Establishing a Shared Service Centre

Q. What was Diageo’s overall objective in establishing its SSC in Budapest?

A. The mission objective was to focus on global process and global systems. This would allow the company to have global line of sight on processes and performance. That had not been generally available in the past, due to the multiple mergers and integrations that Diageo had undergone.

Q. What were the factors that the company felt were essential to achieve its mission?

A. Diageo identified five levers of success:

1. Standardized processes – uniform policy, practices and processes that would result in ‘out of the box’ solutions.
2. Size and scale – to maximize SSC efficiency, sufficient throughput was deemed essential.
3. Worldwide compensation structure – site selection would be mostly determined by compensation levels, skill availability and the local work ethic.
4. Leadership buy-in – an SSC implementation is a hugely demanding project and so endorsement/support by the board and senior executives (and ongoing communication with both these groups) was seen as crucial.
5. Dedicated team and resources – a project of this scale could not be achieved without consistent specialist support in areas such as property, recruitment and systems.

Diageo also decided that all five levers must be engaged in order to ensure successful implementation.

Q. What was the backdrop to the SSC implementation?

A. Challenging. The project in itself was demanding, but at the time Diageo was also reorganizing, by merging its beer and spirits divisions. In a sense you could say that we were dealing with a moving, rather than a static, target.

Q. How did you go about choosing the location of the new SSC?

A. Our initial research and risk analysis covered 19 possible locations across 14 countries. Our primary criteria included:

• A low cost base, both in terms of start-up and ongoing running costs.
• A favorable general business environment.
• The availability of suitable staff – particularly with regard to language skills.
• A high level of local and international accessibility with good transport links.
• Attractiveness for international staff.
• A robust regulatory framework.
• The potential to create a ‘step-change’ improvement in the processes run from the center that would be strong enough to benefit the corporation as a whole.

Q. Budapest must obviously have satisfied these criteria, but did it have any particular attractions?

A. In terms of general environment, Budapest was stable both economically and politically, with falling inflation and growing alignment with the EU. It also had a strong appetite for attracting investment (including a variety of incentives) backed by solid Development Agency/Chamber of Commerce support. From the property perspective, there was a good supply of suitable buildings that were readily accessible to both the communications infrastructure and potential staff. Suitably qualified building contractors were locally available for conducting the build-out, and in practice they proved capable of delivering on time and to the required quality.

Q. Were other factors borne out in practice? For example, did you find it easy to recruit staff of the right caliber?

A. Yes. I think because our SSC was a completely new operation and Diageo is a global company the local workforce saw it as an excellent employment opportunity and so we had plenty of strong applicants. The quality of training they were to receive also presented the opportunity for recruits to improve their employment and salary prospects in the longer term. For local managerial recruits, it was an opportunity to have a global role and ultimately move into other markets by assisting the migration of those markets to the SSC.

Q. Which processes did you move to Budapest?

A. A number of areas were considered, but in the end three were selected:

1. Purchase to pay – including all disbursements for direct and indirect materials, plant and maintenance, expenditure for services and taxes, vendor invoice processing, and supplier inquiries.
2. Record to report – maintenance of transaction records, including production of external accounts and reports, monthly accounts and sub ledger reconciliations, and management/control of chart of accounts.
3. Order to Cash – management of customer orders from receipt to delivery to payment.

Q. Were all elements of these processes moved to Budapest?

A. No. For example, within order to cash (my area of responsibility) the order capture for some markets remained in the UK, but the cash collection element moved to Budapest.

Q. What was the timeline for the implementation?

A. The decision that the new SSC would be in Budapest was announced in the spring of 2001. However, due to the ongoing reorganization of business units, the decision to include the order to cash process in the SSC was not taken until the end of November 2001 – some four months before the SSC’s ‘go live’ date. This presented us with something of a challenge, in that we only had until 2 April 2002 to recruit and train order-to-cash personnel, transfer the technology and test the systems. All this had to be completed without any effect on customers or commercial teams.

Q. Nevertheless, you managed it successfully. What did you discover along the way?

A. One of the most crucial things was the importance of master data – it is absolutely critical and the backbone of these processes. We also realized that when migrating processes, the business unit affected must be fully engaged in the transition. This is essential if the new team is to fully understand each stage of the process – and doubly so when you are conducting impact analysis as you move onto new systems.

Ensuring effective knowledge transfer is obviously vital. This requires more than just communicating procedures, as you have to check that there is full understanding. In order to do that you must have sufficient data available to test both this understanding and the underlying systems. Also, some of those transferring their process knowledge will no longer be handling the process in the future, so considerable tact is required in managing the relationship between the new and old process teams.

Having continuous systems support that is maintained after going live makes a huge difference to the efficiency of the migrated process. You have to ensure that the systems support team does not move off to their next job as soon as a process goes live. Even with the best planning, system teething troubles may arise and will need to be resolved quickly if customers and commercial teams are to remain unaffected.

Finally, effective communication – you can’t have enough of it, both internal and external. If communication is well handled, the chances of a smooth implementation are greatly enhanced.

Bio: Linda Pavey Micm, OTC Focus & Solutions Limited – Consultant. Linda has set up her Orders To Cash (OTC) consultancy after spending 20 years with Diageo plc in OTC management roles. Linda’s last post, which she held for over two years, was OTC Process Director at Diageo’s new Business Service Center in Budapest.

Note: The ideas expressed in this summary do not necessarily represent those of Bank of America. Bank of America takes no responsibility for the accuracy or completeness of this information.