Posts Tagged ‘SSO’

Shared services: friends, that is really not just about cost!

May 22, 2010

An old stereotype, common-known (in a new scenario of the global financial crisis): We implement BPO or shared sevices (SSC) solutions as we want to cut cost. And the global economic crisis would just support that way of thinking (and doing things). However, things are not as simple as they seem to be at first glance…

“Going up the value chain to knowledge-based services isn’t just about cost reduction; it allows you to create a lot of value for the organization.” (Shared services shines in challenging times: Insights from Deloitte’s global shared services survey, p. 8)

Good news for people perceiving F&A (F&A – finance and accounting) BPO and SSC operations in a long-term perspective, adding value for organization running them and developing also advisory services, not just transactional ones: corporations tend to recognize that quality is more important than quantity, although the latest one is obviously not unimportant.

While a few years ago the main reason for implementing a shared services organization was the cost aspect, it is not the most important reason any more. Why is it so? One reason is the increasing role of the F&A function for corporations. Professor Joe Lampel from the Cass Business School in London, describes the situation as follows: “Today (…) it’s much more difficult to obtain money, your own ratings have come under greater scrutiny, and bonds have to be carefully managed. All of these things have put a lot of pressure on the CFO.” No woner then that according to 70% of top performing corporations (according to KPMG methodology, refer to KPMG survey Thriving not just surviving: Insights from leading finance functions) the F&A has significant influence on core operations, for 61% of them the finance function has material influence on marketing, supply chain (55% of respondents) and IT (53%). That clearly means: F&A managers actively influence business leaders to make better decisions across all functions. Therefore timely reporting of business results, delivering accurate budgets and forecasts, and investor relations management are the priorities for the F&A function.

Timely reporting, accurate figures… – it is all about quality. Let’s briefly discuss the findings of some surveys undertaken in the past two years and showing the increasing role of qualitative aspects in the F&A function, incorporated in shared services organizations (SSOs).

Higher transparency, process quality and process security are the most important drivers to implement an SSO according to the study Shared Service Center – the 2nd Generation undertaken by PricewaterhouseCoopers (PwC) in 2008. These objectives are followed by decrease of error rates, increase of customer satisfaction –
and cost reduction, expressed as less important than the previous objectives.

Service and quality improvement, accuracy and timeliness have been given as main reasons for having established or for establishing an SSO by 85% of world-class corporations identified by The Hackett Group in 2008. Service standardization was the next reason for 83% of them and about 80% said that cuts in
administrative costs, headcount and salary/wages reduction are the most important drivers to implement a shared services organization.

The increasing role of F&A (which – as such – “just” represents back-office operations) and the supporting business processes performed by shared service centers make the F&A function and the SSO existing within this function even more important for corporations. Shared services become strategic influencers, offering
corporations a tool to facilitate enterprise growth, improve focus on core business and enhance talent management.

Magdalena Szarafin

http://www.szarafin.info

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Shared services: Why? How? What for and how long?

May 19, 2010

Process standardization, simplification, harmonization, cost management, achieving synergies, common systems, practices and ways of doing things, common technology – that is all what can be delivered using shared services. Let’s briefly analyze some statistics delivered by surveys undertaken on shared services

1 or 5? – How many shared service centers in use?

Almost 50% of international corporations with shared services use just one shared service center (SSC) and each fifth has five or more shared service centers. Each third corporation works with 2-4 shared service centers.

The optimal number of shared service centers depends on customer requirements regarding the process complexity and level of process standardization.

How long does the SSC implementation take?

For each second multinational corporation it has taken under 12 months to implement a shared service center. For further 20% it has taken between 12 and 18 months to implement a SSC.

After the implementation of a SSC, it takes shorter than 2 years for the investment in a shared service center to payoff in case of each fifth corporation. For further 60% the amortisation period is between 2 and 4 years.

Which functions and activities are eligible to be relocated to a SSC?

Accounts payable, receivable and account reconciliation are the favourite activities and functions which are likely to be relocated to a shared service center by global corporations. Except of that, global giants use shared service centers to provide services in the following functional areas:

• Asset accounting,
• General ledger,
• Travel expenses,
• Payroll,
• Controlling and reporting,
• Procurement,
• HR administration,
• Treasury,
• Tax,
• IT helpdesk,
• Order accounting.

Why shared services?

Cost reduction, process improvements, increase of customer satisfaction and improvements in quality are the main drivers for corporations to run a SSC. In brief: shared services means establishment of a common languages in a heterogenic, multinational environment.

Shared services vs. IAS/IFRS

The subject of compliance with IAS/IFRS or US-GAAP is an important issue for financial shared service centers. Placing IAS/IFRS reporting in a shared services environment can yield cost savings through consolidation and process efficiencies. It can also help increase the consistency of corporate financial reporting and improve comparability of single financial statements across the corporation.

Shared services organization (SSO): important dimensions

The following dimensions are crucial for a SSO:

• Performance metrics (mainly through a set of key performace indicators: KPIs), customer feedback,
• Service level agreements (SLAs),
• Global and regional process owners.

Cost savings through shared services

The potential for cost savings through shared services vary from function to function. For most organizations it is around 15-20% in a treasury, financial reporting and analysis, procurement and tax function, amounting to even 30-50% in the IT, accounting, facility management and personnel administration functions.

Literature:

1. Heinz-Josef Hermes, Gerd Schwarz, Outsourcing: Chancen und Risiken, Erfolgsfaktoren, rechtssichere Umsetzung, Haufe-Lexware 2005
2. Shared services shines in challenging times. Insights from Deloitte’s 2009 global shared services survey

Magdalena Szarafin
http://www.szarafin.info