Leveraging Value from a Shared Services Investment
For organizations fortunate enough to have committed to a shared services model already, this is the time to shine. More specifically, it’s an opportune moment for mature shared services like Marriott’s to leverage past investments.
Michael Cullen, Senior Vice President for Marriott Business Services explains how shared services continue to add value for Marriott International.
Marriott’s shared service center, based outside of Knoxville, Tennessee, has been in existence for almost nine years, and operates as a highly mature model. Over that time period, it has achieved world-class effectiveness and efficiencies.
In late 2000, when the shared service center was launched, MBS serviced 180 US-based full-service hotels for which the SSO provided AP, AR and cash management services. This list has grown since to include General Accounting, Payroll, Fixed Assets and Sales/Use/Property Tax for over 700 managed hotels in North America. In addition, Marriott’s shared services touch every one of the company’s 3,100 hotels in 66 countries and territories with at least one of its services and continue to find ways to extend their service offerings. Given MBS’ track record for creating value, it is now common to have peers calling Cullen to request support with particular processes. "There is broad recognition regarding the opportunity to save money and improve service delivery by transitioning work to MBS," explains Cullen.
With hotels operating in every major market, SSC resource leverage from economies of scale accounts for a significant part of the value generation. However, labor savings is only the beginning. "The basic cost benefit is enhanced by the value we get out of continuous process improvement and value-added services," explains Cullen.
"Through our robust performance measurement processes, we have improved the efficiency and quality of service delivery for each process transitioned into shared services." he says. Through increased leverage in hotels services, expansion of services and robust continuous improvement, MBS has lowered cost charged to hotels nearly every year since it first opened its doors, says Cullen. "It is fairly standard for administrative departments to increase costs about 3 percent, in line with inflation—at least in the past. But we haven’t had to increase ours."
The shared services have lowered its costs every year since it first opened its doors, says Cullen. "It is generally fairly standard for shared services to increase costs about 3 percent, in line with wage inflation—at least in the past. But we’ve never had to increase ours."
Leveraging Original Capabilities
"Marriott made a significant investment to bring billing and accounts receivable into the shared services model. As part of this process, systems were developed to get all data that resides on the properties into a central repository. Several key levers emerged out of this automation, explains Cullen. One example is the creation of a credit database. This is especially valuable now, as businesses are necessarily cautious about the credit they extend, and are carefully monitoring receivables. Over the past eight years, MBS has developed a comprehensive credit history database, which is now proving its value.
The custom credit application was built from scratch, based on PeopleSoft, and is extremely effective, according to Cullen. It’s an impressive example of value added services from basic billing and accounts receivable services utilizing existing technology and data to support organizational cash flow.
Another area of leverage relates to the repository for all this data. Originally, the service was provided to 180 hotels only. But since the infrastructure was built, it made sense to collect the data from the other 2,200 hotels in North America. And by working with its strategic partners—American Express, Visa, MasterCard—Marriott is able to pass that data to the credit card companies, which, in turn, pass it back to Marriott’s customers to pre-populate their T&E systems. Cullen explains: "For example, a hotel customer uses his corporate travel credit card and has one of the major expense reporting systems. We now have the capability to take a customer’s folio from our hotel’s front desk and pre-populate their expense reporting system, saving time all around. We now have over 1,000 companies that subscribe to our e-folio program—a B2B process for the travel industry—and that use it to monitor travel compliance as well as automate their T&E process."
Improving partnering relationships with its intermediaries has been a key area of focus. "We naturally do a lot of business with intermediaries like Expedia, Travelocity, etc.—which book hundreds of thousands of rooms in our hotels," explains Cullen. The billing for this is pretty complicated, he explains: a manual process run on an individual basis, according to reservation. As MBS was already collecting this folio data across 2,200 hotels in North America, the group developed a B2B settlement process with Expedia. Consequently, last year MBS transmitted over 600,000 folios to Expedia electronically, instead of manually billing these folios out. The data went directly to Expedia’s payment system and the days to pay were consequently reduced by a couple of weeks. "This reduced time and effort for our hotels as well as for Expedia to reconcile the transactions coming in from our hotels," says Cullen.
To generate the best value for the company and its hotels, the procurement group typically negotiates companywide contracts which leverage Marriott’s size and scale. But to get full advantage out of these contracts, hotels need to buy their products from the company’s strategic suppliers.
One area shared services took on a few years ago was implementing a reporting system that tracked compliance with its strategic suppliers. The focus was on taking information from the system to track the purchasing behaviors of operators and produce strategic reporting to drive higher levels of compliance.
This was, of course, a reactive measure rather than a preventative measure, Cullen concedes. A preventative measure would have been to implement an e-procurement system connecting suppliers and buyers. Without an e-procurement system, this was the next best thing. "Through this initiative, we drove compliance from 44 percent up to 85 percent and saved tens of millions of dollars through procurement leverage and compliance with our programs," he says.
The shared services group is working on two projects right now to further leverage existing capability: bringing on Ritz Carlton billing as well as International AP and general accounting. Again, this is taking advantage of standardization and streamlining leading to highly leveraged opportunities. As a result, the shared services can now increase scope at a relatively low cost. To take the AP and general accounting example: Marriott’s SSO can now bring an extra 50 hotels from the Caribbean and Central European region into the model at a mere 2 percent incremental capital investment for nearly 7 percent increase in scope. Even more impressive is the billing example, however, where shared services can increase its scope in billing by 22 percent (i.e., adding 40 Ritz Carlton hotels to the current 180) with only a 6 percent incremental investment.
Cullen likens his journey to the classic change management curve—despair, denial, resistance … and finally, acceptance, if you execute well. "Five years ago, we were trying to convince the organization that shared services would create value for hotel managers, customers and shareholders. Now what I hear is that our shared services model is one of the solutions to the economic challenges. We have become so efficient and effective in what we do that people are now bringing us work."
The foundation for Marriott’s continued operating success is a model that is globally enabled. Cullen is confident in the value his team brings to the corporation. And quarterly hotel satisfaction surveys results bear him out—scores are in the high 80s and low 90s now. Additionally, a Hackett survey identified Marriott’s SSO as a "world class" operating model.
However, Cullen sounds a caution: "The challenge we are facing now, given our rapid growth, is not to dilute our expertise, so temper the growth. Our shared services group has doubled in size over the past two years. We are busier than ever. But it is important to bring your associates along, on the journey with additional skills as needed.'