Corporate restructuring is a sensitive and complex process that can only be successfully accomplished with passion, commitment and deep know-how. Let me help you redesigned your business to operate more profitably and efficiently.
Restructuring through cost reduction projects. My experience is that investments are initiated “bottom-up”, but savings are almost always initiated “top-down”. Implementation always takes place at the operational level. Even if all concerned accept the necessity, this can create significant tension between management and employees. As in every conflict it is advisable to involve an impartial third party to avoid permanent damage.
It is important to define the goal of cost reduction in both financial and organizational terms:
Once these parameters have been defined capturing the jump off point in as much detail as possible becomes crucial. When doing so, special attention needs to be given to one off cost, credits, carry over cost and inaccurate accruals and committed future costs. If the jump off point is not reconciled, the target will be missed. Once this is completed the planning phase starts. A balance between cost savings and their impact on the daily business operation always need to be considered. Next to this legal limitations and time requirements need to be taken into consideration and double counts need to be avoided. Just creating a laundry list of ideas is not enough, a detailed and timed action plan with dedicated responsibilities needs to be created. However, the business reality seldom follows an action plan and therefore adequate contingencies needs to be considered. The sum of all measures has to exceed the target savings during the project in order to guarantee success. Validation with the affected departments using NDAs is mandatory to ensure feasibility. Once the jump off point, the target and the action plan have been defined the implementation phase can start. Progress needs to be tracked and reconciled on a regular basis. As a Cost-Out project is always an unpleasant exercise for all involved, delays, double counts and virtual savings are common. It’s mandatory to be directive in these situations. My Value-Add is not just the project management but also keeping the management employee relationship intact by acting as a buffer while driving the plan forward.
Restructuring with the help of Shared Service Centers – how to achieve your goals. Everyone talks about Shared Services, Best Cost or Outsourcing and in many companies having a Shared Service Center (SSC) is a must. Unfortunately, in most cases this is not a successful endeavor. Most companies view Shared Service Centers as Cost-Out projects. Often hard cuts are made, and entire business processes are transferred to achieve fast savings. KPI management is introduced to steer the SSC. The result is a Shared Service Center that frustrates both front-office and Share Service Center employees. Through this frustration the company can not retain valued core staff and also sees a high fluctuation on the SSC side.
Why am I a proclaimed advocate of Share Services regardless then and have lead the implementation of them twice in my career already? In most cases the concept fails because of the implementation. Shared Services is a way to bundle standardized high frequency processes and analysis to create efficiency through centralization. It offers the possibility to unburden core staff from more junior and administrative tasks while at the same time creating a talent pipeline in which young employees can receive a solid knowledge foundation. Every business process has to be analyzed and sorted into front-office vs. back-office activities. Front-office activities that require face to face contact with internal and external customers are kept with the local staff. Back-office activities that are performed in direct contact to the front-office staff.
I am aware of the fact that this is contrary to the classical teachings of building a Shared Service Center. In spite of this or more precisely exactly because of this my concept is more successful. The process pain needs to always be felt by all involved. An example if Accounts Payable are fully moved to an SSC the following happens. The SSC takes over, the reporting line is to the local center management which is reporting to the CFO. It is measured on predefined KPIs like turnaround times and invoices paid. The resolution of disputed invoices is no longer a priority and only escalates when the CFO is contacted by suppliers threatening to stop delivery. Even if quality is added as a KPI, distance, time zones, language barriers and lack of intimate knowledge of the suppliers often prevent pragmatic and simple resolution. In worst case a complicated bureaucratic escalation process is implemented that leads to further frustration for all involved. Another factor in this example is that in many cases the front-office employees are not allowed to contact the SSC directly but are required to escalate through center management. The employees of the SSC on the other side only learn of problems they are blamed for second hand although they are caused by process breakdowns earlier in the process chain for example through a missing No-PO-No-Pay policy. This quickly creates unsurmountable barriers between the teams that lead to inefficiency. The “One Team – Worldwide” has the SSC resources report directly to their front-office counterparts. The local employees are contact point for other departments and are responsible for leading the SSC resources. The SSC employees have a direct contact point in the front-office that supports them in problem resolution and also keeps them accountable. Through this both the front and back-office share the process pains as well as the rewards and grow as a team. To guarantee the sustainability of this approach it is necessary to create long term opportunities for SSC employees to move into management positions or positions in the front-office.
You can review my shared service center approach in this document. Read PDF online >
Whant to learn more about the approach? Contact me, and I will work with you on a tailored successful solution for your Shared Services needs
Being registered as managing director of legal entities in 15 countries teaches you quickly that no two countries are equal in terms of laws, processes, and cultures. If you are faced with this challenge within a corporate environment, the challenge seems manageable due to the support network of experts from the head office. If no such network of experts is available often the establishment of a legal entity abroad becomes a daunting task which prohibits globalization. The chosen alternatives are often agents, distributors or globalization partners to create a presence abroad.
Both is expensive and prohibits these foreign units to become integrated in the business. Due to increased scrutiny of tax authorities in many countries in respect to Permanent Establishments this also creates latent risks. If a cooperation partner cancels the contract or a government toughens regulation, the organization is still missing the expertise to operate locally and thereby is closed off from the market going forward. I am not claiming to possess expertise in all jurisdictions around the world. During projects like this I have always relied on expert advice. But having gone through these processes many times, I can communicate with experts eye to eye and support in assessing the risks and opportunities of such ventures.
An underestimated aspect of internationalization is also differences in communication culture. The creation of a good communication flow is pivotal to the success of such projects. Due to my previous experience, I can support clients to build communicational bridges to facilitate this flow.
The key here is that none of it is rocket science, but it helps to have done it once or twice before.
Regardless if new acquisition or a subsidiary, often the collaboration between the German entity and the US owners does not work well. Surprising as the culture differences and language barriers are seemingly small at first glance. In my experience, this is caused by a German phenomenon that is often missed and remains unexplained. Germany uses an accounting principle called “Gesamtkostenverfahren”.
A way of accounting that is presenting statements in a way unknown to the Anglo Sachsen world. This is the root cause of many communicational break downs which often leads to mistrust between the owners and the entity. Under “Gesamtkostenverfahren” neither standard costing nor cost center accounting is known and therefore US GAAP reporting always becomes a conversion exercise. Through this conversion and due to the lack of certain data points, transparency is lost and analytical ability impaired. This is often perceived by the US management as lack of clarity or incompetence. The first step to improve the situation is to bring in a third party that can communicate the differences in approach to both parties.
The second step is to create a transactional reporting structure that satisfies the minimum requirements of the headquarters. The last step which is a substantial effort is the implementation of “Umsatzkostenverfahren”, another accepted accounting principle in Germany, which is significantly closer to US GAAP. This step needs detailed planning and support from external partners like auditors and should never be attempted as the first step. An area where I can offer strategic as well as operational support.
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