Payback Time

From its beginnings in the finance function in US manufacturing during the mid-1980s, shared services has spread globally and is now embracing new processes such as HR, IT and procurement. It is increasingly finding a role in new sectors such as telecoms, financial services and the public sector, and the pace of its adoption continues to grow.

Companies that have implemented this organizational model for support functions have achieved significant cost savings. In the beginning, business cases were built on a range of 20% to 30% headcount savings; today, savings of 40% to 60% or more are often achieved over time.

Shared services addresses that age-old dilemma - how to obtain better service at lower cost. It combines the best of both worlds, bringing customer service and business intelligence from the decentralised model and combining it with the advantages of a centralised model – economies of scale and standardised processes. Cost reduction, improved service standards and an ability to focus more on the core business are the most important drivers for embarking on such a strategy.

It is of paramount importance that shared services is implemented correctly. Firstly, it is 'shared'. This means shared by the organisational units to which it provides services - not just a shared resource pool but shared ownership and responsibility. This is often achieved through a governance board, and active involvement by stakeholders in shared services design and operations accountability. The business units receiving services share the responsibility for their success and for the quality of the end-to-end business processes that are delivered.

Secondly it is a 'service'. Shared services will only be successful and sustainable if there is an intense focus on delivering service that meets or exceeds customer expectations. This is often achieved by creating a high performance culture throughout the organisation.

EXPLOITING THE PLATFORM

In the best shared services organisations, these fundamental concepts are a given. For example, Atos Consulting supported Reuters in implementing five regional business service centres, all using a single accounting system and providing standardised business processes right across the globe.

Ken Thomson, global business services director, says that the key to success for Reuters was a strong focus on the internal customer, with themes of 'making it easier to do business with - and within - Reuters' and 'creating a skilled and focused finance function, which is smaller, but above all smarter in the support of its customers'. World-class shared services are now adding value in many areas.

COMPLIANCE

A huge benefit of shared services is the relative ease with which companies with shared services are able to comply with the new regulatory environment – for example, with IFRS and Sarbanes-Oxley. Shared services focuses on processes, documentation, high-quality accounting reconciliations and internal controls, all of which can be problematic where accounting functions are disparate.

Not only that, but achieving transparency of the controls and numbers is made easier, there can be more confidence that group accounting policies are followed, and it is less costly to implement and maintain the required documentation.

FINANCIAL MANAGEMENT

Once a shared services approach ensures that the fundamentals are under control, there is potential to move up the value chain. An example of this is the order-to-cash process. Originally, Shared Service Centres (SSC) applied cash to the accounts receivable ledger and did some reconciliations. Today, many SSCs focus on improving working capital management, by ensuring that business units stay focused on cash generation, through proactive reporting and support to the front line.

SSC leaders are also increasingly persuading boards that they can take on additional process responsibilities - for example, the overall coordination and improvement of budgeting and forecasting processes on behalf of the finance director.

BUSINESS PROCESSES

By creating a shared services environment, organizations 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 leaders to respond with an intense focus on customer service, service level agreements and KPIs.

The exemplar 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. Tools such as electronic invoicing, document imaging, optical character recognition and workflow can be exploited. This can lead to productivity that is off the chart compared to previously experienced benchmarks.

An example often quoted is accounts payable. A fully automated SSC may be able to handle 500,000 invoices annually with ten people, compared with 100 accounts payable staff in a disparate un-automated model.

If headcount for a process is so low it is also likely to be comprised of high-value knowledge workers who control the end-to-end automated processes.

PLATFORM FOR GROWTH

Once the shared services platform is in place, well-led 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.

GLOBAL LEVERAGE

In the last few years we have seen a step change in the ability to locate SSCs in lower cost geographies. The race is on to find the up-and-coming locations to give you the edge on cost. Romania is the next hot location for Eastern Europe, together with regional Polish cities. In Asia, China will challenge India.

For some organisations, shared services also provides the opportunity for global leverage. This is achieved either through a 'one-centre' model - all accounts payable is done in one global location – or a 'virtual' model following the sun, providing 24/7 service from perhaps three or four centres placed in different time zones.

BUSINESS INTELLIGENCE

Shared services enables finance directors to actually implement that elusive best practice vision for their support functions. The 'business partner' role is finally emerging - as shared services has removed the distraction of transaction processing - leading directly to improved margins and ability to compete.

COMPETITIVE ADVANTAGE

Shared services has gone through a rapid evolution since the 'consolidate, standardise, re-engineer' days of the late 1980s, and continues to evolve. Many of the benefits we used to put in the 'soft' category in our business cases are now 'hard'. More than that, organisations that have implemented this model successfully are today reaping benefits and value in areas far beyond the cost savings that were originally contemplated.

Far from shared services being something that may have been considered in its early days as another swing in the centralise-decentralise pendulum, it is here to stay, and because its payback is far more wide-reaching than ever contemplated, companies or public service organisations that don't have it may get left behind. Rather than simply being a management fad, shared services is gaining momentum and becoming a real source of competitive advantage.