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Shared Services - what are the success factors and where to next? 

Susie West Founder and Director of sharedserviceslink.com was interviewed by the editor of FSN.co.uk Gary Simon in a webinar that took place last month. Here is a transcript of the interview.

Gary Simon: What does shared services actually mean?

Susie West: That’s an interesting question because the term shared services is actually very elastic and I think it is inappropriately used by many.  Functions call themselves a shared services organisation (SSO), when actually, all they are is a centralised accounting function.  We are seeing this inappropriate turn a phase today, especially within local government.

When people ask what shared services is, my short response would be a business within a business selling finance and accounting services to its internal customers.  Because it’s a business, the 3 key business principals apply: cost, quality and timeliness.

My longer response would be, and I believe that there would be a general agreement in this, that shared services is substantiated through a number of characteristics existing such as the:

1. Centralisation of a back office function, typically finance

2. Consolidation of that function onto minimal systems (if the business lends itself then consolidating ideally onto one system within region or even globally)

3. Standardisation of that function and processes within it

From an operational viewpoint, shared services can be seen on a spectrum, from a basic model, all the way through to a market place model, which is very advanced and ready to start offering its services to other companies outside its holding company.

From an organisational perspective, there are a number of factors which determine whether something is just centralised finance or indeed an SSO.  I can think of 4, being:

1. Leadership – does the CEO/Director/General Manager of the SSO have entrepreneurial skills required to start up a business or is the leader an accountant or Finance Director.  Having commercial, accounting and IT skills means you might make the perfect SSO Leader, and chances are you’re heading a true SSO because of the commercial qualities you are brining to the table.

2. Service Level Agreements – when as a customer you buy a service, you typically sign up to a service based on a proposal and contract. Equally, if an SSO has a comprehensive SLA (this does not mean it has to be long) then it means it’s more likely moving away from an accounting centre and becoming an SSO.  If there are penalty clauses enforceable by this SLA, then this suggests that the SSO is confident in its service delivery.

3. Attention to Customer Service – how customer oriented is the SSO?  Does it really live or die by the service offered, like any other business, or is there still a peer-to-peer mentality in service delivery.   If a not-my-problem attitude plays out, which can often exist in a typical back office department, then the SSO’s progression towards a market place model will be stunted.  A significant shift to a service attitude has to exist in order to be a true SSO, and certainly to attain a market place status.

4. Charging – Referring back to what an SSO is not – it’s not a centralised finance function.  It should be, and is, in its true form, a business, not a charity.  It provides services which have value associated with them, and this value transpires largely because of the commercial pillars of Timeliness (ie efficiency) and Quality (ie effectiveness).  The value derived here justifies a fee, and in fact deserves a fee.  A true SSO recognises it is a business, it has costs, and it needs to cover them and ideally make a profit.  So the commercial argument supports charging, but so does the value argument – we only really value what we pay for in this life.  Finally, if charging is per-transaction, an SSO can start influencing behaviour by financially rewarding the good and penalising the non-compliant.  This single technique where, for example a PO invoice is charged at €4.00 and a non PO invoice is charged at €12.00, can enforce good behaviour and have hugely positive ramifications on the finance function, and the company’s overall profit.

G.S: Which functions lend themselves neatly to shared services?

S.W.: The function which seems to be in an SSO as a rule, and almost without exception, is Accounts Payable (AP).  I certainly haven’t come across a Finance and Accounting (F&A) SSO which hasn’t had AP within it.  The rule of thumb is to shared service the function that the external customer cannot see or touch.  This might be considered a slightly ‘old fashioned’ perspective, as now some areas of marketing functions for example seem to qualify for shared services adoption.  However, the trend is there –  F&A SSOs have AP within their walls.  The reason for this in my opinion is many fold:

1. Some argue that shared services itself is used as an application to ‘tone up’ the purchase to pay function, and specifically within that the AP function.  That, if you really want to get a handle on your P2P function, you need to standardise, centralise and consolidate for a start.  AP is a great place to start, as historically AP sat out with the shop, plant, factory, and followed its own process and varied wildly in cost per transaction.  By simply applying shared services to this kind of environment, you are attaining a certain level of control, getting a visibility over what the real problems are, and moving towards an organisation where processes can be benchmarked.

2. Accounts payable is about as far from the external customer as you can get.  It doesn’t need to be local, it doesn’t need to sit near the customer.  So if it doesn’t need to be in a particular location, then why have it decentralised?  Where’s the case?

G.S: What trends and developments are you beginning to see in shared services?

S.W.: So outside AP the second and third likely candidates, again as a rule, seem to be Accounts Receivable (customers don’t generally care where their invoice or bill comes from), and General Ledger.  I think there is a slow move towards starting to embrace other F&A functions like, for example, tax or treasury, where a company might not necessarily want to lift these functions and drop them in a low cost location because they are not very transactionally rich.  But they might want to include these functions, which require local knowledge and expertise, within the overall global shared services model, keeping them locally or in the regional SSO.  These components within the SSO model, which require to be kept locally because of the job in hand, and require expertise which might only be available locally, are often known as Centres of Excellent.

So I think we’ve been seeing some SSOs having practiced this model for years.  But they really are at the top of the pyramid, and the next wave of organisations is beginning to come through, but not, evidently, in a great rush. 

Secondly I seem to be noticing that those SSOs which are ‘advanced’ in their SSO performance, are now applying the process, service and system expertise to other areas of the business, like IT and Procurement and HR, Legal, Fleet.

G.S: How do you define what falls in the scope of local organisation, shared services, off shoring or outsourcing?

S.W.: There’s a matrix that any organisation can use. Along the top you have a breakdown of all of your functions, and on the left are the following tabs: Close to the Customer; Local; Country based; Cluster of Countries; Regional; Global.  And if it falls in the last 3, can it be near or off shore? And is there any reason to run these functions internally when Accenture, HP, Infosys and Genpact offer such competitive and expert services?   It really is a case of looking very hard at the business and asking, quite ruthlessly, is there any reason why we can’t outsource/offshore/shared service this function?

The more local the function, the less standardised it will be and the more expensive it will be.  So only keep it local if there’s a very strong argument.  And if it needs to be local (ie few would agree that employees in Mumbai are familiar with tax law and regulations in Peru), then create a Centre of Excellence which can adopt some of the principles of shared services.

G.S: In your opinion does the IT and SSO strategy need to be aligned?

S.W.: My view is that yes, in order to have a successful SSO implementation, IT needs to be tightly dove-tailed into the project.  Which ever way you look at it – from Finance or IT, the two seem to have little choice but to be aligned if the optimum effects are sought.  For example, if it’s a company’s intention to role out one instance of SAP, then an implementation will be much more effective if the processes it supports are managed within a shared services structure.  Similarly, because two of the key features of shared services are standardisation of process, and consolidation of systems, it would be hard to achieve process and cost benefit if an SSO didn’t move to one, or a minimal number of systems.

The options are there – whether it makes sense for a company to move to one system before, during or after a shared services implementation can depend on several factors.  However, I am increasingly seeing companies package these ERP and SSO projects together, and as a country migrates into an SSO, so it moves to the new single system. 

In addition to this, many continuous improvement tools keenly adopted by stable SSOs require, or indeed are, technology.  For example, once an SSO is migrated and all invoices are now centralised, keyed into one system and the process is standardised, the SSO will most likely be very aware of true costs and true problems, and have a clear view of what the fix is.  Often that fix will involve process automation, and IT will need to be involved in scoping electronic invoicing projects, and workflow projects, and essentially, IT will have to be available to resource the implementations.

Finally, it has been said that the ‘perfect’ SSO Leader has both finance and IT experience and an entrepreneurial attitude.  And I think this in itself is testimony to how tightly the IT and SSO strategies are bound.  Simply put, for one to be wholly effective, I don’t believe it can do without the other.

So, yes, the SSO and IT need to be aligned, and this relationship starts from the evaluation and feasibility of shared services, to the design phase, and understanding the IT and process ‘as is’, and the ‘will be’, and understanding that IT is an enabler for the SSO to be wholly effective, and shared services is really an enabler for some corporate IT goals to be met.

G.S:  What are the trends that you’re seeing within outsourcing to India or low cost locations in Asia?

S.W.: This move, on the whole seems to be adopted by two extreme groups – firstly those who are very mature and have been operating shared services for years, and outsourcing is really the next logical step in the journey.  And the second group, though less commonly seen, who are at the beginning of the journey, have done a country by country assessment of  their ‘as is’ F&A operations, but now want to just lift and shift their decentralised operation to an outsourcer in a low cost location. 

If we look at the first group.  A company which has had shared services in place since the mid to late 90s will have come a long way in terms of cost per transaction, time reduction in month end, and general operational cost reduction.  Through applying the basics of shared services, they may have well chopped out 40% of their costs, and have their F&A function costing well under 0.5% of the company’s revenue.

This is where an SSO looks hard at where is can squeeze out more cost – maybe it’s through a) further process automation or maybe it’s through b) offshoring.  But in some cases these options might seem high risk and offer only a marginal return.  Imagine, for example, that a cost per invoice is €1.20.  To reduce that by a sizeable amount you could consider a move to India, but this poses a big organisational shift, and a large investment pushing out the ROI, and finally who says labour costs in India won’t double in the next 10 years?   If a company is indeed processing invoices at a fully loaded cost per invoice of €1.20, then to strip out an additional 30 – 50% may well be a challenge for any solution provider.

In these instances, an SSO may well turn to a BPO to offer them a ‘guaranteed’ saving of 15 to 25%.  A further attraction of BPOs is that providers are offering finance transformation as part of the package. For example Business Process Management (BPM) technology is being offered as part of the package by BPOs.  BPM technology enables the user (the end customer in the case of a BPO) to access and view the invoice transaction flow at any time to see the status of invoices posted, invoices blocked and why, and invoices queuing.  This live feed offers users with a dashboard illustrating the most up to date view of finance processing, and importantly cash in and cash out.  This kind of technology can then lead to decision making around working capital management.  But it’s this kind of application that advanced SSOs might look to acquire through a BPO partner, rather than independently.

So, advanced SSOs seem to be partnering with BPOs because of the re-engineering opportunities, rather than solely for cost reduction purposes.  

The second group of companies who haven’t actually been through the shared services journey, but decide to jump straight to outsourcing, follow a lift and shift approach, and leave it to the BPO to apply the elements of shared services to deliver savings with the view that they can do it better and faster and for less.  Talking to an FMCG in the last 3 months which had taken this approach, they reported savings of 15% in the 18 months of the project.

G.S: Can other functions like management reporting be migrated into shared services?

S.W.: My view is that it can be done and is done.  Although F&A functions which are transactionally rich lend themselves beautifully to shared services, I don’t believe these should just be creamed off to leave the remainder of the F&A activities outside the SSO remit.  Management reporting doesn’t need to sit locally, it doesn’t need to be near the external customer or business unit, and it relies heavily on a process and systems.  There maybe a reluctance to put management reporting in an SSO as a) it is business critical; b) if there are indeed variances in numbers these are best reconciled face to face, and c) it requires a skill which may not be abundant in a transactional processing centre.  Again, management reporting qualifies itself quite elegantly for migration into a Centre of Excellence.

G.S: Why do you think BPM solutions are primarily used by BPOs and not SSOs?

S.W.: BPM technology is still in its infancy in terms of its adoption.  It certainly isn’t mainstream, and those who use it would be deemed as pioneers or early adopters.  If you look at the list of F&A world class players, you’ll note that a significant number are indeed BPOs like Genpact, HP and Accenture.  And I think that providers selling BPM technology have targeted these BPOs for two reasons, firstly because they have the scale which is attractive to a provider for revenue purpose, but also means an attractive business case will likely be realised, and secondly these world class F&A organisations are so process and system mature, they can install an application like a BPM tool and really optimise it.  So for these reasons the BPM providers like WebSphere and Cognos perhaps see BPOs as their target market.

G.S: How popular is shared services amongst the mid size market?

S.W.: There seems to be a shift in the mid size market.  For a company with €20 billion revenue and 30,000 FTEs, shared services could be seen as a no-brainer simply because of the available scale just waiting to be economised.  However, with an SME, processing less that 70,000 invoice per region, savings gleaned through shared services might just stand at 15%, so you have to ask yourself what other benefits justify the organisational change, and is it worth it?  Perhaps in this case, handing the function to a BPO which focuses more on the midsize market, like SWS BPO for example, might help you realise better savings, because they have the scale.  SME’s face the same problems within F&A as Large Cap organisations – expensive processes, system integrations, and their goals are the same – to have an elegant, inexpensive and timely F&A function to enable larger profit margin and increase shareholder value.  But the path taken to reach this goal may differ simply depending on scale and business case.  Just because shared services can provide very attractive returns and benefits for large multi-nationals, doesn’t mean it is the obvious solution for an SME.

G.S: How can people best exchange tips and information of what works?

S.W.: Shared services can be a lonely business.  It can also be a very emotional business where SSO Leaders can feel isolated and defensive.  Often SSO Leaders feel everyone is against them and looking for ways to trip them up (ie country finance) or looking for constant proof that what the SSO Leader is doing it ‘right’.  With shared services comes huge business disruption making them unpopular figures.  Even those who allege to back them may keep a distance so as to retain a friendly image, and also to be at arms length rather than full embrace if it all goes wrong.  So this makes a SSO Leader very defensive and emotionally connected to the task.  Which isn’t a bad thing.  But it does emphasise the need for reassurance, which might not necessarily be available from within the company.  For this reason Leaders may look to meet other SSO professionals in working groups, conferences and online, to get that ‘warm’ feeling that what they are doing is ‘right’. 

You will also find that some professionals in shared services don’t really know what it is, and haven’t reached out to consultants for direction.  Again, attending events (which sharedserviceslink.com incidentally run) means that direction can be sought and sounding boards made available. 

There is a lot of fear within shared services.  Often C-level management is watching you closely and this puts enormous pressure on the SSO Leader.  It is also apparent that shared services means going through massive organisational change and financial investment.  If it goes right – it’s worth the pain, but if success isn’t realised, your project can be seen as very disruptive for little or no reward.  Therefore there needs to be a certainty, or confidence in decisions, and often this confidence can be attained from attending events and roundtables and developing online interest groups.

G.S: Finally Susie, what in your opinion are the critical factors for shared services success?

S.W.: There are a few I’d like to touch on.

1. I know it sounds boring because people hear it again and again.  But there’s a reason why it’s repeated, and that’s because a) it’s so important and b) it’s often discounted as so crucial.  And this is securing senior level buy in.  SSO Leaders are sales people.  They will succeed if they secure buy-in.  They are selling the dream and making it clear that the only way that dream will be attained is through the means of shared services.  If you don’t have that sponsorship, your shared services intentions are hanging on a thread.  You can do all the work you want, and feel like you’re getting somewhere, but if you’re Sponsor’s not onside, that work stands for nothing.  And lets not forget that your life really is in the hands of your Sponsor – they can snatch away your project, give you a sense of purpose and even make your life easier if they blatantly back you and tell everyone else to.  The connection between you and your Sponsor is absolutely number one in my opinion.

2. Secondly doing a solid feasibility study, gathering baseline data and ensuring the business case is watertight, true and realistic.  This helps everyone decide if they want to commit to such a project.  Also, if this work has been done at the outset, you can use the baseline data to prove what a great job you’re doing.  Shared services is 10% fact and 90% perception, so you need evidence to prove you’re making progress, and much of this progress will be illustrated by the difference between baseline data and today’s data.

3. Thirdly I would choose communication.  Communication is mostly about what was heard, not what was said, so ensuring that messages are frequent, clear, congruent, exciting, strong and understood will help the rest of the company break away from a perception and register an actual event.  And this will help.  But this is hard as people are losing their jobs, and often so much attention is put on these individuals that the staff left behind are neglected.  So there needs to be a balance of focus, and a recognition that you are really touching people’s lives, their present and future.  So empathising with them and their situation, and understanding that cold communication (ie email) and passive communication (ie posting a note on the intranet) probably won’t help you, are all key.

4. Listening to the customer and actually understanding what they want and serving those needs, and applying metrics around those requirements will save you a lot of bother.  Occasionally you may come across an SSO who thinks they know what the customer wants, and what is important to the customer without having actually asked them.  This leads to a gap in customer expectation and the SSOs delivery, and means you will never be able to meet the needs of your customer.  By having a set of, say 20 metrics, and asking each customer which 5 are most important to them, allows you to focus on actually pleasing them rather than thinking that you’re pleasing them.  Also asking them what a perfect F&A supplier looks like, and having them define and document it, means you have a common understanding of what will please them.

5. Having consolidated processes onto the minimum number of systems can only serve you in your intentions.  Some business models won’t allow for this as their businesses within the company are so diverse.  But if there’s no reason for multiple systems, then switching to one can make financial reporting easier, helps with process standardisation and benchmarking, month close, and general performance.

6. I would say that having a global strategy comes out somewhere near the top.  If you have a global strategy it means you have the highest levels of management on board, you’re on a path which is supported, and all employees listen and take you seriously.  It gives a shared services leader a sense of security to make more rewarding decisions, because the destiny of your SSO isn’t hanging on a thread.  It also means regions can work with, and compete against, each other.  One global FMCG organisation started out on a global SSO programme (which included outsourcing in its mix), and reported savings of €750 million a year.  I am unsure if this level of saving could have been met without a global strategy.

7. Having the right mix of in and out sourcing and challenging the organisation on why a function or process needs to be internal or local is an important factor.

8. Charging your customer, which few SSOs do at a per-transaction level, is essential if you want to be a truly commercial operation and have the customer value your services, and have the customer behave in a compliant way which will impact cost and therefore profit margin and in turn benefit you, them, the corporation, and the shareholders. 

9. Focusing on strong Leadership and a strong project team and recognising that the best leader most likely has finance and IT experience, but is an agent for change, is entrepreneurial and commercial, realises the importance of sales, marketing and the customer, and realises the importance of communication.

Susie West can be reached on +44 (0)20 7359 5355 or susie.west@sharedserviceslink.com. If you want to find the latest information, news, white papers, reports and conferences on Shared Services, Purchase to Pay and BPO visit www.sharedserviceslink.com and subscribe to our monthly newsletter.

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