Master's Degree Thesis
MAPUA INSTITUTE OF TECHNOLOGY
School of Graduate Studies
In
Engineering Management
A Hosting Capability Assessment for Philippine Based Shared
Service Centers
Submitted by:
Cruzem, Vera Dorothy D.
BS Industrial Engineering
Mapúa Institute of Technology, July 2011
A Thesis Paper Submitted to the
School of Graduate Studies in Engineering Management
In Partial Fulfillment for the Requirements of
Master of Science
Engineering Management
2nd Quarter SY 2015 – 2016
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CHAPTER I
INTRODUCTION
Supply Chain is a word “now frequently used internationally” (A. Feller, 2006)—to
comprise every effort involved in producing and delivering a final product or service, from the
supplier’s supplier to the customer’s customer.
Over the years, it has integrated manufacturing operations, purchasing, transportation, and
physical distribution into a unified program. Zigiaris (2000) also described that Successful chains
coordinate and integrate all these activities into a seamless process. It embraces and links all the
vital part of the departments within the organization. Also, it includes vendors, carriers, third-party
companies and information system providers. Within the organization, the Supply Chain refers to
a wide range of functional areas. These include inbound and outbound transportation,
warehousing, and inventory control. As well as procurement, sourcing, and supply management
fall under the Supply Chain jurisdiction.
Figure 1.1: Supply Chain Concept (A. Feller, 2006)
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Top companies around the world are discovering a powerful and sustainable new source
of competitive advantage—Supply Chain Management. It compasses all those integrated activities
that bring product to market and create satisfied customers. (Yarusso, L., Sanderson, R., 2010. 6
Keys to Sustainable Supply Chain Advantage, Retrieved from Supply/Demand Chain website:
http://www.sdcexec.com/article/-/6-keys-to-the-sustainable-supply-chain-advantage).
Emerging in the 1980s, the evolution of Supply Chain has a firm hand on all aspects of
physical distribution and material management. Computer technology has advanced at such a
phenomenal rate that it is currently far ahead of the ability of the supply and logistics field to
adequately utilize the new technologies. These have already included Inventory Management,
Transportation service procurement, Materials handling, Inbound transportation, Transportation
operations Management and Warehouse Management (Bossala, 2014).
In today’s demanding business environment, ‘slow and steady’ will not get companies the
edge above others. Managers recognize that getting products to customers faster than everyone
else will definitely improve a company’s competitive stance in the market. Zigiaris (2000)
explained to persist competitive strategies; companies must search for new solutions to important
Supply Chain Management issues such as modal analysis, load planning, and route planning and
distribution network design.
Each logistic job is fully defined by an order (linear) sequence of logistic activities that are
associated with particular logistic units. In a sequential manner of doing business is made clear in
Figure 1.2. Two possibilities can occur though this: Made to stock supply chain—order goes to
warehouse for fulfillment, then picked from stocks and prepared from transport. The second one
is made to order—the order goes to production facility; the planners check on raw materials for
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production. If raw materials are insufficient, the planners will contact suppliers to procure
additional material. Every time period of forecast is adjusted based on actual demand and suppliers
receive the new forecast to adjust theirs. After which, the finish products are finely shipped to the
customer (S. Boyson, T. Corsi, eCrouse; Managing the real-time supply chain, introduction
module, 2004).
Order
Placement
Warehouse
Production
Factory
Supplier
Customer
Figure 1.2: Linear Supply Chain Concept (adopted from S. Boyson, T. Corsi, eCourse;
Managing the real-time supply chain, introduction module)
Dealing with the trends of the fast-paced market, companies must recon to change working
ways in handling supply chain. Figure 2.0 demonstrated the way to have real-time supply chain
matters. To effectively coordinate and communicate with all Supply Chain partners-enabling new
technologies combined innovations in telecommunication and emergence of real-time supply
chains. This nodal model has provided new ways of serving all customers in this changing world
(S. Boyson, T. Corsi, eCourse; Managing the real-time supply chain, introduction module, 2004).
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Figure 2.0: Nodal model of a Supply Chain Management Network
By the time of Late 90s, Supply Chain Management again evolved to handle services such
as Operational Analysis and Design Materials Handling, Distribution Strategy, Operational
Improvements, Distribution Management, Computer Systems, Warehouse Design Project
Management, Operational Commissioning, Computer Simulation and Technical Seminars
(Zigiaris, 2000). As well as adding two major trends benefitting SCM operations: Customer service
Focus and Information Technology.
These roles make the distinction that "Logistics is that part of the supply chain process that
plans, implements, and controls the efficient, effective forward and reverse flow and storage of
goods, services, and related information between the point of origin and the point of consumption
in order to meet customers' requirements" ( Jacques S. Gansler, Robert E. Luby, and Bonnie
Kornberg, Transforming Government Supply Chain Management, 2004, 8) while "Supply Chain
Management is the systemic, strategic coordination of the traditional business functions and the
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tactics across these business functions within a particular company and across businesses within
the supply chain for the purposes of improving the long-term performance of the individual
companies and the supply chain as a whole.” (John Mentzer, William DeWitt, James Keebler,
Soonhong Min, Nancy Nix, Carlo Smith, and Zach Zacharia, “Defining Supply Chain
Management,” Journal of Business Logistics22, no. 2, 2001, 7).
According to Tracy et al (2004), there is a significant positive relationships existing among
three (3) type of Supply Chain Management capabilities (outside-in, inside-out and spanning) and
business performance (perceived customer value, customer loyalty, market and financial
performance). Also, Vickery et al. (2003) examined the performance implications of an integrated
supply chain strategy, with customer service performance followed by financial performance as
performance constructs. This resulted positive direct relationships between (1) integrated
information technologies and supply chain integration, (2) supply chain integration and customer
service, and (3) customer service and firm performance.
Li et al. (2006) researched about the conceptualization and development of five (5)
dimensions of Supply Chain Management practice, and tested the relationships between SCM,
practices, competitive advantage and organizational performance. This study resulted higher levels
of Supply Chain Management practice can lead to enhanced competitive advantage and improved
organizational advantage and performance. As well as, competitive advantage has direct and
positive impact on organizational performance.
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Figure 2.1: Strong Supply Chain Management practices boosts Business Performance (as
adopted from 4 key jobs for an effective supply chain by Kamali, 2014)
With today’s business setting is considered by strong global competition, extensive
pressure on companies to improve profitability, and shareholders that become excessively active
and bold in demanding value creation from management. With the aim to reduce costs and progress
company profitability, development that widened focus to tap potential cost savings and efficiency
improvements—not only in operations, but as well as developments in support or back-office
functions (DeLucia, 2007).
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Concepts like Shared Services, Off-Shoring, and Outsourcing continue to gain fame. This
set-up promises significant support function cost reduction of about 15% to 20%, or more.
However, companies proposing to implement such ideas should remain realistic and be aware of
the many tests and significant organizational challenges necessary for this change (Bergeron,
2003).
The search for the best business practice has for a long time had its focus only on the
process of the business, including cutting costs and improving quality and flexibility of products
and services. Eventually it came to the point where the process is so efficient, there were no more
improvements could be done. The focus was then turned to the support processes. In the end of
the 1980s, a change-project started, which organized support or back office processes and nonstrategic activities in separate organizations outside the companies. From the idea’s start, it was to
duplicate processes and activities in one organizational unit and thereby create a potential for
optimization and extensive economies (Davidsson & Karlson, 2005). This turned out to be a thread
to processes and tasks in the company’s own business. This changing business environment
continuously challenges companies to develop new ideas of how to stay competitive on an ever
fiercer market. Crucial for survival is among others high flexibility and rapid response to customer
expectation (Bergeron, 2003). Thus, companies understood that the Shared Service set-up was the
best way to solve this problem (Ulbrich, 2003).
Shared Services as Bergaron (2003) defined, is a collaborative strategy in which a subset
of existing business functions is 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, just like a business
competing in the open market.
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This idea of Shared Services was primarily driven by cost reduction and improvements in
quality of service and its efficiency. It is a way of organizing administrative functions to optimize
the delivery of cost-effective, flexible, reliable services to all “customers.” (University of Michigan
Administrative Services Transformation, what is shared services, 2011, retrieved at
http://ast.umich.edu/pdfs/What-is-shared-services-102811.pdf).
Due to these benefits, it has gained much attention since the late 1990s after countless
business organizations have become aware of its existence and implemented it to realize its
benefits. “Shared Services involves the convergences and streamlining of an organization’s
funcion to ensure timely service delivery as effectively and efficiently as possible.” (J.Yee Hon
Weng, 2009).
Another idea of Shared Services is to share resources –the organizational staff and
technology – while providing defined services (as defined in the service level agreement or SLA)
at a cost and service level that exceed the requirements of the internal customer (Cisco, 2005,
Retrived
from
website:
http://www.cisco.com/c/en/us/support/docs/availability/high-
availability/15117-sla.html). This is specifically, the development in enterprise resource planning
(ERP) software, though it may not necessarily bring about positive effects as each business is
unique, thus the “IT productivity paradox” term is coined.
Bergeron (2003) also states that most back-end functions (i.e Billing, Human Resources,
Information Services, Payroll, etc) belonging to organization only began to gain the attention of
senior management when mergers and acquisitions create redundancies in personnel and
operations of when there is a need to free up physical space, management and other resources.
It is also focused on process excellence and continuous improvement using Service Level
Agreements (SLAs) to define levels of service that the business unit receives. An operational
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model that is used by multinational companies and large enterprise groups to effectively integrate
global resources and provide internal support services (Ernst & Young, Shared Service Center
(SSC) – Enabling your business for success, 2001).
The Shared Service model must not be confused with Centralization nor should it be
confused with Outsourcing, which would be covered in a broader scope in Chapter 2 of this study.
SSC’s focus on providing service as partners to business units, while centralization is focused on
providing service to the corporation or its central institution (Yee Hong Weng, 2009).
Shared Services solution has developed and evolved significantly. From the start, major
focus was on financial services, but during the last decade, more functions have been included.
IBM has made a study over European Shared Service Centers, showing which European firm
provided other than financial services (Monasch and Slavenburg. 2004): (1) IT Service 23%, (2)
Human Resource Service 21%; (3) Customer Service 17%; and (4) Logistic Service 7%.
To explain further, in Figure 3.0 is representing “Organization A with three divisions, of
which the core businesses are design, manufacturing and marketing, respectively. The three
divisions are located in different geographical areas. Finance has been establhised as a shared
service business unit performing the finance and accounting function for all three divisions.
Common processes that can also established as possible shared services business units are human
resources and information technology. In this particular diagram, the shared services business unit
is located in another geographical area—indicating one of the characteriestics of shared services,
namely that shared services don’t equate to centralisation (Van Der Linde, Boessenkool, Jooeste,
2006).
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Figure 3.0: Understanding Shared Services (Van Der Linde, Boessenkool, Jooeste, 2006)
These Shared Services were usually carried out in Shared Service Centers (SSC). It can
range from transactional services in the Basic Shared Service model to professional services such
as knowledge-based services delivered in a consulting relationship on the more advanced shared
service models. Basically, Shared Service Centers are responsible for the compliance in the
functions, as its main focus is on customer service for the unit rather than enforcement for the
central organization (P.Moller, J. Golden, and H. Walkinshaw, Shared Services Handbook: Hit the
Road, 2013).
Shared Service Centers (SSC) by definition is solely dedicated to processing transactions
on behalf of several business units. By consolidating processing activity in lower cost locations,
this kind of sector is able to leverage their scale to deliver improved performance at lower cost and
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free up local finance teams to focus on other priorities (Fahy, S., Currie, J., Fahy, M., Financial
Shared Services Centres: Opportunities and Challenges for the Accounting Profession, 2002).
According to Horowitz and Aird in their Point of View*: Shared Service Center – the 2nd
Generation; Taking the next step to reach a more efficient level of evolution (2008), “it is an
internal service provider with great competencies and provide standardize services for different
business divisions within the company. To ensure a long-term added value, the SSC needs to
anticipate changes in requirements and furthermore, to adjust its service portfolio in an effective
and efficient way.”
In Figure 4.0, Horowitz and Aird (2008) explained that the first step towards implementing
Shared Service Center is to determine what must be provided. All transactional processes which
can be standardized are suitable for a migration into SSC. Secondly, one must conduct an analysis
to determine which process steps should be performed by the SSC and which should remain
decentralized. This model is often a separate business unit with an own organizational and
operational structure, under the same umbrella of one company. Thus, the SSC may decide to
transfer selected processes to an external service provider.
Figure 4.0: Organizational Set-up of a Shared Service Center (Horowitz and Aird, 2008)
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Drawing from several literature benefits of Shared Services have been summarized in
Table 1.0.
Table 1.0: Benefits of Shared Services
BENEFITS
REFERENCES
Reduction in cost and headcount while
(Forst, 2002, David, 2005, McReynolds and
improving quality and efficiency
O’Brien, 2002, Sharma, 1999, 2003, Kris and
Fahy, 2003)
SSC operates as a single entity
(Forst, 2002, Kris and Fahy, 2003, Quinn et
al. 2000, Sharma, 1999, Bergeron, 2003,
Schulman, 1999)
Focus on competencies to increase efficiency
(Bergeron, 2003, Kris and Fahy, 2003)
and productivity (doing more with less)
Leverage on systems and resources
(Beragon, 2003, Kris and Fahy, 2003,
Schulman, 1999)
High Degree of specialization and quality
(Schulman, 1999)
standards
Customer/Process Oriented
(Bergeron, 2003)
Increase Strategic Value
(Kris and Fahy, 2003)
Proactive Continuous Improvement
(Schukman, 1999, Kris and Fahy, 2003)
Separation of governance activities from
(Bergeron, 2003, Quinn et al., 2000)
delivery of services
Consolidating very common transactions of
(Schulman, 1999)
same customers and vendors who deal with
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more than one business unit to leverage on
economies of scale
From 2013 to half of 2015, Shared Service Centers are shifting from developed to emerging
markets. Top three (3) functions are finance, human resources, and information technology. The
shifting of markets are as follows: -17% United States and Canada, 7% growth in Latin America,
-16% for Western Europe, 25% Eastern Europe, and 14% rise in India. While, the noticeable
increase is in Asia Pacific, yielding a whopping 42% growth (Deloitte Shared Services, A New
World of Business: 2015 Global Shared Services Survey, retrieved from website:
http://www2.deloitte.com/content/dam/Deloitte/cr/Documents/tax/documentos/2015-SS-SurveyInfographic.pdf).
Figure 5.0: SSC Spread Trend (as adopted from Capgenimi Consulting, Shared Services Centers
‘The Next Generation,’ 2013)
Asia Pacific (APAC) has maintained it’s position as a preferred destination for Global
Shared Services. With Philippines, following India’s lead, together with Malaysia are now
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positioning themselves as credible alternatives, through government support as evidenced by
incentives and investments in the infrastructures. This has enabled the mentioned countries to gain
market share while India’s own position is eroding over the years (Capgemini Consulting, 2013).
This growing popularity is not suprising given that it has paved its way to the Philippines
as shared services aim to reduce costs, improve service quality, and increase the strategic influence
of a firm by centralizing back office activities in SSC (Manabat Sanagustin & Co., The
Philippines—Outsourcing’s new destination, p.15, 2011). At the same time, decentralizing the
control over the SSC to the business units, even making Consumer Goods Industry (CGI) evolve
to Shared services.
When Philippine companies choose to implement SSC, there are many questions that need
answers before starting the implementation process. Cost reductions are probably one of the main
reasons for implementing this concept. The first and basic decision that has to be made before
pursuing this process is to choose which level of SSC solution is wanted. For the country’s case,
it will be discussed thoroughly in Chapter 2.
Quoting J. Crimson (Director, Asia Pacific Shared Services, Kimberly-Clark Regional
Services’ viewpoint on this take. “Currently, the big players include companies in the IT, oil &
gas, mining and financial services industry. Increasingly, we are beginning to see Pharmaceutical
and CGI setting up financial shared services too..” (C. Alphonsus, Branding Malaysia as High
Value
Destination
for
Finance
Shared
Services,
p.
4,
https://www.pwc.com/my/en/assets/press/130815-accountants-today-high-value-for-financeshared-services.pdf).
In the battle realms for Research, limited number of published papers seems to suggest that
research has been done on SS. Yee Hon Weng (2009) stated that studies for SSC are mostly
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focused on Finance for Oil & Gas Industries, IT, and Mining. But not really on CGI, that covers
strong markets. Although, such papers mostly tackle and discuss the implementation issues and
theoretical mechanics of SS (Ulbrich, 2003), but seldom such theories and methods test have not
been done to ensure their validity.
“Organizations have been implementing SSCs since mid-1980s, but there is still much
interest in the topic. We think this is because organizations continue to recognize the strategic
value of implementing SSCs as well as reducing their cost base, improving contorls and enhancing
service levels,” (P.Moller, J. Golden, and H. Walkinshaw, Shared Services Handbook: Hit the
Road, 2013). “When a company chooses to implement an SSC, there are many questions that need
answers before starting the implementation process. Cost reductions are probably one of the main
reasons for implementing the SSC concept. The first and basic decision that has to be made before
continuing the process is to choose which level of SSC solution that is wanted.”
In Tim Eddy’s Philippines: The Natural choice for Shared Services (2015), he discussed
why the Philippines is EY’s (previously Ernst & Young) home for new Global Delivery Network
(GDN) location. “We chose the Philippines as the home of our new GDN location due to the
remarkable growth of its shared-services sector in the past few years, which in turn has fueled the
expansion of the local business process outsourcing (BPO) and knowledge process outsourcing
(KPO) industry as a whole.”
Eddy (2015) also mentioned that Filipinos are talented and will be able to deliver good
results for Shared Services. “..the Shared Services model provides a one-stop shop for high quality,
innovative services in areas such as finance and accounting, IT infrastructure support and service
delivery, HR Services, Procurement and Risk Management.. Thanks to the people, skills and
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working environment in the Philippines, our new center in Manila will play an important part in
that.”
Corcoran and Maxwell (2010) Because of its booming business, the Philippines is being a
preferred place to house different businesses—which SSC is a part of. Implementing Shared
Service Centers by identifying what a company can offer is thoroughly discussed in Chapter 2.
With all these facts of making companies globally competitive for the evolution of SCM in Shared
Services, there is a need to study how is the Philippines’ Shared Service set-up globally
competitive. Despite this one article above stating that in the duration of the course of gathering
and reading articles, journals and theses on Shared Services, there were very limited studies
conducted for this SCM set-up.
Hence, a research question has been developed to provide structure of this study: What
factors are needed to successfully Hosting SSC in the Philippines?
A summary as to how the identified research questions can fill-in the identified gaps is
presented in the table below:
Table 2.0: Relating Research Gap to the Research Question
Research Gaps
SCM is continuously
evolving to SSC to meet
customers’ demand and a
need for conceptual
strengthening of Shared
Service Center Hosting
Capability specific studies in
the Philippines.
Research Question
What factors are needed to
successfully Hosting SSC in
the Philippines?
Need for additional generic
framework or model that can
How the Research Question
Will Address Identified
Gaps
The focus of this research is
to identify Hosting
Capabilities and it is specific
to the PH SSC industry, thus
output of the study will add to
available resources.
A need to design framework
for a globally competitive
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be applied to enhancing the
Philippines housing SSCs
SSC in a Philippine-based
scenario
This research is intended for
SSC companies in the
Philippines, thus adding to
the available, if non-existent
globally competitive hosting
capability studies in the local
context.
In this local jurisdiction,
studies about SSC hosting
capability are scarce.
This research will attempt to identify if Shared Services, in relation to SCM, are fit for the
global competitiveness to host SSCs in the Philippines. Objectives of this study are as follows:
1. To Define parameters for Global SSC hosting in the PH;
2. To Assess factors of PH’s capability to host SSC; and
3. To Design a Philippine Model for SSC hosting.
It is recognized that study is empirical in nature and be only limited to companies existing
ten (10) or less as Shared Service Centers locally based in the Philippines. Since researcher is
employed in a Consumer Group Industry (CGI) producing and selling household cleaners and air
fresheners, this study will only cover other SSCs aside from the direct competitors of SC Johnson
in the Philippines. This will avoid conflicts with other firms selling same line of products.
This research has the following significance to the following sectors and entities; the
Society, as a contribution to the existing body of knowledge in seeking clear understanding of SS;
the Executives, this can help craft better framework; the Employees, to help nurture and cultivate
an inventive spirit in the workplace; the future researchers, as this can be source of information
regarding PH Capability to host SSCs’ global competitiveness; and to the Researcher, additional
knowledge and experience to gain from extensive effort, dedication and commitment to complete
this study.
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CHAPTER II
REVIEW OF RELATED LITERATURE
The purpose of this chapter is to review important literature to provide guidance for this
Research towards this study’s completion. This will be done by first introducing and exploring the
concept of Shared Service. Research, Journal Entries and Theses tackling about the effectiveness
of SS in specific countries. It will be organized into three (3) sections, covering its scope, concepts
and related studies: Supply Chain Management, its globalization and advantages; Shared Service
Centers, its scopes and benefits; and What Shared Services is not, differentiating it from other
functions as previously mentioned in Chapter 1.
To sum it all up, a Synthesis based from findings and analysis of the studied literature.
Please note that sentences and words in italics are with most relevance to the study.
1.1 Supply Chain Management, its globalization and advantages
Supply Chain is a network of actors that transforms raw materials into distributed products.
But, as the name states, the supply chain has traditionally considered being a chain of actors.
Furthermore, the supply chains were considered to be a form of long-term upstream co-operation.
In the early 1990s, supply chains were still perceived as linear chains of companies (Kemppainen
& Vepsalainen, 2003). However, the concept of SC is today understood rather as a network than a
chain.
Christopher (1998, p. 15) describe supply chain as “The supply chain is the network of
organizations that are involved, through upstream and downstream linkages, in the different
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processes and activities that produce value in the form of products and services in the hands of the
ultimate consumer.”
This SCM concept was first introduced in the 1980s (Skjoett-Larsen, Thernoe & Andersen,
2003) and it was rekindled from traditional logistics management. Companies were considered as
single entities, with less connection to the other companies that were often seen as competitors. To
make it work, the companies focused their decision-making on the flows and the processes. These
were separately optimized without taking the other parts of the company into careful consideration.
This event yielded cost for the optimizations was often pushed upstream or downstream, and
therefore the optimizations did not affect the total costs of the production.
SCM aims to focus on the flows and processes both internally and externally. Kemppainen
et. Al. (2003, p. 701) claimed “SCM is a strategic view of materials and distribution management
that shows the benefits to the individual companies from the boost of performance of the supply
chain as a whole through the lens of the business processes across functional and corporate
boarders.”
Like Christopher (1998) mentions, the definition by Kemppainen et. A. (2003) for SCM
brings up both the internal and external views on materials flows. Kemppainen et. Al (2003) said
that the strategic nature of SCM has been viewed in different viewpoints: purchasing, supply chain
management, logistics and transportation, operations management, marketing, organizational
theory and management information systems.
One of the best definitions of supply-chain management offered to dates comes from a
professor of SCM at Ohio State University, B.J. LaLonde (2000) defines supply chain as: ‘The
delivery of enhanced customer and economic value through synchronized management of the flow
of physical goods and associated information from sourcing to consumption.”
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According to Lumsden (1998), a supply chain consists of five different flows. The flows
are illustrated below, and are the following:
1. The physical flow of materials consists of the transported goods from the producer to
consumer;
2. The monetary flow usually goes from the consumer back to the producer through the
organizations in the supply chain;
3. The horizontal flow of information is bidirectional; from the consumer to the producer and
back again. Information is needed, for example, to produce right products or concerning
delivery times;
4. The vertical information flow goes between the four horizontal flows, for example, a trackand-trace system to track; and
5. Another physical flow is the resource flow, for example, containers used to transport the
goods from one destination to another or forklift trucks inside the companies’ premises.
Figure 6.0: Supply Chain Product flow according to Lumsden (1998)
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“The supply chain is meant to bring materials into manufacturing operations and finished
products to customers smoothly and economically. The primary objective of a supply chain is to
fulfill customer needs and requirements through the most efficient use of resources, including
distribution capacity, inventory and labor.” (B.N.P.T. Choung, The Value Chain of White Leg
Shrimp exported to the U.S Market in Khanh Hoa Province, Vietnam, p.8, 2011).
R. Thompson (Ernst & Young, 2012) said SCM affected virtually every aspect of a
company’s business—‘Everything is involved, SCM influences plan-buy-make-move-and-sell.
Enhanced revenues, tighter cost control, more effective utilization, and better customer service are
just the beginning.’ Another supply chain technique with proven payback potential is crossdocking. This is the practice and processing goods for reshipping in the shortest time possible and
with minimum handling and no strorage (S. Zigiaris, 2000).
During the latest years, an assumption that firms will gain competitive advantage and make
them more customer responsive with effective SCM, has risen. Therefore, a lot of companies have
spent huge amount of efforts, money to improve Supply Chain processes. (T. Henriksson and T.
Nyberg, Supply Chain Management as a source of Competitive Advantage: A Case Study of three
fast-growth companies, p. 27, 2005).
SCM also integrated along the SC, and has been considered to be a source of competitive
advantage. “Therefore, numerous logistic managers and researchers have seen integration as an
interesting and important issue to research (Gimenez and Ventra, 2005). Christopher (19980
presents four different phases to supply chain integration. First, companies have their internal
departments that strive for optimized processes. By doing so, the departments become competitors
to each other and they do not care how the following department will be affected if changes are
carried out. Second, functional integration, is a step towards a company-wide integration. Sharing
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market information between functions should guide the firm to respond to better and faster to
customers’ needs or problems and to competitive threats. Consequently, fluent responses to the
challenges that customers are placing should produce greater loyalty, profitability, and sales
(Martin & Grbac, 2003)
Figure 7.0: Achieving the levels of supply chain integration (Christopher, 1998, p. 17)
In J.H. Hammond’s The Centennial Global Business Summit (2008), Li & Fung (LF) Ltd’s
global trending of supply chain addresses the changing market conditions and meets changing
customer needs. They have applied key trends and several important decisions to achieve this
global status. ‘We are in the age of what I would call extreme outsourcing. Nothing is sacred if
somebody else can do it better, faster and cheaper than you--W. K. L. Fung.’
Key trends – LF adopted offshoring and outsourcing. Its network and supply chain
management capabilities enabled the company to capitalize on trends;
23
Not owning manufacturing – the decision to not purchase own manufacturing
facility but to merely coordinate has served the company very well, resulting in
partnerships with manufacturers;
Focus on specific product categories – LF is into textiles; general hard goods like
toys, shoes, and other household goods; and health, beauty and cosmetics; and is
considering providing some food products;
Focus on specific markets – LF sells mainly to the US, Western Europe, and Japan.
The company is also beginning to sell in China as the market continues to expand;
Emphasize compliance on ethical issues – consumers and customers don’t just care
about price and quality; they want to know how products are made. This has led LF
to focus on issues such as underage labor, sweatshop conditions, pollution and
unsafe ingredients like dyes that cause cancer and lead in products at unsafe levels.
In the same study by J.H. Hammond (2008), for a company to keep its supply chain above
the rest and globally competitive, one must: keep prices low, improve efficiency further, manage
the network better and consider providing supply-side financing.
R. H. Keane, J. Herbohn and G. Slaughter’s Theoretical Background of Supply Chain
Management and Potential Supply Chain of North Queensland Timber Industry (2006), analysis
of definitions of SCM has highlighted some strengths, weaknesses, opportunities and threats
(SWOT) listed in figure below.
24
Figure 8.0: SWOT Analysis as adapted from Keane, Herbohn, and Slaughter (2006)
‘The term Supply Chain Management has risen to prominence over the past 15 years,
becoming such a ‘hot topic’ that it is difficult to pick management, or transportation without seeing
an article about SCM-related topics,” The council of Logistics Management, which changed its
name in 2005 to the Council of Supply Chain Management Professionals (CSCMP) to encompass
25
the broader management area of SCM has provided annual conferences to around 4,000
participants were encouraged to source out globally, sells globally, or competes with some
company that does. This has given birth to Global Supply Chain Management (GSCM) represents
a central area of focus for many businesses and business schools today (J. Mentzer, T. Stank, M.
Myers, 2006).
The extraordinary growth of GSCM attests to its robustness and practical importance, the
field is diffuse and complex. Many methods and viewpoints on GSCM have taken roots from
operations, logistics, marketing, management, economics, sociology, personnel, information
systems, and international relations. This diverse and rapid growth made it had to keep abreast of
significant developments—this aimed at providing comprehensive understanding and assessment
of the field of GSCM (J. Mentzer, T. Stank, M. Myers, 2006).
In highly competitive markets, the simple pursuit of market share is no longer sufficient to
ensure profitability, and this, companies focus on redefining their competitive space or profit zone
(Bovet and Sheffi, 1998). Power in a broad spectrum of supply chains has shifted downstream
toward the customer or end user (LaLonde, 1997), and resulted to customer satisfaction as the
ultimate goal of the company.
Time and quality-based competition focuses on eliminating waste in the form of time,
effort, defective units, and inventory in manufacturing-distribution systems (Larson and Lusch,
1990; Schonberger and El-Ansary, 1984; Schultz, 1985). Also, there has been a significant trend
to emphasize quality, not only in the production of products or services but also throughout all
areas in a company (Coyle, Bardi, and Langley, 1996).
According to PriewaterhouseCoopers’ (PwC) Statement of Capabilities: Shared Services
(2008) survey, companies are adopting one of the three Shared Service models: The Centralized
26
Approach (CA), The Center-of-Excellence (CoE) Approach, and The Regional Cluster (RC)
Approach. All business-support services in Centralized Approach are concentrated in a single
center with most cost-efficient model, it is also the most demanding to execute because it requires
the most extensive operational restructuring. In Center of Excellence, specific business processes
are located in different locales based in the company’s strongest concentrations of experience.
Accounts Payable (AP), for example, might be delivered throughout Europe from Germany, while
Sales and Credit functions are administered from Sweden. The last model, Regional Cluster,
Shared Services are provided on a region-by-region basis. One SSC, for example, might provide
business support to US, Canada, and Mexico while another would deliver services to the UK,
Ireland and Scandinavia. Many companies view the cluster approach as a stepping stone to a
centralized shared service model.
In the same survey by PwC (2008), participants shared their first-hand experiences, as well
as insights from both their successes and failures, ten key messages emerged:
1. To make Shared Service work, a company must have a global organizational structure
in place before implementation begins;
2. Cascading sponsorship and buy-in key stakeholders are vital to swift, effective
implementation;
3. Building an Shared Service is a long-term, strategic decision, not a short-term, costcutting tactic;
4. Strong, consistent communication to every level is essential to success, both during the
start-up stage and throughout implementation;
5. Shared Service directors must have authority as well as responsibility;
27
6. Companies that give priority to people/cultural concerns are most likely to create a viable
global services program;
7. Recognize and carefully address the risks and benefits associated with each SSC
migration model;
8. Keep it simple: focus on relationships, buy-in and long-term benefits rather than purely
on structure and technology;
9. Invest significantly in IT to build a common platform that supports shared services
implementation; and
10. Link reward systems for shared services and country personnel to their performance of
end-to-end processes – that is, purchase-to-pay rather than accounts payable.
PwC (2008) also states that ‘The SSC achieves improved efficiencies through economies
of scale and clear role focus (often technology enabled) while providing a high level of service to
the enterprise.’ The survey stated potential benefits for companies who will take on SS in the
coming years. Here are the benefits:
Business focuses on value-creating activity;
Business units maintain control of decisions;
Enhanced customer service delivery and focus on customer satisfaction and increasing
competitive advantage;
Increased strategic and business focus;
Leveraged technology/ERP systems;
Reduced financial and organizational costs through economies of scale;
Reduced IT costs;
28
Standardized and best practice regulatory aspects impacting sourcing operations;
Leveraging taxation opportunities to add further value to sourcing operations
‘Time and quality-based competition focuses on eliminating waste in the form of time,
effort and defective units, and inventory in manufacturing-distribution systems (Schultz 1985).
Also, there has been significant trend to emphasize quality, not only in the production of products
or services but also throughout all areas in the company (Coyle, Bardi, and Langley, 1996).’
Figure 9.0: Theoretical Framework of Supply Chain (as adopted from G. Kushwaha, 2010)
29
In figure 9, Kushwaha (2010) explained “Supply chain quality management is a set of
approaches utilized to efficiently and responsively integrate all channel partners through applying
quality management practices across the whole supply chain, in order to enhance trust between
channel partners and deliver maximum value to customers.”
In the new competitive landscape, knowledge (information, intelligence, and expertise) is
a critical organizational resource and is increasingly a valuable source of competitive advantage
(Hitt, Ireland, and Hoskisson, 1999). Similarly, LaLonde and Powers (1993) characterized the
1990s as the era of reassembly or reintegration after that of disintegration.
1.2 Shared Services, its scope and benefits
According to Ulbrich (2006, 196), the Shared Services concept is still relatively new and
definitions in the management literature differ slightly – however, there is a common
understanding that shared services focus on optimizing corporate resources and processes in a new
organizational entity.
“The concentration of company resources performing like activities typically spread across
the organization, in order to service multiple internal partners at lower costs and with higher service
levels, with the common goal of delighting external customers and enhancing corporate value.” (
Shulman et. Al. 1999, p9).
A collaboration between units can take place at three (3) different levels where the third is
the pure Shared Service-solution:
1. Common processes and shared competencies. Each unit works on the process in the similar
way, where required expert knowledge in and about the process is shared among the units;
30
2. As above plus co-location. Processes function as at level 1 but different economic activities
are performed in common premises with the purpose to facilitate backup and to relieve
pressure over the borders of the different units; and
3. Level 1 and 2 amalgamated into one unit. Processes ae conducted mutually for all parties
concerned with common competencies over the boarders of the different units, i.e. a central
process oriented organization (Davidsson and Karlsson, 2005).
SSC is an approach of doing business that takes many of the activities within support
processes from each business u nit, and brings them together to achieve critical mass. Those
processes and activities are treated as the core of SS unit (Shulman et. Al. 1999).
The way that Joachim (2001, 34) describes the shared service concept is in accordance with
the common understanding. In-house SSCs are strategic business units that contribute to overall
organizational profitability. Cost Savings resulting from the consolidation and process
improvements are passed on to each unit of the organization (Davis, 2005).
Designated business functions and processes for shared services are the ones that are
supportive and administrative, not strategically critical nor unique to any business units but instead
common to several business units such as accounting and financial management, human resources
and IT (Wang & Wang, 2007,282; O’Neil, 2005, 19).
On the other hand, as O’Neill (2005, 19) suggests, functions that are core to the business,
such as marketing and sales, are not prime candidates for shared services. According to Fisher
(2008, 41), there are only two reasons why processes my not appear suitable for shared services:
The function has local strategic importance and needs to remain close to the customer; or
A regulation appears to prevent the consolidation.
For instance, a law may prevent a document from being taken out of the country.
31
In addition to local strategic importance, a typical shared services implementation process
there are several projects going on at the same time. In order to minimize ambiguity and internal
conflicts, the overall project management has to be strict and led by the predetermined committee.
The following areas need to be managed carefully: planning, controlling, communications and
quality management.
According to Phil Searie, Shared Service Best Practices (2003), mainly lies on the Scope,
Technology, Standardization, Organization and Location of the Center. Key Lessons are to have
innovation and continuous improvement, have measurements of baseline performance, provide
continuous training, follow 80/20 rule for Shared Services ERP.
The point with collecting non-strategic processes into a common organization under its
own management is that the management in other business unit managers to focus on solving
business problems by enhancing the business units’ core processes, and therefore enhancing the
SCM that leads to growth.
Research has been done with regards to studying and implementing Shared Services in
government (Janssen and Wagenaar, 2004), public administration (Wagnenaar, 2006), and by
using a resource-based view in implementing SS in the manufacturing firm (Goh et al., 2007).
“One-way ANOVA is the appropriate analytical technique to use when comparing the
means of three or more groups. It was used to test whether the differences between the means of
the various items reported in the study differed significantly.” (New Delivery Model for Non-profit
organizations: shared computing services, B. Crump, R. Peter, Massey University, Wellington,
New Zealand, http://www.worldagroforestry.org/downloads/Publications/PDFS/B17259.pdf)
What are the compelling reasons for pursuing Shared Services? (Schulman, 1999)
mentions business, customer, globalization, transactional efficiency, process effectiveness and
32
consolidation of activities as some reasons for implementing SS. While (Bergeron, 2003) states
that Shared Services helps to simultaneously improve the bottom line while increasing
competitiveness.
According to (Shah, 1998), the most straightforward implementation of an SSC is when
the process area has some or all of the following attributes: commonality of purpose, is transactionbased, has few interfaces with other processes, is low-risk involves few regulatory constraints, has
limited external customer dependence, requires a narrow range of skill mix, requires technology
with few business requirements, is geographically independent, and where customer proximity is
not needed.
Robert (Cluster Analysis of Hungarian SSC: An Empirical Research Study, p.40, Feb.
2015) studied about SSC operating in business service market in Hungary by empirical study and
analyze the practice through cluster analysis method. The researched focused primarily on every
aspects of the market-based operation on shared service model. It examined the number of different
services provided by SSC; value-adding of service; number of employees; established shared
service centers in Hungary; and geographical location of SSC.
“The main motivation for Shared Services is to reduce cost while improving quality and
efficiency by focusing resources on core competencies. This often involves stream-lining process
for the particular business functions which would in turn lead to a need for fewer employees to
provide same results.” (Bergeron, 2003)—the reduction in cost and improvements in efficiency
and quality.
In a shared services environment, activities which support a company’s core business are
pulled out of each business unit and consolidated into a separate operating unit that runs these
supporting processes as its core business. (Schulman,1999). As an independent business unit with
33
its own expertise and specialization of services, SSCs usually have to adhere to Service Level
Agreements (SLAs) with its customers to ensure certain service standards are met. It also entailed
performance measures and targets to meet to account for how well it is performing. (Shah, 1998).
Figure 10.0: A Theoretical Framework Model of Organizational Design for Shared Services (S.
Wang and H. Wang, 2007)
(Shouhong Wang and Hai Wang, 2007) “In general, two types of strategic opportunities
can be counted on as a results of shared services. One is cost saving through is through Business
process reengineering (BPR). By sharing common non-core business functions such as accounting,
financial transactions, human resource management, and customer services would dramatically
improve business performance of all shared services partner organizations. Another promising
34
vehicle for Shared Service is information and knowledge of sharing beyond back office business
processes. For instance, shared distribution services allow the partners to share dependable
marketing information.”
1.2.1 Implementation of SSC
Phases in Shared Services are summarized until it’s final stage of implementation. Team
plan and organize; understand the current state; design the future state; provide a business case
development and launch implementation. (Administrative Review and Restructuring Shared
Service Subcommittee, 2010)
Figure 10.0: Assessing, Designing and Implementing Shared Services (adopted from
Administrative Review and Restructuring Shared Service Subcommittee, 2010)
In implementing a Shared Service Center is a major revamp of current organizational
structure that needs to be defined and mapped out. This is usually done by help from outside
35
consultants. One must need to consider how well activities can be consolidated and standardized
(King and Leong, 1998). In today’s demand, there are several practitioners that a company can
turn to for expert assistance in this complex process. By hiring consultants, the company can learn
from the mistakes of others and get through smoothly unlike other companies. Consultants can
also transfer their knowledge in best practice to the company (Schulman et. Al. 1999).
A. Phase-in plan
a. Do it process by process (or sub processes); or
b. Bring in all the processes in each type of service in order; or
c. Focus on the largest business unit first, bringing the following business units
into SSC in descending order of size.
B. Systems – integrating IT systems can take a long time, which may delay the SSC
project (King and Leong, 1998), but will definitely be a plus factor once done
properly. Analysis is seen in Figure 12 (Schulman et al. 1999, p. 181).
Table 3.0: Cost-benefit for systems, associated with moving to a Shared Service Center
C. Barriers to implementation – at its core, barriers to implementing SSCs are
relational to individuals, the business problem, and how teams work together. These
hurdles can be summed as mentioned by Schulman (1999):
a. People
36
b. Policies and procedures
c. Technology
d. Corporate culture and organizational dynamics
e. Controls
f. Metrics
The strong visionary must be convinced with his vision to solve problems and must
continually explain how it will solve business problems easier—hence, making people’s jobs more
stimulating and more challenging (Schulman et al., 1999(.
D. Handling change – to successfully achieve implementation of an SSC, it is
important that management plays an active role. This can be done by:
a. Encouraging people to understand and commit to the changes connected in
the implementation of the SSC;
b. Making sure that the key elements of the organizations (structures, roles and
skills) support the implementation; and
c. Enabling continuous improvements to keep the change moving (Schulman
et al., 1999).
E. Service Level Agreements (SLA) –working and collaborating with business
partners through SLAs have clearly defined what Shared Service Centers has to do
to meet both parties’ requirements. Satisfaction of the partners should become a
mantra for the Share Service organization and become the management’s objective
(Schulman et al., 1999).
Strategic Business Unit → Shared Service Operations → Strategic Business
Unit → Input → Process → Output
37
a. Within the processing of inputs, there is an efficiency and effectiveness
element:
Speed + Resources = Efficiency
Cycle Time + Quality = Effectiveness
Efficiency + Effectiveness = Value
b. The requirements for appropriate inputs must be clearly defined and agreed
to by the strategic business units (SBUs) and the SSC, and must be held on
to by SBUs. Hence, the SSC must promise to deliver high value as agreed
upon (Schulman et al. 1999)
Table 4.0: Principles of an SLA (from Schulman et al. 1999, p. 167)
F. Location – “A good place to locate an SSC in can be a place where other SSC’s
already are established. This is due to the existing labor pool that has already dealt
with the start-up environment and is familiar with the process. Thus contributing to
a smoother implementation process (Monasch and Slavenburg, 2005).”
G. Cost – “Cost reduction and standardization are the main objectives for setting up
an SSC. It is, therefore, vital to set up the organization within a low-cost
environment. Earlier it was only possible to run Shared Service Organizations near
38
the highly developed capitals, where technology and educated staff needed for the
business existed.” Suburban areas can be considered if telecommunications have
improved. Advantages of moving to such areas entail lower costs for living, which
keeps the wages down, as well as real estate cost. “On the other hand, it is vital for
some companies to have a central location and must therefore prioritize the higher
prices for real estate in the cities (Schulman et al, 1999).
H. Workforce – An SSC requires a workforce that has a good knowledge in IT and it
is therefore important to locate in areas where it’s available. Hourly or daily rates,
amount of paid holiday and sick time, training costs, benefits and redundancy
payments, are factors to be considered as well. Location, Workforce, its language
capabilities are with greatest profitability for the company, so it must be taken into
careful consideration (Schulman, 1999 and King and Leong, 1998).
1.3 What Shared Services is not?
As previously mentioned, there are many similarities between SSC and its three most
common alternatives: Centralization, Decentralization and Outsourcing. To understand all
concepts, a comparison of these will be discussed.
1.3.1
Centralization and Shared Services – the main difference is that centralized
processing is focused on the corporate headquarters, where all services are
collected and standardized. Shared Service deals with providing services for
other companies in the same group—they work as partners to the business units
who have the right to demand a certain level of service from the SSC (Schulman
et al. 1999)
39
1.3.2
Decentralization and Shared Services – Schulman (1999) stated that ‘shared
services goes hand-in-hand with decentralization.’ It is the opposite alternative
to centralization, i.e. support processes are placed in local departments, and
activities, and processes performed at the same location. It is different from
SSC, is that it’s often serving departments at different locations and is not
necessarily located in connection to any of the served companies. “Shared
services capture the best elements of both centralization and decentralization
while leaving behind the problems,” (Schulman et al, 1999, p. 11)
Figure 11.0: Schulman’s interpretation of Best elements from Centralization and
Decentralization (1999)
40
Figure 11.1: Shared Services provides best of both structure (adopted from “Shared Services –
Adding Value to the Business Units” by Schulman, Dunleavy, Harmer, Lusk,-
Outsourcing – to relate outsourcing and Shared Service Centers, a quotation of
Schulman et al. (1999) can be used: “Shared services and outsourcing are flip
sides of the same analytical coin.”
“There is one prominent with having an SSC instead of using outsourcing.
It includes having a closer relationship with the rest of the organization,
which gives better conditions for continuous improvements of the service
unit. Though, with outsourcing, companies can take advantage of the
supplier’s possibilities of economies of scale, which can encourage greater
investments in technology and the potential of having higher level of
expertise and service (Hogg, 2003).
When choosing to outsource or to have SSC, there are these important
questions that need to be considered:
41
o How important, to the company, is the service that they plan to
outsource/insource?
o To what extend does the company perform the service today?
o What level of performance does the service need in the future?
(Schulman et al., 1999)
Figure 14.0: Difference between Shared Services and Outsourcing (retrieved from HfS
Research, Ltd., 2011, p. 8)
42
Figure 14.1: Difference between Shared Services and Outsourcing (retrieved from HfS
Research, Ltd., 2011, p. 9)
43
1.4 Synthesis
This review of literature has attempted to discuss and introduce as many subtopics as
possible, the concepts surrounding Shared Services. It has also attempted to cover what is known
so far about Shared Services right from its humble beginnings, its characteristics, the factors which
favor its successful implementations as well in introducing the research problem. Also, with better
Supply Chain Management Skills incorporated with SSCs comes with a better Business
Performance (Figure 15.1).
Figure 15.1: Theoretical Framework 1 for Shared Services
Cost-saving initiatives have driven this concept, but as mentioned in previous entries, it’s
basically not a short-term goal. One company must be willing to transform their back office
operations and front office processes into a one unified body of sharing data across the whole
system. In the literature, factors have greatly affected the movement of shared Services, these will
also be considered in the methodology (Figure 15.2)
44
Technology, People
Process, Policies &
Procedures
Shared Service
Centers
Supply
Chain
Figure 15.2: Theoretical Framework 2 for Shared Services
Despite the huge number of business and management literature out of the market that
tackles Shared Services, there is still a need to consider the challenges and things still unknown
with which organizations will face when implementing and making Shared Services work. One
concern that is prominent is how to completely migrate to Share Services.
And it is also noticed that the Philippines were mentioned in a very limited manner when
it comes to Shared Services. To date, there is still this lack of broad measures which are able to
address the questions for those Philippine-based companies with SSC format. If what they are
currently doing adhere the standards of the Global Shared Services (GSC) agreements. Also, of
how much will the organizations benefit from SS to lower down costs and gain greater market
share to boost revenues for the company.
This is the over-all intent of this study—to provide a framework of SSC that best fits the
Philippine Market.
45
CHAPTER III
METHODOLOGY OF THE RESEARCH
In this study which seeks to identify ‘What factors are needed to implement SSC in
the Philippines?’ This chapter tackles different methods that will be used. Due to the purpose
and the condition of an investigation, different ways and scientific approaches can be used for
observing reality. In this Chapter, the aim is to present some of the ideas applicable to this study.
First, to clarify concepts and propose a valuable design, a conceptual and operational
framework will be tackled. Second, the research design will briefly discuss reasons for choosing
Research Methods such as gathering primary data, as well as its secondary supporting data, provide
validity and reliability. Together with these, the researcher will also discuss the qualitative and
quantitative methods. Third, a concise discussion of the proposed research respondents and their
respective profiles will be presented. Fourth, the proposed statistical treatment to validate will
complete this chapter. Lastly, procedures to be undergone for data gathering of performing the
empirical study via interviews and surveys.
3.1 Conceptual Framework and its discussion
The conceptual framework shown below (refer to Figure 16.1) presents the proposed
relationships among the independent variables and the dependent variables identified in the
literature. It illustrates the enabling factors may have direct effects on Philippine’s hosting
capability as it dictates success of the company’s business growth and performance. The same set
of relationship exists within factors and objectives of this study.
46
As previously mentioned, Supply Chain Management has yielded better performance for
Philippine Companies—represented by the current environment (inner box) of how prominent
supply chain management affected the business’ performance. It is a strong bond that Philippine
companies have lived by. That resilient business performance has provided companies a
competitive advantage, strong brand name and market leadership.
Figure 16.1: Proposed Conceptual Framework for Shared Services in PH Supply Chain
This conceptual framework aims to involve the factors boosting the resounding success of
having a Shared Service Center model for back office functions. This framework aims also to
answer the research question of what factors, from the results of the survey and interviews, are
necessary to make Shared Services Philippine hosting globally competitive.
47
In the current set-up, PH Supply Chains are functioning very well indeed. (Cohen, et al.,
2004, p. 12) developed a framework for successful Supply Chain Management based on five core
disciplines. First, a firm must view its Supply Chain as a strategic asset: design the Supply Chain
around a defined basis of competition to enable the overall business strategy. Next, develop an
end-to-end process architecture: develop integrated Supply Chain processes and systems that
interface efficiently with the rest of the enterprise. Third, design your organization for
performance: develop and maintain organizational structure and skills to define and manage the
supply chain of the future. Fourth, is to build the right collaborative model: to understand core
competencies and choose partners to maximize focus and profitability. And finally, use metrics to
drive business success: use metrics to measure the health of each factor and identify problem areas.
The goal of this framework is to analyze top factors from the survey and interviews and
then encourage planning, leading and controlling as a function of Shared Services in relation to
the company’s Supply Chain. Also, it aims to incorporate variables of providing Customer Value
with better service, with this, leading to satisfaction. Professional Services of the Firm, wherein
Shared Service Supply Chain is packaged to consumers as one with on-time quality service
rendered.
3.2 Operational Framework and its plan
In the current set-up of Supply Chain Management, service, cost, quality and flexibility are
the factors of a successful firm. As Teddy (2015) stated, the Philippines has great pool of talent,
incorporating SSC in the current Supply Chain Management will improve profitability, costsavings and efficiency of the company.
48
Figure 16.2: Proposed Operational Framework for Shared Services in PH Supply Chain
It suggests a framework to encourage Shared Service Center to work on a cycle of
improving SLAs through changing mechanism and performance management of this growing
demand—thus, improving the hosting Capability of the SSCs in the Philippines. Continuous
improvement of current SLAs will make PH SSCs globally competitive. Key factors considered
are its technology (ERP system, Web enabled, Self-Service), people (job class, gender, education,
age), and process (Service Level Agreements, Efficiency, Effectiveness).
Key Process Indicators (KPIs) according to KPMG Holding Ltd.’s Managing Performance
Through Shared Services Centers, p. 10, 2007, is a customer-focused, performance-driven culture
requires enforcement through performance targets and corresponding performance targets and
49
corresponding indicators. It should include financial measures (e.g. cost reduction by processed
unit, reduction of networking capital0, customer-related measures (such as quality, response times,
and friendliness), process-related measures (e.g. processing time, processed volume, and cost))
and employee-related measures (e.g training received). KPI will be the metrics for PH Hosting
Capability.
3.1.1 Definition of Terms
A. ERP System – Enterprise Resource Planning
a. Is business process management software that allows an organization to use a
system of integrated applications to manage the business and automate many back
office functions related to technology, services and human resources.
b. A set of software applications that organize, define and standardize the business
processes necessary to effectively plan and control an organization.
B. Web-Enabled
a. Refers to a product or service that can be used through, or in conjunction with.
b. A product may be accessed through a Web browser or be able to connect to other
Web-based applications in order to synchronize data.
c. Usually refers to a program that does some (o all) of its processing on the user’s
computer before uploading the output to the web
C. Service Level Agreement (SLA)
a. A contract between a service provider (either internal or external) and end user that
defines the level of service expected from the service provider.
50
b. Must contain a specified level of service, support options, enforcement or penalty
provisions for services not provided, a guaranteed level of system performance as
relates to downtime or uptime, a specified level of customer support and what
software or hardware will be provided and for what fee. (Beal, 2015)
D. Key Process Indicator (KPI) (Rouse, 2006)
a. Is a business metric used to evaluate factors that are crucial to the success of an
organization;
b. Differs per organization. Business KPIs may be net revenue or customer loyalty
metric, while government might consider unemployment rates;
c. Are applied in business intelligence to gauge business trends and advise tactical
courses of action;
d. A set of indicators to measure data against, an enterprise success gauge—it helps
an organization assess progress toward declared goals
3.1 Research Design
In this research that aims to seek to design a framework best fitting PH SSCs, an attempt
to gain a fundamental understanding of SSC was first undertaken via a review of related literature
surrounding the topic of Supply Chain to Shared Services.
This study will be a descriptive research where both quantitative and qualitative approaches
will be used. Scope will include employee interviews, mid-manager and experts’ interviews,
literature searches and online survey, to collect the necessary data for the study. This research
design seems to best fit the objectives of the research which is to assess the extent of SS in the
Philippines. To reach the objectives, the following methods and tools will be used:
51
1. To Define parameters for Global SSC hosting in the PH.
INPUT
PROCESS
OUTPUT
• Literature
Review
• Statistical
Analysis
• Global PH SSC
Standards
2. To Assess factors of PH’s capability to host SSC.
INPUT
PROCESS
OUTPUT
• Literature
Review
• Interview
Responses
• Survey
Responses
• Statistical
Analysis
• cluster
analysis
• Key Success
Factors for PH
SSC
3. To Design a Philippine Model for SSC hosting
INPUT
PROCESS
OUTPUT
• Key Success
Factors for PH
SSCs
• Patterns of
Quality Service
• Mid-level
management
Interviews
• Literature Review
• GAP Analysis
• Benchmarking
• Cluster Analysis
• SWOT Analysis
• Comparative
Analysis
• Globally
Competitive
Framework for
Hosting Supply
Chain
Management in
Philippine Shared
Services
52
Statement of Hypotheses:
In view of the reviewed literature and analysis, the derived hypotheses from the conceptual
framework are the following:
1. ERP-model affects the success of Philippine SSC hosting capability based on the
perception of the employees belonging to the population to be studied;
2. People-skills affects the success of Philippine SSC hosting capability based in the
perception of the employees belonging to the population to be studied;
3. SLA affects the success of Philippine SSC hosting capability based in the perception of the
employees belonging to the population to be studied; and
4. KPI affects the success of Philippine SSC hosting capability based in the perception of the
employees belonging to the population to be studied.
3.1.1 Data Gathering
3.1.1.1 Primary Data
The primary data will be collected based on interviews and survey forms. The investigator
will contact companies with Shared Services by mail, phone call and personal meet-ups. The
companies who will respond positively will be contacted again, and will seek favor to take part in
this study.
Target companies like SC Johnson (SCJ), Philips, Sun Life Financials, Pfizer, Johnson &
Johnson, Universal Robina Corporation (URC), Mondelez International, Hersey’s, Coke and
Nestle are also considered.
It is encouraged to travel to Cebu to meet delegates of SSON’s Conference to gain more
knowledge, insight and to interview top Shared Service Center managers for this research.
53
3.1.1.2 Secondary Data
In this study, the most important source of secondary data was one journal written on the
guidelines of P.Moller, J. Golden, and H. Walkinshaw, Shared Services Handbook: Hit the Road,
2013. Other pivotal sources were articles found in trustworhty databases like unpublished theses
from different countries, and the internet. Several studies written about SS from School of
Business, Economics and Law, University of Gothenburg, were also of great help and inspiration.
3.1.1.3 Interview
This medium of the research will be conducted in each two (2) PH SSC and Traditional
companies who have been in operation for more than five (5) years. This will have a thorough indepth understanding of what SSC is. Preferably a Manager or Senior analyst will do for this
interview.
These interviews will be complemented by several phone calls and emails to the
correspondence, to cover areas that might have less satisfactory answers to and to unravel any
uncertainty that may arise in the course of the study.
3.1.1.4 Survey
The prospects for this study are employees in SSCs. As they will be randomly selected, a
lot of methods will take effect to contact respondents; by seeking approval from SSC Human
Resources Department (HRD) to facilitate the online survey, from peers, colleagues and friends in
the form and through various sites for SSC associations.
This intends to collaborate with several SSC associations in the Philippines like Shared
Services & Outsourcing Network (SSON). This is for expert’s interview and survey, as well as
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validation of intended research outputs. Respondents must have at least been in service for at least
two (2) years to qualify in the survey. It is assumed that employees have already acquired basic
understanding of the different organizational practices in their stint. For experts, the requirement
should be at least 5-6 years in supervisory or managerial position in SSC.
According to SSON, SS is about 0.01% of the BPO population in the Philippines, which
will yield 1,300,000 million FTEs in 2016. Using base data of 1,300,000 million FTEs, and
assuming 0.01% is accurate, this will erect a total population of 13,000 thousand.
Using Slovin’s Formula to solve sample size, N, with a confidence level of 95% and a 5%
marginal error will be yielding:
n=
N
13,000
13,000
=
=
= 388.06 ≅ 389 respondents
2
2
1 + Ne
1 + 13,000(0.05 )
33.5
Based in the computation stated above, study must fulfill 389 completed surveys to provide
pertinent details needed.
Survey questions are adopted from the Deloitte Consulting LLP (February 2013) and
Accenture’s Corcoran and Maxwell’s Sustaining high performance in shared services: An Irish
Perspective (2010), and Winshuttle’s 2013 Shared Services Survey Report. Then, inserted inputs
fitting to the Philippine Set-up. This will be conducted via Google Doc’s Survey application for
paperless transactions.
3.1.2 Data Analysis
3.1.2.1 Statistical Treatment
Table 6 is the proposed statistical treatment for the research questions identified and to
validate hypotheses:
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Table 6.0: Proposed Statistical Treatment for Identified Research Questions
Research
Question
RQ: What factors are needed to
successfully implement SSC in the
Philippines?
Goals in Test
Selection
1. To describe and compare
commonalities and
differences of practices
2. To determine variation
within groups, then how it
would translate into
variation among groups
(based on sample
population).
3. To create manageable list of
groups for identified
variables
Proposed Statistical
Treatment
One-way ANOVA
Chi square
Cluster Analysis
But before applying statistical analysis the following assumptions are created:
1.
Both dependent and independent variables can be measured on a certain level
2.
The population is normally distributed, and if not, the need to analyze results using
non-parametric testing.
Data will be analyzed using excel and Minitab version 15 to provide bar graphs, tables,
charts to display summarized information. Cross-tabulations will generate relationships between
variables.
Engineering Management tools to be used are SWOT analysis, Bar Charts and Graphs.
SWOT will extract details from the interviews the internal and external factors that may directly
or indirectly affect Philippine Companies’ SSC Hosting Capability. Bar Charts and Graphs will be
used to trim down the factors of having a world-renowned SSC facility here in the Philippines.
First statistical tool to be used is One-way ANOVA, to test whether the differences between
means of various items reported in the study differed significantly or not. This will be conducted
to test whether there was significant difference in the perception of the respondents regarding the
factors for Philippine SSC hosting capability on the basis of Technology, People and Process.
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Pearson Chi-Square Goodness-of-Fit Test will be applied into the survey results.
Respondents will tick either strongly disagree, disagree, neutral, agree, and strongly agree.
Expected results will come from the null, while observe values will be from the survey. Level of
Significance is at 0.05.
𝑘
2
𝑋 =∑
i=1
(𝑜𝑏𝑠𝑒𝑟𝑣𝑒𝑑 − 𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑)2
𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑
𝑘
=∑
i=1
(𝑋𝑖 − 𝑛⁄𝑘)2
𝑛 ⁄𝑘
Lastly, Cluster Analysis will provide idea on what are grouped together as PH SSC key
success factors through Mean.
3.1.3 Interpretation of Data
The table below is the process of how data will be interpreted for the Study.
Table 7.0: Data Gathering Procedures
PROCESS
APPROACH
1. Research Interest: Framework for PH
2. Sub area for literature review: SSC Global Measures,
KPIs and SLAs
3. Conduct initial online survey and interview to determine:
I.
Initial Assessment
Best Practices to adapt for locally housing SSC;
Key Factors to enhance PH SSCs Hosting; and
Global Standardization measures for PH SSC hosting
capability
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II.
Conceptualize the
research
4. Perform literature review to incorporate new and relevant
information generated from the survey and interview.
5. Identify central focus of research.
6. Create online survey incorporating all the relevant inputs
III.
Formulate the research
from initial assessment and literature review
7. Validation of online test questions
8. Coordinate with SSON for network and association.
9. Send permission to several SSCs’ HRD to formalize
IV.
Data Collection
request
10. Send online survey to employees, experts. Start
conducting interview with key individuals.
V.
Data Analysis
11. Employ pertinent statistical methods to validate
hypothesis
VI.
Operationalize the
research
VII.
Synthesis and
Evaluation
12. Translate quantitative /qualitative analysis into a service
innovation model and service innovation policies
13. Pursue executives and specialists’ opinion on the crafted
model.
14. Carry out the necessary adjustments
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APPENDICES
I.
INTERVIEW QUESTIONS
Questions were adopted from Deloitte Consulting LLP, February 2015, and is modified to
fit the needs of this study.
The guide is as follows:
1. Contact Information
a. Firm Name
b. No. of employees
c. Interviewee’s name
d. Position
2. Questions
a. Background
i. How Long have you been working in the group?
ii. How long have you been employed at your current job?
iii. What tasks is included in your job title?
b. About the company
i. How many employees do you have?
ii. Who took the initiative to introduce an SSC? For what reason did you
want SSC in this firm?
iii. What’s the business concept or role within the Company’s Strategic
Vision?
iv. How many employees does this company have?
v. How long has this SSC been serving?
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vi. It was very costly to introduce an SSC, do you consider that the benefits
exceed the costs?
vii. Do you have a global organizational structure in place? What is it?
How does it work?
c. Operations
i. How strong is this SSC’s Supply Chain Management influence? Are
you following the global standards for this?
ii. What Value enhancing services have you realized in the SSC?
iii. How do you create Value for the organization?
iv. Is the voice of the customer the main factor for your SSC?
v. Do you have established SLAs that you follow?
d. Shared Service Journey and Value
i. When SSC started, when did you pursue process standardization
ii. Has your organization typically moved processes to SSCs before or
after the technology change?
iii. How have you typically addressed the organization and talent changes
needed at the local level when shifting work to SSCs?
iv. To what extent have your organization’s SSC has a positive or negative
impact in specific areas?
v. To what degree has your organization achieved its objectives for SS
implementation across specific areas?
vi. What changes would you have made along your SS journey based upon
your experience to date?
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vii. How do you use the savings generated by SSC productivity
improvements?
e. Impact on Staff
i. Do you know any employee who got hired again after the
transformation to SSC?
ii. Do you experience evolve in this way?
iii. If yes, this staff was employed in what department?
iv. Do you see any other noticeable effects for staff in and to the
introduction of SSC?
v. Is it a new trend of highly educated new employees in the introduction
of SSC?
vi. Have you been forced to develop same skills set? Why or why not?
f. Other thoughts on SSC
i. Please rank the strategic priorities for your SS organization today, five
years from now, 10 years from now.
ii. Do you think this SSC is world class, how so?
iii. How do you plan to make this SSC a globally competitive one?
iv. What do you suggest as factors that will make a better SSC?
g. Are you or your clients experience these factors through your company?
i. Better Management Information/Decision Support
ii. Improvement in Customer Service
iii. Cost Savings
iv. Head-count reduction
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v. Development of Common practices
vi. Globalized standard process
vii. Common Data Structure
h. What were the most important factors in selecting the organization’s current
SSC Location?
i. What are reasons for lead firms to better connect developing country suppliers
to the SCM?
j. What activities impacts positively on your SCM?
k. What are your strategic goals for the next two years?
II.
SURVEY QUESTIONAIRE
1. Contact Information
a. Name
b. Position
c. Years of Service
d. Gender
e. Civil Status
f. Age
g. Highest Degree Attained
2. Questionnaire: Please see succeeding pages for the questionnaire.
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Technology
Process
People
We have standardized, controlled
11 and repeatable activities
12 We do benchmarking
13 We have Key Process Indicators
We have control based metrics
14 (i.e. Efficieny & Effectiveness)
We are expanding the business
15 offerings
We are reducing cost per
16 transaction
17 We are automating manual tasks
We are reducing communication
18 and transparency gaps
We are improving business
19 process efficiency
20 We are reducing process variance
We are integrating spreadsheets
21 that we currently use
22 We reduce process variance
23 We are SLA Adherent
24 We have ERP Implemented
We use Document Scanning
25 Solution
26 We have a workflow
We have automated payments to
27 Suppliers
63 score card
28 We have an automated
strongly disagree
disagree
neutral
agree
strongly agree
Kindly rate your organization on each of the 28
items, on a scale from 1 to 5, using the following
scale 1 = strongly disagree; 2 = disagree; 3 =
neutral; 4 = agree; and 5 = strongly agree. Please
be informed that choosing Neutral is strongly
discouraged
We have skilled leadership in
1 place.
2 We have a team stability.
We value culture and behavioral
3 competencies.
We recognize Team Morale,
4 Reward and Retention
We are working in a conducive
5 environment to team working
We usually entertain inquiries via
6 Email
we seldom entertain inquiries via
7 Call
8 We keep our customers satisfied
9 We have productive employees
10 We document all our processes
1
2
3
4
5
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