Intel was founded in 1968 and is now the largest semiconductor company in the world. They are headquartered in Santa Clara, California and employ over 100,000 people worldwide, with 45% of employees working outside of the US. Intel’s finance organization has undergone an exciting journey, creating shared services centers (SSCs) in Malaysia and Costa Rica, and systematically migrating increasingly complex finance operations to these centers. Following finance’s lead, other Intel functions have moved support services to the SSCs model. These multi-function SSCs have now realize significant efficiencies and cost savings for the company.
Marc Graff and Jim Campbell outlined how prior to 2003, Intel had finance resources deployed across multiple countries in Asia, supporting various operations or regional on-site offices. Intel had discrete finance support functions that were co-located in each location. None had sufficient staffing levels to support a full organization, and talent turnover was a significant problem. Mr. Campbell explained: “We were relatively thin. If a person was the only one in a small finance team with a particular skill, and they left for another opportunity outside of Intel, I lost 100% of my capacity in that office. There was no structural redundancy built into these different locations because they were so fractured across the region and there isn’t a great deal of inter-region, natural mobility. Additionally, each location had different ways of accomplishing the same tasks, and employed different systems to manage their data. As a result, the cost of finance in Asia was very high, consistency of reporting was low, and consolidation difficult.”
In order to manage and maintain control over the cost structure in the region, Intel decided to create a regional SSC. They determined that strategically it was best to co-locate with an existing Intel presence in the region. Intel considered a number of locations, and there were a number of factors that came into play. Cost was one of them, but it wasn’t the most important. Intel was more concerned with the availability of skilled resources, ongoing geo-political stability, and employee attrition rates. They also considered the risk of doing business in each country and the overall operating risk in the region.
Ultimately, Intel chose Penang, Malaysia as it met the criteria and an established Intel factory existed at that location. Intel had a very large manufacturing site in Penang, and was also investing in product research and development. The existing Malaysian accounting group formed the seed, and it was expanded to become the Shared Services Center. Intel then consolidated its finance function country by country. It first incorporated finance activities from Singapore, then from Hong Kong. Japan and Korea followed. Finally, finance activities from the Philippines and India were incorporated into the Malaysian SSC in 2006.
Intel has been particularly mindful of talent development for the Malaysian SSC. Mr. Campbell told us: “We seek organic growth and encourage leadership development at the Shared Services Center. We tend not to hire senior and mid-level management from the outside, as we’ve realized better outcomes when we have a hand in a professional’s development.” Additionally, Intel works hard to recruit talent with a wide variety of skills. In Asia, Intel seeks talent with a strong knowledge of local markets and fluency in both English and the local language. The group also strives to find employees who understand the local culture, but also share the Intel culture and ethics. Finally, its people are expected to exhibit strong technical, business and strategic capabilities. In return, Intel provides significant skill development and training for its SSC employees to help them develop their talents in higher-level finance activities, and possibly move into management. The group also rotates employees through different areas within the SSC, so that they expand their skills and capabilities across functions.
Many Malaysians seek higher education in Australia and the UK. Intel found that they are able to find Malaysians who left the country for college but are interested in finding work back in Malaysia. It has now actively partnered with the Malaysian government in a program to assist Malaysians who leave the country for education, but want to come back to live and work. Intel finds that combining staff who are educated outside the country with people who are educated within, offers a good mix, both in terms of diversity of approach and capabilities. Over time, as the Malaysian SSC earned credibility, gained experience and developed additional skills, management has gradually worked to bring higher value work into the center. Initially, the SSC handled strictly transactional work such as paying bills, posting recurring entries, maintaining the general ledger, the entity structures, and the chart of accounts for those entity structures. Today, the Malaysian SSC handles all of Intel’s entity financial statement filings. The compliance aspects of channel management and various revenue incentive programs are now also centralized in Penang. Other functions at Intel have studied the success of Finance’s Malaysian SSC, and as a result, have now also consolidated their regional functions at this same SSC facility. In addition to housing finance, the Malaysian SSC now encompasses IT, HR, and procurement. SSC management and overhead is shared across functions, further improving efficiencies.
Since the creation of the Malaysian SSC, Intel’s cost of finance in Asia has gone down significantly, attrition has have improved, and the company has created a depth of talent that was not possible when finance was spread thinly across the region. This has afforded Intel the opportunity to place intense focus on process management and the systemization of work flow. The group has realized differential advantage not only from the quality and cost of labor, but has seen significant reductions in the head count per activity required. This, in turn, has been a big contributor to driving down the overall cost structure for the organization. Alvin Miyasato emphasized that the wider set of opportunities at the entire SSC, both across different finance processes, and across the other non-finance functions, help provide learning and career growth opportunities for the SSC staff. As a result, attrition rates are well below industry standards. The success of the Malaysian SSC has led to the establishment of a second SSC in Costa Rica which is responsible for finance activities in the Americas. Today nearly all of the accounting functions that support US GAAP are in either Malaysia or Costa Rica, leading to significant efficiencies and cost saving for the company. Marc Graff sums it up: “Finance costs are growing significantly less than revenue –we call that success. We benchmark periodically—that’s critical. Our costs are among the best in class. As long as we’re keeping costs relatively flat as the rest of the company grows, we are doing great!”