Shared Service Centres: Aligning Finance with Corporate Strategy
Developing shared service centres requires organizations to focus on two key areas: systems and technology, and processes. As the foundation of a shared services implementation, the systems and technology in use must be robust and able to support extremely large user communities, transaction volumes, document volumes and data volumes, and scale to meet the increasing needs of the organization. Equally, if not more important, are the processes, which must be scalable (manual paper-based processes are not viable) and efficient.
Furthermore, processes must be streamlined and standardized around capture, coding, approval, hold resolution and discrepancy resolution. Finally, processes must enforce strong internal controls, e.g. how are authorizations, approvals and reviews enforced, how much visibility is there in the process, how are duties segregated, how are audit trails maintained, how complete are internal audits and how is transaction-level back-up managed? All of these issues are key considerations for organizations that want to move in this strategic direction.
Equant is a subsidiary of France Telecom and provides multinational companies with data and IP networking and integration services. It made the decision to move from a decentralized, country-based finance structure to a shared services environment. Making that transition necessitated automating key end-to-end business processes. According to Patricia Richey, project manager of finance at Equant, the company wanted to increase productivity and reduce costs, but also had to guarantee that it was complying with various countries’ regulatory requirements for managing paper documents.
The decision to move to shared service centres meant that manual operations were no longer an option and that the company would need a web-based solution that was tightly integrated with its global ERP system. These requirements would ensure that as it developed new streamlined processes, they would work internationally, without any impediments.
One of Equant’s key challenges in creating and supporting four shared service centres (UK, France, U.S. and Singapore) was that many of the documents it used in its manual processes were not legally allowed to leave the country of origin. And, with the adoption of the Sarbanes-Oxley Act (SOX) in the US, the company was highly motivated to strengthen audit trails.
Equant adopted a solution that manages the end-to-end AP process and integrates with the company’s Oracle ERP system leveraging imaging and workflow. The company is continuing to realize benefits from its shared service centres. In the AP department, there are headcount savings because people in the shared service centres are no longer required to manually retrieve paper documents and transfer them from place to place for signatures. By harnessing the power of imaging and workflows, its new shared service centre implementation ensures document-retention compliance and makes it easier to meet SOX requirements.
The Equant case study is an illustration of the benefits of adopting a shared service centre strategy. Research from the Hackett Group, a global business advisory firm, identifies shared service centres as a best practice for organizations working to achieve world-class finance operations. Hackett’s 2005 Book of Numbers research found that these organizations now spend 42 per cent less than typical companies on overall finance operations (0.73 per cent of revenue versus 1.26 per cent). Specifically, Hackett found that shared service centres have the potential to support the following goals:
To move towards centralization, organizations should identify where the opportunities exist to leverage shared service centres. Typically, motivation to adopt a shared service centre model comes from the desire to save money, improve cycle time and quality, or enhance productivity. And, ultimately, it is driven by the goal of aligning finance operations with the overall corporate strategy.
Embracing centralization through shared services is an important first step for organizations that are considering offshore locations or outsourcing. Outsourcing or ‘offshoring’ is only feasible if an organization has clearly delineated processes and has embraced location-independent strategies to reduce the manual handling of paper. Once that has happened, companies then have the option of moving activities to locations where data entry is less costly.
In analyzing operations, organizations typically find that the accounts payable (A/P) processes are ripe for movement to shared services, because AP is often further along the maturity curve (see diagram below). The Hackett Group’s survey on business process sourcing found a continued movement away from decentralized processing in all AP and purchasing sub-processes. Additionally, it found movement to ‘offshoring’ for sub-processes, such as discrepancy resolution, supplier/item master setup and inquiry resolution, and continued movement to outsourcing in all AP and purchasing sub-processes, with the greatest movement in the areas of AP invoice pre-processing, verification and processing. As organizations achieve clarity about which sub-processes are less strategic to them, they are more willing to consider off shoring and/or outsourcing them.
To make the successful transition to a shared service centre, organizations need a complete understanding of their current, manual processes and the right technology. This will optimize financial processes, automate the end-to-end process and embed best practices by reducing length and complex processes into the fewest number of key steps.
Another key consideration is that for software to enable centralization or virtualization, it must be designed to recognize that the ‘transactional lifecycle’ does not necessarily begin or end in a single functional area, e.g. invoices in accounts payable, but cuts across many departments and ERP modules. Therefore, the software must provide an integrated solution that manages the flow of information across functional areas.
Shared service centres are quickly becoming an imperative for many organizations. The efficiencies are too numerous to ignore and they enable finance organizations to achieve operational excellence, while freeing critical resources to work on more strategic initiatives. The next step, then, is for finance professionals to assess their readiness to adopt a shared services model and identify the steps they should take to begin the transition.