A dozen differences between centralized finance and shared services

Do you remember the days when you visited or worked for an operation that called itself a shared services center (SSC), but you quickly discovered it was really more of a centralized finance environment (CFE)?

For most of us this memory dates from around 2002, 3 or 4. Shared services had become mainstream, but some companies hadn’t quite come to grips with the nuances of shared services, and genuinely thought it was the same thing as centralized finance.

They were wrong!

Let's clear this up.

Here are 12 differences between centralized finance and shared services:

1. Centralization is a feature of shared services – not the other way around. The shared services journey nearly always starts with the centralization of the function, which alone reaps huge savings, largely from the reduction of headcount.  Once centralization happens, other transformations are needed for the formation of a shared services organization. So CFEs begin and finish their journey with centralization, and shared services start their very long journey with this first step – centralization.
2. Shared services have customers. CFEs do not. Moving from a transaction culture to a service culture is a massive undertaking for a shared services. But without it, they remain a CFE. A CFE will likely not see the internal business unit as a customer, and may even have a “not my problem” approach to dealing with a business unit’s issues. A shared services trains its staff on service, fostering a “how can I assist” mentality.
3. CFEs don’t always have process improvement as a key goal, and don’t always strive for continuous improvement. Once centralized, SSCs focus on the next tier of savings and next step forward in process improvement all the time. They don’t stop. Most SSOs have a rolling 5% cost reduction target in place, post-centralization. They are always on their toes, ready to deliver the next cost-saving or process improvement program.
4. CFEs don’t charge business units (BU) for services rendered. The word “services” can seem quite foreign to CFEs. Rather than offer services, they perform tasks. There may be a cost allocation model in place whereby the BUs pay the CFE based on the BU’s revenue or head count, but there is no charging model based on usage, such as an Activity Based Costing model, or an Incentive Based model.
5. CFEs are not integrated. Shared services organizations are. CFEs are not close to the C-suite, in the front row of the company, where the decisions are made. CFEs are largely an after-thought most of the time. This leads to a disconnect between what a CFE is doing, and what the business needs from them. Shared services organizations make an effort to click in with the company’s direction and strategy, and respond in a way that helps the company “get there” quicker.
6. Shared services are innovative. They have to be to stay on top of the 5% savings each year. This means they deploy technologies – e-invoicing, workflow, reconciliation tools, robotics, supplier portals, dynamic discounting, e-catalogues, P cards. The technological landscape of a shared services center is vastly different to that of a CFE. They have to think differently.
7. CFEs struggle with vision. And because they tend to be weak on articulating a vision and a purpose, they don’t always have senior management “behind” them. Shared services have a vision, a purpose, and brand, and can link this into the company’s vision. This means the senior team “get it,” and shared services are referenced in strategic documentation and annual reports.
8. CFE’s footprints are static. A shared services organization's footprint is fluid. Rarely does a SSO stay the same shape for more than 5 years. It shrinks here, grows there, shuts down in one location and opens in another. It’s this pulsating form that changes its look constantly. A CFE stays put, and possibly just grows slowly, rarely looking to move based on talent or cost.
9. The difference in culture is palpable. The shared services' culture might be completely different from the company’s culture, as it’s a “business within a business,” while the CFE may suffer under a more traditional “back office” culture, where there is less empowerment and, arguably, less passion.
10. Dynamic leaders don’t stick around in a CFE unless they can change it into a true shared services organization. Most shared services leaders want to change the world! They are change agents. Placing a change agent in a CFE that isn’t encouraged to become a shared services will lead to a truncated tenure.
11. CFEs rarely look to take on middle finance or value-adding finance. They largely remain a transactional operation. Shared services are always on the look-out for growth – new geographies, new processes within transactional finance, and new opportunities in the middle and higher function.
12. CFE's operating model is incompatible, so is rarely transferred to HR or Procurement. A CFE will be hard-pressed to become a Global Business Services organization, whereas a well-run shared services can make an elegant step to a multi-functional SSO or a GBS.

If you are a CFE and are keen to make the transition to a shared services, please email Susie.west@sharedserviceslink to find out more about upcoming materials or events that are designed to help you.