Mark McMullen of SDI discusses the challenges, and opportunities, for shared services

Scotland's silver lining

Mark McMullen of Scottish Development International discusses the challenges, and opportunities, for shared services over the next 24 months.

With a steady recovery on the horizon, now is the perfect time to streamline operations and cut costs by adopting shared services, argues Mark McMullen, head of Financial Services at Scottish government business development agency, Scottish Development International (SDI).

"The last few years have seen a certain amount of 'navel-gazing' from many businesses, as they consider what they do, why they do it and how they do it. At the same time, with profits and investments significantly down over the last few years, companies across all sectors are searching for ways to increase efficiency and productivity, and to reduce costs. So they're increasingly looking at low-risk and low-cost shared services locations to consolidate functions and, ultimately, to cut costs," says McMullen.

The benefits of shared services are well-documented, including cost savings, improved efficiencies, streamlined operations, consolidated and centralised back and front office functions, and consistent business processes. But it is precisely these benefits that make shared services particularly attractive during times of economic austerity.

With challenging operating conditions predicted to continue for at least 12 to 24 months, companies are increasingly turning to shared services to streamline their business operations.

"Companies are now emerging from the 'navel-gazing' stage and we're getting more and more requests for information about shared services implementations. Companies now want to move this process forward, and so we're entering a period of moving from the 'planning stage' to the 'implementation stage'," says McMullen.

Furthermore, as companies consider their entire business models, it is not just the HR, IT, and finance departments that are coming under the shared services microscope, with front office functions also being considered for the shared services option.

"The HR, IT and finance departments are the obvious candidates for shared services, but as companies look more closely at their operations, they're finding other parts of the business that could perform more efficiently and profitably through shared services, which allows them to do things at lower cost, more efficiently and from a centralised location. We're talking about front end functions, those first touch-points for customers," says McMullen.

McMullen believes that Scotland is perfectly placed to advantage of the current economic situation and of these emerging trends. Since 1997, when power manufacturer Eaton Corporation set up its European Shared Services Centre in Glasgow, Scotland's shared services sector has gone from strength to strength and is now home to shared services centres for multinational corporations that include Dell, IBM, Shell and many others. Functions covered include accounts, customer service, HR and payroll on a pan-European basis.

The Scottish shared services sector alone accounts for around 3,000 jobs, with a further 90,000 employed in the outsourcing and call centre industries.

"Scotland is not a low-cost location. We do not compete with India, The Philippines, and so on. But we do offer a higher value, lower cost and lower risk shared services environment. There is always a risk for any company setting up any new operation, whether that's a shared services hub or a new factory. So we aim to minimise that risk by providing a politically stable environment with a proven track record, and access to a flexible and highly skilled workforce," explains McMullen.

At the same time, Scotland offers good property prices, a high standard of living and solid transport links. It is this mix of qualitative and quantitative benefits that companies should look for when considering shared services locations, and why Scotland is well-placed to help companies through the predicted period of austerity.

One of SDI's main weapons in persuading companies to choose Scotland as a shared services location is the use of existing advocates.

"SDI can talk about the benefits of Scotland for shared services, but it's a lot more influential if the companies already here act as advocates for us. We find that they're more than happy to be a part of the shared services 'forum' in Scotland, and willing to demonstrate the benefits to others and share their experiences. The shared knowledge and experience we can offer is a very strong selling point for any company considering Scotland for the shared services option," explains McMullen.

McMullen also argues that shared services can benefit many companies, regardless of their stage of development. "We're looking to promote shared services to both mature sectors and high-growth sectors. For example, it is dangerous to presume that established energy companies have already adopted shared services," he says.

"On the other hand, the shared services message is equally relevant to fast-growth, early stage companies, such as those in the renewable energy sector. Early stage companies should not wait until they have different offices and functions dotted across Europe or the US before thinking about shared services. So we're having the shared services discussion with renewable energy companies very early, so we can help them manage their back office infrastructure to support the growing business," explains McMullen.

At the same time, SDI is trying to attract new markets to shared services: "We're also trying to introduce new markets to the shared services concept. For example, we have an office in Japan, and have maintained relationships with many of the electronics manufacturers that were in the UK in the 1980s and 1990s. Japan has not embraced the shared services model in the same way as Europe and the US, so in March we are running a series of roadshows with manufacturers in Japan to introduce the concept of shared services."

McMullen also sees the Public sector as a large opportunity for shared services. While the majority of companies operating shared services hubs in Scotland are in the private sector, that could change as the announced budget cuts bite into the public sector purse. 

"A lot of public sector organisations have already looked closely at shared services and the consolidation of functions, even before the austerity cuts. So I think we will see a trend towards shared services and outsourcing in the public sector over the next few years as it faces significant budget cuts," he says, adding: "In turn, we hope that the shared services private sector could then absorb some of the inevitable job cuts in the public sector," he says.

However, McMullen acknowledges that many organisations will continue to face challenging operating conditions for the foreseeable future. In turn, SDI will have to work even harder to promote the shared services message.

"Companies are reconsidering their entire business models, but regardless of what the final decision may be, there is always a cost involved in doing that. The main challenge for shared services is getting sign-off: it is increasingly difficult for companies to justify spending on any project. As a result, the decision-making process is taking much longer than it did three to five years ago," he explains.

However, there are growing reasons for optimism. "The ultimate message is that Scotland is very good at shared services centres, we have a strong record, our advocates can demonstrate strong ROI, increased efficiency and reduced costs. We will continue to tailor our message to different organisations and sectors, but ultimately, the message is that any company can take advantage of the efficiencies and cost savings provided by shared services, particularly over the next 24 months."