Shared Services Feasibility Study Identifies Potential Savings for Coca-Cola

With an annual turnover of more than US$9bn, Coca-Cola Hellenic Bottling Company (CCH) is one of the largest bottlers of non-alcoholic beverages in Europe and the world. The Athens-based company was formed in August 2000 from the merger of Hellenic Bottling Company and Coca-Cola Beverages. Today, CCH operates in 28 countries spanning east to west from eastern Russia to the Republic of Ireland and north to south from Estonia to Nigeria.

In the spring of 2008, CCH leaders approached European representatives of Deloitte Consulting to help overcome several challenges. Margins were still near double-digit levels, but they were falling, and the company had to reverse the slide. Furthermore, CCH was in the midst of an SAP implementation project that promised to create common systems for human resources, finance, procurement, and other functions across all its geographic locations. It had become painfully obvious that this wasn’t just an information technology project and that the company would need to examine and change its business processes to be successful.

Before CCH could do anything, it needed a better understanding of how the work was currently organised, how well processes were being performed, and where interdependencies existed. Ultimately, executives wanted baseline performance levels for all the countries where the company had operations.

As part of the initiative, Deloitte advised CCH leaders to conduct a process efficiency analysis to examine the feasibility of moving to a shared services model for the finance and human resources operations. The potential benefit of performing such activities in a shared services centre (SSC) would come from economies of scale and the resultant cost savings. A shared services approach could also improve the quality of work by establishing standard processes and centres of expertise. While such a model had inherent appeal, management recognised the challenge of implementing a shared services organisation in a company that must comply with labor regulations and financial reporting rules in 28 different countries. The tax implications of centralising such functions would need to be considered as well.

Figure 1: CCH Benchmarked its Operations in 22 Countries

Project Kickoff

The feasibility study spanned nine steps and four distinct phases. Data collection and reporting occupied the majority of the time between the formal kickoff meeting in June 2008 and the business case presentation in early October. During the initial phases, Deloitte advisors spent time with key stakeholders to get a clear understanding of their expectations. The close relationship among Deloitte, CCH’s top managers, and their executive sponsors was critical to the success of the project. It helped keep project participants focused on collecting the necessary data within the tight time frame. In addition to the business case for moving to a shared services structure, the final report to CCH would include an assessment of how prepared the outlying arms of the organisation were to make the suggested changes.

Figure 2: CCH Project Phases

The team’s first focus was to limit the scope of the project to countries for which quality data could be obtained to perform the analysis. After settling on 22 countries and a Russian subsidiary, the team scaled back the number of business processes for which it would collect data. Deloitte decided to use APQC’s Open Standards Benchmarking Collaborative (OSBC) tool to conduct the in-depth assessment of 11 processes within human resources and finance. APQC’s data set provided flexibility in analysing and reporting data so that CCH could evaluate relative performance for each country and at the enterprise level. It would also allow detailed analysis of the specific processes being considered for consolidation.

The project required more than 350 discrete benchmarking surveys to be completed. In exchange for CCH providing its performance information, APQC did not charge the company for access to the benchmark data. At a low-end estimated value of US$20,000 for each process area, the cost of such a service and benchmarks could have easily exceeded US$1m.

To collect and validate the data, a six-person project team from Deloitte located in Athens worked with assigned CCH resources, or ‘data collectors’, in the finance and human resources (HR) functions of each country. These data collectors were typically the leaders of the HR or finance departments where the data was being acquired.

The data collectors served as primary communication points, appointed people to collect the data, and took responsibility for making sure everything was accomplished within the deadlines. They were also responsible for finding answers to a variety of questions about metrics, definitions, and calculations that arose during the data collection phase.

Figure 3: CCH HR and Finance Benchmarking Process

Many Questions Asked

Before sending out any survey forms, the central project team reviewed APQC’s questionnaires for each process area. The team checked with APQC to make sure it had a clear understanding of the data requirements and definitions. The data collection team added CCH-specific instructions to the Excel-based questionnaires to make it easier for the data collectors to gather the requested information. The company’s primary language is English, so it managed to avoid most translation issues for this project. To further refine the definitions, the team piloted the questionnaires in two countries, one for human resources and one for finance.

Such preparations helped speed the data collection effort, but a large number of questions still arose during the project. These questions were tracked and reported in a ‘question log’. The central team circulated the answers daily to all the data collectors. The answers were also posted online so that participants could check the log to see whether their questions had already been addressed.

“The main discussions and questions that we had revolved around the fact that we are comparing processes. It can be difficult for people to get in their mind that processes can be managed by people who might not be classified within a particular function,” says Karel Massop of Deloitte Consulting’s human capital advisory services in the Netherlands. “Talking about the recruitment process, for example, many business managers without HR titles are heavily involved. People like to think in boxes, that all HR work is done by HR people. So it took us some time to help them to understand that the people executing the business processes and the related costs are not limited to a particular department.”

After the country representatives turned in the questionnaires, the Deloitte project team reviewed them for accuracy and any obvious discrepancies. This provided a first level of validation. Next, the questionnaires were forwarded to APQC to be validated by benchmarking experts specialising in specific functional and process data. Any outliers were returned to the data collectors for correction or clarification.

The more ambitious the strategic decisions that emerge from a benchmarking project are – such as a move from a decentralised organisation to a more centralised structure – the more important rigorous stakeholder management and data collection and validation procedures become. As enlightening as such information can sometimes be, it can also be threatening and difficult for managers to believe, which can prompt them to question the source of the data.

“There’s always the risk when you present the results of such a study that it will not be what managers expect,” Massop notes. “When you compare a company to best-in-class or world-class, it can be very shocking. If you cannot explain how you collected your data and how the data was validated, no one will believe the conclusions. Explaining the reliability factor and validation process gives people a comfort feeling and helps them trust the results.”

APQC generated summary reports at the process, business-unit, and corporate levels. These reports included top, median, and bottom quartile performance, as well as gap analysis and world-class benchmarks from the OSBC database. APQC’s reports offered detailed country-by-country comparisons for resource allocation, cost, productivity, and process performance. For the first time, because of the standard process definitions, the company could directly compare how, for example, its Romanian and Lithuanian operations manage their recruitment functions.

Using the benchmark information provided by APQC, Deloitte advisors developed three potential scenarios, including moving work from high-wage to low-wage countries and the consolidation of transactional process work within a centralised shared services model. The scenarios were prepared using two criteria:

1. Maximum possible savings regardless of any preconditions.
2. Impact on the company’s SAP rollout.

Each of the three potential implementation scenarios was accompanied by a detailed business case and risk assessment including projected savings, initial investment, return on investment (ROI), net present value, and estimated payback period. Deloitte then presented these scenarios to the company’s board of directors for consideration. The board of directors selected the scenario that presented the biggest chance of success for the shared services model (which involves changing the process and moving people) and the lowest risks for the ongoing SAP implementation.

Aligning with the SAP rollout was the most important criterion for selecting and prioritising countries to enter the shared services model. The current SAP implementation already means change in terms of processes, and the process changes associated with centralisation might even improve the SAP rollout. For this reason, the countries that will be moved to the shared services centre are being prioritised based on their relative levels of SAP implementation. The idea is to establish a baseline for SAP in each country (WAVE 1 implementation), both for finance and HR, which will also include some process improvement, and then move that country to the shared services centre, upgrade the SAP implementation, and implement the shared services processes (WAVE 2). The board was very clear that the shared services scenario had to be in line with SAP implementation – or, even better, support it – and could not pose any risk to the SAP rollout. The business case showed that this scenario could result in project savings of over US$30m.

Even before the project was completed and the potential savings were revealed by the benchmark reports, the data collection exercise made people within CCH more aware of what they were doing and how they were doing it. Comparing performance by country created an atmosphere of competition that prompted lower-performing countries to launch improvement initiatives. A better understanding of the business processes and everyone involved improved communication and reduced transaction times. After analysing the processes, the countries implemented immediate improvements where it was obvious that a process could be more efficient or less time-consuming. In effect, the process of gathering data and benchmarking performance provided both the understanding and the argument for the changes that the company’s executives would eventually pursue.

Figure 4: CCH Shared Services Cost and Benefit Calculation Framework