Abstract: In the literature the possible role of the management accountant (controller) is a frequently studied subject. The two most used roles are the traditional ‘

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The role of management accountants in a

Shared Service Organization: a case study

Abstract:

In the literature the possible role of the management accountant (controller) is a frequently studied subject. The two most used roles are the traditional ‘scorekeeper’ and the ‘business partner’. Following the contingency theory many factors have influence on this role. During the last decades the shared service center has become a popular construct for companies to stay competitive. This research explores if and how the presence of a shared service center influences the role of the controller. In-depth exploratory research is conducted through a case study at a large Dutch automotive company. Results confirm that a diversity of factors, including ones in the environment, within the company and in personality and characteristics of a controller, have influence on the role of a controller. It has been found that the implementation of a FSSC has influence on the activities of the controller. It depends on whether the transfer of uniformed and standardized transactional activities from the controllers to the FSSC is successful if that results in a disburdening of the controller function and a possible change towards a business partner role.

Key words: roles of management accountants, business partner, scorekeeper, shared service, maturity model SSC

Master thesis Msc Business Administration

Specialization Organizational & Management Control University of Groningen, The Netherlands

Author: Tom de Lange Student number: S1688065

1st Supervisor: prof. dr. D.M. Swagerman 2nd Supervisor:

Company Supervisor: B.J.A. Schlattmann Company Supervisor: E.J.P. Smits Date: 19 January 2015

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1 Introduction

In the never ending chase to stay competitive companies have to constantly adapt and change their organization. In the 70’s and 80’s the concept of decentralization was a broadly supported concept to stay competitive (Carlsson & Schurmann, 2004). Former centralized support functions as the financial administration, IT-services and HR were considered to be most helpful close to the business and thus were distributed across the multiple business units. However over the years the opinion changed and a decentralized organization was more and more seen as ineffective as the different support units were providing large scale processes inefficiently, and thus were wasting much needed resources (Schmidt, 1997). In response to this opinion the concept of Shared Service Centers came up in the mid-90’s as a popular construct where non-core activities of business units are concentrated (Minnaar & Vosselman, 2013). The definition of a SSC following Schulman et al. (1999) is:

A concentration of company resources performing like activities, typically spread across the organization, in order to service multiple internal partners at lower cost and with higher service levels, with the common goal of delighting external customers and enhancing corporate value

This definition shows that the goal of a SSC is often twofold; it is both used to achieve cost reduction and/or to achieve quality improvement. The included non-core activities can comprise for example human resource, procurement, information technologies and finance. With the financial crisis increasing the pressure on many companies for attaining cost efficiencies to keep a feasible margin, SSC became an construct that was used in many companies. In 2013 around 80% of the Fortune 500 companies worked with a shared service center (Vollmer & Rasper, 2013).

As the Shared Service Center construct was used more and more in the business world, the literature also spend a considerable amount of attention to it. The latest years there is an increased interest of in the several stages of maturity a SSC can have. Following Bothof, et al. (2009) this maturity model goes from transaction-aimed’ to ‘service-aimed’, ‘process integrated’ and finally ‘chain integrated’. During the different maturity stages of the SSC the organization where the SSC is constructed, has to adopt gradually for the best results. Following Strikwerda (2010) the introduction of a SSC cannot happen via a big bang but has to be done in several phases. At certain moments in time specific actions have to be taken to change for instance processes via the SCC instead of the business units.

One of those changes that can take place but that is not covered yet in the literature is the role of the management accountant (or ‘controller’ in The Netherlands) in the organization. In the literature two broad roles of the controller have emerged: the financial controller (also ‘Scorekeeper’ or ‘Historian’ in some articles) and the business controller (or ‘Business Partner’). Some articles state that the role of controller is changing from scorekeeper to business partner (Burns & Baldvinsdottir, 2005; Granlund & Lukka, 1998). Others state that the role of the controller is contingency dependent (Byrne and Pierce, 2007; Ten Rouwelaar & Bots, 2008) and thus is different per company.

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6 is: “Does the presence of a Financial Shared Service Center influence the role of a controller in an organization, and if how?”. To fill the literature gap on the relationship between a FSSC and the controller’s role an exploratory case study has been conducted from the perspective of the contingency theory. This suited the contemporary event of the implementation a FSSC where the relevant behaviors could not be manipulated. The research is conducted in the company ‘Pon’s Automobiel Handel’ (further ‘Pon’). Here a FSSC is established in 2008 with the following goals: improving professionalism, creating synergies and transparency, being more customer and service oriented as an organization and higher returns in the whole chain. Internal reports have been investigated, a questionnaire amongst the controllers is conducted and 12 semi-structured interviews are conducted in the case company. In consultation with the supervisor the results are made anonymous for privacy reasons (the names of the interviewees are known by both researcher and supervisor).

The results of this case study show that the role of a controller is determined by many factors in the (organizational) environment and personality and characteristics of the controller. But the job responsibilities of a controller also form an important factor. A controller can only focus on a business partner role if his duties match this to a greater or lesser extent. The presence of a FSSC can have influence on the activities that a controller has to perform and herewith create the possibility for the controller to assume a certain role. The largest impact is assumed in the first stage of development of a FSSC. Here, mostly transactional activities are transferred from the controller to the FSSC. It is expected that the second and aditional stages will improve the collaboration between the FSSC and the controllers which will further let the controllers focus on a more business partnering role.

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2 Literature review

As mentioned in the introduction, there are no studies on the influence of Shared Service Centers on the role of a controller. For instance Herbert and Seal (2012) propose further research into the implications and opportunities of a SSC for the individual controller but do not further elaborate on this. But on the separate subjects of SSCs and the role of a controller there are several studies to form a good theoretical frame of reference for this case study.

This literature review will discuss the available literature on those two key concepts. First there will focused on earlier studies regarding Shared Service Centers. This will give insight in motives for organizations to start an SSC, the kind of activities that SSCs do adopt out of the business and how the literature sees the development of SSCs. Second, the available literature concerning the different roles of controllers is covered. The function and role of a controller and the already studied antecedents of those will be described. The literature review gives insight on the two main topics and forms input for the theoretical frame of reference that will be used to analyze the gained knowledge of the case study.

2.1 Shared Service Centers

2.1.1 Definition

As mentioned in the introduction the Shared Service concept came up in the 1990’s as a response to profound use of ineffective decentralized organizations. The debatable ‘founders’ of Shared Service are either General Electric, who set up parts of their finance department as a Shared Service, or Robert Gunn in a research to best practices within the consultancy firm AT Kearny. At that time the sole focus of Shared Service lied at cost-savings for the benefit of the stockholders (Gunn, et al., 1993). During the years that followed, also in the Netherlands the SSC began to gain interest of the larger companies and non-commercial companies. In 2003 there were already more than 100 SSC’s in Netherlands (Strikwerda, 2005).

Definitions by different researches focus on 4 aspects of a SSC. The first is combining some non-core activities in a company with a number of operating units ( Ulrich, 1995; Keith & Hirschfield, 1996) Secondly this new independent entity will provide value added services with focus on internal customers (Van Denburgh & Cagna, 2000). Thirdly those non-core activities will be bundled in a Shared Service Center instead of putting up back offices for each business unit (Bergeron, 2008). The fourth aspect of a SSC is its purpose to reduce costs, improve efficiency, create value and/or to improve the quality of services provided to the company’s internal customers (Schulman, et al., 1999). This all comes together in the definition of Schulman:

“A concentration of company resources performing like activities, typically spread across the organization, in order to service multiple internal partners at lower cost and with higher service levels, with the common goal of delighting external customers and enhancing corporate value” (Schulman, et al., 1999)

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8 researches see this as an evolving construct where outsourcing is the final stage when business units get the freedom to buy services at alternative external suppliers in a free market situation (Bergeron, 2008; Minnaar & Vosselman, 2013). There are a few motives of choosing a SSC compared to outsourcing. A SSC is positioned closer to the business unit clients and can have more influence on the delivery of the service. With a SCC, the organisation also does not have to give up control of the organizational and technical constructs and personal expertise (Janssen & Joha, 2006).

It is good to know that the concept Shared Service Center is also often named a Shared Service Organization. This emphasizes the fact that the whole organization has to adjust to this new way of working (Herbert & Seal, 2012). These definitions will be used interchangeably through this research.

2.1.2 Motives for setting up a SSC

The advantages and thus motives to choose for implementing a SSC can be divers. The cost reduction was the main goal of early (and many newer) SSC’s. By consolidating services and data, and standardize those across different business units, organizations have the opportunity to achieve economies of scale. An additional advantage is that the costs of the services are much more accountable and transparent and an eventual cost saving will be more clearly visible.

But because the support services are vital to achieve the company’s strategic aims it is also important that those processes are performed well (Schulman, et al., 1999). A SSC can help to increase the quality of communications to the customer by having dedicated specialized people sending consistent, reliable information (Janssen & Joha, 2006). The total quality of the service itself can also improve when the specialists who are placed together in the SSC can create synergies towards the same goals. The quality improvement was named as the most important objective for implementing a SSC in today’s perspective in a recent research by PWC (2012).The experiences that are gained in the different units can now be combined to create best-practices. By placing together the specialists and making them capable of taking over each other tasks the risks of absences and staff turnover can be reduced (Institute of Management Accountants, 2000).

With the removal of the basic, time-consuming activities related to the support processes the people in the business unit can focus on improving the core business performance and increase the corporate value. The business can make decisions more quickly. (Ulbrich, 2013)

The motives for implementing a SSC can be grouped in the same way as the motives for outsourcing in the framework of Baldwin, Irani and Love (2001). In this research the motives are categorized in four groups: strategic and organizational motives, political motives, technical motives and economic motives (see table 1 ).

Table 1 The main motives for implementing a SSC, following the framework of outsourcing (Baldwin et al., 2001) Strategic and

organizational

- Focus on core business quick decision making (increase corporate value)

- Customer orientation, Accelerate processes (Janssen & Joha, 2006) (Cacciaguidi-Fahy, et al., 2002)

- Increase productivity: efficiency and effectiveness through standardization./ Improve/re-design back office process (Cacciaguidi-Fahy, et al., 2002)

- Reduction of complexity

- Synergy and concentration of innovation when experts come together in the SSC (increase quality)

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- Align accounting services with business strategy (Cacciaguidi-Fahy, et al., 2002) - Obtain consistent information across sites and countries (Cacciaguidi-Fahy, et al.,

2002)

Political - Eliminate local and complicated control of IT function - Enhance credibility

- Solve internal conflicts

Technical - Higher customer service levels

- Concentration of technical and project management expertise

Economic - Cost Savings: Lower control and maintenance costs (economies of scale) Borman 2010),

- Accountability of control/more control and transparency of costs. - Eliminate non-value added activities (Cacciaguidi-Fahy, et al., 2002) - Take advantage of favourable tax regimes

- Free up capital for core business operations

Those motives will eventually lead to two types of benefits; lower cost via increased efficiency and the achievement of strategies via increased effectiveness (See Figure 1):

2.1.3 Activities in a financial SSC

As there can be SSCs for all kinds of support functions (for example HR, IT-services and finance) it is difficult to describe the standard activities that are performed in a SSC. This research focusses on a financial SSC further on. As this narrows the possible activities it still differs per organization, per development stage of the SSC and the goals of the (financial) organization what tasks and activities are placed at the SSC.

The routine processes with high volumes are the first activities to shift to a SSC (Wouters & Van der Woude, 2005). Research (Cacciaguidi-Fahy et al., 2002; Van Horn, 2002; Wouters & Van de Wouden, 2005; Verstegen, 2007; Ying & Yuying, 2009) comes to five categories of financial-administrative processes in an organisation that as such can be outsourced (and thus also can be shifted to a SSC).

- Administrative activities: pay rolling, accounts payable, accounts receivable - General Ledger Accounting

- Constructing management reports for the purpose of business control,

Increased Efficiency - Economies of scale - Technology leverage - Standardization/ coordination - Reengineering opportunities - Greater spans of control

Increased Effectiveness

- Specialization/skill leverage - Free up Management to

focus on business issues - Sharing information and

resources across business

Lower costs

- Increase profits - Increase ROI

Achieve strategies

- Increase revenues - Increase market share

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10 - Provide financial policy support; cost accounting, transfer pricing and financial support for

strategic choices

- Treasury: cash management, working capital management, enterprise management, currency risks

Those financial-administrative tasks are often the responsibility of financials (support) functions within an organization. One of those functions is the controller. In the case will be studied if the replacement of activities in the SSC will influence the role or function of a controller.

2.1.4 Maturity models

The latest years there is an increased interest of in the several stages of maturity a SSC can have. Following Strikwerda (2010) the implementation of a SSC cannot happen via one ‘big bang’ but must happen via a series of successive phases where specific changes have to be made.

Bothof, Ghijsen Cohen & Geerdink (2009) designed a maturity model that increases the added value and integration of the SSC with customers with every step. It starts with a ‘Transaction based SSC’. In this phase the SSC is mostly aimed at achieving economies of scale, starting with standardizing processes and reducing similar tasks between the business and the SSC. Also the quick wins are addressed. The second phase is called a ‘Service oriented SSC’. Here the SSC is structuring its processes and starts to measure its performance. A natural customer-supplier relation arises between the business and the SSC. The services are further formalized by creating service-catalogues. The reciprocal obligations of both parties are written down in Service Level Agreements (SLAs). This passes into the ‘Process-integrated SSC’. The customer can help himself by using self-service applications and the processes are optimized. Within the SSC process-experts are created who continuously improve and uniform the processes between the SSC and the business units. At last the SSC reaches the ‘Chain integrated SSC’. Here the SSC can act as supplier of services to external customers.

The Charted Institute of Public Finance and Accountancy (2010) study mentions also different levels of maturity. Four different levels of maturity of a SSC are determined: Basic, Standardized, Stabilized and Optimized. Those levels are determined along six different dimensions: processes, delivery systems, quality assurance, governance arrangements, efficiency mechanisms and technology support. In the Basic level, processes and efficiency mechanisms are decentralized with the use of various systems between different operating units. The operating units and SSC are inward looking and reactive in nature and thus prevent an optimal learning experience. The first step is to standardize all processes to bring the different units on the same level. The benefits of this standardizing are still rather individual taken than in a companywide perspective. After this Standardized level is reached the authors state that the organization is ready to introduce a true ‘shared service concept’ at the Stabilized level where the productivity can lie higher and SLAs are introduced, but there still is much ad-hoc reporting and analysis for the customers as well as sporadic measurement of SSC performances. In the Optimized stage, the SSC has one integrated source of data, self service capability is provided to the customer, SLAs and KPIs are in place and there is an ongoing operational excellence program.

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11 rated via six to eight evaluation criteria. The evaluation criteria are similar across the reports: Strategic direction, control and governance, technology, processes, people.

2.2 Management accountant (controller)

The management accountant (further referred to as controller) has several responsibilities as he is in charge of both management accounting and financial accounting. He is supporting and advising the management of an organization on planning, control and decision-making issues during the strategy implementation processes. It is a function that has no clear definition of what tasks and responsibilities it precisely includes. The specific implementation can differ from situation from situation (Van der Meer-Kooistra, 1999).

Traditionally, the controller gathers, interprets and presents historical financial information to the organization. The core roles of the controller were that of information provider and participant in control and planning activities (Siegel & Sorensen, 1999). The controller were also viewed as independent and objective assessors of the financial performance of the business functions. This implies a passive role as the numbers would speak for themselves and the controllers where only monitors and controllers of others’ performance. (Burns & Baldvinsdottir, 2007)

Since the 80’s management accounting is also expected to be more broadly concerned with decision support and analyzing of the financial results. Sathe (1983) speaks about the responsibility for the proper financial reporting and control as well as the responsibility to assist in the decision making process. Here a widening of the function is visible towards a more service oriented controller. An adequate definition of the concept controller is:

A controller supports and advises the management of an organization in realizing their economic, public and/or financial goals. Support is interpreted in terms of the design and maintenance of management control and accounting information systems, and the procurement and distribution of information. (Verstegen, et al., 2007)

Within these broad definition the controller can have diverse tasks (Van der Meer-Kooistra, 1999): - Decision support for both management and line management through the discussion and

evaluation of policy proposals

- Summarizing, analyzing and interpreting financial and non-financial information - Managing the planning and budgeting process

- Support purchase- and cost calculations and tariff structures - Assessment of budgets and projects

- Assess investments

- Monitoring holding regulations and guidelines - Administrative processes and procedures

- Thinking about the information technology policy

- Consolidation and composition of the quarterly and annual reports

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2.2.1 Roles and function of Controllers

A role is individual behavior or a function in a social environment. Riedijk et al. (2002) states the role of a controller as the way how a controller operates in the total organization: does he administrate the activities of the organization, does he monitor if the activities are being done or is he more active as an advisor. The function of a controller is the scope of his tasks. Ten Rouwelaar (2007) names roles as useful constructs to do research into the position of controllers because it combines the role expectations, role behavior and role set. The role expectations encompasses the function that the manager and controller think they have to do. The role behavior consists of the tasks the controller in effect does. The role set is the interconnection with the other functions within the organization. During the past decades there are many different roles of controllers described in the literature. One of the first was the research by Simon et al. (1954) who studied the decentralization of the controller’s department and comes op with the roles: scorekeeping, attention directing and problem solving. Scorekeeping was controlling the managerial behaviour where problem solving was involves creative decision-making. Attention directing could have aspects of both of them.

Hopper (1980) came up with the well-known differentiation between the two spectrums of a controller: the bookkeeper on the one side and the service oriented role on the other. The bookkeeper role is associated with the centralization of controllers in a functional hierarchy where they have less interaction with the business unit managers. The service oriented role is associated with decentralization and assumes that the controller works closely with lower- and middle-management. Focus lies on horizontal communication, problem solving of all kinds of business problems and providing broad information. An important finding in his work was that a majority of the questioned managers stated that the controller has to focus on the service oriented role where in practice the controllers were focused more on the bookkeeping role. Explanations were found in the role specificity and ambiguity of the controller and the demanding workload that forced the controller to focus on the bookkeeping role. Next to the two roles, Hopper states that when the bookkeeping activities are computerized in an effective way, the controller can play a more service oriented role. He also found that service oriented controllers preferred decentralized functions.

Sathe (1982) considers two major parts of the work of a controller: ‘Responsibility for the financial reporting and internal control’ and ‘Responsibility for the management-service (contribution to business decision making)’ He names 4 different roles (see figure 2) which pay different emphasis on these two parts, and states that it is difficult to combine the two functions in one person (the Strong Controller) because he combines objectivity and independence with involvement with business decisions. The independent controller has similarities with the bookkeeping role and the involved and strong controller with the service/business partner role. Later Maas & Matejka (2009) found that the role of a Strong Controller indeed was hard to assume because the active involvement in the decision-making process was preferred above the objectivity in exercising internal control.

M an ag e me n t se rv ic e Low H ig h

Involved Controller Split Controller (different individuals) Strong Controller (1 individual) Independent Controller Financial Reporting and Internal-Control

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13 Conijn, Koops & Uiterlinden (2005) suppose that the financial function develops. The writers state that this development goes from scorekeeper via financial controller and management controller to business partner. Each role encompasses the previous, plus additional responsibilities:

- The scorekeeper focusses on reliable recording of transactions.

- The financial controller: records the transactions but also makes financial analyses and eventual financial projections.

- The management controller: adds involvement with budgets and advising ad hoc managers to the financial controller.

- The business partner: has responsibility for strategic choices, and advises proactive and unrequested to the management next to the responsibilities of the financial controller. This is comparable to the view of Granlund and Lukka (1998) who state that the management accounting function develops as a continuum, from history writing (scorekeeping/bean counting) through to being a watchdog, consultant, advisor to management and, finally, a management team member (or business partner).

Most authors use the type of activities that the management controller does to separate the different roles (Sathe, 1982; Van der Meer-Kooistra, 1999; Jablonsky et al., 2002; Verstegen et al., 2007). The Corporate Policeman in the research of Jablonsky & Barsky (2000) is comparable with the Scorekeeper. They found that that role places emphasis on activities such as the administration of rules and policies and the enforcement of compliance, the monitoring and control of the business and collecting and reporting information. Its counterpart (the business advocate or business partner) is more involved in management decisions, the encouraging of business-wide use of financial information and protecting the financial discipline throughout the operations. The study of Verstegen et al. (2007) provides a questionnaire that asks controllers about their time spending across their different activities. This questionnaire is used to monitor the role focus of the Dutch controller profession.

Next to the activity types, the focus time (backward-looking versus future oriented) of the controller is used to examine the roles (Jablonsky & Barsky, 2000). In the interviews of this case study will be searched for information of both activities and focus in time. Next to interviews, the survey of Verstegen et al. (2007) will be used in this research as a basis to classify what type of the controller there currently is in function at Pon Automotives.

Summarizing, the (change in) roles of controllers have been subject to many researches the last decades. The researches examine those roles via either types of activities or focus in time of the controllers. Although the different authors use several denominations, there are two broad controller roles that are appearing in most of the articles. The first role is mostly composed of administrative and controlling tasks and will be referred to as the ‘scorekeeper’, the second role is more oriented towards management service and will be called the ‘business partner’.

2.2.2 Change in Roles of Controllers

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14 management information that is needed to manage this uncertainty. Besides, they state that decentralizing the controllers helps to cope with this uncertainty and that decentralized controllers need a more business oriented role. Traas (1997) finds that the managment accounting function is broadening because of the shifting focus. Additions to the function that this studies finds are ‘providing non-financial information’, ‘increase of industry knowledge’ and ‘involvement as change agent’. The controller role of the future will be the ‘financial advisor’ who will be more future oriented and involved in making calculations for management decisions, value concepts, and the making of relations between activities and costs.

Byrne and Pierce (2007) look towards the roles of Management Controllers from the contingency theory of Otley (1980) and find in their research that the role of controllers is influenced by more antecedents then only the environment where all the organizations are active in. Those antecedents can be categorized in different categories. The external category consists of ownership, environment and regulation. The internal category consists of the size of the company, structure type, culture (see also Jarvenpaa, 2007), the technology used, management style (see also Hopper, 1980; Vaassen, 2002), business nature and circumstances and performance systems. At last the individual category includes the orientation and background of the controller. Studies that stick to this line of thought argue for instance that IT provides room for the controller function to look broader then the strict financial tasks (Hopper, 1980; Traas, 1997).

The antecedent technology was playing an influential part in the role of Controllers, as was also found in the literature (Burns and Yazdifar, 2001; Granlund and Malmi, 2002; Bormann-Rutte, Von Grumbkow and Herst 2005). Technology such as the implementation of an Enterprise Resource Planning system (ERP-S) has influence on the role of the controller. As the job responsibilities change because the management controller is no longer seen as the primary information source, the controller has more possibilities to act in a more broad and advising role (Verdaasdonk, 1999). Rom and Rohde (2007) argue that this evolution of information systems has a large influence on the controller. Jarvenpaa (2007) observed that accounting is embedded in the culture of an organization and that via formal interventions the culture of the management accounting function can be changed. Such formal interventions are organizational structures, human resource management and the use of different systems in the organization. Mouritsen (1996) and Lambert and Sponem (2012) argue that the role of a controller is largely determined by the organizational and relational context that the controller is working in.

Research showed also that there are person-related factors that influence the role of a controller (Caglio, 2003; De Loo, Verstegen & Swagerman, 2011)). Possible factors are: years of experience in a financial function (Ahrens & Chapman, 2000), age, gender (Van der Meer-Kooistra, 1999) and personality traits (Van der Meer-Kooistra, 1999; Russel et al., 1999)

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2.3 Theoretical frame of reference

To gather and analyze useful information out of the case, a theoretical frame of reference is needed. This frame shows in what way the case has been viewed and defines the concepts that are used in this research.

This research will look at the relation between the concepts of the presence of a Financial Shared Service Center and the role of a controller. It will look towards the case from the perspective of the contingency theory (Otley, 1980; Byrne and Pierce, 2007) where the change in the role of a controller is interpreted as a result of a set of changed contextual characteristics. This follows the line of research of Verdaasdonk (1999) on the introduction of ERP systems, where the introduction of a ERP system is seen as an possible contextual variable that could influence the role of a controller. The proposition of this research is that the FSSC is also such a variable as it can take over tasks that were formerly the responsibility of a controller which gives the controller more disposable time. Next to that the role of a controller can change because of a part of the information provision will be placed at the FSSC and the controller is less seen as only an information provider. This leads to the research question: “Does the presence of a Financial Shared Service Center influence the role of a controller in an organization, and if how?”.

The key concepts that are used in this research are a FSSC and the role of a controller. In this research a FSSC is considered to be a SSC as in the definition of Schulman et al. (1999) that is focused on performing financial activities. To structure the gathering and analyzing information on the concept of the FSSC there will be focused on the motives for setting up a SSC, what kind of activities there are performed and where the SSC can be placed in the maturity model of Bothof et al. (2009). The motives for implementing a FSSC will be compared to the framework of Baldwin et al. (2001). This will give a good background to indicate what the FSSC aims to reach and how that relates to the role of the controller. The activities that are performed in the FSSC are categorized in several groups as is done in earlier research (for example: Cacciaguidi-Fahy et al., 2002; Van Horn, 2002; Wouters & Van de Wouden, 2005; Verstegen, 2007; Ying & Yuying, 2009). This makes it possible to find out if the activities that are transferred to the FSSC have a strong relation with the activities that controllers perform. The categories are: administrative activities, general ledger accounting, constructing management reports for the purpose of business control, provide financial policy support, and treasury. To classify the development of the FSSC the maturity model of Bothof et al. (2009) will be used. This model ties in well with the viewpoint of the controllers within the case company and is less specific than the consultancy reports which makes the results more generalizable to other business. It might be of interest where the FSSC is in its development to explain its influence on the role of a controller.

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16 Activities in the areas of ‘monitoring’, ‘financial reporting’ and ‘internal control’ are seen as scorekeeper activities as based on Sathe (1980) and Conijn et al (2005). Finally the time focus of controllers is taken into account (as in Jablonsky and Barsky, 2000). Do they focus on events happened in the past (as scorekeepers do) or are they future oriented (as business partners prefer). To examine the possible influence of the presence of a FSSC on the role that a controller assumes, differences between the controllers in the case unit will be analyzed as well as the influence of the FSSC and other factors within the company as perceived by the controllers (the unit of analysis).

In the next chapter will be explicated how the research is conducted in the case company. Business partner: Scorekeeper:

Position in organization Decentralized (Hopper, 1980) Centralized Communication (Hopper, 1980; Conijn et al., 2005) Horizontal Proactive Vertical Reactive Focus on activities (Sathe,

1982; Conijn et al., 2005)

Contribution to business decision making Strategic, planning

Monitoring, Financial reporting and internal control

Time focus (Jablonsky and Barsky, 2000)

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3 Methodology and Case Background

In this section the method of research and back ground of the case study are described. The justification of the chosen research method as well as the data collection process and ways of analysis are dealt with in this part.

3.1 Research method

3.1.1 Case study research

This research will focus on the relationship between two different concepts: (the maturity of a) Financial Shared Service Centers and the role of controllers. There is done quite some research in to both subjects as is covered in the Literature Review section. The link between those two subjects is however not researched. The goal of this research is to generate and acquire new knowledge to contribute on understanding how a SSC possibly influences the role of a controller. Several researches have asked for further in-depth research on those two topics. Herbert and Seal (2012) state in their case study that it is of interest for the literature to study the opportunities of the SSC model for individual management accounts. Jarvenpaa (2007) points to the fact that more interpretive studies have to be conducted to analyze the role of controllers more thorough.

This research shows the results of a case study conducted within the Dutch Automotive importer Pon. A case study is “a research strategy which focuses on understanding the dynamics present within single settings” (Eisenhardt, 1989). This study is exploratory (the relationship between SSC and the role of the controller has not been researched) and it focusses on a contemporary events of which the relevant behaviors (the introduction of a FSSC and tasks and roles of controllers) cannot be manipulated. Case study enabled the researchers to collect the in-depth data necessary to explore the possible influences of the FSSC on the role of a controller in its organizational context. These arguments lead to the use of a case study following Yin (2009). The unit of analysis in the case company will be the individual controller in an organization that lately has implemented a FSSC . The proposition is that the FSSC has influence on the activities of the individual controller and therewith on the role of the controller. Pon is selected for the study as it is working almost ten years with a FSSC and it therefore was expected that it had experienced multiple maturity stages of the FSSC. Next to this the organization is decentralized and finance has an important function within the company. The controllers are positioned at the different BUs and it makes it more likely that the gained knowledge is replicable to other large decentralized organizations. Thirdly we had full access to all parts of the organization because of an internship and had the opportunity to interview various controllers and employees involved with the FSSC.

3.1.2 Data Collection and analysis

This research is done following the phases of Scapens (1990): preparation, collecting evidence, assessing evidence and indentifying and explaining patterns. The preparation phase consisted of reviewing the literature for theories on the topics of Shared Service Centers and roles of controllers.

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18 et al. (2007) and was made case specific by translating it into Dutch and further clarifying questions by adding examples of the actual tasks in this organization. This was done in consultation with the controllers (for the full survey see appendix C). The survey was used for indexing the amount of time the controllers use per activity category. Based on this distribution, statements can be made about the type of role that the controllers are. By using the same survey as Verstegen et al. (2007) the construct validity (the measuring instrument measures what is it is intended to measure) is guaranteed. The interviews were conducted between October 2014 and December 2014. In total 12 interviews were conducted, of around 60 minutes each. The interviewees were working on the different hierarchial positions in either a (group)controller function or a function in the department of Business Services where the FSSC is situated in. In consultation with the supervisor the results are made anonymous for privacy reasons (the names of the interviewees are known by both researcher and supervisor). The interviews were semi-structured based on the key concepts of this research; (the maturity of) FSSC and (the role of) controllers. Semi-structured interviews are chosen because it provides direction to the interview but gives room to ask additional questions when deemed valuable or necessary for this research. Depending on whether the interviewee was working in Business Services or a controller function different questions have been asked (See appendix B for the full interview guides). The interviews have been recorded and transcribed. During the interviews recap questions have been asked to give the interviewees the possibility to adjust the answers and to give the researcher the possibility to avoid misinterpreted informatie.

Hence during the collection of data there was made use of multiple sources (internal documentation, survey and interviews). The results could be methodologically triangulated through cross-checking data coming from different sources. Interviewing respondents from different positions within the company also supported data triangulation. Data triangulation increases the three forms of reliability of the research. The semi-structured interviews and survey supported the reliability of the researcher. The triangulation by using different instruments supports the instrument reliability. And thirdly interviewing different stakeholders increase the respondent reliability.

As third step the evidence was assessed by coding (and later sub-coding) the interviews and internal documents with the key concepts as was presented in the theoretical frame of reference. The results of the survey have been divided in categories in conformance with the controllers. Those are: ‘accounting’, ‘business services’, ‘develop and implement control systems’, ‘reporting’, ‘risk control’, ‘strategic’ and ‘other’. The fourth step is to indentify and explain the patterns arising from the case based on the theoretical frame of reference.

3.2 The case company: Pon

3.2.1 History

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19 that of Geveke (a large Caterpillar-dealer in the Benelux), which made the Pon company almost twice as large. Another recent change is the setting up of the bicycle group where acquisitions such as Gazelle, Derby Cycle and Cervelo USA were made. Currently the company consists of 9 Business Groups in 22 countries and focuses mostly on expansion in both Asia and the US. There are 14.000 employees at Pon of which 600 are active for Pon Automotive. The scope of this research consists of Pon Automotive so where there is stated Pon in the following, only the Pon Automotive branch is meant.

3.2.2 Organizational structure

The Pon Automotive branch consists of three different business groups: Pon Passenger Cars (PPC), Pon Commercial Vehicles (PCV) and Pon Retail. The import of passenger cars of the Volkswagen group is incorporated in the PPC business group. This concerns sales (new cars) and After Sales (parts, accessories and service). Next to Volkswagen the brands Audi, SEAT, Skoda, Porsche, Lamborghini, Bentley and Bugatti are being sold via this group. A yearly amount of between 100.000 -140.000 new sold cars results in a revenue of several billion euros a year. The Pon Commercial vehicles business group consists of the import of VW company cars (‘VW Bedrijfswagens’), the import of MAN trucks and busses, the coordination of large corporate car sale deals (fleet sales) and some smaller companies that are specialized in the modification of cars. In Pon Retail the several Pon owned car-dealers are placed.

The PPC and PCV groups have a Business Unit (BU) structure. There are six separate brand BUs: VW, Audi, SEAT, Skoda, VW Bedrijfswagens and Porsche/Luxury cars. Next to those there are also several facilitating BUs: Dealer Management, ICT, Pon Academy, HR and Facilities. Finally there is the BU Business Services where the Financial Shared Service Center and Reporting & Control teams are placed.

Figure 3: Organizational Structure Pon Automotive

Pon Automotive

Pon Passenger Cars

- VW - Skoda - Audi - SEAT - Porsche/Luxury - Dealer Management

Pon Commercial Vehicles

- VW Bedrijfswagens - Fleet Sales - MAN Truck & Bus

- MAN Dealer

Pon Automotive Retail

-Pon Dealer -Several dealerships

Business Services

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3.2.3 Finance and control structure

As stated before Pon is a multidivisional structure with several business units. The two junior controller on the BUs Volkswagen and Dealer Management report to the senior controller of their BU. The controllers of the units are formally reporting towards their respective group controller as well as towards their Managing Director within their BU.

Senior Vice President Finance Pon Automotive

Group controller PPC - DM Sr. Controller + Jr. Controller - VW Sr. controller + Jr. Controller - Audi Sr. Controller - Skoda: Controller - Seat: Controller - Porsche: Controller Group controller PCV - Fleetsales Controller - VW Bedrijfswagens controller - MND controller - MTB controller

Group Controller Businesss services

- Finance Shared Service Center - Reporting and Control - Business Information

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4 Results

4.1 Finance Shared Service Center

4.1.1 Establishment and motives

The Finance Shared Service Center (FSSC) within Pon is structured in the group Business Services. This group consist besides the FSSC of the BU Business Information (BI) and Reporting and Analysis (R&A). The FSSC within Pon was established in 2008. It was until then named the Accounting Shared Service Center. Before this change, the different BUs had their own Business Unit Administrators (BUAs) that were directed by the BU controllers. That resulted in various ways of data-processing that was adjusted to the preferences of the BU controller. This also lead to very specific knowledge about these processes at the BUAs and no uniform ways of working across the brands. The BUAs were replaced to the ASSC but kept being responsible for a certain brand. The goals that were set at that time were (Source: presentation ‘Afdeling Accounting SSC’):

- Increasing professionalism - Creating synergies

- Creating transparency

- Developing towards a more customer- and service oriented organization - Higher efficiencies

The long term objectives where thus to both incur lower costs (by operating with higher efficiencies) and achieve strategies (by creating synergies and deliver increased quality). The Business Services unit is used as infrastructure. This means that the managers of the several Business Services report via their own group controller to the group management and not via de management of the Business Units. Through the years business units have been added to the customer base of the FSSC. Important examples of this are the PPC car brands SEAT and Skoda and in last year MAN and MTB. Those BUs worked mostly via complete other systems than the other businesses. To integrate them in the service of the FSSC they had to adapt to the processes that were customary. The FSSC, in consultation with its customers, has developed the following mission statement:

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4.1.2 Activities

The current structure of the group Business Services looks as follows:

Preconditions for the Finance Shared Service Center to take over specific processes are that the process is standardized, uniformed and automated. This means that the processes has to be the same for all the business units and that it has benefits to perform this action centrally instead of de-centrally. The activities that are currently performed by the FSSC can be seen in figure 5.

It delivers its main products mostly to the different Business Units within Pon Automotive, but besides those it delivers also to a few other Pon companies such as: Pon IT B.V., De Wasstraat B.V. and DGP Holding. As Pon automotive works closely with auto dealers across The Netherlands, those dealers are also seen as customers of the FSSC as they receive the invoices from the FSSC.

Reporting period closing

Main processes R&A

Figure 5 Structure Business Services and FSSC (Source: interviews)

-Tax and declarations -Management and control general ledger

-Reporting period closing

Main processes GL

-Purchases -Sales

-Payments and receivables

Main processes AP/AR

- Payroll

Main processes Payroll

BusinessServices

FSSC

General Ledger Accounts Payable _ReceivableAccounts Payroll

Business Information Reporting & Analysis

Creating reporting templates

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4.1.3 Stage of Maturity

During its years of operations the Pon FSSC thus changed in naming, activities and customer base. The current stage of maturity of the Pon FSSC has been extensively discussed in the interviews to see where it is in its development compared to the maturity model of Bothof et al. (2009) (see figure 6).

On the subject of economies of scale and standard processes (as in the ‘transaction oriented SSC’ phase of the model), two viewpoints are notable. On the one side this is part of the FSSC, several business units are integrated in the way of working of the FSSC on the subjects of GL, AP/AR and Pay rolling, and that yields advantages.

“Formerly the debit collection was done for three different entities. Now that the entities are aggregated, we are collect the debits at once. The same is valid for Reporterweb where the different cost invoices of all the business are brought together. This brings true added value towards the dealers. I am convinced that a part of your right to exist lies there: being the intermediary between dealer and Pon. This makes it more transparent for the dealer and relieves our own organization.” (Employee FSSC)

But (as also elaborated on in the next subchapter) some possible economies of scale are not achieved (yet) due to processes in the business that have not been standardized and uniformed (and obviously not automated) across the different BUs. In the opinion of the FSSC the preconditions of transferring tasks to the FSSC are not achieved which leads to incomplete benefits on this subject. Also the controllers do look at the subject of economies of scale as a potential point of improvement. They are working on optimization of their own processes to bring more uniformity. If that part is achieved than the FSSC is expected to take over more processes from the Controllers.

“Only if processes are standardized, uniformed and automated, they can transferred to the domain of the FSSC. This is where the problem lies at this point. We are working in a very difficult (IT) landscape which makes it difficult to satisfy the preconditions of the FSSC. Transferring only the bookkeepers (BUAs) towards the FSSC does not immediately ensure that economies of scale are obtained. But I look forward to take more processes from the BU controllers if those are satisfying the preconditions” (Employee FSSC)

- Integration SSC and customer process - Harmonization by IT applications - Higher knowledge level SSC - Process owners - Economies of scale

- Less double tasks - Scalability resources and IT - -Standardizing tasks - Integration chain partners - Collaborations outside company - External customers - Customer-Supplier relationship - Performance measurement - SLAs - Service catalog Added value SSC C u sto mer In te gr ati o n S SC

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24 “One of the major gains will be the simplification and bringing uniformity in our processes. This is what we try to achieve with our ‘proces optimalisatie team’. Unfortunately we have currently too less capacity so we have to approach this at one step at a time. (BU controller) On the subject of avoiding the duplication of tasks (also as in the ‘transaction oriented SSC’ phase of the model), the same picture arises. On the one side several tasks that were done by both the Sales Department and the FSSC are now solely done by the FSSC. On the other side there is room for improvement. This lies for example in getting clear which of the scheduled reports that are produced by the FSSC are really used by the BU controllers and for what purpose. Secondary if those reports are being used there has to be determined if those report in their current form are directly usable by the controllers. Thirdly it is not completely clear if those reports are not also produced by the Reporting & Analysis unit and/or the controllers themselves.

“ At this moment there are 56 recurring reports produced by the FSSC. Some of those might not even be in use anymore by the business. Some might be also produced by the team of R&A. This costs a total amount of 0,5 FTE. It therefore is desirable that the BU controllers uniform their information need for controlling their BU if possible.” (Employee FSSC)

On the subject of Customer-Supplier relation the FSSC is currently undergoing a lot of changes. This is placed in the second phase in the model. A large list of improvements has been drafted which the FSSC is currently executing. A constraint in this process is the availability of resources (IT and manpower). Besides optimizing the internal processes key performance indicators for the main processes and performance indicators for the sub processes are being set to measure the performance. Based on these, Service Level agreements are being written down to determine the obligations that the FSSC and customers will commit towards each other. Next to this a service catalog is made that gives their customers insight in the possibilities of the FSSC. If these are implemented this will make a large step towards a more service oriented FSSC. The present quality and knowledge level of the FSSC is rated predominantly high by both FSSC and controllers. A limitation is however that the knowledge is centered at certain people so that the advantage of the shared service approach, were it does not matter which employee provides service to the customer, is not yet completely utilized.

4.1.4 Summary

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4.2 Controllers

4.2.1 General tasks

The controllers within the case company are decentrally placed at the different BU’s. They report and communicate both horizontally and vertical towards their functional line and within the BU. Via the interviews and a survey amongst the controllers of Pon, an overview of their tasks was formed. The goal of the business unit controllers is:

“To keep the processes of the Business Units under control towards realizing the company objectives. The FSSC department delivers the retrospective part of the picture, the controllers have to look forward.”

To reach this goal the controllers operate on a very broad spectrum of activities that internally are divided by: operations, business and projects (see figure 7).

Figure 7 Internal overview tasks and functions controllers

In the survey that is conducted under the controllers those activities are divided in accounting, business services, develop and implement control systems, reporting, risk control and strategy formulation so that a good connection and comparison with the literature can be made.

Table 3 Results Controller Survey

1A 2A 3 4 5 6 7 1B 2B Average Accounting 7% 4% 7% 6% 7% 9% 10% 16% 20% 8% Business Services 31% 29% 35% 31% 29% 36% 17% 20% 38% 29% Develop and implement control systems 12% 15% 12% 6% 18% 13% 18% 4% 5% 12% Reporting 15% 26% 16% 24% 24% 25% 29% 31% 22% 24% Risk Control 12% 9% 9% 20% 12% 9% 9% 21% 10% 13% Strategic 17% 9% 11% 10% 4% 5% 8% 3% 1% 8% Other 7% 7% 10% 4% 5% 4% 9% 4% 5% 6%

Tasks and Functions Controllers Operations - Monthly closing - Calculations - Internal Reporting - Internal Questions - Return Cars - Bonusgrids Business - Management Team - Factory contact - Busines Cases - Forecasting - Discounts - Audits - Improvements - Ad Hoc tasks Projects - Optimalisation processes BU

- Boards (Sales, Service, Marketing etc.) - Simpel and Effective strategy

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26 The survey shows that within the researched group of controllers the average focus of activities lies on the areas of ‘Business Services’ and ‘Internal Reporting’. The area of business services consists of a broad range of tasks to help the business unit make decisions that are aligned with the objectives of the whole company. It encompasses analyzing and interpreting result influencing factors (margins, deployment of discounts and non-financial key performance indicators) to service managerial decision making but also to constantly challenge the BU to act in the interest of the organization.

The importance of this area is reflected in the interviews where all interviewed controllers state serving the business as an important part of their job. Although at the moment business services takes a substantial part of the time, all of the controllers mention that in their opinion they cannot spend enough time to this part of their job at this moment.

“I try to spend the largest part of my time on servicing the business, that is why we are in function as business controllers. Challenging the assumptions of my management is an important part of this. With these activities I can add the most value to the company” (Business Unit Controller)

“In my opinion the most import part of our job is to look critically towards the business and to constantly ask questions to our BU why we set certain goals and monitor specific information. Unfortunately this aspect comes often last in line as the most of my time is already spend on routine activities. Were the business service part is now on 30% average that should be around 70-80% in my opinion.” (Business Unit Controller)

The fact that the controllers are involved with BU activities does not mean that this goes at the expense of the objectives of the total company states the group controller. This also emerges in the area of reporting that concerns the reporting of management information to both the management team of the BU as well as within the financial column to the group controller.

“The controller in our house has to act as a management position that has no hidden agenda and acts and helps purely in the interest of the total company.” (Group controller)

4.2.2 Differences between controllers

Both the survey and interviews show that there were different kind of controllers within Pon with different types of BUs to work with and their own areas of interest. The most obvious dissimilarity is shown at the business units of Volkswagen and Dealer Management (See numbers 1A/B and 2A/B). Here both a junior and senior controller function together on one business unit. As the survey shows the junior controller is more active on the operational side. The internal reporting, accounting and risk control areas consume more time than average and compared to the senior accountants much more time. Because of this the senior controllers on these business units have more time to spend on the areas of business services and strategy. However those business units are also more difficult to operate as they have a higher revenue divided over more different models/products.

“The operational tasks in internal reporting, accounting and risk control take a lot of time. The senior controllers of VW and DM do have a junior controller on their BU which creates them the needed spare time for strategic tasks and projects that structurally add value.” (BU Controller)

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27 Next to the difference between the number of controllers per BU, the different persons also lead to another use of time of the controllers. More experience as a controller and specifically at Pon or the BU leads to more efficiency at for example tasks of accounting and internal reporting. The financial structure at Pon knows many exceptions as it is an sales driven organization and is perceived as difficult.

“My experience as a controller leads to less time spending towards the more bookkeeping tasks. We are working in a company that is really difficult to thoroughly understand. This will take you almost half a year. The people at sales are always willing to make an exception for each and every customer to sell just a few more cars. This leads to dozens of different bonus and discount structures.” (BU controller)

Some differences between the controllers are also contributed to the personality of the person who occupies the position. So there are controllers who spend more or less time in, see for example Reporting (number 5).

“I like to have total financial control of my BU. This is why I have not delegated much to the business and why I spend a lot of time on the bookkeeping part of my function.” (BU controller)

On bases of the survey and the interviews there can be concluded that there are several explanations for the differences in activities that controllers spend their time on:

- Differences per BU: (number of controllers, difficulty of BU)

- Differences in persons (experience within the job and/or business, personality)

4.2.3 Implications of the presence of a FSSC

As stated before the Financial Shared Service Center was set up within Pon almost a decade ago as stated above. The controllers are also questioned about the impact of the setting up of the FSSC on their own activities and their role as controller. Most controllers stated that the displacement of BUAs towards the FSSC made an impact on their tasks. The BUAs where seen as a Jack of all trades that helped the controllers with many ad-hoc duties. When they were placed in the FSSC many those duties became not only the responsibility of the controllers (as before) but also the controllers became also the executors of those tasks. The BUAs did not take all the tasks they performed in the BU to their new job responsibilities.

“Tasks such as the making of memorandum pieces were suddenly my responsibility. I was never responsible for bookkeeping but with the displacement of the BUAs I suddenly was.” (BU controller)

As the BUAs capture valuable and specific knowledge about their former BU it was hoped that they would distribute that knowledge more widely so that the service of the FSSC would be less dependent on specific persons. Thus far that knowledge distribution is lacking.

“The expertise of the BUAs is not wider available till now. Person X is still the best in solving bookkeeping issues for the BU VW and Person Y is still the best in guarantee issues. Those persons are delivering high quality services and are highly valued within our organization. But it is worrying that if Person Y is temporarily unavailable due to sickness or vacation that directly affects daily business as well as important projects” (BU controller)