How to Centralise your Credit Department
How does your credit manager feel about relocating say to Nelson or Tauranga? Credit management teams in larger corporations in New Zealand and elsewhere around the world have undergone some dramatic changes in the 90s which fit under the overall heading of "working smarter". Specifically the changes have meant outsourcing or automating credit tasks, slashing the numbers of people involved and moving the survivors to a new location.
This column deals with centralisation. Many of the national companies in New Zealand which previously had a credit person (or half a person) in each branch or each region now have far fewer people in total who work as a team at one location. They have access to the information they need via computer and handle the credit management for the whole country.
The financial costs and benefits of such a move are reasonably obvious and must be weighed on a case by case basis. Some of the less obvious problems can be the loss of local knowledge, the loss of skills of people who won’t move (although inevitably there are some who you are not unhappy to see the back of) and greater obstacles to communication with decentralised staff such as branch managers.
On the plus side, the centralised staff have the opportunity to learn both from the rest of the team and from a focused credit manager and to build up specialist skills. A shining example of this is the North Shore-based debt collection team of AMI insurance. AMI brought in a leading manager from the debt collection industry and bought specialist debt collection software. There is no way in the world that the people in each AMI branch who were previously struggling to collect debts for a few hours a month could have built up the skills to do it effectively, let alone to produce complex legal documents relating to uninsured third party debts. Nor could they have justified the purchase of the software used. The savings for AMI have been considerable.
Centralisation can in some cases be a masterstroke, but where do you centralise to? Credit management is a function which generally does not need to be based in head office. AMI’s collection unit is in Auckland while head office is in fact Christchurch. The location in Auckland was largely because the Auckland regional manager of the time championed the project.
Repco is another nationwide business which has centralised credit management. The function is now based, not in Auckland with the rest of head office, but in Tauranga. And why not? It’s a lovely place, there is a good selection of high quality staff available - of a quality which would probably not be available if the same jobs were advertised in Auckland - and rents are lower. "I had 70 people apply for the last job I advertised," says Repco’s National Credit manager, Chris Taylor, "and I would have been happy to employ almost any one of them." He notes also that senior positions advertised in Tauranga often attract quality applicants from larger centres - people who like the idea of escaping the rat-race.
As a rule, credit staff don’t need to be meeting customers face-to-face (although there can be great benefits in making the occasional tour to do so). Most customer contact is handled by phone, fax, or letter. For this reason it surprised me that Baycorp based its head office in Auckland when it centralised a couple of years ago. On reflection, however, it does make sense. It allows its key Auckland clients to actually see the hive of activity that is a modern collection agency at work - the banks of people with headphones on, talking to their computer screens.
Despite the catchiness of the phrase "green field site", experience suggests that it’s usually best to build on an existing operation. For some corporates, a major consideration is "who is doing the job best at present". A large New Zealand creditor I know called this concept "centres of excellence", the idea being that the site that did the best job in the decentralised environment should end up doing it for whole country after centralisation.
Unfortunately it seemed as if every senior manager was able to make a case that any function reporting to him or her should be an exception. For some time, everything moved to Wellington or Auckland (whichever city the senior manager was based in). Finally, credit management did move to Christchurch where it had always been done far more effectively than in the other main centres.
However, if the decision had been truly on merit the site would have been in sunny Nelson where the innovation and drive - and relative overall performance- of the credit team had always far overshadowed anywhere else in the country. For quality of front-line employees (and a good selection of executives who have fled the larger cities seeking "a nice place to bring up the kids") and minimisation of staff turnover, it’s hard to go past the provincial cities.
Chartered Accountants Journal of New Zealand