The current status of shared services models in Japan: Historical verification and challenges for future growth

Mitsuyoshi Sudo Group Manager Global Shared Services Initiative Group Management Innovation Consulting Department Nomura Research Institute, Ltd. (NRI)

Copyright© 2011 Nomura Research Institute, Ltd. All rights reserved.

Profile Mitsuyoshi SUDO / [email protected] Innovation of corporate functions, Shared Services & BPO Implementation, etc. • Establishment of corporate functions in China (Conglomerate company) • Operational reform of indirect services(Semiconductor, Equipment/Utility, Food) • Planning of shared services (Telecommunications, Materials and track records in other industries) Copyright© 2011 Nomura Research Institute, Ltd. All rights reserved.

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Agenda

1. Trends of shared service reform in Japanese companies

2. Issues and emerging examples of shared service reform

3. Essence of the Japan type shared service reform

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SSC reform was a peak in 2004 in Japan. BPO is also active in recent years as well as SSC. The number of news paper articles picked by keywords of “Shared Service” 14

12

10

8

SSC 6

BPO

4

2

0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(Source) NRI creation from Nihon Keizai Shimbun articles

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Major shared functions are FN, HR and General Affairs. Information systems were operated in the Functionsin provided group companies. (multiple answer) subsidiaries manytocases. Target Business Processes (narrow sense) Information systems subsidiaries

Target Business Processes (broad sense)

Finance/Accounting

(%) 61

Information Systems

60

Human Resources

50

General Affirs

41

Logistics

29

Legal and IP

29

Procurement

29

Audit

26

PR and IR

25

Others

9

(Source) “NRI Survey on Group Management”(March, 2004); N=253

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Both HR and Accounting & Finance functions, operational processes form a core of SSC services. Company

A

B

C

D

E

F

G

H

Ｉ

Industry

Pulp/ Paper

Finance

Fiber

Food

Electroni cs

Electroni cs

Steel

Transport ation

Chemistr y

Number of employees

5,000

3,500

7,000

8,500

5,200

176,000

27,000

16,000

17,000

○ ○

○ ○ ○ ○

○ ○ ○ ○

○

○ ○ ○ ○

○ ○ ○ ○

Labor Policy Personnel Human Resources

Hiring Education and Training Attendance/Salary Welfare

○ ○

○ ○

○ ○

○ ○

Cash planning and management Management accounting Accounting and Finance

Account Close Fixed Assets Tax Debts and credits Cashbook

-

○ ○ ○ ○ ○

○ ○ ○

○ ○ ○ ○ ○ ○

○ ○ ○ ○ ○

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○ ○ ○ ○ ○ ○

-

(Source) Web home pages and newspaper articles

○ ○ ○ ○

There are two kinds of models when an organization is divided. Type A; concentrate businesses in the HQs Inbound - SSC

Type B; Concentrate Businesses in subsidiaries Outbound - SSC

[Merit] •Large reorganization is unnecessary. •It It can concentrate on cost reduction without adhering to profits creation. [Demerit] •The The operating form of the head office is dragged. •Performance measurement of SSC is difficult. [Merit] •Performance Performance measurement is easy and can clarify indirect operating cost. [Demerit] •Initial Initial investment is larger than a head office section. •An employee's motivation falls easily.

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SSC (type B) hits its stride in Phase 1. Moves into a period of improvement in Phase 2, and now are currently in Phase 3. Period 0: Dawn

Period 1: Introductory

Period 2: Improvement

(80’s - 90’s)

(2000 - 2004)

(2005 - 2008)

• SSC (Type B) appeared in the US

Outline

• SSC concept was not in Japan

• Many SSC companies (Type B) were established, and published in mass media.

• Expansion of organizations SSC offer services to. • Active SSC services sales to outside companies

• SSC offered services only to some group companies.

• Active improvement initiatives to solve many problems in SSCs.

80’s (US)

Type A representative case (Japan)

Cases

• GE

• Sony, Sharp

• Those companies in the left taken initiatives for improve

90’s (US)

Type B representative case (Japan)

• HP, AT&T, AMEX, P&G, etc.

• NTT, Teijin, Mitsubishi Corp., Daikin, Omron, Hitachi, Panasonic, Kirin, etc.

• SSC (Type A) existed

Cases

• Spread of SSC concepts

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• SSC boom shifted to midsized companies from larger ones

(Source) Home pages and newspaper articles

Period 3: (2009 - )

From within leading Japanese companies, SONY classified as Type A (BPO User), and NTT classified as Type B (Service provider to Period 1: Introductory external companies). Direction ＡＦＴＥＲ (2000 - 2004)

TYPE A SONY

TYPE B NTT

March, 2001 when shifting to a company based organization and reorganizing whole group, HQs were divided into "global HUB" of a strategic planning function, and the "management platform" as a shared function.

- A global hub, a management platform and an operation platform was unified BPO in HQs in June, 2005 ? - Personnel operation, payroll and education & training business were transferred to "Human Business Associates" in April, 2010.

NTT BUSINESS ASSOCIE was establish in July, 1999. It started as a service provider to four NTT group companies. Services include financial & accounting, personnel & payroll, and general affairs. A local company was integrated in 2002, and became a service economy to whole nation.

- A service menu of finance & accounting was developed in 2003, and outsourcing service was started. Services on personnel and general Service provider affairs were also developed later. ? - Now scope is expanded outsourcing service provider

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(Source) Home pages and newspaper articles

1. Trends of shared service reform in Japanese companies

2. Issues and emerging examples of shared service reform

3. Essence of the Japan type shared service reform

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SSC (type B) hits its stride in Phase 1. Currently in the growth stage of SSC reform. Period 1 and 2

Period 3

(2000 - 2008)

(2009 - )

SSC setup with try and error
SSC technique which was beginning to spread was adopted as a means of the cost reduction of a back-office section.
The optimal method was unclear and trials were made by internal organ. or subsidiary with/without external customers.

Seek for the best suited SSC and leap
An effect cannot be demonstrated although SSC was installed. Searching for SSC
While expanding sale to suitable for the external customers, situation of Japanese service level for the companies. internal customers falls. •Unique business
Generating of new culture possibilities, such as •Large scale indirect development of BPO in businesses China •Difficulties in employment adjustment

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Sustainability of SSC (Expand external sales)

Use of overseas BPO

Reorganization of SSC functions

Integration of SSC to HQs

Sustainability of SSC (Expand external sales)

HR One Corp was established by integration of some SSC companies towards service level improvement Establishment of SSC By three cross-industrial companies (2002)

Merger of SSCs and expansion of external services (2009)


By investment from Chuo Mitsui Trust and Banking Company, Panasonic and Kao, HR service consulting was established.


Acquired a SSC division of Human Link, a subsidiary of Mitsubishi Corp., and set up HR One Corp.


In 2005, it came to handle HR and salary & welfare services of 60 companies (105,000 employees) within three company groups, and started sale to external companies.


The holding-in-custodyassets number of the employees reached 320,000, and aims at improvement in service quality and commission cost mitigation.

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Service level improvement by forming alliances and setting up base locations(2010 -)


Alliance was set with ADP (USA) in May, 2010
A base which is entrusted with payroll calculation business etc. was set in Okinawa Prefecture in June, 2011.

Use of overseas BPO

Two or more BPO vendors in Dalian are utilized, and cost reduction is pursued over setting up SSCs in Japan. BPO venders in Dalian Company A(Japan)

SSC of Company A(Dalian)

HR BPO (A) Started in 2005. Accounting Intellectual Property

Now, services equivalent to approx. 200 persons’ is carried out.

BPO (B) BPO (C)

Procurement Services

・・・

About five persons' amount of services is made applicable, and BPO service is promoted.

BPO (D)

BPO (E)

Indirect business in Japan was transferred to Dalian(SSC in overseas) Copyright© 2011 Nomura Research Institute, Ltd. All rights reserved.

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Re-commission to BPO venders

Reorganization of SSC functions

Kirin Holdings reorganized to make the SSC’s original objectives clear 2007 Kirin Business Expert (ＫＢＥ) ) 400 employees

2010 Kirin Group Office (KGO) 170 employees

Strategy planning / promotion and a group corporate function

Standard fixed “New” Kirin Business form services and Expert(KBE) special services 230 employees

SSC was established under a holding company. Concentration of the indirect businesses of group companies was started.

function

(1)Concentration and standardization of group’s indirect business were further promoted (2) Introduction of new personnel and compensation system, and efficient personnel and management organization according to a business activity were built. (3) Achieving and providing good merchantable pages indirect groupHome companies at Copyright© 2011 Nomura Research Institute, Ltd. All rights reserved. services to (Source) and newspaper articles competitive 13 price.

Integration of SSC to HQs

Daikin evaluated its SSC as a success. Changes were made to aim for a synergistic effect with the HQs Before 2000

Daikin and each group company carried out HR and general affairs separately.

Daikin

Associated companies (65 in Japan)

2000 - 2008

2009 -

Concentrated indirect businesses Businesses in DHS was transferred of group companies to Daikin.

Daikin • Businesses in HR and General Admin. were directly connected with corp. strategy. • Planning was provided in align with strategy

Daikin 人事戦略・企画業務と 実務業務の一体化に よるシナジーを図る

Daikin Human Support Fixed form and specialized services of the whole group were concentrated Copyright© 2011 Nomura Research Institute, Ltd. All rights reserved.

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(Source) Home pages and newspaper articles

1. Trends of shared service reform in Japanese companies

2. Issues and emerging examples of shared service reform

3. Essence of the Japan type shared service reform

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Revenue

Sustainable growth is hard to plan after the Lehman shock, and a re-setup of a mid-term plan is a major trend in the current fiscal (\year billion) Ordinary Profit(\

450,000

50,000

430,000

330,000

Re-setup 45,000 of midterm plan 40,000 & 35,000 Drastic 30,000 reform of businesse 25,000 20,000 s

310,000

15,000

410,000 390,000

Revenue 370,000 350,000

290,000 270,000

10,000

Ordinary profit

5,000 0

2002.6 2002.9 2002.12 2003.3 2003.6 2003.9 2003.12 2004.3 2004.6 2004.9 2004.12 2005.3 2005.6 2005.9 2005.12 2006.3 2006.6 2006.9 2006.12 2007.3 2007.6 2007.9 2007.12 2008.3 2008.6 2008.9 2008.12 2009.3 2009.6 2009.9 2009.12 2010.3 2010.6 2010.9 2010.12 2011.3

250,000

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出所；財務省法人企業統計季報（全産業）

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billion)

Radical company-wide reform becomes a critical focus for many organizations. Company Name

Organization Name(* general translation)

Establish ed

TAKARA SHUZO Co., Ltd.

Business-innovations promotion dept,

NEC Corp.

Operating process reform dept,

ISUZU MOTORS Ltd.

Systems and Business-innovations promotion dept.

2009.2

Jupiter Telecommunications Co., Ltd.

Business-innovations promotion dept,

2009.4

Nippon Steel Chemical Co., Ltd.

Operating reform project

2010.4

Shimadzu Corp.

Operating system generalization dept.

2010.4

Nikkei Inc.

Operating reform head office

2010.4

Mitsubishi Chemical Corp.

Business-innovations unit

2010.4

Kaneka Corp.

Business-innovations head office

2010.4

YKK Corp.

Management and a business value base construction project

2010.4

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NTT DATA Corp.

Operating reform 17

(Source) Home pages and newspaper promotion dept. articles

2008.4 2008

2010.7

Even in 10-year forecasts, Japan is still viewed as the main revenue contributor and with the rest of Asia and other emerging countries as growing of 50 major Japanese manufactures by region areas of Revenue interest Total \trillio n

Japan

America

Europe

Asia / Newly Emerging Companies

FY 2000

62%

21%

9%

8%

121

FY 2007

48%

22%

14%

16%

173

FY 2020

40 – 50 %(?)

30 – 40 % (?)

??

20 – 40 % (?)

(Source) NRI creation from the geographical segment information and the foreign-sales information on each company financial report. (Notes) Data from 50 top companies in revenue selected from Japan affiliated manufacturing industry of chemicals, machineries, transportation machineries, electric apparatus, and precision instruments. Copyright© 2011 Nomura Research Institute, Ltd. All rights reserved.

18 18

A barrier to adoption is due to Japanese companies using a non-global standard. Accounting System of manufacturing company A

SAP original Unknown Unknown

SAP

Overseas subsidiary

Original System Acquired Subsidiary

Oracle Unknown Unknown original

It is very hard to shift to SAP

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Systems transfer

There is no quick-fix solution to increase business efficiency globally.

A Japanese HQs staff is a local staff state Who can perform only Japanese correspondence.

To be is: -Application of global standard -Global personnel training But,

Operating process in Japan is like a state of “Galapagos Islands”. (with no innovation)

Short-term solution is difficult

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Essence of Japan type shared service reform towards 2020. (1) Construction of global single shared service is difficult.

(2) Japan's position in 2020 will still be large and Japan standard shared service will be necessary. (3) Except Japan, standardization will progress on a global level and global SSC will be developed, too. Copyright© 2011 Nomura Research Institute, Ltd. All rights reserved.

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From now on, the shared service initiatives of Japanese companies will be developed through a Smart model. Business operations in Europe, US and Newly Emerging Countries

HQs and subsidiaries in Japan

Smart Model

G-SSC Personnel Master Data

J-SSC

IFRS

Linkage with necessary minimum functions Copyright© 2011 Nomura Research Institute, Ltd. All rights reserved.

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Mitsuyoshi SUDO TEL : +81-(0)3-5533—2660 Copyright © 2011 Nomura Institute, Ltd. All rights reserved. e-mail : Research [email protected]

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