Shared Services And IT

This case is an example of a final round case offered by A.T. Kearney which will require the candidate to review material, develop insights and make a presentation.

You have been contacted by the client officer responsible for M&S Manufacturing Company to lead a new project. M&S has been a solid client since its merger was completed. The client partner calls you after an earlier meeting with M&S's CIO and CFO. The entire situation at M&S is changing and the client has asked our firm to help. The following information is provided. A joint venture, the M&S Manufacturing Company was established two years ago and is now operating at $4 billion annual revenues with a 25% gross margin and 10% operating margin worldwide based on its ability to generate 15% return on its project investments. Most of the company's operations and sales are based in North America, however, the company has locations in many countries around the globe. Resources for the joint venture were supplied as follows: • Miller, a large manufacturing and distribution company, supplied most of the people, mainframe-based applications and current IT infrastructure and facilities • Smith, a manufacturing company, supplied cash and patents The company is now designing a new shared services and IT infrastructure to combine various administrative processes and replace the legacy systems provided by Miller. The scope of the processes to be included in the shared services center includes Finance and Accounting, Procurement, Human Resources, Real Estateand IT which account for 70% of the company’s SG&A expenses. Shared services allow organizations to consolidate redundant support functions, such as accounts payable, for disparate business units. By leveraging economies of scale from a common IT infrastructure, such a group is able to market specific services to its business units. In bringing together the five processes into the shared service center, M&S believes a specific focus on improving the IT infrastructure should be top priority. The currentIT infrastructure can barely handle the current volume of transactions as they are disparate legacy systems mainly built in-house with some of the best programmers at the time. The scope of the IT redesign includes worldwide data communications networks integrating corporate functions with field operations, manufacturing and distribution sites.

Issues The company's CFO has been challenged to find answers to the following questions: • How can M&S develop an effective shared service center and a 3-year IT Strategic Plan? How should it be approached? • What functions should be included in shared services? Who should run the shared services group? • How can M&S align its business, process goals and strategies? • How can M&S use shared services to gain a competitive advantage? • How should M&S finance and justify the cost of the new shared services and IT infrastructure? • What parts of the infrastructure (if any) should be outsourced? How should M&S decide what to outsource and what to retain? • What is the right level of IT expenditure for M&S? • What SG&A cost reduction trends may have an impact on M&S’s strategies and business performance? • What organizational, technological and management strategies should be followed to provide an effective and responsive IT solution for M&S's rapidly changing needs? Our previous shared services work at clients show finance and accounting and HR typically drive 3-4 times the benefits of the other functions. Our initial estimate is to improve operating margin to 12%. Internal attempts to resolve these issues have been unsuccessful. As a result, theCFO is looking for outside assistance. The CFO is coming under increased pressure from the business units to address the issues. Some division heads are even talking about coming up with their own solutions if "something isn't done soon to control cost and improve service levels." The division heads have formal business plans for the company’s growth but are telling the CFO that the administrative process and IT functions are not well linked to these plans. Additionally, the division heads currently each manage their own support functionswithin their divisions, while the CFO manages all of the corporate support functions.