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ALROSA – Towards New Thinking

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In the spring of this year, ALROSA introduced the planned establishment of a Shared Services Center (SSC)

This is one of the strategic initiatives of the Diamond Company to improve operational efficiency in the financial and economic bloc. Among the major Russian companies, ALROSA was among the catching up companies: the practice of SSC has been on the market for more than 15 years, today this model is used by most industrial companies, including in the mining sector. According to the Financial Control Officer of ALROSA, Maksim Kadantsev, this "delay" has its advantages: you can use the accumulated experience of other companies. In an interview, Maksim Kadantsev explained why this reform is needed, where the center will be established, what will be its features and what effect the Company expects.

- What is Shared Services Center? What functions does it perform, and what will it do?

- ALROSA seeks to increase efficiency, and this applies not only to production, but also to administrative subdivisions, including financial and economic functions. The financial and economic bloc of each company has different types of activities. Some of them - for example, the economic planning of the enterprise, analysis, the formation of a strategy and its implementation - require the constant presence of experts on the site to daily "have a finger on the pulse." And there are operations that involve working with documents under the same scenario and can be performed remotely - personnel records management, procurement support, posting of payments, accounting.

The meaning of the SSC model is precisely to bring together all these unified operations with documents into one subdivision that will serve all sites and subsidiaries at once. Thus, it will be possible to increase labor productivity and simultaneously make these operations more efficient, introduce new solutions that will improve the quality and speed of this work. Functions that require the presence of an employee on the site - Planning and Economic Management, Training and Development of Personnel, Evaluation and Analysis of Labor Functions, Social Bloc issues - will remain at enterprises.

We do not casually think about switching to this model. Our recent diagnosis showed that by the number of employees in the financial and economic bloc, we significantly exceed the performance of other companies, but we are several times behind the number of documents processed per accountant or by the number of payments per employee of the treasury. If these functions are not performed locally, but centralized on the basis of SSC, this will benefit from the implementation of economies of scale and facilitates automation.

- How will the transfer of specialists from different structures into one help to improve efficiency? What effect do you plan to achieve and at the expense of what?

- All processes that are transferred to the SSC will be unified and will be conducted according to uniform standards. Yes, today the Company also operates under uniform standards, but often only at the top level. If you dive into the specifics of the work of each division of ALROSA and each subsidiary, it becomes clear that the unification potential is still significant. Together with the economy of scale, this will improve the efficiency of processes, accelerate the implementation time, prepare reports, and provide better quality control. We expect that the indicators of specific potential of accountants and employees making payments will grow several times.

Since the processes and resources will be concentrated in the Shared Services Center, the Company will have a "single point of change." This will allow ALROSA to be more flexible. Agree, it is easier and faster to implement any changes in one place (SSC) than in dozens of different structures.

With the introduction of the SSC, we also think about the use of technological capabilities, such as batch scanning and document recognition, the robotic automation of individual operations, automated control and full electronic document management with regulatory authorities and counterparties. All these technologies have long and effectively been used in the market, including the SSC of other companies.

The SSC will provide its services to the structural divisions of the Company and its subsidiaries on the basis of the service level agreement. In this document, operations, terms and results will be prescribed. The service level agreement will be a key document that will determine the effectiveness of the SSC services, provide transparent statistics. The system of motivation of the employees of the SSC will be tied to the level of implementation of the service agreement. In general, the SSC model will form a service approach and to some extent will require staff to change their way of thinking. They will turn from a subdivision of the enterprise into a service organization. In fact, they will represent a contractor who provides services to Mining and Processing Plants, other divisions, ALROSA's subsidiaries. As a contractor, the SSC will have to constantly analyze the level of its services, improve their efficiency and quality.

The practice of SSC in other major companies shows that it is the SSC that becomes the key driver and platform for the development and improvement of the processes, methods, controls and information systems of the company.

- How will the SSC be organized? Recently, in this regard, there is a lot of rumors, up to the point that this process is the transfer of activities and registration of ALROSA to Novosibirsk ...

- First of all, I want to note that the issue of transferring the registration of ALROSA to Novosibirsk, or some other city, is definitely not worth it. Novosibirsk is just one of the venues for the SSC, but not the core one.

The head office of the SSC - ALROSA Business Service - is already registered and will be located in Mirny. It will take over the divisions and subsidiaries of ALROSA located in Mirny. The SSC office will also be established in Novosibirsk, it will assume functions of Moscow, Orel, Arkhangelsk, Aikhal, Udachny, Yakutsk and Lensk, that is, areas territorially removed from Mirny. In fact, there will be more SSC offices, because in each location of the customers of the SSC services, the so-called operational department or the front-office of SSC will be established. It will be the link between the customers of services and the basic offices in Mirny and Novosibirsk.

Before we speak directly about Novosibirsk, let's see how other companies choose sites for such centers. Usually their choice falls on a large city in the middle zone of Russia, such as Saratov, Nizhny Novgorod, Izhevsk. These are cities with sufficient infrastructure, good staff potential, but relatively inexpensive. Including local services, rental and labor costs. At the stage of our project concept, all these cities were considered, too. But we understand that ALROSA's activities have their own peculiarities: we are located in the Far North and bear significant social responsibility in places of presence.

Based on this, we came to the choice of the place in our own way. First, we decided to establish a SSC in Mirny, where ALROSA has many divisions and there is a good potential for consolidating functions. For the SSC, a single office has already been selected, and repairs are underway there. The office should be ready by this fall, and in September we will be able to receive and host new SSC employees. All the human resources of the SSC in Mirny will be formed from the current employees. For individual roles we can involve experts from the market with experience in SSC-building. Sharing the experience of our employees who are well aware of the Company's features and invited experts should unlock synergies.

Secondly, we decided to establish a SSC in Novosibirsk. This city is positively perceived by our employees, someone has an apartment there, the children of someone study at universities there, some consider Novosibirsk as a city for the future move from the Far North. The city is conveniently located in the time zones, which is important for servicing our northern and central regions. Novosibirsk has sufficient infrastructure, good staff potential, convenient transport links. Although it is 1.5 times more expensive than the cities in the middle zone, it is optimal for our Company. Novosibirsk provides an opportunity to attract missing expertise, may be a good platform for the creation of competence centers.

As a result, the specific choice of sites of accommodation makes our SSC largely unique. Yes, the cities in our case are relatively expensive, which increases the payback period of the project as a whole, but it shows the Company's orientation to important social aspects and, from our point of view, determines the optimal balance between the Company's goals in matters of increasing operational efficiency, the interests of the republic and ALROSA employees.

- How will this project affect the Company's employees? And how do they perceive these coming changes?

- Of course, this project - like any reform - causes concern of the team. We try to explain the essence of the changes in details and the benefits that both the Company and the employees themselves will receive as a result of their implementation.

First of all, I want to note once again that the main part of the SSC employees will be formed from among the current employees of ALROSA - they will simply be transferred to a new enterprise. For those who choose to move to Novosibirsk, there will be social guarantees, including relocation allowance, compensation for travelling expenses. In addition, as part of the transition to the SSC, all staff will undergo the necessary training.

Until mid-2019, the number optimization will be no more than 50 people in total for the Group. It should be noted that personnel decisions will be made for each individual based on his/her business qualities and performance indicators. For those who show good results of work and serious attitude, there will always be proposed and discussed some options. In parallel, we are developing a program to promote the employment of those employees who for some reason do not find themselves in the reformed structures. The Company certainly understands the tensions in the labor market of single-industry towns and is ready to provide all possible assistance to employees in their subsequent employment. In particular, the possibility of retraining for further employment, including remote one, is being discussed.

In general, I repeat, it is clear that at the first stage any changes are perceived by the team with caution. We all need to go through the so-called adoption curve. We aspire to be open, we will provide support, give explanations, hold meetings. As the project moves and its essence is being explained, the information will be perceived more objectively, and not only the changes themselves will become clear and obvious, but also their benefit for the Company and for the employees themselves. From the Company's point of view, this is indeed a serious increase in efficiency, the possibility of introducing new modern technologies. From the point of view of the employees themselves, it is not just a change of the address of the workplace, but also an opportunity for personal and professional development. In general, the SSC model significantly increases the opportunities for professional development, expansion of competencies, career growth. This is explained by the extensive functional and scale of the SSC. If in a simple way, there are more roles and goals in the SSC than, for example, in a separate accounting department. The employee will be able, if desired, to move from one functional bloc to another to develop skills, to be involved in new projects of the group, which will be implemented on the basis of the SSC.

- At what stage is the project now? When will it be implemented?

- Now we are forming the so-called project office - a group of employees who will implement and be engaged in the project maintenance. We are now setting up a team, which will include ALROSA employees, mainly from Mirny, and representatives of the consultant (Deloitte) involved. At the peak, the project office will reach 45-50 people. The project team is divided into functional blocs: Accounting and Reporting, Treasury, Personnel Management, Procurement. Also, individual experts will deal with issues of risks and controls, IT, change management. The team is going to be strong. The consultant has considerable experience in SSC-building for large companies, and has identified the best experts.

The active work of the project team will begin in mid-May. The project itself will be implemented gradually. It will begin in the fall of 2018 with the transfer of the Moscow office, in parallel, the establishment of the SSC will start in Mirny. After completing the SSC model in Mirny and Moscow, we will start working with other sites from 2019 onwards, with the subsidiaries being transferred last. This is due to the fact that each subsidiary today uses its information accounting system. We are working on the possibility of introducing a standard accounting system on the 1C platform in subsidiaries, which will mainly include financial and logistics contours and will integrate with local production systems at each site.

ALROSA shows good financial results. But the market is constantly posing new challenges for its participants, and we must take them in good sense. The SSC is a tool to improve operational efficiency, unify processes and create a basis for rapid change, a proven way to take the next step. And, it seems, we have no option of not doing it. If we join forces, we will make the best SSC, the goals should be ambitious.