Help Diageo To Emerge Stronger Commerce Essay


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.

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.

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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.

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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


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.


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

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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.


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


Competitive brand name

Customer care

Wide range of products

Driving growth through powerful and engaging marketing


Effectiveness of innovation

Employee motivation


Emerging markets

Economies of scale


Backward integration


Government regulations

Economic crisis

Product for product substitution


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.


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.


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.


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% [1] ). 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 [2] ) 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.


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.


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."


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 [3] ".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 [4] ). 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 [5] and reorganization through complete standardizes and independent functions from operative business in SSC [6] . 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


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 efficiency firms have to straightening out long-standing processes and ensuring visibility and control of every aspect of daily operations. Cost cutting is an important aspect of the business operations, but the real benefit is the transformational power which can lead to change across the way in which an organization conducts functions and processes as a whole.

Financial performance

Improved service delivery and development of functions are also important factors. Originally Shared services were designed to standardize the financial transaction processes, but there are other back office processes that became important such as IT, Procurement and HR. The key priorities for an organization is mitigating risk, increasing transparency and ensuring relevant compliance requirements. These priorities are no longer just the Finance team's task but also the other teams' from other departments.

Susie West, CEO,, describes some of the motivations for moving functions other than Finance into a SSC, "Within HR, Procurement, IT, Legal and even Marketing, there are activities which do not require face-time, and can be readily automated, off shored, standardized, centralized, and consolidated on a single system without it being detrimental to the business."

Changing in value chain

Shared services were made to conform tactical function within the business, focusing on standardizing processes and cutting funds. Shared services also have much valuable information that can be given to the business to aid with decision making. Shared services in the future will be able and expected to influence the top line strategy of the business. Shared services nowadays are more about providing information than just being about data input. SSCs give assistance and advice to the rest of the business to aid their decision making.

Many of the SSCs in developed economies continuously gain momentum and popularity, but in less developed economies the SSs will still remain close to the start of their metaphorical journey. The key factor is the technological progress and the actions of national and global markets. At the moment the outsourcing is also very popular but likely in the future it becomes less common because businesses will feel to bring the functions back in-house.


GDBSs deliveries to Diageo

By creating the Shared Service center Diageo making a major shift in their focus to accelerate Diageo's growth and deliver significant new benefits. They are fundamentally changing their operating model, to create a new organisation that combines Global IS and Diageo business services to form GLOBAL DIAGEO BUSINESS SERVICES (GDBS) which includes driving value, service and business performance. GDBS comprises four new areas: business relationship management, business services, IS shared services and support services. Diageo believes that DBS will deliver a single point of contact to the business through a simplified regional engagement and delivery approach for IS and financial services. The DBS will have a greater efficiencies and control via leveraging core strengths in process and compliance. By DBS there is an opportunity to create the platform for future expansion.

Diageo's benefit through GDBS

Driving efficiency improvements through

Transparency of cost to serve

Greater standardisation of process and migration to shared services

Competitive advantage

Allowing markets to focus on commercial performance

Providing analytics as a core competency to drive insight


Greater automation of controls

Creation of centre of excellence