Shared, Services, Location, Companies, People

Servicing enterprises: the case for shared services

01 Sep 2003 | (Interview)

Roel Spee is a Director with PricewaterhouseCoopers-Plant Location International (PwC-PLI), with 14 years’ location consulting experience. He has assisted a large number of multinational companies with their location decisions for new facilities.

That assistance goes from the definition of global location strategies to comparing regions and communities, as well as the final stages of property selection and negotiating with authorities. He has assisted clients in a broad range of industries, to select business locations for manufacturing plants, distribution centres, regional headquarters, R&D facilities, services centres and call centres in Europe and Asia-Pacific. Most recently, Roel has developed into a leading expert in location strategies and site selection for shared services centres in Europe, having guided more than 50 multinational companies with their location selection.

sharedxpertise.org: Technological development is often cited as a key measure of progress in shared services. Does progress necessarily lead to virtual shared services, and if so, what will this mean for the location of shared services centres?

Roel Spee: First of all, I think that a fully virtual concept will not materialize in the short term for shared services. In our experience most companies still prefer to retain a strong physical entity, for several reasons:

• First, having one physical centre is more manageable than having a number of offices spread across many countries (even where shared services is performed virtually). Also, the economies of scale that companies are
  
  looking for can be better achieved in a single physical environment.
  
  
• Second, companies see shared services as an opportunity to make progress with operational and cultural changes in the organization and to break away from traditional ways of working. They opt for a new location - often referred to as a “greenfield” location, meaning a new establishment in a new environment - rather than consolidating all operations into one existing location. Although implementation is often easier at one of the existing sites, most of the companies that we’ve been working with decided to go for a completely new environment for that specific reason - to make a significant change.

sharedxpertise.org: As we move towards global and regional shared services, language becomes a defining factor. How is this affecting the location of shared services centres?



Roel Spee: The different languages used and the number of people employed in the centre are indeed important issues. In a couple of our projects the shared services organization may employ over 1,000 people, which is a very large number for Europe and the USA. For most of Asia, 1,000 may not seem to be such a large number, but some labour markets are constricting in Asia and language requirements are sometimes a serious constraint as well. Language is frequently a very critical requirement in addition to the basic availabilityof labour.



As a result, these companies decide to organize their large shared services operations around a few sub-regional centres in Europe, North America or Asia — each with about 300-500 people. These sub-regions are mainly defined by language clusters. If you take Asia, for example, it is not easy to find fluent practitioners in the Chinese language everywhere in Asia-Pacific and you may need to look for a location where Chinese is more readily available. The same is true for India. Both countries are so large that a separate centre would be justified for many companies.



sharedxpertise.org: What is the relationship, in your opinion, between location issues and the broader communications challenges faced in all shared services projects at the outset?



Roel Spee: Companies going into shared services mode usually only do so once, but they can learn from the experiences of other companies who have already undergone the change and solved the problems.



One of the main lessons we keep hearing from companies (which isn’t necessarily directly related to the locations themselves), is the importance of starting to communicate the shared services initiative early with staff and the decision-makers in the various countries. We’ve seen that when communications about plans for the centre and its impact on local operations is started at a very late stage, people can feel that it’s a “done deal” and only see the negative implications. This is never good for an organization. If you start communicating at an early stage you make people part of both the decision-making process and the transition process. You may even receive valuable feedback.

It’s a universal truth that companies need to communicate well. What may make this easier in terms of location is choosing an existing environment. If a German company stays in one of it’s German locations, for example, this will help the communication process for existing staff. If a company opts for a very cheap location in India or Eastern Europe it’s always seen by staff as simply cost cutting, although it also has to do with quality improvement, of course. It helps a little if you go to an existing environment, but it doesn’t allow the real change that you’re striving for as an organization.

“One of the main lessons we keep hearing from companies is the importance of starting to communicate the shared services initiative early with staff and the decision-makers in the various countries … If you start communicating at an early stage you make people part of both the decision-making process and the transition process. You may even receive valuable feedback.”

sharedxpertise.org: Will we see companies turning towards new locations now, or will they continue to act on a natural impulse to gravitate towards locations that are very popular and have already proven themselves?



Roel Spee: In terms of location, another lesson companies have recognized is that they should not simply follow others. This mistake was frequently made a number of years ago. When shared services centres were being set up, companies saw others going to places like Dublin and Amsterdam, and they just assumed that these were the best places to set up shared services centres. They may be, but problems arise when everybody tries to recruit the same skills at the same time. The labour market gets very tight, very quickly. Most companies now recognize that you should look more carefully before just following other countries to a hot spot. Companies should look at other alternatives first because a hot spot may quickly overheat.



sharedxpertise.org: How important do you think that skilled labour will be in the future as shared services moves towards web-enabled solutions?



Roel Spee: The emphasis in the future will be even more focused on the skills of people than in the past. The most important criteria in selecting a location for a shared services centre have always been related to the quality of the people, as well as to the costs. I think that there will be an even stronger emphasis on the qualitative aspects, especially when the whole web-enabled shared services concept takes off.



Web-enabled shared services will mean that shared services centres will not need as many people to perform their traditional functions. The variety and complexity of functions will increase, however, thus increasing the level of the skills needed. Quality of people, therefore, becomes even more important.

Knowing that some of the high-quality labour markets in the Western world are causing staff recruitment and retention problems, companies have started looking at alternative locations - for example Prague Budapest, Warsaw and others in the European environment. To many, these places may not seem to have the abundant availability of the appropriate skills compared to some of the Western European locations, but they are quickly developing into attractive areas too and there is less competition for the same skills. Companies increasingly feel forced to look at new locations other than the ones where those skills were typically available.

“Problems arise when everybody tries to recruit the same skills at the same time. The labour market gets very tight, very quickly. Most companies now recognize that you should look more carefully before just following other countries to a hot spot”.

As a general trend that we will see continuing, Asia is growing as a location for shared services centres. While the shared services concept started in the USA and was followed by Europe, now we see that most of the companies that are setting up shared services centres worldwide are looking to implement the concept in the Asia-Pacific region. In addition, South America is becoming increasingly interesting for shared services, now that a number of constraints (such as taxation and telecommunications) are being reduced.



The option of a single, global shared services centre that a number of companieshave examined is, in my opinion, still very difficult to realise. The language issue, which is often an important requirement for a shared services centre, is still one of the main constraints for a global shared services centre. However, if you don’t have language-sensitive processes in the shared services centre, then it’s much easier to consolidate all of these services into one centre.

This is where locations such as India will become very interesting for shared services on a global scale. You have an English-speaking employment base at a very low cost and many people with good skills. Of course, if you need a variety of languages, whether European or Asian, then you have a constraint.

“In the future, technology improvement will further facilitate the operations of shared services, but people will always be very important. In terms of location selection, people will remain the critical issue, because skills are not always as available in one location as in others”.

In the future, technology improvement will further facilitate the operations of shared services, but people will always be very important. In terms of location selection, people will remain the critical issue, because skills are not always as available in one location as in others.

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