Implementing shared services can deliver significant improvements in the operating efficiency of the finance function. It can also deliver additional benefits for improving the timeliness and visibility of financial information while improving governance and reducing audit cost and complexity. To maximize savings, organizations must take advantage of labor arbitrage by relocating finance jobs to lower-cost economies. Colt found that the level of expertise available in the local Indian workforce enabled the company to relocate higher-value finance jobs in addition to lower-value transaction processing activities. Also, it deployed some processes to India early in the project to deliver early cost savings. However, the complexity of change required is challenging and requires strong management in the shared service center(s) and in the local finance teams. Using partners with appropriate skills and local presence can be a major factor for addressing these issues.

Implementing shared services for finance is also an ideal time to rationalize finance systems and move to a single-instance, global system. CIOs looking to rationalize their business application infrastructure should seek to align these initiatives with any move to shared services. This will maximize IT infrastructure savings in addition to the reduction in finance operating costs.

With revenue of £1.25 billion (about $2.45 million) and more than 4,000 employees, Colt is a leading provider of high-bandwidth data, Internet, voice and advanced telecommunication services to business and governmental customers across Europe. Founded in 1992, Colt operates state-of-the-art fiber optic networks in the major financial and business centers of Europe, with each of its local city networks and Internet Solution Centers interlinked to form a single IP-based pan-European network

In 2004, Colt faced challenging market conditions. Although earnings before interest, taxes, depreciation and amortization (EBITDA) were positive, the company was not generating cash or making a profit. The management team was looking to realize operating efficiencies to reduce sales, general and administrative costs, and, therefore, the opportunity to move to shared services for finance was considered. A significant opportunity to realize cost savings existed, because the group had grown rapidly into 13 independent companies. Although some processes were shared (mainly in name only), 13 nonstandard Oracle systems were implemented within European countries, each with their own variants of major interfaces to billing and order-handling systems. This lack of process standardization and control led to significant control weaknesses and differing policies and procedures.

The finance team knew it needed a more-robust finance platform, and the CEO had seen shared service centers (SSCs) successfully implemented at a previous company. Colt considered business process outsourcing (BPO) as an option, but the company wanted to maximize potential cost savings for its own benefit, rather than share these with a BPO partner. In addition, Colt had access to some pre-existing facilities and infrastructure in India, which enabled a quick startup. Consequently, in early 2004 a program team was established to quantify the cost savings that an SSC approach could deliver. This resulted in a decision in the third quarter of 2004 to implement shared services for finance and some operations in India.

The objectives of the program were:

• Deliver standard processes to facilitate efficient back-office operations using the India finance shared services center (FSSC)
• Deliver standard Oracle 11i application configuration and processes within a standardized global model for 23 Oracle modules
• Maximize commonality of global process design so that economies of scale could be realized across the business
• Deliver in-country processes to enable process owners to concentrate on business value-added activities

The scope of the program covered:

• Processes — Record to report, order to cash, purchase to pay, asset and project accounting and management reporting
• People — 30% reduction in finance head count across Europe, including the move of transaction-processing activities to the new FSSC
• Technology — Consolidation of 13 separate instances of Oracle 11.0.3 to a single instance of Oracle 11i, including implementing additional functionality and self-service capability, data cleansing, standardized reports and 109 interfaces to Colt’s business system
• Geographic scope —13 European countries plus the SSC in India

Colt employed outside assistance in the project. Deloitte provided program management, change management and process design expertise, while Wipro Technologies provided technical architecture expertise, Oracle application configuration expertise skills, and integration and development capabilities.

Colt adopted a phased approach.

Phase 1 established the SSC in India and moved processes for some positions to the SSC in an "as is" state (that is, without process redesign) to India to realize cost savings through reduced labor costs. This helped build knowledge and skills in India for the subsequent phases. This phase covered accounts payable and some billing processes in the U.K., which were moved to the SSC in India between September and December 2004. Initially, 24 positions were moved to the SSC.

During the first quarter of 2005, the project team started a more-detailed planning process to develop a full business case and plan for the rollout. Using Deloitte benchmark data, an activity analysis was undertaken to identify opportunities for efficiency savings, and “challenge sessions” were held with the country CFOs for realizing the initial 100-person transition and reduction plan. Additional benefits were identified in the areas of working capital improvement, procurement spending savings and cost avoidance on control improvement projects.

The proposed transition plan took a country-by-country approach to the rollout. Colt also made the decision to implement a single instance of Oracle 11i at the same time it replaced the local Oracle implementations, which were all at 11.0.3 (including the initial implementation in the SSC).

Phase 2 started in July 2005. This involved the creation of standardized global processes, with clear definitions of the process splits between local operations and the SSC. The following finance processes were standardized globally:

• Purchase to pay
• Order to cash
• Record to report
• Projects
• Asset accounting

Phase 2 also delivered a standardized design for HR and logistics functions.

Colt identified global process owners who were senior people in the organization. They had a strong executive steering committee and sponsor (CFO) to get agreement from the local finance teams. They also implemented standardized Oracle processes based on the Deloitte iTrac tool. The goal was to eliminate as much customization as possible, and initially, country and business representatives were told that customization would only be allowed to meet local statutory or regulatory requirements. This met with some resistance, but the strong senior management sponsorship meant that process changes were pushed through despite this resistance. The adoption of the new processes remains an area of focus for the organization, with particular attention being given to the take-up of new processes and functionality in the order-to-cash area (particularly credit and collections).

Colt did not spend much time documenting the "as is" processes. The project team knew it would significantly change the processes, so it worked with best practice design templates provided by Deloitte. The Colt CFO was personally involved in process design meetings.

The rollout created three implementation "waves": the first wave included the U.K., Ireland and group functions (live in May 2006); the second included Germany, Austria, Switzerland, Sweden and Denmark (live in September 2006); and the third wave included France, Italy, Spain, Portugal, the Netherlands, Belgium and India (live in November 2006).

Colt has achieved the following results so far:

• Finance processes were successfully transferred to the SSC. The established financial close schedules were met, and it is planned to reduce these schedules by two days in 2007.
• Visibility and consistency of financial information improved considerably by standardizing the management and financial reporting package and by eliminating local reporting activities. Feedback from users is that reporting has improved in terms of quality and timing.
• Improved governance — Colt has designed better controls into the processes and feel this, coupled with reduction in process proliferation, will improve its ability to meet compliance demands and potentially reduce audit costs.
• Colt had planned a total head count reduction of about 25% and is on track to achieve a total finance cost reduction of about 30%.

The introduction of new functionality and processes mean that Colt is also on track to deliver the planned working capital improvements. Metrics around days sales outstanding and stock reach are expected to improve during 2007 as adoption in these areas continues to improve.

Colt attributes its success to a number of factors. The initial "straight to India" approach (built around "as is" processes without redesign) enabled them to achieve initial cost savings early and build up the expertise in India. They were able to leverage facilities in India, which meant startup of the SSC was quick. Colt had strong executive sponsorship; the CEO and chairman championed the move to SSC while the CFO was personally involved in driving through the changes in the finance function. They created an interesting environment for the SSC staff because they did not just move low-value transaction processing to India, but also included higher-value functions such as group consolidation and financial planning. This has helped keep turnover low among skilled staff in the SSC. Finally, Colt's partnerships with Deloitte and Wipro were crucial to its success.

• Colt was impressed by the quality of resources available in India. The project team feels the resources are exceptional and can effectively help manage advanced administrative functions and processes.
• Although initially moving processes "as is" realized early cost savings and built experience in India, it hid how badly some of the country processes actually were. Some initial process analysis would have been helpful to identify these challenges upfront.
• Transition and rollout occurred quickly. Although Colt achieved its targets, a more-forgiving time scale would have allowed more time for stabilization at each phase of the rollout. Further stabilization and optimization are planned in the 2007.
• Colt spent as much time change-managing the local organizations as the SSC. This was because the countries had limited experience working with SSCs and it created some local morale issues. Some key employees left, despite succession planning and the offer of retention packages, especially in controllership functions. The employees' departure was a result of their decision to take future career options prior to completion of the retention period in some high unemployment economies.
• Some local organizations found it difficult to function effectively when some of their processes were performed in India. The combination of new processes being implemented with changes in roles and responsibilities required an extensive change effort in the countries. Further clarification of local responsibilities will be required to ensure that proper relationships and communications have been established. The impact on the remaining local organizations should not be underestimated.