Harvard Case - Changhong: Journey to Shared Services
"Changhong: Journey to Shared Services" Harvard business case study is written by F. Warren McFarlan, Haiyan Zhang, Guo Jia. It deals with the challenges in the field of Finance. The case study is 14 page(s) long and it was first published on : Apr 23, 2014
At Fern Fort University, we recommend Changhong implement a phased approach to establishing a shared services center (SSC) for its finance and accounting functions. This approach will focus on streamlining processes, improving efficiency, and driving cost savings while mitigating risks associated with a large-scale organizational change.
2. Background
Changhong, a leading Chinese electronics manufacturer, faces challenges with its decentralized finance and accounting functions. This leads to inefficiencies, duplicated efforts, and difficulty in consolidating financial data. The company aims to improve its financial performance and global competitiveness through a shared services model. However, they face resistance from subsidiaries and uncertainty about the best implementation strategy.
The key protagonists in this case are:
- Mr. Li, the CFO of Changhong, who is driving the shared services initiative.
- Subsidiary managers, who are concerned about potential job losses and disruption to their operations.
- Changhong's leadership team, who need to make strategic decisions regarding the SSC's scope, structure, and implementation.
3. Analysis of the Case Study
Porter's Five Forces Framework can be applied to analyze the competitive landscape facing Changhong:
- Threat of New Entrants: High, due to the rapidly evolving electronics market and low barriers to entry for new players.
- Bargaining Power of Buyers: Moderate, as consumers have many options and can easily switch brands.
- Bargaining Power of Suppliers: Moderate, as Changhong relies on a global supply chain with various suppliers.
- Threat of Substitutes: High, due to the availability of alternative electronic products and services.
- Competitive Rivalry: High, as Changhong competes with numerous established and emerging players in the global market.
Financial Analysis:
- Profitability Ratios: Changhong's profitability ratios indicate a need for improvement, particularly in the face of intense competition.
- Liquidity Ratios: Changhong's liquidity ratios demonstrate a healthy financial position, but further optimization can be achieved through improved cash flow management.
- Asset Management Ratios: Changhong's asset management ratios reveal opportunities for efficiency gains and better utilization of resources.
Key Issues:
- Resistance to Change: Subsidiary managers are hesitant to relinquish control over their finance and accounting functions, fearing job losses and disruption.
- Complexity of Implementation: Establishing an SSC requires careful planning, including defining scope, selecting location, and managing cultural differences.
- Cost-Benefit Analysis: Changhong needs to carefully assess the potential cost savings and benefits of the SSC to justify the investment and ensure a successful transition.
4. Recommendations
Phase 1: Pilot Project and Proof of Concept:
- Select a pilot subsidiary: Choose a subsidiary with a relatively simple structure and willing management team.
- Focus on specific processes: Begin with high-volume, standardized processes like accounts payable and receivable.
- Develop a clear business case: Quantify potential cost savings, efficiency gains, and improved data quality.
- Pilot the SSC for a defined period: Monitor performance, gather feedback, and refine processes.
Phase 2: Gradual Expansion and Integration:
- Expand to additional subsidiaries: Gradually roll out the SSC to other subsidiaries, prioritizing those with similar processes and willingness to participate.
- Develop standardized procedures: Implement consistent processes across all subsidiaries to ensure efficiency and data integrity.
- Invest in technology: Implement ERP systems and other technologies to automate processes and improve data visibility.
- Build a strong team: Recruit and train skilled professionals to manage the SSC and support subsidiary operations.
Phase 3: Optimization and Continuous Improvement:
- Continuously assess performance: Regularly review key performance indicators (KPIs) to identify areas for improvement.
- Implement automation and technology: Explore advanced technologies like artificial intelligence (AI) and robotic process automation (RPA) to further streamline processes.
- Foster a culture of collaboration: Encourage communication and knowledge sharing between the SSC and subsidiaries.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Changhong's core competency lies in manufacturing and distributing electronics. The SSC will enable the company to focus on its core business while outsourcing non-core activities.
- External Customers and Internal Clients: The SSC will provide better service to both external customers and internal clients by improving efficiency and accuracy of financial transactions.
- Competitors: Implementing an SSC will help Changhong remain competitive by reducing costs, improving efficiency, and gaining a strategic advantage.
- Attractiveness: The SSC is expected to generate significant cost savings, improve data quality, and enhance financial reporting.
6. Conclusion
By implementing a phased approach to shared services, Changhong can successfully establish a cost-effective and efficient finance and accounting function. This will enable the company to improve financial performance, enhance global competitiveness, and focus on its core business of manufacturing and distributing electronics.
7. Discussion
Alternatives:
- Outsourcing: While outsourcing finance and accounting functions could be considered, it could lead to loss of control and potentially higher costs.
- Centralization: Centralizing all finance and accounting functions at headquarters could be too disruptive and may not be feasible for a geographically dispersed company like Changhong.
Risks and Key Assumptions:
- Resistance to Change: Overcoming resistance from subsidiaries will be crucial for successful implementation.
- Technology Adoption: Implementing new technologies requires careful planning and investment, and may require training and support for employees.
- Cultural Differences: Managing cultural differences between the SSC and subsidiaries will be essential for smooth integration.
8. Next Steps
Timeline:
- Phase 1: Pilot project (6 months)
- Phase 2: Gradual expansion (12 months)
- Phase 3: Optimization (ongoing)
Key Milestones:
- Develop a detailed business case: Quantify cost savings, efficiency gains, and improved data quality.
- Select a pilot subsidiary: Choose a subsidiary with a willing management team and a simple structure.
- Develop standardized procedures: Implement consistent processes across all subsidiaries.
- Invest in technology: Implement ERP systems and other technologies to automate processes.
- Build a strong team: Recruit and train skilled professionals to manage the SSC.
By following these recommendations and implementing the phased approach, Changhong can successfully navigate its journey to shared services and achieve its strategic goals of improving financial performance and global competitiveness.
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Case Description
Founded in 1958 and headquartered in Mianyang - an emerging inland science and technology city in Sichuan Province, Changhong Electric Co., Ltd., started from the military industry. It then entered the color TV industry and subsequently expanded to a wide range of sectors including black electronics, white electronics, IT/communication, services and parts. It is now an integrated multinational corporation (combining R&D and manufacturing for the military industry, consumer electronics, electronic components, etc.) This case shows how a large TV manufacturer has transformed its internal controls to deal with both fiscal austerity and emerging global practice. It demonstrates the new financial control environment in China in 2014 for leading companies and the immense challenges involved in implementing new controls.
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