By Isabelle Chan, ZDNet Asia
07/05/2007
URL: http://www.zdnetasia.com/insight/cio/0,3800010728,62010688,00.htm

Based in Germany, BASF is one of the world's top chemical companies. It has a diverse portfolio ranging from chemicals and plastics, to oil and natural gas. It has 95,000 employees on five continents.

In 2005, BASF set up a regional shared service center in Malaysia. The center provides support services, such as finance and IT, to 15 countries in the Asia-Pacific.

Stefan Beck, BASF's regional IT head, talks to ZDNet Asia from his Singapore office, about the benefits of shared services and the pitfalls to avoid.

Good afternoon, Stefan, and thank you for being on CIO Visions. What are your responsibilities as regional IT head of BASF in Asia-Pacific?
Beck: Well, as you said, I am responsible here in Asia-Pacific for the entire IT and this covers IT governance which is located here in Singapore as well as the delivery of IT services throughout the region from our shared service center in Kuala Lumpur. And last but not least, the so-called information management which are actually our representatives in the countries and in the companies which span the bridge between the business requirements on the one side and the IT community on the other side. And this responsibility covers Asia-Pacific, where we have operations in 15 countries with about 40 wholly owned companies and 22 joint ventures, 12,000 employees in the region and the IT staff in the region is about 200 to support this operation.

BASF invested US$25 million into a regional shared service center in Kuala Lumpur, Malaysia, in 2005. What has been the return on investment so far?
Beck: Monetary benefits are definitely one aspect and one very important aspect, but in our opinion, the intangible benefits like operational efficiency, support of business growth, support of business decisions, have a much higher strategic relevance. And then with the shared service center, if you have not only a center of scale but if you develop toward a center of expertise, the strategic benefits can even be higher than in a normal center of scale.

It is true then, that shared services is not just about cost savings, but there are strategic benefits, too?
Beck: Absolutely. As I mentioned before, I think monetary benefits are only one aspect. Issues like increasing efficiency, like support for business growth and for business decision, in my opinion, are of much higher strategic relevance than only the cost savings.

What is on the cards for 2007 in terms of new activities?
Beck: So 2004 was the year in which the shared service center was defined in a business case. In 2005 and 2006--two very challenges years--we then implemented the shared service center, and in 2007 we will fine-tune the services delivered out of the shared service center and start with a benefit realization. In addition to this, in 2007 we have to integrate our recent acquisitions of Degussa Construction Chemicals and Engelhard also into the service scope center.

How suitable are other Asian countries like India, China, Philippines and Singapore for shared services?
Beck: Well, the selection for the right location of a shared service center depends to a great extent on what type of service you want to deliver from the center and what type of communication you want to make out of the center. We basically investigated all of the locations you mentioned for suitability, and our main criteria were economic and political stability, competitive salary structures and last but not least language capabilities because we have set up a service desk that is servicing 15 countries and we have at least six languages that we have in the service desk in the shared service center. And taking all these different criteria into account, Malaysia was just the perfect match for the scope that we're covering in the shared service center.

Is shared services for everyone? For the benefit of our viewers, what advice do you have for those thinking of shared services?
Beck: First of all, the company would need certain geographical footprint and diversity, where the limited geographical span and the very homogeneous business environment, the functional services, would anyway be already very efficient and streamlined. And so it is very important to analyze well how much synergies you can really get out of a shared service center.
If on the other hand, the diversity of the business model, and here I mean the inherent diversity--not artificially created 'we are different diversity'--if this diversity of the business model is high or very high than the characteristics of a shared service center, at least a center of scale, would probably paralyze the business, or at least hinder it. So if flexibility and individuality is a substantial part of a business requirement then look very carefully at what you are building and bundling in a shared service center.

Finally, can you share some of the other lessons learnt?
Beck: Well, what are the lessons to share? Again, many, many, but most importantly I would say don't try to set up a shared service center if you have not analyzed the affected processes beforehand, probably even partly standardized them already. Don't use a shared service center implementation for housecleaning or for bringing the long list of transparency at the same time as you try to consolidate these functions.

The second lesson is make it clear to all the affected parties that a shared service center--at least a center of scale--will always require compromises and sometimes just the smallest common denominator is possible. You cannot just make everyone happy with a shared service center, at least not from the very beginning.

Well, and last but most importantly, irrespective of how good your shared service concept is, how well defined your processes are well defined, or how detailed the schedule and project plans are, without a strong and well-defined change management, is one of the most substantial functions in the implementation team, any shared service center will have major problems.

If you fail to properly involve the concerned parties from the companies at the very beginning and if you don't get their buy-in for the concept, it is irrelevant how good the shared service center concept is, it will not bring the expected advantages and benefits.