Shared Services and the Downturn

PS: Can you give a short background on the company and shared services at Eaton – length of establishment, size, scope of services, etc?

JW: Eaton is a global power manufacturing company and has more than 70,000 employees worldwide, including 15,000 employees in Europe, with more than 200 manufacturing sites in 30 different countries. We sell products in 130 countries. In 2008 Eaton had global sales of $15.4bn.

Eaton’s shared services centre in Glasgow, Scotland, employs 80 finance staff and 20 IT staff. It operates with one Oracle database covering the globe from Mexico to New Zealand. The centre supports 386 ledgers across 42 countries. The centre also supports multiple language requirements including most European languages plus others including Mandarin, Cantonese, Arabic, Urdu and Hindi.

Services provided from the centre include:

Finance Services

• bank, AP, AR (including credit), FA (shared), net worth and some intercompany
• statutory preparation
• budgets (optional)
• new implementations and divestitures (integration onto financial system)
• interfaces to legacy systems e.g. payroll, manufacturing, etc
• transmission of results to corporate
• cashflow enhancement.

IT Services

• European network management
• development of customisations – business requirements and statutory
• Unix support for Europe (optional)
• change management
• production support (interfaces)
• database administration (finance, manufacturing databases).

What was the main driver for setting up shared services at Eaton and how has this changed, if at all, over time and during the current recession?

Back in 1995 Eaton took a look at its administrative cost base and as a % of sales. This showed that we were too high compared to peers and Best in Class (as classified by the Hackett Group). A typical Eaton business unit has turnover in the range $20m to $50m. The opportunity for Economies of Scale through shared services was real and achievable.

There was also no single accounting platform throughout the company. Plus Y2K was approaching and there would have been a huge cost to upgrade approximately 30 disparate accounting systems. We also needed a scalable platform to support growth and M&A activity.

As a result, we moved forward with shared services, and the Glasgow SSC was established in 1997.

Over time, and also as a response to the current recession, we have seen a number of changes, including:

• Increased focus on shared services as a control hub

- internal audit
- external audit
- Sarbanes Oxley.

• Increased focus on cashflow

- SSC pivotal to control of cash and plays a key role linking to supply chain management (SCM) and credit functions to partner for cashflow enhancement.
- Ability to data mine to maximise spend, terms, discount, etc.

• Renewed evaluation of the additional services that shared services can provide cost effectively.

In your view, how can effective shared services assist companies during tough economic times, and is this different in any way from when times are better?

As well as what I have covered in the answer to your second question, shared services has been able to add even greater value during these current recessionary times through a range of ongoing initiatives, some of which were already in play but have been even more important recently.

For example, we have been able to:

• further eliminate, streamline and rationalise the transaction base
• automate the transaction base
• data mine for business benefit e.g. cashflow, profit improvement (discount, bank charges)
• leverage Eaton Lean Six Sigma, value stream mapping and business process improvement
• facilitate finance function efficiency and effectiveness
• leverage standard processes
• reduce functional costs
• expand into other functions and across existing functions
• expand into new geographies
• train other functional and operational staff in lean methodology.

Has money for specific investments in shared services been tougher to come by recently (e.g. for training, business process improvement projects or for new technology enablement)? How have you worked around this?

Money has remained available for key internal control points, to fund operational synergies, to integrate acquisitions or migrate our businesses to the standard shared service platform and for business process improvement events, especially where an attractive payback can be demonstrated.

On the flip side of this, we have needed to work with and around a number of constraints recently. These have included minimising discretionary spend (e.g. on external consultants) and generating internal productivity savings of 12% per annum through business process improvement (BPI) deployments.

In what ways can shared services improve working capital? Can you provide some specific examples?

Shared services can be a very powerful enabler for working capital improvement. Some specifics around receivables and payables, key components of working capital, include:

Days Sales Outstanding (DSO)

• Leveraging the sales and credit functions to enhance collection activities
• setting collection targets for all parts of the business
• swift escalation to executive leadership of customers with payment difficulties.

Days Payables Outstanding (DPO)

• Leveraging Supply Chain Management via data mining to:



- extend vendor terms
- rationalise vendor footprint
- consolidating spend and levering price reductions
- taking greater discount from vendors

• review payment frequencies
• deploying a joint balanced scorecard between SSC and SCM to make end to end process improvements and improvements in business results.

What do shared service practitioners need to perhaps be worried about in times of recession that might be unique to shared services teams?

During recessionary times shared services teams need to be cognisant of and alert to:

• not investing in process improvement and staff development
• failing to execute e.g.

- synergies
- productivity
- integration
- automation
- capacity and capability
• missing opportunities for growing the shared service franchise
• staff morale and knowledge management retention.

Where next for shared services at Eaton?

We intend to continue to build on the success we have achieved over the last decade. Specifically, we will:

• continue to invest in our superb staff
• enhance cashflow
• support growth of our shared services in Asia
• integrate all businesses onto a shared service platform
• enhance internal controls for the Corporation via financial platform deployment
• build a global governance framework for the shared services family
• accelerate cycle times of all major SSC processes
• continue our journey to world class processes from an effectiveness perspective
• build volume independent processes
• increased business partnering and value chain progression.