The members of the steering committee at Ashland Chemicals probably didn't phone their mothers for advice in 1995 when they were formulating their five-year plan. But had they, they may have followed some typical motherly advice: "You've got to learn to share."
For U.S. companies trying to manage multinational operations, sharing comes in the form of shared service centers -- facilities that provide centralized back office operations to several different divisions or entities.
| The cost reductions in shared services centers can be substantial, from 30 to 50 percent including labor costs. Brought-in goods and services, sometimes accounting for 20 to 90 percent of a company's operating costs, can be enormously reduced with centralized operations. |
The strategy certainly made sense to Ashland Chemicals. Ashland Inc. is a worldwide energy and chemical company headquartered in Russell, Ky. The company employs more than 35,000 people and ranks in the top quarter of the Fortune 500.
In 1995, when representatives from each of the European business units got together to chart their future courses, they realized several acquisitions and substantial growth were headed their way.
They also realized their current European structure would not handle this growth efficiently or effectively. So they decided to consolidate many of their so-called back office functions into one shared services center in Rotterdam in the Netherlands.
Strategy pays off
Ashland Chemicals' vision and strategy for the future was dead on. In 1996 the center was formed and by 1997 it was fully functional.
"We have grown internally and through acquisitions," explains Joe Corry, director of Ashland Operations Europe, and managing director of Ashland Services BV. "Having a shared services center with key administrative and financial functions has allowed us to bring in newly-acquired companies faster.
"We haven't had to duplicate functions. And it's led to efficient financial reporting. That means we've been able to grow more effectively and faster, as well as save money."
Netherlands a leader in shared services
Ashland Chemicals isn't the only U.S. company that's discovered one of the best locations for a European center -- the Netherlands.
In a 1997 Coopers & Lybrand study, the Netherlands was ranked as the most important European location for shared services centers. This comes as no surprise to the more than 20 companies that have already located their centers there.
| "Having a shared services center ... means we've been able to grow more effectively and faster, as well as save money."
-- Joe Corry, director, Ashland Operations Europe and managing director, Ashland Services BV |
Other U.S. companies with shared services centers in the Netherlands include Progress Software, Eastman Chemical Co., Reebok International, Sealand, Rockwell and BP/Mobil in Rotterdam; NCR, Unisys, Sterling Commerce, PeopleSoft and Cisco Systems in Amsterdam; Indigo, Penske Logistics, Medtronics and Boston Scientific in Maastricht; Sun Microsystems in Amersfort and Apple in Bunnik.
Infrastructure provides backbone for growth
The Netherlands has the infrastructure to back up its people and facilities. The two main ports are extremely close together. The Port of Rotterdam is the world's largest. Amsterdam Schiphol Airport is the fourth largest European airport and has connections to all the major economic centers in Europe.
An intricate system of roads, waterways and railways is in place. Schiphol is also an important stop on the new European high-speed train network. These links are especially important for a centralized facility, where it's important to have easy access to several other countries.
Look before you leap
While savings can be bountiful, it's important to remember that the decision to open a shared services center is a major one and the transition is not always easy.
"It's not like walking into a room and turning on a light," said Corry. "It's a worthwhile exercise, but very time consuming and challenging. Even though these functions are often referred to as 'back room' at the external customer level, they're very visible and important within the organization."
Nanci Tangeman is an Amsterdam-based freelance writer.
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