All Change

In the early part of this decade, Ericsson group was fighting to adapt to the rapidly changing market conditions in the telecoms industry, and the need for early cost reductions was the dominating driver for radical changes throughout the entire organisation.

The number of employees in the finance arena was reduced by 50% during 2002 and 2003, a reduction driven by the need for quick results rather than a new strategy.

On top of the need for continuous cost reduction, increased globalisation meant that finance management was facing a new, demanding set of requirements: more formalised and global control requirements (such as Sarbanes-Oxley and IFRS), as well as rapidly growing demands for fast and reliable global financial information from the business.

Despite regional and local SSC initiatives begun in the late 1990s, by the end of 2003 the situation was still such that F&A activities were spread across more than 100 different local or regional units or centres without a common strategy or governance.

A STRATEGY EMERGES

More positively, the execution of Ericsson's global IT strategy and the rollout of a global standard ERP system (SAP R/3) continued during the years of restructuring, which have resulted in a strong position and a global coverage of more than 90% of operations by early 2006.

Facing the consequences of the reduction in staff and the new global challenges, in early 2004 group finance management defined a strategy for a basic transformation of financial control within Ericsson, separating and addressing the following three key areas:

• Controlling: managers must understand and own their numbers, while controllers will focus on supporting the business activities
• Reporting: reporting must be automated and consistent and information must be available online in a global business warehouse
• Finance and accounting: all F&A activities will be operated based on global standard processes in a global SSC organisation

Within this framework, the strategic objective given to global F&A management was simply to 'provide operational excellence in all accounting and reporting processes', being measured on quality and cost efficiency, whilst freeing up controller resources for business support.

WHERE DID WE WANT TO GET TO?

To support these objectives, a desired position for F&A was proposed and approved, covering the following key elements:

• A global and qualified SSC organisation managed as one entity by global F&A management
• SSCs operating global standard processes on a global standard ERP platform (SAP)
• Global process management: developing, delivering and supporting the common process standards
• 100% geographical coverage
• 95% global compliance with process standards in service execution
• Service scope covering all administrative tasks

TRANSFORMATION STRATEGY

Finally, a strategy for the F&A transformation was defined in order to make global standardisation possible. When services were stabilised and standardised in the regional centres, the strategy was to transfer the transactional service deliveries to the global service centres, transforming the regional centres into qualified interface and support units. In parallel with this, global processes and systems would continue to be aligned, optimised and re-engineered.

On top of the main strategy, the cost of implementing frequent changes in areas such as international accounting standards and internal reporting requirements as well as processes and controls was identified as a substantial part of the total cost of service.

The response, the 'cost of change' strategy, was to utilise the standardised global SSC environment and combine this with global process management and system development to roll out common fixes or solutions, ready for implementation – in other words, to get away from each local entity having to manage the change from scratch.

GLOBAL MANAGEMENT IN PLACE

In April 2004, global F&A management was in place, taking immediate management control over the three existing SSCs in Western Europe. At the same time, the global F&A transformation programme was kicked off.

Ericsson's global SSC model comprises of:

• Centralised global master data management (Stockholm), controlling master data, facilitated by a 'one entity set up' of the SAP ERP
• Offshoring transactional services, such as accounts payable, travel expense accounting and master data maintenance to a global, in-house service centre in Manila
• An automated intercompany accounting service, managed centrally (Stockholm) and operated in Manila
• Seven to eight regional support centres, acting as the added value interface and support units towards the business organisation

A SMOOTH TRANSITION

Looking at the results from an efficiency and quality perspective, the growth in the group's business volumes as well as the new requirements on finance have both been absorbed without any increase in the F&A staff. The rating from the group auditors is that 'the group closings have never been smoother and under better control', and the average rating from the local companies is above 'good' (>3 on a scale of 1–5).

The common process development and global rollout model has been successfully used for implementing global standard controls in compliance with Sarbanes-Oxley in the SSCs. The savings from this approach have been obvious and substantial, managing the definitions only once, rather than starting from scratch in each legal entity.

Several general changes to group reporting have been managed centrally without effort from the local companies. A practical example of the impact of the 'one controlling area' system set up and the common master data model is that the number of accounts in the chart of account is now around 4,000, compared to the more than 150,000 accounts that had to be maintained previously.

MANDATE FOR CHANGE

Even when the initial service migration step in smaller companies resulted in negative business cases, the direction was maintained. We have been very successful in running the programme with a high degree of local ownership and participation.

SSC setup and migration have been organised with local resources and steering, using only a very small global programme management team and a team of four global Ericsson people as change managers, re-using experiences, migration models and tools across local projects.

BRINGING OUR PEOPLE WITH US

We did experience problems with the initial startup and cooperation between local organisations and SSCs, especially where the local demand manager was the former local 'process owner'. We have confirmed that a high level of global standards makes sense and can be achieved.

Everyone says 'we're different' as a starting point, but when you analyse the individual process elements, the local complexity is not that dominant and can be isolated and worked around. To implement and manage standards locally, the starting point must be the global standard, with local deviations described separately and controlled.

Both with the SSCs and the global master data organisation, we have proven that consolidating and specialising administrative areas with lower profile areas in the organisation such as accounting, master data and archiving can facilitate both ownership, motivation and a professional pride around areas that no one really wanted to work with earlier. F&A employee satisfaction has improved.

Finally, we recognise now which two key elements have helped us along: the common, standard IT platform and the sense of urgency in the wake of financial difficulties. The F&A transformation is just one example of the Ericsson Group's remarkable turnaround from a serious financial situation in 2003 to its best-ever financial results in 2005, results achieved through the hard work of the company's employees.