| Case study: Oracle's Irish Financial Shared Services Centre provides unanticipated corporate governance benefits in its fourth year |
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| Oracle’s first shared services centre opened in Dublin in 1999 and now provides finance and administration infrastructure for Oracle business units across its Europe, Middle East, and Africa region (EMEA). Four years ago when setting up the Dublin SSC, Oracle could never have anticipated the additional benefit the SSC would provide in terms of improved corporate governance, writes Alan O’Reilly. |
When Oracle CEO Larry Ellison announced his plan to transform Oracle into a global e-business in1998, the company still operated like a group of independent businesses. Each country had separate price lists, business processes, client-server business systems, and marketing strategies. And although most of the units used Oracle software, local modifications rendered the systems incompatible.
The result was fragmented business information, large-scale duplication of effort, and widespread cost and operational inefficiencies. For example, Oracle discovered that its administrative and finance staff spent 31 per cent of their time processing transactions and 34 per cent gathering and distributing information on a case-by-case basis. That left little time for more important tasks and kept administrative overhead higher than it should have been.
Oracle’s plan for transformation, built around its new shared services model, was designed to turn the situation around. It called for streamlining and web-enabling most business processes, and centralizing as many operations as possible. The plan also stipulated using no customizations, just standard Oracle technology and applications. Importantly, Oracle also included leading edge infrastructure in its plans and decided that a global single instance of its database would be a key objective. This would enable the company to take maximum advantage off emerging technology in low cost operating systems and hardware.
In 1998 Oracle chose Ireland as the location for the EMEA (Europe, Middle East, and Africa) SSC based on its relatively low cost and a business friendly attitude to multinational companies. Oracle’s first shared services centre opened in Dublin in 1999 and now provides finance and administration infrastructure for Oracle business units across its Europe, Middle East, and Africa region (EMEA). As anticipated, the move has greatly improved management reporting and operational efficiency, and is contributing to substantial savings across the company. Also important, the centre is helping to generate new sales by making Oracle its own best reference point for customers.
Oracle has SSCs in Rocklin, California as well as Sydney, Australia and Bangalore, India. Together they are a key component of Oracle’s global finance and administration system.
High-level project goals & first steps
Oracle’s SSC project was part of a wider plan to transform the company but the finance organization was clear in what it wanted to achieve:
• Create a global e-business based on out-of-the-box Oracle Applications
• Produce a single set of business processes and a reference site for best practices
• Create a world-class finance organization
• Achieve the highest level of operational efficiency
Before creating the centre Oracle established a standard set of business processes across the EMEA region. Executives, senior managers, and users from all over the region spent months looking for a common global fit. They examined 15 processes, including order administration, accounts receivable, cash management, and purchasing, across every business area and country in EMEA.
After standardizing the processes, a sub-group of planners mapped them to the applications in Oracle E-Business Suite, dubbing the resulting model ‘Monaco’.
Several months of testing the Monaco model followed. Some processes, and in rare cases the software itself, were tweaked to achieve the best global fit and avoid costly customisations down the road. Oracle believes that any company should be able to implement Oracle products out of the box so it decided that the best way of demonstrating that was to do it itself. The company also believes customisations are uneconomically difficult and expensive to support and upgrade, plus, they move businesses away from the standardized global processes that are key to success.
Oracle launched the Monaco model in Hungary in 1999 and gradually added new countries using the latest software releases. Integrating a new country took about 12 weeks and followed the same procedure: mapping processes and applications to global standards and local requirements and then thoroughly testing the system before going live. By October 2003, Oracle had moved all of its EMEA region, and 100 per cent of Oracle EMEA’s revenue generating operations, to the Dublin SSC. Dublin now manages 14 of the 15 back office processes originally included in the model.
Oracle’s E-Business model
Oracle expected to save substantial costs from its global e-business model. It has already exceeded its initial goal, boosting its operating margin to 45 per cent in the fourth quarter of fiscal 2003 and 36 per cent overall for the year to 31 May 2003. Only a third of European companies have achieved savings of more than 20 per cent of their cost base, according to a 2002 report from ARC Advisory Services UK, part of an international consultancy in manufacturing, logistics and supply-chain solutions.
Adopting standard business processes across the EMEA region means that Oracle customers interact with the same company wherever they go. The streamlined system also improves corporate decision-making and supports new growth strategies. It allows the company to cope with the growth and changes that are inevitable with technology advances. As mentioned above, in 1998 the company knew it wanted to be able to take advantage of these advances and today is reaping the rewards in terms of its own internal IT costs as well as in finance. Low cost operating systems such as Linux and Intel processor based servers are key technologies at Oracle. Migrating to these and providing scalable processing power has been enabled by standard applications and a single instance of the underlying database.
Oracle’s SSC’s are at the leading edge of the company’s drive to ensure it is using the most up to date versions of its E-Business software. This may involve upgrading the database or applications software. It can also involve hardware re-configuration or simply adding more processing power.
Each time the system is changed or upgraded it must be tested in a pre-production environment and again in production before it goes live. The SSC’s carry out all user acceptance testing of the financial systems to ensure consistency in the live environment.
As Simon Bragg of ARC Advisory Services UK said in a recent report: ‘ERP suppliers may talk the talk about best practice processes, but most avoid walking the walk. Oracle’s Dublin Shared Services Centre is a clear example of a company that’s deploying its own software globally with great results.’
Location
Users of web enabled applications roam all over the world and can connect to Oracle’s internal systems from a mobile device or their hotel room just as easily as they do in the office. An e-Business system should be indifferent to the location of its users but in reality companies make decisions on location based on broader considerations.
Changes in internal controls and corporate policies are greatly enhanced in a shared services environment as a change implemented in an SSC process is automatically implemented in the local country. Since 2001 the regulatory environment for large public companies has changed considerably and Oracle’s Dublin SSC is moving from being a transaction processing center to a true financial control center. This is partially because the processing can be done where it is most cost effective to do it and partially because the experienced and qualified SSC staff have the ability to take over financial control for each country in the region.
Oracle can now choose where to locate its finance and administration staff independently of system constraints.
Corporate governance benefits
Four years ago when setting up the Dublin SSC, Oracle could never have anticipated the additional benefit the SSC would provide in terms of improved corporate governance. The SSCs provide centralized and standardized data extremely quickly and accurately. In addition, the robustness of the systems allowed Oracle to change its auditors six weeks prior to year-end without any delays in meeting its reporting obligations. The ability to transfer data, knowledge and information from the three global SSC’s was one of the key factors in this success.
Given that the US’s Sarbanes Oxley Act 2002 (which is also being considered by the EU) places considerable reporting requirements on management to show the effectiveness of internal control structures, financial, reporting and auditing procedures, integrated software systems are fundamental. Oracle’s SSC structure has resulted in the organization complying effectively with Sarbanes Oxley in a way that is far less onerous than for a lot of other organizations that do not have the benefit of SSC’s in place.
The future
Oracle’s SSCs will increasingly take responsibility for statutory financial control as well its existing US GAAP reporting role. This will free up local country finance departments to concentrate on business related issues in the country. The introduction of IAS reporting will provide an opportunity to standardize the systems used to produce statutory reports in each country. |
Alan O’Reilly is vice-president of finance at Oracle Ireland.
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| Article appeared in the January 2004 issue.
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