Scottish Development International: why Scotland is the shared services centre
In 1998, Shell established its first shared services centre in Glasgow. Trade promotion agency Scottish Development International examines why the Dutch oil giant settled in Scotland, and the reasons behind the country's success in attracting foreign direct investment.
A recent survey conducted by Ernst & Young revealed that Scotland attracted an incredible 76 global foreign direct investment (FDI) projects in 2012 - a 49% annual increase and the country's highest total for 15 years. Commenting on the figures, the accounting firm said Scotland was continuing to "punch above its weight in an increasingly competitive market".
Among Scotland's foreign investors, international oil giant Royal Dutch Shell is one of the largest. The firm specifically selected Glasgow as the location for its first shared services centre (SSC), which primarily deals with finance functions. Such facilities are particularly common in the finance sector, which harbours 45% of all SSCs, a huge figure considering over 80% of multinationals run such centres (Ernst & Young).
Establishing a foothold in Scotland
Established in 1998, Shell's Glasgow facility was originally a partnership between the oil giant and Ernst & Young. Like many other SSC start-ups, it began life focusing mainly on activities that steered away from front-office processes. The accountancy firm provided crucial assistance in these early stages, bringing a fresh perspective to processes that had evolved within Shell over many years, and offering expertise gleaned from its recent support of other SSC start-ups.
Shell soon felt able to go it alone, however, establishing a worldwide chain of service centres that provided "a wide range of finance, accounting and other business or customer services to Shell operating companies globally". These facilities were located in Cape Town, Chennai, Krakow, Kuala Lumpur and Manila, as well as Glasgow.
The process was relatively successful, yet a Hackett benchmarking study in 2006 revealed a 40% cost gap between Shell and its median peer group. The inequality was the result of high labour costs due to limited shared service model implementation, as well as a lack of end-to-end process viewing or ownership, and insufficient standardisation.
Shell implemented a number of reforms, including increasing its use of shared services from 14% to over 50%, and focusing heavily on global standardisation, using it to both understand and drive down costs.
Creating a strong, performance-driven framework was also central to Shell's approach. The overall aim was to become a process-orientated organisation; everybody in the value-chain was aligned towards the end user's needs, fuelled by a culture of continuous improvement (CI). Processes were scrutinised and made more efficient, eliminating waste and increasing sustainability. Data management and globalised actions, benchmarked to external standards, were key to achieving this.
Recently, Shell's CI culture has led to new undertakings at its service centres. No longer content to run them as back-office factories, the firm is passing on greater responsibility, involving them in more front-office roles and creating genuine end-to-end business processes. The change is underlined by Shell's rebranding; no longer known as 'Shell shared services' centres, they are now part of 'finance operations'.
Data analytics has played a key role in this transformation. Rather than allowing its centres to act as purely functional processors, Shell ensures that numbers are proactively mined for, collected, analysed and used to inform business decisions, rather than simply being processed and forgotten. The firm employs around 70 people in SSCs to carry out this task. Data comes from a variety of sources, including oil rigs and service stations.
As a result, the company has a far better understanding of its operating market and can reposition itself accordingly. The information also enables better navigation of changes in customer demand and can drive more profitable sales. Moreover, there is plenty of scope for self-improvement, particularly in process efficiency. For the staff at Shell's SSCs, dealing with these more complex operations requires a far higher skill level and a much broader range of competencies. With the move towards more front office activities, strong interpersonal skills are also a necessity. Scotland is particularly well disposed to provide Shell, and other FDIs, with staff capable of meeting such needs. The country offers the highest educational attainment of any part of the UK and can supply a ready pool of graduate talent.
Dakari, enStrat, Fujitsu, GlaxoSmithKline, Molnlycke, Odyssey Financial Technologies, ResHydro, Samsung Heavy Industries, SAS and Toshiba Medical have all expanded or invested in projects in Scotland in the last few years, citing the country's tertiary education institutions as a critical factor. The variety of industries driving the economy, including business process operations, chemical and life sciences, creative, energy, financial services, ICT and textiles, further adds to the versatility of the nation's workforce.
"In Scotland, we have identified our priority sectors, where we have specific strength and depth, and a critical mass of skills," said Mark McMullen, international senior manager at Scottish Development International, the international development arm of Scottish Enterprise, in a prior interview with digital sister publication CFO Agenda. "With that clear focus in place on what we want to promote and build, it allows us to be clearer in our overall propositions to investors.
"There has also been a cluster effect whereby other companies from related sectors have undertaken similar activities. I think players can take comfort from the fact that there is a kind of critical mass of talent to support their growth."
Crucially, Scotland's strong academic record operates in tandem with a relatively low-cost environment. According to McMullen, the country is able to offer 30-40% cost savings in comparison with London. These are primarily achieved through lower salary and property costs, as well as smaller attrition levels. Quality, however, is not compromised. Scotland also enjoys the same legal framework and time zone as the mega-city, making it an attractive near-shoring option for investors.
Offering venture capital and expert advice, the country's business angel community is another invaluable resource for incoming companies like Shell. Including British Venture Capital Association, LINC Scotland, Scottish Financial Enterprise and Scottish Investment Bank, the investment arm of Scottish Enterprise, the group helps firms to capitalise on the country's pre-existing resources and workforce. It also provides support throughout the investment journey, from initial market research to aftercare services.
Beyond direct means of support, Scotland is also exceptionally well set up to accommodate workers. Almost 90% of staff live within 25km of their workplace, and the country sports excellent transport links, including four international airports that reach over 150 destinations. There is also free NHS healthcare (regardless of social security contributions), beautiful scenery and world-famous nightlife.
"We are already having wider discussions with companies in our priority sectors to ensure they are fully aware of the benefits Scotland offers for a wide range of functions, as these underpin the overall costs of running their business," says McMullen. "We have a proven track record of undertaking this type of work in a cost-efficient manner."