Centralizing on Excellence
PepsiCo and Minerals Technologies blaze a path toward global business services.
by Molly Rose Teuke, May 2009
When Pepsi-Cola merged with Frito-Lay in 1965 to form PepsiCo, the result was a food-and-beverage giant with an appetite for growth. The company has grown enormously, and in 2003 its international snack, beverage, and food units were united under the new name PepsiCo International. Among the conglomerate’s 2008 acquisitions are the U.K.-based V Water, a leading brand of vitamin-enhanced water, and Lebedyansky, Russia’s leading branded juice company. Such moves are keeping PepsiCo tonus—Russian for “in good shape” and the name of one of Lebedyansky’s most popular juices.
But staying in good shape, for corporations as well as vitamin water-guzzling athletes, requires consistent effort. Companies intent on staying trim and fit are adopting a global shared services approach. “Shared services is one of the empirically proven best practices around, both reducing cost and improving the output or effectiveness of general and administrative operations,” says Wayne Mincey, president of The Hackett Group, a strategic advisory firm based in Miami, Florida.
According to Mincey, shared services has historically meant the collection of a set of disparate processes—finance, accounting, planning, some purchasing, human resources—into a central location. This allows an organization to benefit from its scale, not struggle against it. “A $10 billion organization may be getting only the scale of 10 $1 billion companies if it’s handling those processes in a decentralized, fragmented fashion,” Mincey says. “With shared services, it truly gets the scale of a $10 billion company.”
But as shared services become more sophisticated, the practice is evolving into global business services systems, with less focus on the physical location of the work. Mincey notes that a conglomerate with 15 or 16 business groups might eventually transition to three shared services centers within the company. And, over time, each center may take on an area in which it has greater expertise and depth—one may become the order-to-cash center of excellence, whereas another shared services center may focus more on procure-to-pay and general accounting. “There could also be a group of decision support people located at each business unit headquarters with responsibilities across geographies and operating units,” explains Mincey. “But the data analysis, the techniques, and a lot of the rack-and-stack number crunching might be done somewhere else and provided back to these decision support people, making them much more productive and effective in their roles.”
This approach becomes the foundation of a global business services model, says Mincey. It takes advantage of the core benefits of shared services and takes this model to the next level. Adopting a broader view also expands the kinds of processes likely to be managed in a shared services environment. “It’s no longer just finance and accounting and HR,” he notes. “It’s managing fleets; it’s managing property; it’s taking care of things that really can be leveraged across the enterprise.”
The key is to think beyond shared services to the broader issue of enterprise reporting needs and how standardized, and sometimes shared, services can support them. “It’s important to understand your business model and know which processes can and should be centralized and which need to remain decentralized, based on good, solid business reasons,” says Loren Mahon, Oracle vice president of Global Business Services. “When you simplify, standardize, and in some cases centralize your ability to manage information, it enables you to make quick and prudent decisions. Simplification and standardization can feel like, ‘Oh, we’re just not getting there,’ but it’s a foundation for being effective as you move to a global business services model.”
Responding to Global Challenges
When PepsiCo International Europe set out to tone up its sluggish enterprise resource planning (ERP) and reporting capacity, the decision was driven by three immediate business challenges. Its operations in Spain and Portugal were being combined into a single operating entity called Iberia. Then its Polish operations made an acquisition that caused that group to roughly double in size. Finally, Russia’s operations were being handled by the Poland operations center, and with projected yearly growth of 25 percent, Russia needed its own operations center.