A key pillar of strategic planning is to identify the points of synergies and shared capabilities, which can provide strategic business units with cheaper, faster and better value proposition.
What is the enterprise shared capabilities?
Every SBU needs a set of capabilities and capacity to deliver to its goals. Enterprise level synergies are the areas where these capabilities are developed and/or delivered at an enterprise level. These capabilities are not captive to any SBU, but are available to the SBU as a customer or beneficiary. These synergies enable SBU and enterprise to:
- Get economies of scale and low cost.
- Present one face to the customer and stakeholder
- Get best of breed expertise
- Stay focused on the core competencies needed for SBU
- Stay aligned with Enterprise level strategies and direction. Most of these synergies are developed keeping enterprise view.
- Develop processes which are consistent across the enterprise.
Examples of Enterprise Shared Capabilities
Corporate Functions
Investments and Funding Management
Legal
HR Management
Communications
Business Competency Centers
Information and Data Management
Quality Management
Business Process Management
Business Support Functions
Corporate Brand Management
Marketing Management
Sales and Promotion Management
Leads Management
Channel Management
Sales Outlets Management
Marketing Research
Shared Services
Order processing and Fulfillment
Contact Centre and Customer Service
Repair, Maintenance and Support Service
Purchase and Sourcing
HR Operations
Facilities and Infrastructure
Where are enterprise shared capabilities (ESC) placed in the planning process
Conventional Support Function Strategy
Some of the shared capabilities are in the form of conventional functions like IT, Legal, HR etc. These functions define their strategy based upon the top-line, bottom-line and other business goals. These are those functions which are part of organization governance and are necessarily centralized.
Strategy Driven Opportunities
These ESC and Synergies are identified as means to achieve the business objectives. Some examples are:
- Consolidate operations from 10 manufacturing locations to 5 locations
- Consolidate the offices of different SBUs in a single city to a single location
- Centrally manage the promotion of corporate brand and flag-ship products
- Create a standard kit for opening new outlets.
- Consolidate all purchases through purchase functions to get the volume deals
TIP- The list can be endless. All the above are means to achieve the financial and business goals. As one goes through the planning process, one needs to identify and explore these opportunities at every stage.
Setting business goals for ESC
Once identified, one can place aggressive goals for being Cheaper, Faster and Better, for that specific opportunity. Taking the above examples:
- Consolidate operations from 10 manufacturing locations to 5 locations- Reduce per unit of manufacturing cost by 10%.
- Outsource order fulfillment for all standard products- reduce per unit manufacturing by 15% and delivery TAT by 10%.
- Consolidate the offices of different SBUs in a single city to a single location- Reduce per employee office facility and infrastructure cost by 20%.
- Centrally manage the promotion of corporate brand and flag-ship products- Increase the brand awareness by 25% within the same budget.
- Create a standard kit for opening new outlets- reduce the TAT for opening a new sales outlet from 65 days to 47 days.
- Consolidate all purchases through purchase functions to get the volume deals- Reduce the existing purchase price by 4% for items which are not under long term contracts.
TIP- Building ESC should be serving a business objective. As you go through the planning process, one needs to look at every possible opportunity for having an ESC, as long as it has strong business-case.
Synergies are not only consolidating and centralizing
Enterprise Synergies and Enterprise Shared Capabilities (ESC) have a little different shade. All synergies are not necessarily ESC, as there are elements of synergies apart from ESC. These are tricks to reduce the cost and improve the effectiveness. They can be done without building shared capabilities. Most of these tricks are done at a functional level.
- Consolidating number of training providers.
- Using sales outlets also as service centers.
- Using the 3rd party distributor office facilities to seat our own sales staff.
- Re-configuring existing assembly lines to enable them assemble different products.
Situations where you may not go for synergies:
Synergies and ESC opportunities may not be leveraged fully in following scenarios:
- SBU is a large business- If an SBU is large enough, there will be good business case for having shared capabilities even at SBU level. Some SBUs are large enough to be a corporate entity in their own right.
- SBU has very specific need- example- For a premium product line, an organization may decide to have separate line of sales outlets and customer service.
- Change Management- The sheer change management involved. For example- Let us say that there are multiple ERPs in a business environment, and still one does not consolidate them under a single ERP because it will disrupt the business for nearly 2 years.
- Priority: There can be dozens of synergy opportunities, but one may decide on high priority ones, which will give maximum benefit.
Challenges and Pitfalls with organization ESC
- It takes away certain level of flexibility and freedom from the business units
- The shared capabilities become insensitive to the SBU specific needs
- Adds to bureaucracy, which leads to responsiveness and nimbleness issues
- The shared capabilities become a power centre themselves, leading to political hazards.
- The shared capabilities do not get enough business domain expertise, which lead to them not being aligned to the business perspective.
TIP- Overall, it is a reality of today's world to have Enterprise Shared Capabilities. These shared capabilities will not have master-slave relationship with the SBU, as they are also responsible to the shareholders. A customer-service provider relationship is a good model. An organization required leadership depth and maturity to have SBUs and shared services work as an effective unit. |
