, in order to expand it
over all business units.
Introduction
Exploring and expanding best operational
practices for operating units of United
Company RUSAL
United Company RUSAL, the world’s largest producer
of primary aluminium and alumina, was established
in March 2007 following the merger of assets of three
companies: RUSAL, previously the third largest global
aluminium company; SUAL, one of the world’s top
ten players in the aluminium business; and the alumina
assets of Glencore, Switzerland; which had a wide range
of products and a big scope and geographical coverage
of activities. The Company has divisional structure by
groups of products produced: Alumina, Aluminium and
others.
Allocation of operational business units of large global
corporations in different countries often results in lack
of standardization of business processes. Some of the
biggest challenges are the operational, administrative
and technological management. This leads to differences
in the level of effectiveness of different business
units. Those having better practices and processes are
ahead of others in terms of important parameters of
42
Some Of The Biggest
Challenges Are The
Operational, Administrative
And Technological
Management.
United Company RUSAL produces 4 million tons of
aluminium and 11.3 million tons of alumina every year.
It accounts for almost 12% of entire global output of
primary aluminium and 15% of the world’s alumina
production. Spread across 19 countries in 5 continents,
the operations and offices of the Company employ
100,000 people. United Company RUSAL’s assets
include bauxite and nepheline ore mines, alumina
refineries, aluminium smelters, casting business for
alloys production, aluminium foil mills and production
of aluminium packaging materials as well as powergenerating assets. United Company RUSAL is comprised
of 14 aluminium smelters, 10 alumina refineries, 4
bauxite mines and 3 foil mills.
business units of Alumina Division were taken for
analysis: Nikolaev Alumina Refinery and Guinea
Company Refinery, Guinea Republic.
Nikolaev Alumina Refinery (hereinafter - NGZ) situated
in Ukraine is one of the largest alumina producers in
Europe. Commissioned in July 1980, NGZ was producing
1 million tones of alumina annually. Today, the refinery
has expanded its production capacity to 1.4 million
tons per annum. NGZ is supplied with bauxites from
Australia, Brazil, Guyana, Guinea, India and uses Bayer
process technology to refine alumina from bauxites.
The management of the Alumina Company de Guinea
(hereinafter - ACG) was taken over by RUSAL in 2002.
In April 2006, RUSAL and the Government of Guinea
reached an agreement on privatization of the refinery.
The estimated capacity of this refinery is 780,000 tons
In the end of 2006, Alumina division of RUSAL started
the initiative on raising internal effectiveness of its
operating units – Alumina refineries. Two operating
43
PERFORMANCE
of alumina and 2.8 million tons of bauxite per annum.
ACG is one of the largest employers in Guinea with
1,099 people. ACG also uses the Bayer process to refine
alumina from bauxite.
Both plants use the same process technology of alumina
production and their technological and production
processes seemed to be similar. The plants have similar
types of equipment, however the productivity was
observed to be different:
Parameter
Production volume, tons 000
Number of production staff
Tons per production worker
NGZ
1 440
376
3.83
One of the popular productivity indicators of the
operating unit is the output quantity of a product
per production worker. Two main groups of factors
influencing the number of production workers were
identified:
Equipment
Local business
practices
Other
Other
detailed analysis of each job position
of production staff personnel in terms
of regular activities performed.
●
Basic types and number of equipment
units used in each sub-process;
●
Number of production staff for
each of the sub-processes.
As a result of the second phase the following conclusions
were made:
Production
management system
●
There were differences in the set of subprocesses for each plant related to the specifics
of technological approach to production;
●
For several sub-processes, production equipment
used was incomparable in terms of activities
performed to serve that equipment.
To prepare for the following project phase, all differences
related to incomparable processes and sub-processes were
summarised. Before a more detailed analysis on activity
level in next phase, the project team developed the list of
factors seriously influencing the number of production
staff of plants:
Qualification
of personnel
Division Management decided to determine the influence
of factors on the number of production staff, in order to
raise productivity. Another goal was to start the process
of distribution of the leading operational management
practices among different operating business units. In
order to achieve the objectives, a special approach was
developed based on the analysis of the processes, subprocesses and activities performed by production staff of
both plants:
●
●
During the second phase, the project team moved further
with the analysis. The elements of analysis were the
sub-processes of processes which existed on both of the
plants, in order to identify the following elements:
Raw
materials
Local
legislation
analysis of sub-processes for
comparable high level processes;
In order to complete the first phase, the project team
analyzed the production schemes of both plants and
discussed them with the management to verify the
conclusions made on the set of processes for each
plant. Results of the first phase showed that despite the
similarity of the overall approach to technology, there are
differences in the set of processes: one plant had several
processes that did not exist in the second.That allowed to
identify the first differences in the number of production
personnel.
ACG
640
153
4.18
Technology
●
●
Specifics of labour legislation of both the countries,
i.e. requirements to specific job positions that
should exist on the plant in addition to the
operational business needs (for example, special
positions related to job safety and security);
●
Specifics of ecological norms and
requirements both countries;
●
Technical control systems of equipments.
During the final phase, a detailed analysis was made of
activities performed by each job position involved in
high level analysis and comparison of production
processes and areas for each of the plant;
44
comparable sub-processes. The results also included a list
of non-value adding activities and proposed changes for
manual operations with special technological equipment.
improvement for both plants were outlined:
●
Re-allocation of responsibilities between
owners of processes and sub-processes;
●
Broadening of the area of responsibilities
for the production middle-management;
●
Changes to the structure of production divisions
related to centralization of support functions;
●
Changes to the systems of communication
between production and support functions.
●
Changes in Learning and Development
system of personnel.
Based on the results of the final phase. the project team
has identified the following additional factors and
conclusions:
●
Specifics of raw materials required to perform
more activities on one of the plants which
needed additional production personnel;
●
Two main functions of both plants – management
of technology and production – have different
levels of integration. That led to the need of
additional activities related to communication
between personnel of the functions and
resulted in additional staff required;
●
Differences in distribution of activities between
job positions formed different approaches
to the level of qualification required;
●
Learning and Education systems of the
plants were not the same due to different
requirements to job qualifications;
●
Extensive use of outsourcing for support
functions such as cleaning, maintenance and
repairs used on one of the plants resulted
in serious advantages in productivity.
Based on the results of the areas identified, an action plan
was developed, including initiatives related to changes
in management structures of the plants, broadening areas
of responsibilities for middle-management, changes in
operation modes and internal outsourcing of several
support functions. To avoid possible risks of fall in
production, risk factors and possible ways to their
mitigation were determined as well. Specific KPIs were
developed for the managers of both plants in order to
align the action plan with the company’s strategy.
Conclusions
Companies with several business units operating in
different environment (country, region) and using
the same technology often have areas of potential
improvement of productivity. Those areas are related
to specific business practices used in management
of operations within business units. The amount of
productivity reserves can be estimated at about 20%
depending on the set of external and internal factors
involved (see Figure 2).
The results of final analysis of differences in the number
of personnel with respect to influencing factors were as
presented:
Principal differences in processes and used
production equipment
Manual operations used instead of
technology
Differences in the controlling zones and set
of activities performed by personnel
Special set of equipment served separately
in one of the plants
Different approaches to calculations of
workforce reserves
Factors related to differences in
the number of production staff
for similar plants can be found
only after detailed analysis of
the approach to management
of production and support
functions of each plant. In most
cases the analysis should be
performed on an activity level.
In order to receive the best
cost/benefit output ratio
from the described projects,
project teams should consist
of professionals in the area of business process analysis
supported by industry specialists.
Other factors
Potential productivity reserves are also seen within
the processes that were incomparable due to principal
differences in production. However, identification of
those reserves would require much more time resources
than comparative analysis of comparable processes.
Author: Sergey Zaborov
Information from official site of RUSAL company - http://www.rusal.com/index.php?lang=eng
&topic=1&subtopic=204
As a result of the project, the areas for potential
45
PERFORMANCE
2.4 MIGRATION OF HR SERVICES
study, these objectives will be referred to as improving
efficiency and effectiveness.
Due to several reasons not all migration projects and
Shared Service Centers achieve their original objectives.
In this case study, the important role of process
descriptions will be demonstrated. Besides a project
approach and plan, process descriptions are essential for
success. Describing current processes can be a solid basis
for a successful migration project, as it contributes to all
the different stages of such a project. Both the product
of describing the processes, the process descriptions, as
well as describing the processes itself, are beneficial in a
migration project.
Migration of a Multinationals’ HR Services:
The role of detailed process descriptions
Introduction
During recent years, a lot of multinationals have moved
various processes and activities to Shared Service Centers
all over the globe. The objective of this is twofold in most
cases.
Firstly, moving processes and activities to Shared Service
Centers enables companies to lower the costs involved.
Secondly, it improves the quality of the processes by
driving out inefficiencies. In the remainder of this case
This case will show the steps that need to be undertaken
in moving forward from the current state processes to
designing future (to be) processes. As such, it will show
46
A Lot Of Multinationals Have
Moved Various Processes And
Activities To Shared Service
Centers All Over The Globe.
the benefits of describing and documenting processes in a
migration project. To show these benefits, a real life case
of a multinational will be discussed. This multinational
decided to move its HR Services to existing Finance
Shared Service Centers. In this case HR Services includes
all operational processes related to the expatriation of
employees.
as well as the product of process mapping and analysis
is a solid basis for migrating processes and activities to
a Shared Service Center. As such, process descriptions
of both current and future states contribute to making the
migration project a success.
Section 2 provides further background on the decision
of this multinational to migrate HR Services. This will
give insight into the strategy of HR Services as well as
the strategic drivers for migrating HR Services. Section
3 describes the “as is” situation (the current state at the
start of the project) and the approach of the project.
Section 4 will discuss the different steps in the project
of constructing ‘to be’ processes (future state) and
highlights the benefits of each step. After reading this
case study it should be clear to the reader that the process
The executive decision to offshore
The HR Services department of this multinational is
part of the corporate HR structure within the Group.
HR Services provides all services other than personnel
services to all employees (100.000+) of the Group. The
department also manages all organizational activities
regarding expatriation. The processes differ from
post-recruitment on boarding to payroll and from Visa
management and children’s educational assistance
to repatriation. HR services used to deliver all these
Background
47
PERFORMANCE
(remote) services from four different locations with
satellite offices in specific countries. The subject of
the migration, International Mobility services, relates
directly to all Expatriate related activities. The end-toend expatriation process requires intensive interaction
between country HR in both the sending and the
receiving country, the line management in both countries,
and the HR Services teams involved. Next to this HR
services interacts with external providers e.g. movers,
embassies, consulates, real estate agents etc. There are a
lot of laws and regulations that impact the expatriation
process which differ per country and sometimes per
individual case.
Performance Indicators. These KPI’s were created by
the business, because the Shared Service Center would
deliver services to the business and charge the costs to
them.
Finally the migration also facilitated an improvement of
risk management and compliance by introducing tighter
(management-) controls and more robust processes. Non
value adding controls are eliminated.
The as is situation and project approach
The as is situation
In deriving a project approach for migrating processes
and activities to a Shared Services Centers it is key to
take into account the current state of the organization and
the processes as well as the barriers to overcome. At the
time the executive decision to offshore was made, within
HR Services multiple departments in different locations
were performing the same tasks. Little documentation on
processes as well as working procedures were in place
and the level of standardization was low.
In 2006, the HR executive board member of this
multinational created a strategic roadmap for
improvement of all main HR functions including
HR Services. For HR Services the objective was set
to improve both efficiency and effectiveness. HR
Services composed an improvement plan that included
the restructuring and regrouping of a large part of its
activities. As a result of this approach, the project to setup regional HR shared services centers (off-shoring) was
started. In June 2006, it was decided that the International
Mobility activities would migrate as a pilot project to the
two regional Shared Services Centers in Eastern Europe
and South-East Asia.
Important barriers to overcome were motivation and
commitment of existing staff. Their knowledge and
experience was crucial in this project, especially because
there was little documentation about processes and
working procedures.
Strategic drivers for the decision
There were various strategic drivers for off-shoring HR
Services which all boil down to reaching the objective of
an increase in both efficiency and effectiveness.
Firstly, this multinational already had a number of
regional Shared Service Centers for the finance function
around the globe. Adding other functions, including HR,
to these Shared Service Centers enabled the multinational
to make good use of these investments (eg. infrastructure,
office space). This would contribute to the objective of
increasing cost efficiency, without all the investments
needed for building a new Shared Service Center.
Secondly, a Shared Service Center forced a review of the
operating model. The new operating model facilitated
the centralization of functions and promoted scalability.
Centralization of processes provided the opportunity
to standardize processes and to improve knowledge
sharing. The bundling of processes and activities would
create the environment for specialized skills and thereby
encouraging the development of advanced processes.
By doing both, efficiency and effectiveness would be
increased.
Other risks that had to be taken into account were those
related to recruiting and training new people, language
as well as cultural barriers and the integration into the
Finance Shared Service Center.
The project approach
Based on the current status of documentation of processes
and inefficiencies, the approach was chosen to first
document, analyze and start quick-fixing processes. The
second step would be to change them to future state (new
design) and move them to a Shared Service Center.
The approach chosen was to go from as-is to to-be with
one intermediate state. Advantages of an intermediate
state are improved understanding of the processes by
the current staff, the creation of a shared vision on how
to make this all happen, increased awareness of process
logic and steps and, last but not least, the immediate
integration of best practices already in the intermediate
state of process design and implementation.
To overcome the barrier of all knowledge and experience
resting only in the heads of the current employees, a few
employees became change agents for the migration. Their
knowledge and experience was used to map the processes
and train the new employees.
Furthermore, raising a Shared Service Center creates
the opportunity to increase performance by introducing
measured Service Level Agreements and Key
48
Describing the processes enables identifying quick wins
As a result of good communication and understanding
of the need of process descriptions, a very useful
phenomenon was triggered. The interviews and questions
on why current processes were formed like this made the
teams aware of the actual shortcomings of the current
processes. The fact that there was no description for a
number of processes and the fact that knowledge and
experience had to be transferred immediately improved
the readiness to help setting up such a description. In
addition, a list of improvements, the so called quick wins,
was created and prioritized (filtered out and ranked in
accordance to the high level future state design and best
practice). These quick wins were almost all fairly simple
adjustments to the existing processes making them more
logical and closer to best practice.
In order to improve the process performance
controllability and measurability, controls were integrated
in the descriptions of new processes. There was a
strong differentiation between business controls and
process controls. Business controls are content driven
whereas process controls are referring to process quality
parameters (eg. speed, throughput time)
Finally, in the new process design a lot of attention
was given to the connections and interfaces between
headquarters and the Shared Service Centers. These
connections and interfaces were described in detail and
agreed upon. This process of communication and mutual
agreement on the content of the processes was the key to
the success of this project.
The project
Creating an intermediate ‘as is’ to discuss current
processes
The changes brought to the table by the different teams
during the workshops made it clear that a big gap would
exist between as-is and to-be. This would entail two
major challenges:
Introduction
Above, the approach chosen for the project was
explained. In the following sub-section, different steps
in the process from “as is” towards “to be” as well as
their benefits for the migration are described. As noted
earlier, the awareness around processes themselves as
well as the products of process mapping contribute to
the success of the overall project in different stages. This
sub-section describes these steps chronologically and is
meant to show how the process of describing processes as
well as the product (process descriptions) play a role in a
migration project.
Starting up the project creates a shared vision and
common language
As already discussed, the basis for this international
project was a proven methodology. One element of the
project methodology documentation is specific attention
to the logic of the plan. Logic crosses borders and
improves understanding. The fact that a single document
was created and approved by the senior management
created both a shared vision and the use of a common
language. A specific chapter, including analysis and
improvement, was dedicated to the process description
and the roadmap to the future state design. The roadmap
ensured the commitment of the team and understanding
of all the work to be executed. By agreeing on
conventions in describing processes, a common language
regarding processes was created and communicated,
which enabled everybody to interpret the process design
in an identical way. The process descriptions consisted of
a detailed description of process steps, information input
and output, systems used and controls.
1.
The training materials based on the ‘to be’ would
require extensive preparation of the trainers. The
trainers being the current top performers in the
teams would not be able to bridge that gap.
2.
During the shadow and parallel working phase
this gap would create huge alignment issues.
3.
Therefore it was decided that an intermediate
state would be implemented which was close
enough to the ‘as-is’ for people to stay connected
but also structured and improved enough to close
the gap significantly between the intermediate
state and the ‘to-be’ state. In the intermediate
state the identified quick wins were implied.
Designing new processes
In designing new processes the as-is processes were
extremely useful. Putting them all together made it
possible to see the relationships between the processes
so that inefficiencies could easily be identified. Examples
of existing efficiencies were doubling of tasks, lack
of controls and non value adding controls. As there
were doubling of tasks sometimes best practices were
identified regarding certain processes.
In order to make the process performance better
controllable and measurable, controls were integrated
49
PERFORMANCE
in the description of new processes. Regarding controls
there was a differentiation between business controls
and process controls. Business controls are content
driven, process controls are referring to process quality
parameters (eg. speed, throughput time).
Furthermore, in the new process design a lot of attention
was given to the connections and interfaces between the
headquarter and the Shared Service Centers. In some
processes the central headquarters played an active role as
well. The connections and interfaces were well described
and agreed upon.
Training new staff
Another objective of describing the processes, besides
identifying potential improvements, was to document
current work processes in order to produce training
material for future employees. In order to achieve this,
description of the processes was done in a very detailed
manner. All processes were described following the
same conventions, so that as a consequence there was
one ‘language’ in describing the processes. Once all the
processes were documented, workshops were organized
to analyze the processes and its redesign. This way,
doubling of tasks became clear and could be removed.
Best practices were chosen and controls were optimized.
Other benefits
Besides the benefits named above, detailed process
descriptions (including IT systems used) can be beneficial
in creating a new IT architecture and defining required
skill sets for the recruitment of new staff.
Conclusion
With this case study it is intended to show the different
benefits of describing processes in a migration project.
The product of describing processes as well as the
process of describing processes will help such a project
to be successful. The products of describing the
processes are uniform and detailed process descriptions
which serve various purposes in different stages of a
migration project. Firstly, in preparing the descriptions
a shared vision and common language is raised.
Secondly, describing processes make quick wins visible.
Furthermore, they serve as a solid basis to redesign
processes and produce training materials for new staff.
As such they can make an important contribution to
a successful migration of processes and activities to a
Shared Service Center.
Author: Esther de Graaf
50
Markus Heinen is Leader of Business Advisory
Services of E&Y for Germany and Central European
Area
Daniel Gonzalez Mueller is a member of the
Performance Thought Leadership Group of E&Y
Germany
Iris Neundorf-lida coordinates the Performance
Thought Leadership Group of E&Y Austria
Frans Roozen is a Professor in Vrije University of
Amsterdam
Bert Steens is a Professor in Vrije University of
Amsterdam and the Leader of Business Advisory
Services of E&Y in Netherlands
Gunjan Bhardwaj is the coordinator of the
Performance Thought Leadership Group for Central
European Area for E&Y
Hans Guenter-Boldt has held management positions
in R&D, Marketing and Innovation Management
with Procter & Gamble, Kimberly-Clark, Melitta
Haushaltsprodukte and Nanogate AG. He is now
Innovation Director at Deutsche SiSi-Werke GmbH &
Co. Betriebs KG
Andreas Bonnard is a Partner in Business Advisory
Services in the Frankfurt office of E&Y and an expert on
Revenue Management
Matthias Heintke is a Manager in Business Advisory
Services in the Frankfurt office of E&Y
Csaba Kiraly is the coordinator for the Performance
Thought Leadership Group in E&Y for Czech, Slovakia,
Croatia, Slovenia and Hungary
Sergey Zaborov is the coordinator of the Performance
Thought Leadership Group in E&Y for CIS
Esther de Graaf is a Senior Advisor in the Rotterdam
office of E&Y
51
Chief Patron: Markus Heinen
Chief Editor: Bert Steens
Editors: Gunjan Bhardwaj
Sergey Zaborov
Design, Layout & Style: Swati Singh
Arjun Kariyal
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