The accountancy firm Ernst & Young is in the second year of a joint venture arrangement with Shell International Limited; a venture that has propelled their newly formed company TASCO (The Accounting Services Company) into a number-crunching super company on the European scene.
In early 1997, Shell was earnestly looking for a way to change the way it ran its back office. The company wanted to create a much more proactive financial accounting department. So, part of its strategy was to consolidate the accounting functions of its European subsidiaries through a shared services center, says TASCO CEO Jacky Ross. After undertaking a feasibility study Shell made the decision that shared services was the right solution to address its needs.
But Shell perceived that it would not be successful in implementing shared services by themselves for several reasons; it wanted to move quickly, cover a gamut of financial accounting services and cover an extensive geographic scope, Ross says. “Shell also decided that it wanted to take transaction processing out of the scope of what its finance people do. So, the company would be free to focus on supporting local business decisions within each country. It decided to find a partner not only to develop shared services with but to do a joint venture with.”
At the same time Ernst & Young was also looking for a partner because it wanted to enter the accounting outsourcing market. Ernst & Young is one of the world’s leading accounting, tax and consulting firms but it has always worked from an advisory and audit perspective, she says. It has never ever actually done the accounting work.
In late July 1997, Ernst & Young responded to Shell’s RFP (Request For Proposal) along with five other companies. Shell short listed those companies and eventually chose Ernst & Young as its preferred supplier during the same month. In October of the same year a joint venture agreement was signed between the two companies.
“Immediately the joint venture (TASCO), which at the time was a small staff made up of a few support people from Ernst & Young and me, selected the building (shared service center) in Glasgow and started building the business,” Ross says. “And at the same time we had to go out and win our first customers from within Shell.”
Even though the initial idea behind TASCO was to provide shared services to Shell subsidiaries, the accounting company must still win the subsidiary’s business. TASCO carries out a due diligence exercise and prepares a proposal for each of the individual subsidiaries. Next, the accounting company sends the subsidiary a proposal for services. The subsidiary then reviews the proposal and makes a decision on whether or not to go with the proposal. If the subsidiary agrees upon the proposal, a contract is developed. The first four Shell subsidiaries to hop on board TASCO’s fast moving machine were Denmark, Sweden, Finland and Norway in February 1998. And between then and now eight more contracts have been signed.
Drawing on the Resources of Two
Ross says the joint venture agreement allows TASCO to employ the resources of two very successful companies. “I can draw on all the intellectual properties of Ernst & Young that include its expertise in developing shared service centers and its performance improvement and program management methodologies,” she says. “And on the Shell side we can draw on the accessibility of a very large customer base.”
TASCO is very independent but is at arm’s length to both organizations. Each organization funds 50 percent of the operation and both organizations have representation on the board. Each organization has some influence in the joint venture company through their stature on the board, but there is only one executive director and that is Ross. Thus far TASCO has about 300 employees providing accounting services to 12 Shell subsidiaries spread across Western Europe. And by the end of this year Ross estimates that 450 to 500 employees will provided services to about 18 customers in 18 countries.
Moving in a New Direction
Though the customers right now are Shell subsidiaries, things are about to change, she says. One of the agreements within the joint venture is that Shell will be a preferred customer. In other words, the joint venture’s initial focus will be on Shell subsidiaries. After almost two years of successful arrangements TASCO is now at liberty to go out and hunt for third-party customers in Europe. TASCO is already in discussions with a number of companies and is hoping to have a third-party customer signed up in the not too distant future. Any profit on future third-party deals is equal parts Shell and Ernst & Young.
“Our niche is customers that want a service offering across the whole of Western Europe since we now have geographic coverage across that half of the continent,” she says. “And hopefully by the end of next year we will be able to encompass Eastern Europe as well, which will allow us to offer services across the whole of Europe.”
TASCO is already on track to achieving its mission, which is to become the market leader in accounting in Europe, Ross says. And much is owed to the model TASCO is using.
“We feel that the joint venture model has been successful because it makes available the expertise, skills and knowledge of a world class consultancy and advisory organization, and the ability to leverage those expertise in what we do at TASCO,” she says. “And at the same time it gives me an organization with a customer base that allows me to build critical mass, which was the origin to developing some world class processes and organizational structures.”
Lessons From The Outsourcing Primer:
- Using shared services can help with consolidating a company’s accounting functions and create a much more proactive financial department.
- A joint venture can allow a company to focus on supporting its business.
- A joint venture allows the newly formed company the ability to draw on the resources of two companies.
- A joint venture not only provides services to the mother companies, but can also make a profit by winning the business of third-party customers.