Shared Services: Achieving Faster Payback
As the pace of shared services’ adoption continues to grow, companies are keen to understand how they can achieve even faster payback. The first step is implementing, and therefore understanding, shared services correctly.
Shared service centres (SSCs) are shared by the organisational units to which they provide services. It is not just a shared resource pool but shared ownership and responsibility, often achieved by a governance board and active involvement by stakeholders in shared services design and operations accountability. The business units receiving the services share the responsibility for its success and the quality of the end-to-end business processes that are delivered.
The idea is to deliver high quality customer service, usually internal to an organisation but also increasingly external. Shared services will only be successful and sustainable if there is a focus on delivering services that meet or exceed customer expectations.
When the shared services concept first came to Europe in the early 1990s the favoured locations were Dublin, London and Amsterdam. A second wave followed with regional cities, such as Cork, Manchester, Cardiff, Barcelona and Rotterdam. In the past few years, cities, such as Budapest and Prague, have come to the fore with the enlargement of the EU. These cities are producing bright graduates with two or more languages at a fraction of the cost of Western Europe.
Offshore locations, such as India have grown exponentially. For instance, often a ‘hub and spoke’ model is adopted with a regional centre, such as Budapest providing key European language skills, while transaction processing that can be conducted in English is transferred to India. Now the race is on to find the next up and coming locations to give companies the edge on cost. Romania is the next hot location for Eastern Europe together with regional Polish cities. In Asia, China will soon challenge India.
It is vital that companies make sure that they remember what they set out to achieve in the first place with a SSC. Cost efficiency and effectiveness is important, not just the ‘cost per head’. It must be said, however, in low cost locations, with the right leadership in place, service and efficiency can also be significantly improved.
When implemented in line with best practice, shared services can deliver more than just headcount savings. It can deliver real value to the business in many areas.
Shared services provide a platform for profitable growth. Once the platform is in place, well lead and stable, revenue can grow without commensurate increases in support costs. Acquisitions or new business developments can be assimilated quickly, without fuss, generating projected results far faster and more securely than in a diverse model. Where shared services is founded on single instances of ERP software, massive savings are achieved in IT support costs, ongoing upgrades and maintenance.
When a shared services approach ensures the fundamentals are correct and under control there is potential to move up the value chain, for example, within the order-to-cash process. Originally, SSCs applied cash to the accounts receivable ledger and did some reconciliations (perhaps they sent out statements or reminder letters). Today, many SSCs are focused on improving working capital management by ensuring that front-line units stay focused on cash generation, through proactive reporting and support.
Another example is employee expenses. Access to improved data on employee spending leads to enhanced controls and prevention of potential fraud. Consolidated data can also be used to drive more effective purchasing and travel policies, often for the first time in an organisation’s history. SSC leaders are also increasingly persuading boards that they can take on additional process responsibilities, for instance, the overall co-ordination and improvement of budgeting and forecasting processes.
Financial processes remain the most commonplace, though human resource (HR) processes are being implemented more frequently. This is enabled by web-based self-service technologies that automate many of the workflows, for example, the administration of an offer letter to a prospective new employee. IT has long centralised help-desk support or applications management. There is a trend towards bringing the IT functions within the shared services umbrella, which can be helpful for improving the customer service ethos.
Procurement is also a candidate for shared services. This can be focused on administration support, such as vendor master file or purchase order management or even sourcing for the achievement of economies of scale across businesses or organisational units that are buying common goods and services. Public service organisations have led the way in implementing multi-functional shared services, which often include a full range of services including facilities and estate management, legal, procurement, IT, finance, HR and administration.
A recent development and huge benefit of shared services is the ease with which companies with shared services are able to comply with the new compliance regulations, for example IFRS and Sarbanes-Oxley. Shared services provide the focus on processes, documentation, high quality accounting reconciliations and internal controls that is very difficult to achieve where accounting functions are disparate. Moreover, transparency of the controls and numbers is made easier, there can be more assurance that group accounting policies are followed and is less costly when implementing and maintaining the required documentation going forward.
By creating a shared services environment, organisations enable a focus on processes that were formerly so disparate they were invisible and under-exploited. The very fact that the establishment of shared services is resisted heavily within organisations drives their leaders to respond with an intense focus on customer service, service level agreements and key performance indicators. The leading organisations utilise a balanced scorecard, measurements that get to the root cause of process issues, and utilise techniques, such as six-sigma, to drive continuous process improvement.
This can be supplemented by business process automation. With process focus in one place, the business case for investment in best practice is more easily established. Tools, such as electronic invoicing, document imaging, optical character recognition and workflow, can be exploited. This can lead to productivity that is much higher than previously experienced benchmarks.
For some organisations, shared services also provide the ability for global leverage. This is achieved either through a ‘one-centre’ model, e.g. all accounts payable is processed in one global location, or a ‘virtual’ model providing a 24/7 service from perhaps three or four centres in different time zones.
Finally, shared services is enabling finance, HR and procurement directors to actually implement that elusive best practice vision for their support functions. Organisations are benefiting from the enhanced focus of the roles left behind in business units. The ‘business partner’ role is finally emerging as shared services have removed the distraction of transaction processing leading directly to improved margins and ability to compete.
Shared services has gone through a rapid evolution since the ‘consolidate, standardise, re-engineer’ days of the late 1980s and continues to evolve. Organisations that have implemented the shared services model successfully are today reaping benefits and value in areas far beyond the cost savings that were originally contemplated. Of course, not every organisation can reap all of these benefits at once. Rather, it should be seen as a menu of opportunities for increasing payback from your shared services strategy.