Relevance Regained? Performance Management in Shared Service Centres School of Business and Economics – Research proje

1. Relevance Regained? Performance Management in Shared Service Centres School of Business and Economics – Research project funded by CIMA

2. Relevance Lost, Johnson & Kaplan - 1987 • Described a number of cases where changes in organisational form and business practices had resulted in innovations in performance management & measurement. • Emerging theme - performance management systems must ‘be consistent with the technology of the organization, its product strategy, and its organizational structure’ (J&K, 1987 pg. 261) • These ideas were extended by Kaplan & Norton into a framework for performance management…The Balanced Scorecard (1992).

3. 25 years on – relevance regained? • Globalisation, technology and economic pressures are driving organisational change • Proactive performance management is increasingly important and underlying organisational structures are changing • Leading-edge companies are adopting the Shared Service modelto drive performance improvement How is performance managed in Shared Service Centres?

4. The Kaplan & Norton view Objectives Measures Mechanisms: Balanced Scorecard & Strategy Maps   “Measurement is as fundamental to managers as it was for scientists”

5. Head Office Head Office Business unit 1 Business unit 1 Business unit 2 Business unit 3 Business unit 2 Business unit 3 Shared service centre Service departments Operating units Operating units Operating units Operating units Service departments Operating units Service department Operating units SSM as a ‘new’ organisational form Shared service centre structure Conventional Divisional structure (support services embedded)

7. Why Shared Service Centres? • Growing in popularity • Classic management problems • Internal resource allocation/transfer pricing • Overhead allocation • Measuring performance in service functions • SSC’s potential to cut across the hierarchy • The place where strategic alignment happens • Specific issues of people management (engagement) SSC’s - ‘new’ organisational form driven by customers is a catalyst for change, maintains service levels and forces ongoing mutual adjustment

8. …. the challenge is still implementation! Our matrix structure has not worked very well, so we have changed it to (guess what?) a new matrix structure. This and group under-performance is forcing the pace for performance improvement. Senior Manager in one of the UK’s largest companies, May 2011 Like the 19th century African cartographers, we actually know less about what happens inside companies than we did 40 years ago. To remedy this knowledge gap, more business school scholars, particularly in accounting, need to shift away from coastline studies, conducted on computer terminals in their offices, and begin to explore the interior of leading-edge company practices. Kaplan, Harvard Business Review, May 2011

9. The Case Companies

10. Key Findings • Shared Service Centrespresent an opportunity for organisations to reconfigure their processes to deliver both improved customer service and significant cost saving Clearly articulated strategies communicated through • formal management presentations; • information located on the company intranet; and • prominent visual displays in the workspace. Strategies included: • process excellence; • standardisation; and • continuous improvement.

11. Continuous improvement “Every single person in the [SSC] has got a continuous improvement objective of at least one. They must come up with one continuous improvement objective that generates 14 hours worth of savings during this year.” Rolls-Royce PLC “I think the best way to answer that is to say that the world is changing, rapidly in some aspects and we use an array of measures in a flexible manner to deliver a coherent strategic response.” Royal Dutch Shell PLC

12. Benchmarking and networking “…. the best thing about going out to other service centres is that you see their weaknesses as well”. Rolls-Royce PLC “… what we’ve also done is look at best practice across the industry as to where we’d want to get to after transformation and we have an undertaking that we’ll try to get to those levels.” MyCSP

13. Leadership “It’s an environment of trust”. Rolls-Royce PLC “... one thing I truly believe in is [that] shared services is predominantly a people business.The processes are not operated by systems but people.” RCUK Shared Services Centre Ltd  . “I don’t think anybody is embarrassed to go to S…. And say ‘This is a problem. I’d like to do that better.” we do take it for granted that we can actually speak our minds.” MyCSP

14. Performance management as a set of relationships between performance measures, people and processes Clearly important World class Hackett measures cost per £ billion turnover cost per employee Managing employee’s beliefs and organisational identity Need for continuous improvement demands “a change in mind-set and a change in the way you work”

15. The Performance Management Mix Managing through the people Managing by the numbers Shared Service Centre Leadership Measures Requisite variety Communication Benchmarking Empowerment

16. Case BackgroundCompany ValuesFSS Vision & Operating model

17. Network Rail established in 2002 to manage Britain’s rail network. The company owns, maintains and operates; • 20,000 miles of track • 8,200 commercial properties • 18 major stations • 2,500 other stations of which several are leased or part-leased to train operators • 90 maintenance depots • 40,000 bridges and tunnel, • 9,000 level crossings, and • connections to more than 1,000 freight terminals (The Hackett Group, 2011; Network Rail, 2011). The company: spends £14million per day on operating, maintaining and regenerating the rail network Has 35,000 employees Revenue £5,712 million in 2011, £5,408 million from franchised track access and grant income, £244 million from property rental income, and 43 million from freight income (Network Rail, 2011). Franchised track access income is invoiced to Train operating companies on the basis of agreements finalised with the Department for Transport. Network Rail is regulated by the Office of Rail Regulation (ORR) and is subject to detailed operating requirements which are set out in “Control Period Delivery Plans”, the latest of which (number 4) covers a five year period from 2009 to 2014. There are also periodic reviews, including the recent Department for Transport and ORR commissioned value of money study chaired by Sir Ray McNulty.

18. Pride - Determination - Respect - Teamwork - Network Rail Values…

19. FSS Vision & Operating Model… World Class Service Provider

20. Process Measures • Cycle time reduction • Efficiency • Cash • Effectiveness World Class FSS with Engaged Staff • Customer Service • Business Partnering • Compliance • SLAs and quality

21. Cash • Treat it wisely • Lower transactional cost • Decrease corporate costs • Improve cash flow • Cycle time reduction • Do it in time • Reduce defects • Eliminate waste (Lean & 6σ) • Achieve improvements World Class • Compliance • Follow the rules • Get it right • Be vigilant and aware • Learn from mistakes • Customer service • Provide the service they require • Build trust meet expectations • Understand customers’ needs • Succeed by doing, not just talking Provider Service

22. Analysis: Does it Work? • Benchmarking processes • “Q12” an employee engagement survey administered throughout the company – FSS scores more highly than the Network Rail average on 16 of the 17 items (average > 4 on a 1-5 scale). • Investors in People – Bronze status in February 2011 and Silver status in September 2011 • Hackett classed Network Rail FSC as “world class” (2011)

23. How does it work? • The World Class Board • Signal Stations • Leadership

24. The World Class Board • The vision • The operating model – the 4Cs • Projects • Benchmarks • Funding targets • Visitors letters

25. Signal Stations

26. Tentative Conclusions • One way to achieve control and strategic alignment is through the strategy-performance measurement – information flow – rewards model • In the case of Network Rail the FSS reports hundreds of KPIs and the role these play in strategic alignment is not at all clear. • What is clear is the significance of the alignment of belief systems and organisational identities achieved with the “4Cs” mantra

27. The Performance Management Mix Managing through the people Managing by the numbers Shared Service Centre Leadership Measures Requisite variety Communication Benchmarking Empowerment