Energy companies are always challenged to expand and contract with market conditions. The dynamics for energy companies have remained challenged with the drop in commodity pricing which has created a material need to reduce costs and pursue new operating models. One strategy that offers significant potential is for private equity firms to create and implement a shared services center which can deliver a standard, best practice set of core services across all portfolio companies. The center will benefit from economies of scale and provide low-cost services which can leverage best practices, technologies, and capabilities while meeting each of the companies’ needs. In addition to a significant reduction in costs, this model allows the individual portfolio companies to focus their time and attention on adapting products, services, and capabilities of the rapidly changing market and position them to compete profitably in their respective markets.

Shared services are based on the concept of “sharing” common tasks, activities and leading edge technology across different organizations. The goals are to:

  • Rationalize costs
  • Consolidate management requirements and headcount
  • Eliminate redundant technology and processes
  • Reduce capital expenditures and ongoing maintenance costs on new technology
  • Set benchmark service costs across companies
  • Provide transparency of service costs to manage needs and affordability
  • Achieve economies of scale

BUSINESS CASE

The value of shared services is economic and strategic:

  • 20-40% cost reduction, depending on the breadth of the shared services
  • 30-40% reduction in capital investment of technology and infrastructure
  • Provide scalability during growth periods, or as additional portfolio companies are acquired with relatively low incremental costs

OPERATING BENEFITS

While cost cutting may be the initial impetus, the potential benefits include:

  • Greater control over multiple operations
  • Increased level of services
  • Integrated and consistent performance management
  • Deeper insight into pending revenues and expenses
  • Enable the private equity firm to retain the process knowledge and intellectual property
  • Minimize risk

OPPORTUNE ROLE

  • Evaluate
    • Define the business and operating model
    • Select the services and the associated business case
    • Define the cost allocation method
    • Price the services for each company
  • Design
    • Organization design and job descriptions
    • Business process and capability models
    • Performance management; metrics, management processes and tools
    • Software selection
    • Service level agreements defined
  • Implementation
    • Temporary staffing
    • Interim or long-term management
    • Controls definition and review
    • Transition management for new portfolio companies
    • Technology environment setup (infrastructure or hosted)
    • System implementation
    • Data conversion
    • Report definition and generation

COMMON FUNCTIONS

The shared services model creates a common operating platform across portfolio companies to service similar business requirements in a centralized organization while maintaining the unique requirements within each company. The more transactional processes are well suited for shared services, while the more strategic processes typically remain within each business.

There is a continuum of possible functions that are appropriate for the shared services organization. Organizations often begin with a single function like accounting or finance, and typically evolve to include tax, procurement, human resource and information technology.