Corporate TreasuryCentralisationSSCs/Payment FactoriesNew Performance Levels for Shared Services Centres

New Performance Levels for Shared Services Centres

Cost reduction and service level enhancements remain drivers behind the initial establishment of shared services centres (SSCs). In fact, when asked the main reasons for implementing a shared services model, 93 per cent of those who responded to an online survey conducted by the Shared Services and Business Process Outsourcing Association (SBPOA) said ‘reduce costs through simplification and standardization’ while 63 per cent said ‘increase productivity and service excellence to customers’. (The survey was conducted in 1993 but the SBPOA affirms that the trends and responses are still current today.)

In their very early stages, shared services organizations typically achieve – or strive to achieve – the above-noted goals of cost reduction and increased services levels via process and systems harmonization across various business units, primarily with transaction-intensive processes. As they move past the infancy stage, they may seek to gain economies of scope and scale by increasing the number of transactional or knowledge-based services under the shared services umbrella.

When managed and operated correctly, SSCs finally reach a stage of maturation at which there is true process integration, not just within the centre’s own four walls, but also across the entire value chain with suppliers and customers. Yet when they reach this level of maturity, especially in multinational or global corporations, the parent organizations of SSCs expect more of them; they expect them to demonstrate higher levels of performance. Before we enter into a discussion about these expectations, let’s first take a look at the accounts payable (A/P) function and how it migrates to, and evolves in, a shared services environment.

A/P Migration and Evolution in SSCs

The A/P function in an SSC environment follows a four-phase maturation lifecycle: consolidation, standardization, process automation and digitization.

Phase 1: Consolidation

In the first phase, the A/P departments within the corporation’s individual business units are centralized into one central function at one location. This stage, which can be the most difficult and painful due to human resource and cultural issues, is also where the greatest efficiencies are achieved as considerable redundancy is eliminated.

Phase 2: Standardization

In the next phase, companies attempt to create standard processes and systems for supporting A/P across the various business units. This typically coincides with the conversion to one standard ERP platform for A/P processing.

Phase 3: Process automation

In the third phase, SSCs attempt to implement labor-saving technologies that make the A/P process more efficient. Notable examples of this are scanning and document management systems, invoice and purchase order auto-matching and workflow.

Phase 4: Digitization

The last step in the evolution of A/P automation is digitization or the automated capture of data on an invoice in order to enable straight-through processing. The tools available to companies to actualize digitization include electronic data interchange (EDI), optical character recognition (OCR), supplier web portals and third-party provided e-invoicing solutions. It is when the A/P function within an SSC has matured to this stage that commercial competence is expected by the parent company.

Higher Performance Expectations

According to sourcing advisory firm, EquaTerra, effective and mature SSCs exhibit eight key characteristics:

  1. Core/critical service offering – services provided are viewed as central to competitive differentiation, free up management attention and are highly valued by analysts/shareholders.
  2. Scale – current or expected volumes provide scale to build highly automated, highly efficient processes and attract and retain specialized talent.
  3. Commercial skills – leadership and technically competent resources are in place that possess the experience and inclination to make the leap from internal staff function to innovative and competitive service unit.
  4. Investment priority – shared services and non-core processes are viewed as fundamentally attractive investment opportunities much like core/strategic projects.
  5. Acceptance – economic and other benefits of shared services have the degree of support, cooperation, patience and trust to reach full realization.
  6. Asset monetization – intrinsic value of existing tangible or intangible assets are fully realized.
  7. Cost variability – internal cost scalability and variation allows operators to adjust to changing market conditions.
  8. Sustainability – organizations have the ability to sustain the journey of building and maintaining a highly efficient and effective shared services function over multiple years.

Generally accepted success factors for shared services organizations include:

  • executive management and sponsorship;
  • quality of shared services leadership;
  • standardized processes; clearly defined scope of services;
  • quality of shared services personnel;
  • well-defined business strategy and objectives;
  • communications and training;
  • solid technology platform;
  • change and journey management; and
  • well-defined vision and mission.

But to reach a higher performance level, shared services organizations must also:

  • Embrace a more holistic process management and continuous process improvement approach.
  • Utilize appropriate financial and non-financial metrics to gauge success, both within the internal organization and across the entire value chain with customers, suppliers and stakeholders.
  • Focus on performance and meeting customers’ needs;
  • Organize operations by end-to-end, global processes.
  • Adopt a front-office mentality focused on better service at lower costs, among others.

In order to meet the requirements listed above, an increasing number of shared services organizations are selecting the outsourcing path to process improvement. Forty-six per cent of respondents to the SBPOA survey stated that outsourcing – or a plan to do so – was a part of their corporate or shared services strategy. Global market leaders realize that all of their processes must be at a certain level in order to compete. For those services where they cannot meet such high standards, companies are looking to outsourcing as a solution. For example, in an age when most companies are tightening financial controls, all aspects of financial operations are being scrutinized. Among these, the A/P process has become a major focus of attention, in particular, procure-to-pay.

Conclusion

To achieve a higher performance level for SSCs, an organization must focus on shared services as a business and create transactional processing capabilities as well as the management discipline necessary to achieve best-practice processing strength

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