Siemens Slashing Accounting Costs

With offices in more than 190 nations, Siemens AG runs a lot of redundant back-office activities, with accounting near the top of the heap.

And with financial analysts saying its order and sales growth will be flat for the foreseeable future, the company has no choice but to cut costs. The German electronics giant is in the early stages of creating a shared accounting services model, designed to cut accounting costs 30 percent by relying on standardized software and common business processes.

The project makes a lot of sense for Siemens, financial analysts said. Should Siemens hit its cost-savings goals, it will be able to wipe out at least US$15 million in annual overhead.

Last year, the company reported $1.98 billion in net income on $73.05 billion in sales.

"We have a large number of accounting departments around the world, and many are [small offices]," each of which had been running independently, said Guenther Gruber, head of shared accounting services for Siemens in Munich, Germany. In Europe alone, Siemens has more than 70 accounting departments outside Germany, Gruber said.

He placed Siemens' global accounting costs in the "three-digit million" deutschemark range. So, if it costs Siemens 100 million deutschemarks to run its global accounting operations, that would translate to $52.43 million.

Given its geographic expanse, Siemens has decided to create national accounting service centers in countries where it has a significant presence. It will also create cross-border accounting centers to support its smaller offices.

Siemens' effort reflects a growing trend among big multinational companies to "try to take advantage of economies of scale and consolidate a lot of these services so they're not paying so much for duplicate operations," said Alan D.

Kahn, president of The AJK Financial Group, a Syosset, New York, financial planning consultancy.

One of the keys to Siemens' shared accounting services effort is its plan to standardize on SAP AG's accounting software. However, where it makes sense to do so, some Siemens shared accounting centers will remain on legacy or other non-SAP logistics systems to connect to the SAP accounting systems.

To do that, Gruber said it has invested "a couple of hundred thousand deutschemarks," or roughly $100,000, to purchase enterprise application integration software from CrossWorlds Software Inc. in Burlingame, California.

Gruber said Siemens evaluated several vendors but selected CrossWorlds because it offered the best combination of functionality and application programming interfaces to the SAP environment.

Siemens launched a shared accounting services pilot program last spring with three of its business units in Singapore, Malaysia and the U.K. The units went live with those services Oct. 1, the start of Siemens' fiscal year. So far, the effort has gone smoothly, Gruber said.

Once the firm closes out its first fiscal quarter this month, it plans to begin extending the shared accounting services to other Siemens companies in Asia, Europe, North America and Australia on a "step-by-step" basis, said Gruber.

He added that Siemens faces a couple of significant challenges to make the project successful, including personnel issues. That involves training, motivating and transitioning accountants from a headquarters-style accounting approach to a services model where "accounting people are no longer overhead producers, but quality producers" at a measurable price, Gruber said.

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