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ELI LILLY: SUCCESS WITH DANISH SHARED SERVICE CENTREVisionary finance personnel ensured that Eli Lilly established one of their first shared service centres in Denmark. It has proven to be a wise decision. The gains have been enormous, and the experience inspiring.
It is now ten years since Eli Lilly decided to consolidate their finance departments.
- We had separate finance departments in each of the Nordic countries until some smart people decided that a different corporate structure could be far more efficient, says Torben Andersen, Manager of CSSC (Copenhagen Shared Service Centre) at Eli Lilly.
The company therefore decided to consolidate all their different national finance functions in one country. As Torben Andersen says,
-Denmark was chosen as the location because of a few very visionary predecessors who had seen the opportunities offered by Danish technology and not least because of the availability of skilled employees. They could see the value of combining all the financial services here. Looking at it now, one of the most obvious benefits of locating in Denmark is the educational system, which provides well-educated economists compared to other countries. Additionally, Denmark stands out because of the flexicurity system that makes it easy to hire and fire employees.
BIG SAVINGS AND SYNERGIES
The first step in the process was to close down the Norwegian finance function in April 2001 and transfer its activities to Denmark. The same was done in Finland in September 2001. According to Torben Andersen,
-It soon became apparent that this was working well. The original purpose was to create a critical mass, which was not possible with a separate finance department in each country. Now, we only have one controller in each country responsible for preparing budgets and budget control in that country. All other tasks such as accounting, reporting, handling of invoices etc. are handled by our shared service centre here in Denmark.
The closure of offices in Norway and Finland in 2001 was repeated in Sweden and Iceland in 2002, followed by Lithuania in 2006, and Estonia and Latvia in 2007.
-Now we have three departments here in Denmark: O2C (Order to Cash), which makes out invoices, sends out reminders, stocks products and handles logistics etc. O2C is the smallest department with three employees. Then there is the P2P (Purchase to Pay) department, which consists of a team leader and five employees. They ensure that all documents are scanned and matched against purchase orders. The documents are then sent to whoever placed the order for approval. This is all done electronically. Once the invoice has been approved, it automatically enters the finance system during nighttime computer runs. Once a week, all payments are made. Finally, we have the GA (General Accounting) department, which takes care of reporting and balancing etc. In addition, there is myself and a 1/2 Scandinavian controller, says Torben Andersen.
-This has meant that we have achieved two important things: we have achieved major synergies and significant savings compared to before. The total number of finance staff is significantly lower than the previous total from all the individual countries. And above all, we are an American-owned company listed on the stock-exchange, and that means strict segregation and documentation of everything we do to ensure we do not break the law. Thanks to the fact that we are a large department, that is something we are able to achieve, and consequently, we also get very good reports from the external audit. This means a lot to us because we are regulated across the board, and in terms of morality and ethics we need to be almost whiter than white.
With our shared service centre, we are also much more flexible because there is more than one member of staff responsible for each function, and as a result, it is easy to obtain cover if, for example, a member of staff is ill. Another benefit is that about 90 per cent of the auditing of the other countries takes place here at the shared service centre. The auditors then send the finished reports to the other countries, where local auditors can check what needs to happen locally and do the tax returns. This is another area in which we have been able to make substantial savings, continues Torben Andersen.
TWO CLEAR BENEFITS OF DENMARK
When Torben Andersen looks back, he can see two clear benefits of locating in Denmark compared to many other countries. It is partly our famous flexicurity in employment, which makes it easier to scale employee numbers up and down. Added to this is the academic standard of recruits in the financial sector. In Denmark, the standard and quality of education is second to none. "We are better educated and we have the technology and know how to use it," says Torben Andersen. On the negative side, however, are obviously high costs.
A prerequisite for establishing a shared service center in practice in the way that Eli Lilly has done, is having technical systems already in place, according to Torben Andersen.
-It is essential that you have access to systems that make this possible. Here, technological developments are on our side. For example, we have just got a new scanner system for less than what we paid in annual fees for the first system. These developments also mean that it now costs almost nothing to have 100,000 invoices stored electronically, explains Torben Andersen.
Access to current technologies in the field of communication is also crucial. For example, it is possible for Eli Lilly to hold meetings via a giant web TV.
-Physical contact is of secondary importance, but it is vital that we can communicate well with each other. Each quarter, we have conference calls between one member of each department and the local controllers.
Eli Lilly has consolidated all its finance functions in Denmark, which therefore serves seven countries. In practice, Torben Andersen sees the new structure more as a virtual organisation where the physical location of individual managers is less important. Torben Andersen’s own boss is located in Stockholm.
When it comes to travel reimbursement, Eli Lilly also now has a system that takes advantage of the opportunities the technology provides. This system is on track to be implemented worldwide, and is essential for a company where 60 per cent of the employees work, and also visit clients from home.
-When I do my expenses, for example, I scan in all the documents, which are then sent to my manager in Stockholm for approval. Once he has approved them, I receive a confirmation by e-mail, says Torben Andersen.
Torben Andersen reckons that the very positive experiences of setting up the financial shared service centre may well result in plans to establish shared service centres for other areas as well.