A new way of working
Chen Hu is a pioneer. After developing a shared service centre to consolidate accounting operations at telecommunications company ZTE, the financial expert is spreading that knowledge across China. Thanks to his efforts, such centres have mushroomed, resulting in cost-effectiveness and operational efficiency, and hence reforming financial management development in Chinese enterprises.
‘Since 2011, shared services for accounting has become a trend, and people know that this is something they should do,’ says Chen, adding that big companies have joined their ranks to build their own shared service centres, including Haier, Changhong and Huawei.
In 1999, after graduating with a master’s degree in accounting from Anhui University of Finance and Economics, Chen joined his company as a payroll clerk and quickly climbed up the ladder. By 2005 he was vice president of ZTE, a rapidly growing international developer of telecommunication products.
Since its launch in China in 1985, ZTE has grown from a small Shenzhen semiconductor maker to a world-leading developer of telecommunication products and network provider, with offices spread across the world.
In this role, Chen directs all financial operations for the listed company, overseeing the provision of global financial management, as well as building and managing its cloud financial management systems. His success lies in his courage to lead finance transformation. Over the years, he has led numerous innovative changes to improve ZTE’s financial operations, including a cost-leadership strategy, network finance system and budget management. But it was his launch of the organisation’s global shared service centre that earned him recognition in China’s accounting sector.
Shared service was an idea born over two decades ago; today it is a worldwide trend. Having a shared service in a finance function means setting up a central system to take care of accounting duties of all units of an organisation.
The company’s finance transformation came step by step. The first change came in 1999, when ZTE was growing rapidly with 2,000 staff. Its financial operations, however, remained paper-based. ‘Every morning people lined up at the door of managers and the finance department to sign off their invoices and waiting to get money, while armed security guards came daily to deliver us cash,’ Chen recalls.
To solve the problem, the company first made use of the internet to build a centralised fund-handling system. One breakthrough was the creation of an online link with banks to digitalise cash handling. ‘We don’t need to issue cash to staff, and all payments are made through electronic banking; this is just a function of our online expenses management system’ he explains.
But just a few years later, as ZTE was internationalising its business and growing rapidly, this system was no longer enough to support global operations, and the organisation experienced a serious shortage of finance staff. In 2004, Chen, who was director of the financial department, led a review and discovered that the key problem was that different overseas offices applied different accounting procedures, resulting in repetition of work, low efficiency and high labour costs.
Wanting to know how multinationals handle their international financial operations, Chen visited high-tech giants including HP, Dell and Microsoft. ‘I learned that they all use shared service centres to run their finance operations,’ he says.
In 2004, after getting the nod from ZTE CFO Wei Zaisheng, he kicked off his reform, establishing a research team and quickly working out a model. However, just like any reform, Chen faced some negativity. ‘The opposition voices were very big because people did not understand shared service centres; the change of mindset was most difficult,’ he says.
Chen spent six months hosting meetings to educate staff about the benefits. Then, in 2005, he formally launched a finance shared service centre. In 2011, he moved the centre to the cloud, creating an online central finance function headquartered in Xi’an. This cloud-based centre carries out the accounting functions of various subsidiaries of ZTE, which hires around 70,000 people in 107 countries around the world. People from various offices send data electronically to the centre, where specialised staff are responsible for handling a specific area of work – ‘like an accounting factory’, as Chen puts it.
‘Our shared service centre allows us to free up a group of very capable finance staff to support the company’s business and create more value,’ Chen says.
The single system reduces repetitive work and speeds up the flow of information through standardisation of processes. People are able to carry out reimbursement, publish invoices and pay suppliers in real time, without much need of actual documents and people. The system requires reduced manpower, and ZTE has cut costs by 40% .
The centre has also helped Chen to better monitor the group’s overall financial status. It can produce financial statements for branches in more than 80 countries and is able to monitor the fund flows in more than 100. ‘Any expenditure can be seen from Xi’an,’ he says. ‘This system can guarantee the safety of our funds and accounting accuracy.’
Spreading the word
Not just committed to helping his own company, Chen is also determined to promote shared services across China. He concedes that this was not easy at first. ‘When we talked to people from corporates and tertiary institutes, no one could understand what a shared service centre was and how it worked,’ he says.
Since then, he has spoken to almost 100 companies about how to build shared service centres, and invited more than 300 organisations – including Chinese web services company Baidu and China Mobile, as well as government officials – to visit the Xi’an centre. He has also given talks in tertiary institutes and business forums. In addition, ZTE has provided non-profit consultancy services to organisations including China General Nuclear Power (Guangzhou) Group, China Railway Construction Corporation, China Road and Bridge Corporation, CCCC Guangzhou Dredging Co, Vanke and Kingdee.
Chen hopes that his efforts can lead to a reform in financial management of Chinese companies, thus leading to their internationalisation and growth. ‘We have spent 10 years promoting shared service centres in China, and we treat it as a mission and a dream. We hope to use our experience to help Chinese enterprises to progress,’ he says.
While acknowledging that his contribution to ZTE is transforming the role of the finance department from purely accounting based to helping the group make strategic decisions, Chen pays tribute to the his company’s forward-thinking approach in making this achievement possible. ‘My company has an open-minded culture, allowing us to experiment, reform and innovate,’ he says.
Rather than saying that he has contributed to his company, Chen acknowledges the important role that both the company and China have played in shaping his own career. ‘I have always told my workmates that we are very lucky to live in an era of China’s rapid economic development, and work in a fine company in a fast-growing sector.’
The accountant has witnessed the rapid progress of China’s high-tech industry. ‘China’s high-tech goods have entered into many countries. It is one of several core countries making communication products,’ he says, adding that most mobile phones sold in the world are made in China. ‘China will gradually transform from the status of “Made in China” to “Innovated in China”, and will take the lead in certain areas.’
China’s big domestic market and strong economy have allowed mainland mobile phone companies immense opportunities to experiment and innovate, resulting in the development of high-quality mobile phones, Chen says.
The competiveness of ZTE’s handsets is its strong selling point, enabling the company to develop mobile phones of its own. Without violating intellectual property, these phones can enter any country, unlike many other China mobile phones, Chen says.
Competitive and creative
To ensure that ZTE stays competitive, Chen says that his focus is to boost the company’s creativity. ‘If financial management is only focused on financial statements – cashflows, assets and projects – your path will get narrower.
The most important asset of a corporate is its people, and people’s most important value is their creativity,’ Chen says.
This has required him to develop a brand-new financial management system that can motivate employees’ enthusiasm and creativity by satisfying their needs; for example, the growth of salaries can be higher than the increase in gross profit. ‘I may remove a budget limit for a certain department, and the budget level can grow in line with or even faster than the level of performance of the department,’ he says.
It is not easy to do financial management in high-tech industries, Chen says, noting that catching up with rapidly changing technologies and product lines is the key problem. ‘There are a lot of new products and new modes of business; we have to figure out how to use financial management to adjust to and support the business, but not to limit it,’ he says.
Top of his agenda this year is research and innovation. Firstly, he needs to build a managerial accounting system to support ZTE’s strategies and business. Next, he will launch a big-data analysis to collect, process and provide information to help the company make business and financial decisions.
Striking a good work-life balance, he jogs and plays badminton in his free time. His most beloved sport is mountain climbing. ‘I have climbed most of the mountains in Shenzhen. I have climbed Mount Huangshan three times, and set my record to go up and down the mountain in 24 hours,’ he says.
He also also loves researching and writing. With a postdoctoral degree from Tsinghua University, Chen has published dozens of academic papers and five books, all on shared service centres and financial information systems. ‘It is my hobby,’ he says. ‘I like to write to share my experience and knowledge with others to speed up finance advancements in China.’
Sherry Lee, journalist
This article was first published in the China edition of Accounting and Business magazine in May 2015