Efficiency In Ssc Through Diageo Commerce Essay

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Shared services are a way of organizing business activities in a company. In line with Merchant and Van der Stedes discussion about there being no one best form of control, also the use of a business model has to be customized to the setting of each respective organization (Schulman et al., 1999). The concept however can be broadly defined:

"Shared services is a collaborative strategy in which a subset of existing business functions are concentrated into a new, semi-autonomous business unit that has a management structure designed to promote efficiency, value generation, cost savings, and improved service for the internal customers of the parent corporation, like a business competing in the open market."

Bergeron, 2003:3

Activities performed in SSC

A company using the business model of shared services consolidates resources that perform like activities into a separate unit, activities that were formerly being spread across the entire organization and by business units viewed as being 'back office' support services, and hence not belonging to the core business. These activities now turn into constituting the core processes of the shared services operation. (Schulman et al., 1999)

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There are two groups of activities that can be moved into SSC. One of the activities called transactional and the other one called professional services. The professional services are knowledge-based and often demand a delivery that is customized to each unique situation. Professional services are human resources, logistics, legal and IT.

Function in the organization (Source: Deloitte)

Number of functions in one SSC (Source: Deloitte)

The transactional services usually very monotone and large-scale and it is often standardized across an organization. It means that they are almost identical regardless of in what business unit they are carried out.

The reasons that I mentioned above tells us that transactional activities, often administrative in kind, are the ones commonly concentrated in the SSC of an organization (King and Leong, 1998; Schmidt, 1997). Many SSCs also the ones in Hungary are financially oriented and therefore they are responsible for functions such as accounts payable and receivable respectively, general ledger, fixed assets and cash management, travel expense reporting, and payroll etc. (The way ahead, 2000).

Motives for creating an SSC

Albeit support services, like those mentioned above, by many are perceived to be more tactical than strategic in nature, they are essential to an organization in order for it to achieve its strategic aims. Hence, it is of importance that these activities not only are performed, but that they are performed well (Schulman et al., 1999).

Through the creation of a shared services operation, this can be achieved. However, such an aim for quality in services has not always been the focal point. Instead the main goal of early SSCs was cost reduction, and still today this most often is the primary motive (Lucenko, 1998). Though, over the years several other benefits have shown. Seen from an overall corporate perspective, the use of a shared services operation increases flexibility and enhances corporate value in that it allows the business units to focus on their respective strategic tasks. Management time is freed up, as non-core processes no longer have to be performed within the SBUs 2 ; these activities are instead being 'outsourced' to the SSC.

Moreover, shared services allows a company to show one consistent face to its stakeholders, a characteristic which is perceived to be more important than ever in today's competitive world market (Bergeron, 2003; Schulman et al., 1999).

The benefits mentioned show traces of the fact that the business model of SSCs catches the best elements of both centralization and decentralization, whereas the negatives of both are avoided (Schulman et al., 1999). (For further details on what this brings with it, an explaining model is to be seen in Appendix 1.)

Combining this with the benefits of technology allows a SSC to obtain its goals of reducing costs and of improving the quality of services (Bergeron, 2003; Keith and Hirschfield, 1996). Moreover, Joachim (2001) suggests that a corporation in the phase of creation should consider and see to that the shared services business model will also bring with it an enhanced level of customer satisfaction; improved control, compliance and information management; and improved employee satisfaction.

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Diageo as an example for SSC

After having a long history with acquisitions and mergers and having some plans for expanding, Diageo finally decided to standardize and reorganize its business systems and global functions. The Diageo Business Services as a shared service center was launched at 2000. The plan was to set up two business service centers. One business service was planned to be in North America and the other in Europe. DBS which is located in Budapest is responsible for creating effective processes for finance, HR and transaction work such was dealing with suppliers, consumers and customers. In order to meet the shared service objectives Diageo upgraded its numerous systems including ERP systems and also the SAP system. Also Diageo upgraded its HR management tool to make it possible its staff to reach their personal data. The company introduced a travel and entertainment expenses software application.

Diageo also organized trainings at DBS to support the implementation of the new processes and applications. In April 2001, the team was set up to develop extensive training and documentation materials.

The new Global Diageo Business Services (GDBS) launched on October 2011. GDBS encompasses IS and DBS in a single function, and enhanced service efficiency and market support. GDBS aims to liberate Diageo's markets to focus on customers and consumers. Excellent shared services have a crucial role to play, in freeing markets from managing all back office functions alongside their commercial delivery.

Key elements of GDBS include:

Business relationship management - Diageo's four BRMs and the teams supporting them are aligned to local market needs and will act as a single point of accountability for GDBS services.

IS services - global organization focused on delivering high quality IS services, technology and end-user support operations, security and architecture.

Business services (formerly DBS) - the business services team, deliver efficient, standardized and compliant transaction and analytical services to support market demand.

Finance, strategy and governance teams deliver holistic GDBS strategy and roadmap and manage Diageo's portfolio and AOP commitments to achieve year on year benefits.

Simplified regional engagement, delivering holistic approach to shared services

Teams focused on market driven demand, commercially focused agenda

Continually reduce operating costs through productivity and efficiency

GDBS Business services delivers efficient, standardized and compliant transactional services to support market demand, including the following

FP&R

Treasury

Statutory compliance & tax

Process governance

Performance management

Finance Control

Diageo's regional services centers meet growing needs of their regional businesses, through centers in Africa, LA&C and Asia

STP, RTR and OTC process services lines

Provide regional control assurance

Drive processes and control standards

Ensure ongoing quality of service

Eliminates 'task' duplication in market/Budapest

Partnered with Business process outsource (BPO) provider to leverage infrastructure, scale and talent

Diageo resource provide governance, quality and effective transformation

3 Dimensions Objectives

There are 3 objectives that Diageo set by using the Shared Service operations.

Cost-effective provision of Analytics

According to cost-effective provision the first objective is to improve cost effectiveness by moving to standardized technology platform and decommissioning 'legacy' systems whilst still exploiting existing assets where appropriate. Also try to adopt economies of scale through optimized build and delivery of analytics such as repeatable partners and outsourcing/co-sourcing.

Consistency of Analytics across Diageo

Diageo is planning to give better insight by more informed business analytics and also try to give timely and relevant information. By building better data quality capability across Diageo we will help to ensure underlying master data quality. The company decided to continue to improve information reconciliation processes and grow analytics footprint. The firm gives flexibility to regions and maintains a consistency layer across the overall footprint

Effective Governance

The company promotes the understanding of how exploiting information impacts the achievement of performance goals across the business. Company understands the effective use of information and analytics across the organization.

Processes:

The company has to choose the processes which have potential to be moved to SSC. Many companies like to shift lots of workload into service centers because at the end they would have one total process costs. Of course there are some expectations such as some activities that are unique and very specific therefore they can only be performed as shared services. What are the processes that are suitable to be operated as shared services? Non-core businesses should be outsourced or shifted. The processes with high homogeneity and have a low strategic relevance could be the best for shared services.

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Many companies such as Diageo generate an SSO with accounts payable and receivable and some other processes, T&E and fixed assets. Those are the processes that meet the requirements to be good candidates for transferring to an SSO. As I mentioned above those processes are suitable because they are homogeneous and act as support functions.

Process Improvement Roles and Responsibilities

Drives the process improvement agenda across GDBS

Owns delivery of the process improvement baseline and setting performance targets

Identifies priority process improvement projects based on KPI performance and business outcomes

Delivers continuous process improvement and efficiencies to improve operating margins

Uses LEAN and other methods to improve KPI performance for speed, accuracy and efficiency

Embeds a culture of continuous process improvement at GDBS and Diageo as a whole

Diageo's functions

The new Global Diageo Business Services (GDBS) business unit was launched on October 2011. GDBS encompasses IS and DBS in a single function, and enhance service efficiency and market support. GDBS aims to liberate Diageo's markets to focus on customers and consumers. Excellent shared services have a crucial role to play, in freeing markets from managing all back office functions alongside their commercial delivery.

Key elements of GDBS include:

Business relationship management - our four BRMs and the teams supporting them are aligned to local market needs and will act as a single point of accountability for GDBS services.

IS services - global organisation focused on delivering high quality IS services, technology and end-user support operations, security and architecture.

Business services (formerly DBS) - the business services team, deliver efficient, standardised and compliant transaction and analytical services to support market demand.

Finance, strategy and governance teams deliver holistic GDBS strategy and roadmap and manage our portfolio and AOP commitments to achieve year on year benefits.

GDBS Business services delivers efficient, standardized and compliant transactional services to support market demand, including:

FP&R

Treasury

Statutory compliance & tax

Process governance

Performance management

Finance Control

Diageo's shared service center the GDBS was established to simplify regional engagement and deliver holistic approach to shared services. It is also an advantage that teams could focus on market driven demand and commercially focused agenda. GDBS processes' goal is to continually reduce operating cost through productivity and efficiency.

Reasons for SSC:

It is hard to decide whether to go for shared services or not. It is a well known fact that shared services solution is not the best operating model for every organization. For many firms it may bring better benefit rather as a transformational tool. Not every transformation project is successful and it could be due to non effective resource burdening center or a significant troubles. My question in this chapter is why companies take risks and why are they motivated to make big structural changes which an SSO requires?

Cost savings

Shared services can deliver 15 to 60% savings based on the experience in private and public sector. Typical organizations have demonstrated savings from shared services in the 20-30%range rising up to 50% in some cases. Research by Deloitte Consulting shows nearly 80% of the companies said that SSC reduced the cost of compliance.

Cost savings are neither the only reason nor the only benefit for transferring to shared services. There is a more important reason which is the improvement in the service to internal business units like its customers. There are additional benefits such as improvement in process efficiency, improved service levels, quality and data visibility, platform to support growth and also focus on customer satisfaction.

There are other frequently stated reasons for shared services. The following were mentioned:

Reorganization to change and standardize existing processes

Better value for money because probably the new service will be more efficient and will show improved business efficiency through greater user productivity

Improved accountability of investment. This means that shared services will be responsible for delivering the best results at the agreed price. Functional planning and business planning should be integrated.

More focus on core business therefore it will be able to focus on servicing the customer's business objectives.

Timely and accurate management information. It means that there will be more time for value added activities such as decision making, planning and targeting development and of course the customer needs.

People management should be also an important reason which leads to job satisfaction and increased recognition in especially companies with many, small and widely distributed departments. Also employees could move to different job roles within the shared service.

Shared services are better responsive to business needs

Better availability of service meaning higher ease of access to right information

Economies of Scale:

As I mentioned earlier that cost savings are one of the reasons for establishing Shared service center. In my opinion it is useful and important to understand where these savings come from? It is also important to understand what are the major factors for these cost savings? Economies of scale could be an answer. Economists explain that the major factors are coming from the concept of economic of scale. In this section I will define the economic of scale and how does it relate to shared service centers.

Economies of scale often mean the size of the facility is a determining factor, with larger facilities able to maximise efficiencies. Shared services can help minimize capital and operating costs and encourage inter-agency cooperation by achieving economies of scale by sharing services within your agency and across agencies.

"The increase in efficiency of production as the number of goods being produced increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods. "

We can differentiate two types of economic of scale [1] :

External economies - the cost per unit depends on the size of the industry, not the firm.

Internal economies - the cost per unit depends on size of the individual firm.

Long-run average cost curve (LAC)

Source: SULLIVAN, A; SHEFFRIN, M.: Economics: Principles in action. Upper Saddle River, New Jersey, Pearson Prentice Hall, 2003 - p. 157.

With economic of scale big companies can access to a larger market by allowing them operate with greater geographical reach. Shared services by achieving economic of scale can help to minimize capital and operating costs and promote inter-agency cooperation. This could be achieved by sharing services within agency and across agencies. Also an economy of scale is a long run concept which could be explained with the long-run average cost curve.

Explanation of the graph:

The above graph shows us the relationship between unit cost and the volume of output for a firm. From the left die moving towards to the middle point "A", the firm experiences economies of scale. Where the curve is at the lowest it means that the resources are fully utilized and the company has reached the state of optimum.

When the company still increases the total output with current resources the curve will have a move to the right side of the point "A". The company in this status experiences diseconomies of scale. If the firm becomes more complex it will incur higher costs and the resources will be less available.

For a short summary we can say that due to specialization and standardization cost will be lower and the firm will have greater productivity. Costs savings could be made with unified systems and less resource needed to run the business.

Processes within the SS organizations:

After I listed the reasons for transferring to Shared Service Center, now I am going to look at the processes within the organization. I will explain what kind of processes could be the best for SSC and then I will use Diageo as an example to show the processes. Firstly we have to take a look at Diageo closer:

Diageo company analysis:

The word Diageo comes from the Latin for day (dia) and the Greek for world (geo). The company takes this to mean every day, everywhere, people celebrate with their brands. Diageo translate this into their purpose, which is to celebrate life, every day, everywhere.

Diageo believes in four values:

passionate about customers and consumers

proud of what we do

freedom to succeed

be the best and value each other

Diageo's purpose and their values lie at the heart of everything they do. Their annual Values Survey is the most important measure that tells how well collectively they are living the values. Through the survey, they also gather feedback on employee engagement and the degree to which employees are energised, committed to the success of the business and feeling that Diageo is a great place to work. The annual Values Survey allows them to monitor progress against their engagement goals. It is a great source of direct feedback from their people on what is working well for them and what isn't.

Diageo is a strong company, with outstanding brands and great people with their products sold in over 180 markets around the world. Diageo has more than 20,000 talented employees and they tend to grow the business and nurture of their brands. The company want their people to thrive at Diageo and are committed to professional and personal development and to simply ensuring that Diageo is a great place to work. Today Diageo is the world's leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, beer and wine.

Background:

Diageo is still a relatively young company -they only started the business in 1997 but their brands and their business have a rich heritage.

Their earliest ancestor company formed in 1749, is Justerini & Brooks - wine merchants, and blenders of the famous J&B whisky range. 10 years after that, in 1759 Arthur Guinness signed the lease on the now world famous St James's Gate brewery in Dublin, going on to create a globally iconic brand.

Many of their distilleries were also fired-up in the late eighteenth century. Through the nineteenth and twentieth centuries Diageo's range of brands and their business continued to innovate and expand. In 1997, Diageo was created through the merger of Grand Metropolitan and Guinness, creating a food and drinks conglomerate which included their outstanding collection of premium brands.

Between 2000 and 2002 Diageo made the strategic decision to exit from the food industry- with Burger King and Pillsbury being the most significant divestments - and only focus exclusively on premium drinks. In December 2001, that they acquired additional spirits and wine brands from Seagram expanding their range of brands.

At Diageo people always look for the next step regarding the future and they are grateful for the strength which the rich and long heritages of their brands bring to their company.

Overview of the company:

Diageo's brands:

"Every day, everywhere, people enjoy our brands. Our brands make many occasions special. Be it origin, blend or a perfect serve, each of our brands is famous in its own way. Internationally, we champion eight of the top 20 premium distilled spirits brands by volume. Diageo is still a young company, but our brands have a rich heritage, whether they were born centuries, or only weeks ago. We are today's caretakers of these brands, which will continue to be cared for by our people for decades to come. We are as passionate about their future as

we are their legacy" Paul Walsh, CEO

Diageo's startegy:

At Diageo they believe that their main mission is to deliver sustainable organic growth through their outstanding range of premium drink brands. This is supported by strong financial discipline and cash management, and where appropriate will be supplemented by selective acquisitions.

Investing behind Diageo's global brands

Launching innovative new products

Seeking to expand selectively through partnership and acquisitions that add long-term value for shareholders

Diageo's performance

Strength and diversity of Diageo's brands across geographies, price points and consumer occasions delivers resilience and supports consistent growth. Continually invest in growth drivers within the business:

Building a world class supply chain

Maintain their advertising and promotion (A&P) spend to support brand equity

Strong customer relationships and expand selectively through partnerships or acquisitions that add long-term value for shareholders. Exercise financial discipline in the pursuit of long-term value for shareholders.

Diageo's strength lies in their outstanding collection of brands and their diversity across geographies, price points and consumer occasions. The company is a global player in the beverage industry. They manage 8 of the top 20 premium spirits brands and they continually invest in growth drivers within the business. According the shared service operation they use centralised systems such as SAP; outsource services where not core like IS, DBS.

Diageo's community investment:

Diageo's approach to community development isn't limited to their investment programmes, but is driven by the way they do business - from their local hiring practices and procurement relationships, to their environmental programmes, to how they approach the use and misuse of alcohol in society. This is because they recognise that their impact on sustainable development is greatest when they engage their entire value chain.

Their community investment programmes support and help amplify these social and economic impacts of their businesses. The company's range of investment programmes has been established over many years, in response to pressing needs identified by their communities. They aim to continue to build on the legacy of the founders of their brands such as Guinness and Johnnie Walker who believed in building healthy local communities through active philanthropy that addressed local needs and sustained their businesses. In 2011 Diageo invested about £28 million, which amounts to 1.1% of their operating profit after exceptional items.

By committing resources to a relatively small number of projects, concentrating on key themes and working in partnership with others, Diageo aims to maximise the effectiveness of its community investment. Besides Diageo's primary focus on responsible drinking, their other community activities fall into four focus areas, chosen to reflect where Diageo's businesses have the greatest impact and where the company can make the most difference:

Learning for Life program in Latin America and the Caribbean that provides job preparation and skills training.

The water of Life program primarily in Africa but also active in other parts of the world that aims to enable local communities to gain access to water.

Local Communities - the contributions of our local businesses towards community projects in their area.

Disaster Relief - Diageo's response to major disasters, including emergency relief, long-term rehabilitation projects and support for employees' fundraising efforts.

SSC business strategy:

Global market forces are driving the continual evolution of the food and beverage industry. There are some issues which impacting manufacturing and business strategy. Issues such as consolidation, the changing consumer preferences and of course the increasing government regulations. To be able to compete in this industry you have to offer wide range of products to meet customer demand. However besides the wide range of products you must consistently and cost-effectively produce high quality products. There are three main focus areas in order to be successful. Focus areas are the financial performance, sustainability and brand equity.

Financial performance

In the global marketplace growth via acquisition is outstanding. The main key to have a positive financial performance is the ability to understand and answer to consumer demands and competitive pressures. At the same time you still have to reduce the cost of production. Across the world, economic conditions and opportunities vary widely. Some markets are growing very fast. In others, Diageo can maximise share, and operating profit. Diageo differentiates approach to enhance their performance everywhere.

Diageo's financial performance involves the resources which will be in-market and will be close to customers and consumers. The company still developing markets which are resourced to deliver fast growth via enhanced routes to market, brand investment and enhanced leadership and commercial capability. Developed markets are organised for focus, efficiency and customer orientation.

Sustainability

Regarding sustainability the manufacturers should have a positive impact on the environment and society. To achieve positive impact on the environment and society manufacturers need to turn sustainability challenges into business advantages. Diageo has well-planned sustainability program which beliefs that corporate investment in environmental and social responsibility strengthening business performance to be successful. Good sustainability program reduce environmental impact, deliver return on investment , achieve genuine economy in the use of resources and increase the equity of the firm.

There are three main sustainability objectives:

energy conservation and efficiency

environmental responsibility and resource management

safety for workers, processes and products

Diageo's sustainability program

"For us, sustainability is about being ready for the future - planning for how the world will be in 100 years. Climate change, water scarcity, limited resources and energy prices are all going to have an impact on our business. This is why we are taking decisive action now." Paul Walsh, CEO

Diageo's target areas:

Water efficiency

Carbon reduction

Waste elimination

Reduction in effluent polluting power

Sustainable packaging

Sustainable procurement

The vision for Diageo brands to be sourced sustainably, produced sustainably, delivered to the customer and consumer sustainably in packaging that has the smallest environmental footprint, and for all Diageo employees to work in sustainable buildings. Being a responsible steward of natural resources also makes a positive difference to their relationships with communities, customers, employees, investors and other stakeholders.

Diageo planning to continue to work towards their key targets with a particular focus on integrating their environmental sustainability efforts into the business - whether through packaging innovation with the marketing team, GREENiQ programmes with their office employees, or sustainable agricultural with their suppliers. All of the environmental targets are important Diageo is putting extra efforts into their special water programmes, particularly at water-stressed sites.

The company's target areas: Water efficiency, Carbon reduction, Waste elimination, Reduction in effluent polluting power, Sustainable packaging, Sustainable procurement.

Brand equity

In the beverage industry customer loyalty is the key of the successful business. Customer loyalty could be achieved through manufacturing high quality products consistently. The most important factor is to add value to the brand. Financial strength includes protecting your brand equity depending on providing a local product, high value import or a global mega-brand.

"The breadth and depth of our range of great brands have enabled us to manage through the difficult trading environment. The heritage and the strong characteristics of our brands along with their positioning will help Diageo to emerge stronger." Paul Walsh Chief executive

Competitive situation

The key to be able to remain competitive in the beverage industry is to produce quality goods at the lowest possible cost. Manufacturers are improving efficiency by using information systems that monitor operations and give the capability to analyze results and find the cause of the problems. Also by installing standardized information systems manufacturers are able to monitor utility usage and identify opportunities to reduce costs.

Diageo's competitors

Figure Diageo competes in the areas of consumer loyalty, quality and price. The major global competitors in spirits are Bacardi, Brwn-Forman and Pernod Ricard. Each of them has several brands that compete directly with Diageo brands. Diageo has many competitions from local and regional companies in the countries in which it operates.

Figure

Regarding the beer sector Guinness brand competes in the overall beer market with its key competitors varying by market. These include Heineken in Ireland and both Heineken and SABMiller in several markets in Africa, Coors Brewing in the United Kingdom and Carlsberg in Malaysia.

Regarding the wine sector the market is fragmented with many producers and distributors.

Employee motivation

Shared services are all about people. It does not matter that they have the best and updated technology, because behind the computers there are still people. Even with using the best process with top class IT systems can lead to many errors because still people behind these systems who makes decisions. Many people that are working in SSC are performing boring, monotonous operations every day. It is very important to motivate and retain the employees and it should be one of the high priority agenda of shared services organizations in the future. I think it is already recognized by the CEOs that attracting and retaining the best employees will be a crucial factor in SSO success in the future.

In this chapter I will explain the best ways to motivate the employees and some different ways to appreciate their day to day work. Several tools are applicable for performance measurement in many SSO. I will use Diageo as an example for SSO to show how efficient the employee motivation Shared Services. I will also talk about the methods they use and of course the awards and bonuses.

Methods to motivate employees

Employee motivation starts with talent management. Team leaders have to put strong emphasis on that they have experience of managing multinational teams and working in a multicultural environment. Good leadership is one of the success factors in shared services. One of the key reasons for high performance levels are that to be surrounded with people who are more talented their employee.

To motivate the team is one of the most important skills a project leader must possess. The leader's job is to motivate and rally the team through challenging times. Motivation cannot be outsourced and it is the leaders and managers who must motivate. Motivation has long been considered a soft skill that was hard to quantify, therefore many companies left it up to annual meetings and inspiring rallies to keep their employees fired up. Leaders are now realizing that it's quickly becoming a vital part of their everyday job descriptions. Gallup's research shows that employees who think their managers care about them are more loyal and productive than those who do not think so.

There are some methods that could be used to attract, motivate and retain SSC employees. Career pathing is one of the methods. SSC should define and promote available career paths offered to their employees. These carrer opportunities could mean to another area of the SSO or even moving out of the SSO to other parts of the business. The linkage of the business could be another motivation. Linkage to business means market visits, meet parental companies or having a face to face visit with the managers in the headquarters. Awards and bonuses are well known facts for motivation and most of the Shared Services are using this method so does Diageo that I will talk about later. Giving insurance and medical benefits are also perfect for motivation. Flexible work arrangements could be also possible in SSC. This means part-time work or home office. Appealing work place means engagement activities or job rotation and product sample distribution.

Diageo's Global Asset Strategy

Diageo is committed through its Asset Management Policy to strive for continuous improvement of the performance of its assets in all of its manufacturing locations:

• Ensuring that their assets deliver maximum whole life business value, for the lowest total life cycle cost of ownership.

• Ensuring that Diageo is taking into account risk, safety, product quality and customer value, environmental and compliance issues.

• Based on the AMIS audit framework.

Diageo's Asset Management Strategy forms a key pillar of Diageo Way of Building Manufacturing Excellence (DWBME) and strives to continuously improve asset performance for the lowest total life cycle cost of ownership while taking into account risk, safety and compliance issues and manage those assets with optimised use of resources.

Diageo Asset Management Policy

Diageo is committed to delivering Manufacturing Excellence, defined as:

"Systematic and coordinated activities and practices through which an organisation optimally manages its assets, and their associated performance, risks and expenditures over their lifecycle for the purpose of achieving its organizational strategic plan delivering world-class performance levels"

As a key element of its success, high-performing, reliable, dependable assets provide the foundation for manufacturing excellence and for maintaining our position as supplier of choice for our demand partners.

Diageo is committed through its Asset Management Policy to strive for continuous improvement of the performance of its assets to ensure they deliver maximum whole life business value, for the lowest total life cycle cost of ownership while taking into account risk, safety, product quality and customer value, environmental and compliance issues.

Diageo will manage its assets at all Diageo wholly owned locations through their entire life cycle from early equipment management to write-off and decommissioning with optimised use of resources in keeping with the latest global standards and best practices. These being regular benchmarked using a recognised external benchmarking tool.

Asset Management Framework and Standards

Management

Diageo will provide leadership in manufacturing excellence by setting out and communicating a Global Asset Management Strategy, the foundation of which is planned preventive maintenance. This strategy will include an assessment and benchmarking framework together with training and support for roll out and implementation along with regular monitoring of KPIs. Diageo's supply centres and operating sites will be required to nominate asset management champions. These individuals will put in place appropriate activities at the tactical and operational level to support delivery of the Diageo Asset Management Policy objectives. The champions will network and share best practice.

Accountability

Every Diageo employee and supplier has a part to play in the implementation of the Asset Management Strategy. All levels of line management will be responsible for ensuring resources are made available for implementation of the Asset Management Strategy in pursuance of the Asset Management Policy objectives.

Achievement of the goals and objectives of the Global Asset Management Strategy is the responsibility of the site directors. The site directors will provide leadership to ensure that the asset care practitioners deliver the strategy and are provided with sufficient support and resources to implement it, including reporting and achievement of the target KPIs.

Ways of working

Diageo will ensure asset management activities reflect their core values of:

Passionate about consumers

Proud of what we do

Value each other

Be the best

Freedom to Succeed

Diageo will train and motivate employees to conduct activities in a safe, healthy and responsible manner ensuring they have competencies appropriate to their needs. Diageo is committed to the continual improvement of the Asset Management Policy, its application and its impact on asset performance and will monitor progress and use Process Confirmation to ensure best practice is embedded. Asset Management will continue to be committed to complying with Diageo risk management standards, LTO including the environmental goals, codes of practice and relevant legislation relating to Asset Management. It will provide a framework for measuring performance and ensuring continuous improvement by setting, auditing and reviewing the delivery of Asset Management objectives and targets. Progress against these targets will be reported on the Global KPI data base.

Performance measures:

KPIs and Supporting Systems

Diageo's standard Computerised Maintenance Management System (CMMS) is the SAP Asset Management Module. There will be four common global asset management KPIs reported by all Diageo sites onto the Global KPI database.

1. Plant Availability: This is an automatically calculated KPI within ORBIS for packaging but data entry is required for Distilling & Brewing

The total number of planned hours of production uptime, minus the downtime associated with the failure of an asset due to a fault, repairs, waiting for parts, labour etc, expressed as a percentage of the scheduled uptime.

If there is duty / standby plant, the number of hours of associated production downtime to change to the standby asset is to be included in the Plant availability calculation. This information should be provided by Operations.

Packaging:

KPI = Planned time - Long Stops - Short Stops - Speed Loss / Planned Time X 100 Brewing & Distilling:

KPI = Planned time - process plant downtime / Planned Time X 100

Intended Source: SAP Production Information System or equivalent system, information input by Operations teams

Adherence to Scheduled Planned Maintenance:

Number of planned maintenance work orders completed as a percentage of maintenance work orders planned for the given period. Planned maintenance includes PPM's, Continuous Improvement, and planned reactive work.

KPI = Total number of Planned jobs completed in the week x 100

Total number of all planned jobs for the week

Intended Source: SAP PM or other CMMS system

Planning Effectiveness:

Number of Craft man-hours spent on planned work and completed as a percentage of total craft resource hours available for the week

KPI = Craft man-hours planned & completed for the week x 100%

Total craft resource hours available in that week

Intended Source: SAP PM or other CMMS system

Alcohol beverage industry analysis

The Diageo Plc Company is in the food and beverages industry in general and in the distillers sub industry. I will be analyzing the industry through SWOT and PEST analysis. I am going to list all the internal and external factors that are affecting a given company. I will use the SWOT analysis to show the company's internal factors and PEST analysis is more useful in determination of the external environment.

SWOT analysis

Strength

Competitive brand name

Customer care

Wide range of products

Driving growth through powerful and engaging marketing

Weaknesses

Effectiveness of innovation

Employee motivation

Opportunities

Emerging markets

Economies of scale

M&A

Backward integration

Threats

Government regulations

Economic crisis

Product for product substitution

Strengths

The most prominent feature for Diageo Plc is its brands. This means that the company is able to secure brand loyalty. Brand loyalty includes Smirnoff, Johnnie Walker and Bailey's. However Diageo has a huge size with branches all over the world. The advantage of the branches is that the company can attract numerous market segments. As I mentioned above earlier Diageo has a wide range of products and also producing good quality beer.

Another source of strength for the company is the customer care. Diageo promptly takes care of its clients through efficient customer care. Always responses to customer requirements and they believe that the customer is always right. Customer needs should be done promptly and most of the time this is achieved through cooperation with the marketing and sales team.

Driving growth through powerful and engaging marketing is also a very important source of strength for the company. For example Smirnoff successfully activated its partnership with Madonna and Live Nation through numerous activities. Madonna and millions of international revelers celebrated The Smirnoff Nightlife Exchange Project in New York. Also in Western Europe countries Diageo established the Tonight we Tanqueray campaign Tanqueray seems to inspire consumers to start the night with swagger and build a distinctive brand image in the premium gin category.

Weaknesses

Some of the branches around the world have not been effective in the implementation of company policies and procedures because the company is located in different countries. Due to the fact that the company is located in different countries the company has not been as successful in certain countries as it is in some.

Another source of weaknesses is in the product innovation sector. The company did not achieve its full potential in the product innovation. There is still a plenty of possibility for continuous improvement.

Diageo's employee motivation skills are also weak. The company usually does not involve its employees in the process of making its company objectives. They are not very good at motivating their employees and the method they adopted is not working very well. From year to year the company became better at giving good bonuses and other forms of encouragement.

Opportunities:

Emerging markets give many opportunities to expand such a big company as Diageo. One of the biggest market facilities are developing countries. The number of payable costumers is growing there day to day. Next to geographical market development there is an opportunity of product development as well. The number of costumers, who can afford this high quality of products, is also growing in existing market.

Economies of scale can be an opportunity to decrease price or increase profit on the products. Further more mergers and acquisitions could provide possibilities to widening the product range or growing market share in alcohol beverage market. With backward or (buying up suppliers) forward (buying up distributors) integration the company could be more effective, reduce costs or achieve direct contact with the ingredients provider or buyer.

Threats:

Government regulations do not possible to forecast, they can increase taxes so intensive that it is not possible to access profit or in the worst case ban the purchase. In 2009 was an economic crisis, which effects decreasing demand (e.g. 2009: global wine sales went down with 10.8% [2] ). In the future there is a possibility any economic crisis around the countries where Diageo is operating. Product to product substitution can cause a biggest harm for the corporation. It is easy to copy the alcohol beverage products and there is a lot of alternative (more than 500 type of vodka exists [3] ) to consume alcohol.

Reasons for expanding shared services

Many CXOs say that there nothing new about shared services and we have had it for years. The leaders of the firms struggle through the hard economic times and they overlook the potential of this strategic asset to achieve future success. The use of the shared services can yield material margin increases and position companies to achieve long-term benefits under uncertain economic situation.

Under changing economy the executives pulled in two opposite directions. The business prospects are upgrading and many companies still reported increased demand under the blurry economic situation. There is a still a pressure on the executives because they would like to meet increasing demand while at the same time they would like to be conservative about hiring. However investors are pushing the companies to show remarkable returns after two years of disappointing results.

The above mentioned issues generate opportunity for companies to influence their shared services organizations to position them to capitalize on continued growth.

There are three main reasons why a firm should taking into consideration to expand the use of shared services:

Investors would like to have better returns : improved margin performance

Shared services can do more with less: efficient resource use and deployment

Internal conditions are right

Investors want better returns

The operational efficiencies could be gained by increasing operational integration. Operational integration involves the adoption of the shared services. Operational efficiency is a differentiator by the investment community. The below chart shows that such companies with integrated operating models have lower SG&A costs. The lower SG&A costs due to adoption of shared services among integrated operating companies.

Graph 1.

Figure

By adapting the following practices SSOs could drive better operational integration.

Standardization of a better enterprise-wide process

Standardization of the information technology and the use of a common IT platform

Increased standardization in G&A.

Efficient resource use and deployment

SSO offers the same services to multiple business units therefore resources in the SSO could be transferred from one business unit to another if a given business unit experiences issues. SSO typically specialize in one process area. The specialization in one give area helps to improve the skills and enables for the companies to achieve higher throughput.

One given company has more than 50 business units and taking orders by telephone. Such companies consolidated the order taking process in its SSO. Without shared service operation the order takers having issues to answer the phones on time. The company decided to move the work to the SSO and therefore the management team was able to employ workforce management tools. They managed work shifts to answer the incoming calls with fewer employees. Due to the migration of the call center the wages were much lower than at many other business units. Lowering the wages is one of the typical aspects for cost savings.

Location of Shared Service Centers

One of the major successes of the project is the location of the Shared services. If companies make bad decisions regarding the location it could be a painful failure. A good location depends on the factors such as salary levels, operational cost, traveling times, law issues and taxation at the given country. There is no called such perfect location, because the decision is company specific. In this section I will explain what could be the best regions or countries to locate shared service and then I will use Diageo as an example. I will also analyze Hungary as a location for shared service center. Diageo established its Shared service in Budapest in 2010. The shared service center called DBSC and is increasingly playing a central role in overall governance and compliance for Diageo.

Hungary as a location for Shared Service centers

In the business world we have to face challenges all the time. To analyze the external and internal factors of Hungary is a very important factor regarding the location selection. I will use the SWOT analysis to see if Hungary is a good choice for a company to move its shared service center

The situation in Europe and North America is different. A common trend for North American companies is to establish their service centers in Latin America. The U.S. in particular, country which possesses large operating costs, remains the main source for shared services activity worldwide. Historically, U.S. companies first exploited locations within North America to serve their operations. In the last years, nevertheless, high operational costs and possibilities on emerging markets forced them to shift their SSCs or at least rethink their shared service strategy.

While countries in the eastern part of the European Union evince little activity in shared services, the opposite applies for Central European countries. According to Deloitte - Czech Republic, Hungary, Poland, Bulgaria, and Romania are "hot" shared services destinations for companies searching for lower cost alternatives to the increasingly competitive markets in major Western European cities.

On the one hand, among the main drivers which contributed to the success of many cities in Central Europe are still low labor costs (even though the trend is unambiguously indicating loss of this benefit in the near future), stable and sufficiently developed infrastructure, skill set of workers, language abilities of labor and mostly, geographical and cultural proximity to the Western European headquarters. On the other hand, the political and economical environment in Central Europe even now displays shortcomings which inevitably increase the risk factor of the SSC investment.

Africa seems, up to the present time, to be waiting for its moment to become attractive for investments from other regions. Only exception seems to be North African countries such as Morocco and Egypt.

Selecting a proper location for a shared services center is a challenging and complex task for any company regardless any previous experience. By nature, this decision has a deep and long-lasting impact, hence the company must carefully think over all the relevant factors, risks and consequences. It is usually recommended to apply a transparent, analytical and data-driven approach often resulting to feasibility study or decision matrix.

Hungary's shared services industry is growing after the fast expansion during the past decade. The shared service industry is one of the country's largest employers. It offers 30,000 jobs and this amount is continuously growing. Nowadays in Hungary there are 80 SSCs and they provide centralized business services at both the regional and global level. The business services are accounting, finance, procurement, logistics, human resources and IT. Those services also involve transactional roles and vale-.add activities. In Hungary the SSCs requires strong language skills. Also the SSCs are looking for fresh graduates from the universities. The SSC industry accounts for approximately 1.2% of the 2010 central state budget in terms of employee related taxes, VAT payment and duties.

Source: http://www.pwc.com/hu/en/pressroom/a-growing-sector-in-a-declining-economy.jhtml

The PricewaterhouseCoopers survey was the first comprehensive study about the SSC industry. The survey's main point was that the shared services in such countries as Hungary are in the expansion phase of their life cycle. Given the current economic situation in Hungary this expansion presents the country with valuable and unique opportunity. Economists say in Hungary that the SSCs will create 2,000 more jobs in the near future. The job creation is the key to build a knowledge based economy.

The managing director of Diageo gave the below speech:

"Diageo operates one of the oldest and most mature shared service centers in Hungary and our strategy is very much shared by many players in the market: shifting from standardized, transactional activities to higher complexity areas that leverage the local talent and expertise. With 80% of shared service centers still in expansion phase, our industry presents Hungary with a unique opportunity."

Hungary's attractiveness

Hungary is still shown as an attractive option for locating shared services. The attractiveness includes highly qualified labor with strong language skills and also good infrastructure. Hungary is doing well in the competition of attractiveness however the competition is strong because other countries also have great offerings and incentives. In some countries to help attract and retain investment have dedicated strategies for the shared services industry.

The managing director of Celanese Corporation said: ""

One important aspect of a country's ability to maintain a leadership position in the SSC marketplace is the development of secondary locations outside the primary city. The talent is available in major cities across Hungary, but substantial investment is needed in infrastructure and a focus should be placed on awareness of career opportunities in SSC's. The capital is becoming more competitive due to new entrants and the expansion of existing SSCs; however, in-country alternatives need to be explored if Hungary wants to continue to attract new SSC investment."

Risks

Advantage and disadvantage of SSC for an international company:

We have to ensure the management that we have a clear picture for the future that contains risks and costs to decide to implement SSC in their company. In practice the main goal is to decrease costs:

Economies of scale: The relating processes through given calculated transaction volume that could result synergy effect and economies of scale.

Efficiency: Optimized processes in SSC create more efficient performance like in decentralist units. There is fewer employee needed to utilize our capacity.

Cost efficiency: The clearing prices cause that it has to consider just exact performances of units. Profit and loss account foster economical thinking in SSC.

Location advantage: To implement SSC in a region with lower average salary it affects also the lower personal costs and tax reduction or governance support.

Resource encouragement: The concentration of processes could improve resource allocation. It can reduce transportation costs as well.

The size of cost reduction by different companies is always diverse. It depends on how many countries SSC is delivered, how complement the processes through the decentralized company is operating or how effective is the quality of the divisions, that were implemented in a new country. There is another advantage next to cost reduction of SSC such as quality advantage. More efficient, standardized processes based on the principal of "Best Practice [4] ".By using optimal technology it enables optimal transaction value and it could conduct through specialization to quality escalation in performance building and also the reduction of cycle time (experience curve effect [5] ). Creating groups for locale business segments disburden the local division and give a possibility to concentrate on core competence such as instead of concentrating on every element same, the company can pay attention better for key products/services or sectors. Compare to outsourcing through the internal continuous building the company stay independent from external service providers. Hence the knowledge in business doesn´t lose, but it can developing in the firm and through lead to competition advantages.

Strategic advantages first of all offer higher flexibility by acquisitions, divestments [6] and reorganization through complete standardizes and independent functions from operative business in SSC [7] . There are more possibilities like risks to implement SSC especially by polynomial and international firms with heterogenic IT territory and variability of process realization is often require complete reorganization, which drive to enormously investment expenses. If the company doesn´t appreciate enough the costs of services in the new SSC, than they will be disappointed in the depreciation of the fix costs.

There is internal fluctuation between segments and this can effect on the internal knowledge flow. The old employee has to learn the new exercises and does not have enough time to teach the new comers in their old position. The geographical distances have a very harmful consequence. There are no face to face contact between the workers and their customers. They are not able to build up the long term trust relationship with the buyers. Furthermore the international SSC can result communication and culturally problems between the home centrum and the foreign SSC.

Strong points:

Costs reduction

Realization of the process standardization

Process optimizing, through optimization lower the process cycle time and upgrade quality

Achieving customer and service orientation in the support segment

Deeper concentration on the core competence through shifting support process in SSC

Lower external dependence like by outsourcing

No know-how losses in the concern

Weak points:

Internal fluctuation can cause know-how loss between the segments

Communication problems, because there is no personal contact (geographical distance)

Cultural and language problems between the centrum and SSC

Tax and law system difference can cause extra costs through penalty and paying for extra jurists.

International challenges:

If company decides that it will open SSC(s) in a foreign country, they have to face a lot of challenges which has not appeared in a home country. First of all it could highlight structural problems.

Structural problems:

The implementation of a new SSC could bring itself a big challenge in the communication especially internally in the company. New communication channels should establish and operating between the center and operating divisions. The workers feel that they just communicate with anonym persons in the foreign SSC and it could lead to depersonalizing. It is more difficult to understand and use newly created definitions and processes right, if they were structured in the center and not fit in the foreign culture and company structure.

Future of Shared Services

Shared Services have become a well established feature of modern financial practice, including both private and public sector organizations. The shared services center is an increasingly attractive option for those companies looking to extend the efficiency of corporate support functions. As I mentioned earlier the shared services have significant benefits to organizations in both the public and private sector.

Let me summarize shortly the benefits:

lower operating costs

improvements in the service quality

having access to staff with special skills

easier to recruit of skilled/high caliber finance staff

standardization

ongoing performance improvement

Considering the future of the Shared Services I have to say that there is no right or wrong model to choose, every organization faces its challenges. Before generating shared services there are certain factors that should be taken into consideration.

Budgets: what to expect to gain from the change and also what can be afforded, ROI measured against KPIs is the best long-term measure of a system's effectiveness

Monitoring existing systems- find out what is needed to be done differently

Integration: using different systems or making changes within teams and departments

Standardization of processes: it is easier to work by using standardized processes, it is also important to work out why there is a need for process standardization

Legal considerations: every companies has their own compliance requirements, it is important to build those requirements into the basic infrastructure of any new system

There are so many benefits of Shared services; therefore the question is what the long-term consequences for shared services industry are?

Reduce funding

Cost cutting is on the top of most business agendas, but the leaders have recognized it as a short term fix. In every organization happens when cost cutting fails to meet economies of scale. To have sustainable e