Forward Thrust

The trading environment for the airline industry is a difficult one, so cost savings are of prime importance. Although it is a tough time to make a switch, the move to finance shared services can generate savings, and British Airways is proving that it is always the right time to make forward-thinking changes, as head Alexander Grant explains to Jim Banks.

The airline industry is highly sensitive to economic trends and its fortunes have changed dramatically over the last two years. The current environment necessitates big changes, but also makes change harder to implement, so the move by British Airways (BA) to finance shared services is a bold one.

Despite having little money to fund the transition, BA’s determination to press ahead says much about the perceived benefits of finance shared services.

‘No industry is more sensitive to changes in macroeconomic conditions than aviation. We are impacted by the oil price, bird and swine flu, wars, terrorism, the credit crunch and many other things that affect both revenue and cost immediately and structurally. We’re burning over £1 million a day at the moment, so we have to be careful with every penny spent. It is not an easy industry to be in, but it is a very exciting one. The industry changes all the time and that brings challenges at both an industry and a personal level,’ says Alexander Grant, head of finance shared services at BA.

Within 15 years at BA, one of the world’s leading and longest established scheduled international premium airlines, which carries around 33 million passengers a year, Grant has worked in many departments, from operations to procurement. Now, he is back in finance and faces his biggest challenge yet with the establishment of finance shared services.

The project has consumed Grant and his team for six months, and the cold economic climate only adds to the complexity and urgency of the challenge.

‘You may ask "why now?" BA is working to establish itself as a global premium airline so shared services are more important than ever. For us, shared services for financial processes like accounts payable and accounts receivable is part of that effort. We also look to improve the processes behind crew funding, which means giving our cabin crew the ability to draw their allowance in over 150 hotels around the world at no cost to them,’ says Grant.

‘We need to be cost-effective in those things, and in all our financial processes. We have to recognise that the world is not a static entity, and that all parts of our business must be able to react to the new environment that the airline finds itself in,’ he adds.

The speed of change in the industry has become clear to everyone in the last two years. In 2007, BA was making record operating profit and hitting the illusive 10% margin. One year later, it faced an annual operating loss of over £220m. Responsiveness, effectiveness and efficiency in financial processes have become a top priority.

‘Shared services will simplify our global operations in the back office, while focusing on satisfying what our customers really value. It will also increase our ability to remain compliant, and it will give us the flexibility to adapt to future changes in our business and in the market. We’ll be able to respond better to new cost challenges or opportunities presented by mergers and acquisitions,’ says Grant.

‘It will also help us to respond to other issues, such as the decision on whether we get anti-trust immunity for our joint business with American Airlines and Iberia,’ he adds.

Self help

Much depends on the structure of shared services [see boxout], which is an issue Grant and his team have had to tackle with hard work and minimal funds available to bring in expertise or systems from outside the organisation.

‘We need the right platform to be nimble. Because of the situation we find ourselves in, we have been self-reliant in educating ourselves on the journey to shared services. Lots of people want to provide services or automated processes to us, but we can’t necessarily afford what they are offering,’ explains Grant.

‘That means that we have to be innovative and creative. Only the people within the organisation can currently affect the change that we need,’ he adds.

The source of that creativity is a concentrated focus on what BA’s customers want from the airline, and how through a single thread from strategic vision down to departmental objectives, financial processes can be instrumental in meeting those needs. LEAN principles are key to making finance shared service work at BA.

LEAN, developed by the Lean Enterprise Institute, puts the focus on optimising the flow of products and services through entire value streams that flow horizontally across technologies, assets, and departments to customers. Diagnostic tools and clear management principles are applied to unearth best practice and minimise waste.

‘In shared services, everything is driven by our internal customers. We have in-house LEAN teams to work on optimising processes. We will have LEAN champions to drive out waste and focus on the core essentials that customers want, without automation. We are introducing LEAN as a way of working to ensure a single consistent set of working practices globally and embed continuous improvement as the way we work in FSS,’ notes Grant.

‘The first issue to tackle is to deeply understand the challenge and what it is that we do. Now that we are a few months into that process we have lots of flowcharts to help us understand our processes. We are also building a set of metrics around cost, productivity and efficiency. We can’t benchmark against other companies and industries yet, but we can benchmark our UK activities against other regions, for instance, and from there we can create best practice within the company,’ he adds.

While finance shared services is something new for BA, it is nevertheless a natural extension of a broader process of improving finance efficiency. This is a journey the company has been taking for over a decade.

‘Ten years ago, we rolled in key elements of the global financial accounting activity to London and consolidated what remained into regional accounting hubs. Now, we have just twelve accounting hubs, but the majority of the activity happens here or in New York. The world has changed in the last decade, so now our financial systems are standardised for the whole of the business, which helps us to take cost out wherever we can,’ says Grant.

‘It may be hard for us to benchmark at the moment, but in moving to shared services I intend to find a consistent global approach to each service, and then to standardise processes around that "gold" practice. We will not be dogmatic in centralising, however, and will always ensure that what must be done locally is provided locally but in the most efficient manner possible. We can use many tools like smart sourcing, which will see us blend in-house capability with external service providers,’ he adds.

Quick wins, strategic gain

With the economic climate less than friendly to the airline business, the move to shared services is made harder, but the timing is right in view of BA’s ongoing process of reorganisation. The shift follows naturally from the company’s management reorganisation in late 2008, which saw a 30% reduction in management.

The effect of that reorganisation has been to enable the company to align the business more closely around its strategic goals, and the move to shared services continues that process of alignment.

‘Our objectives are now more congruent. People are focused on savings and are determined to provide customers with what they want at a price they are prepared to pay. We must provide financial services to the airline as cost-effectively as possible. People can now focus on what their core functions are,’ remarks Grant.

Despite the challenging market conditions and the lack of funds to invest in technology or expertise, Grant is optimistic about the impact of shared services on the organisation. In part, this is because he understands the need to balancing short-term gain with the delivery of the project’s long-term goals.

‘With our shared services initiative there is huge pressure to deliver quickly. While we have no money to spend on the systems and expertise that we would like, we need to deliver the benefits quickly so we need to have an agile, iteractive approach. The focus is on small quick successes within a long-term plan of 18 months,’ Grant comments.

In an organisation the size of BA, small changes can have dramatic results. In a business that manages £8bn in receivables each year, checks over 7 million credit card transactions, processes over 300,000 invoices annually, and manages to pay over 90% of its suppliers on time, even a 1% change in performance can generate big numbers in the savings column.

Grant has a number of potential quick wins in mind, such as identifying processes and reports that the organisation can eliminate entirely through LEAN. BA has also seen that it is possible to do more with less by implementing a number of effective changes. For example, it has reduced the number of calls that go to the help desk by enabling greater self-service capability within the organisation.

‘We want to encourage further employee self-service, but not by having people interrogate the invoice database. Instead we have developed in-house a web-enabled application that allows 2,000 colleagues in the organisation to use the intranet to see when we will pay an invoice to a supplier, for example. We did that very quickly and cost-effectively. That may reduce the need for our own help desk, so we can reduce expenditure and increase customer satisfaction at the same time,’ Grant explains.

Noting the effectiveness of LEAN principles in the success of such changes, he recognises that it is vital to implement these principles across the entire FSS organisation, not in narrow pockets. The aim is to involve and engage people across the whole organisation in the search for best practice. By using their expertise in the processes they handle BA can pursue its policy to improve performance without the need for great expenditure.

A key lesson is to leverage the tools, knowledge and experience already at the airline’s disposal. These largely reside in people rather than technology.

‘We need that innovative thinking for issues like supplier queries and customer invoicing. We need to question why we do those things a certain way and then find new ways to do them better. We have no money for external recruitment and training, so we must use the experts who are already in the business,’ continues Grant.

‘The biggest change I can make in finance shared services is a cultural one. The function must move from being loyal transaction processors to one where passion, motivation and experience drive the organisation forward. It’s all about the people. The people we have are the power to change the business. People are our USP.’