Over the past weeks I have shared what I believe are the eight leading trends in F&A shared Services via my blog. Summarised here this month are the eight in descending order. All these trends have both been heavily observed in the market by sharedserviceslink.com and supported by other leading observers such as Deloitte Consulting and The Hackett Group.
Trend No. 8 up the value chain
Globally there is a shift in shared services. And the recession has only oiled this movement. Shared services ten years ago was mostly, if not exclusively, about transaction processing. In the past 5 years there has been a development which means shared services organisations are keen take on finance activities which are more strategic, yet do not require to be too close to the business.
A few examples are where shared services organisations are managing budgets, and profit and loss accounts, and are involved in the pricing of products. Rather than just being about data input, shared services is now much more about providing information (of course based on the data that they input), and providing advice to the rest of the business to aid their decision making.
In addition to this there is also a growing expectation for shared services to impact the top line and I know of a number which are doing this through cash realisation. By changing payment terms and optimising capital, and shortening DSO and extending DPO, working capital inflates and the interest added as a result can certainly be well into the millions.
Trend No. 7 global business services
Which ever way you look at shared services, the common opinion will be that an expansion is occurring. If shared services in your organisation historically touched a 10th of the activities or people, or countries, or businesses, prepare for this model to morph into a greater, but encapsulating structure, which will not only climb its ladder to take on the more value adding activities talked about in Trend 8, but it will stretch out its web to scoop up more people, businesses, countries and functions.
What do I mean by this? Well, as you know shared services may have had the country platform in your business, or possible the regional. Yet, if the European operation looked at the American, a difference in operations and methods, objectives and styles may quickly be appreciated. Perhaps both report into their own regional CFO, and both run off different systems and work with different service providers. Occasionally they may share ‘best practice’, but this is more by accident than design. An outsider looking in would be oblivious, perhaps, to the notion that these two regional SSOs are actually under the umbrella of a single company.
What we are seeing now is a shift to global business services, or global finance services. This is where, globally, there are common processes, policies, documents, procedures, aims, objectives, and practices and they all funnel upwards, reporting to a single C-level individual. The ramifications of such a model are huge. Shared services organisations do deals with service providers regularly throughout the year. If you now have your global operations in scope, your purchasing position with the provider strengthens significantly and your ROI will be realised quicker. If this is a deal with a Brainware, Basware or OB10, or a mega deal with an SAP or Oracle, the savings created by bulk buying are significant.
In addition to this, the power of one will enable change to happen at a pace which is desirable. One of the biggest enemies of shared services is resistance, often from local finance. Once EMEA, APAC and the Americas have become a single model, the gravitas of shared services adopts a more credible, permanent, respectable weight, and as a result combative local finance consider being a partner to this giant rather than a saboteur.
Trend No. 6 single function to multi-function
The Hackett Group shared a statistic with me the other day that I found both surprising and refreshing. In one of its recent surveys, when asked, 50% of respondents said that they now had multi-functional shared services versus 25%in 2003. Quite a jump in the last five years.
The arguments for this shift significantly out weigh those against. Firstly, the treatment of transactional finance can, and should, be applied to the transactional part of any function in the business, so long as it does not negatively effect the overall corporate objective of increasing revenue/profit/market share.
Within HR, procurement, IT, legal and even marketing, there are activities that do not require face time, and can be readily automated, off shored, standardised, centralised and consolidated on a single system without it being detrimental to the business. Within all these areas, companies are beginning to ‘chop up’ the activities into ‘this bit needs to be local and requires local knowledge/meetings with the business’ and ‘this bit can be shared serviced/offshored/automated’.
Secondly, we are seeing the increase in global business services, not just global finance services. This means that the person who championed improvements in F&A can now roll best practice out into the other functions, and ensure that there is no time wasted re-inventing the wheel. The template used for finance can now be used elsewhere.
Thirdly, with ERPs now elegantly accommodating finance, HR and procurement, and with shared services projects and ERP implementations almost being treated as a single initiative, more and more companies are realising that economies of scale can be realised if a) the shared services scope widens to cross function and b) the ERP suite is maximised to support a cross functional shared services strategy.
Trend No. 5 centres of excellence on the rise
The term ‘centres of excellence’ was largely unheard of five years ago. It was only the consultants among us that actually knew the difference between shared services and centres of excellence. The landscape is very different now. In a recent survey conducted by the Hackett Group of 150 shared services organisations globally, over 75% of the world class SSOs have centres of excellence, versus just over half of their peer group.
So why are centres of excellence on the rise? Five-to-ten years ago the three drivers for shared services were cost, cost, cost. There is a general agreement now that the concept of shared services is not just applied to strip out costs, and is not simply a cost-cutting enabler. With companies having had the experience of seeking out low cost locations and offshoring their activities there, only to be alarmed by the drop in quality of some services and deliverables, a rejuvenated focus on service quality has prevailed.
To support this attention to service is the infrastructure provided by a service delivery model which includes within its tiering centres of excellence. So what does it do? Most shared services delivery models will have a two or three-tier structure. At the base of the pyramid will run a transaction-processing activity scooping up the kind of activity that adds no value to the business and the business adds no value to it. This activity really should be automated, made electronic, off shored or outsourced. Many would argue that the processes that support these activities need to be as standardised and process compliant as possible, to keep costs down and KPIs like payment on time nice and high. Enter the role of the second tier.
Above this transactional activity sits a competency centre. This is typically the level that serves as the process police, ensuring that every day the process improves and all the process users are 100% compliant with the process' rules. This team oversees policy, documentation, communication to the rest of the business regarding process dos and don’ts. They will also handle more complex transactions, or transactions which require local knowledge. They may also manage the help desk to support with ‘investigations’ and understand the cause of them with the idea to eliminate them for good.
Finally, at the neap, sits the centre of excellence. These local operations have their own definition depending on the company you work for. But increasingly these entities are using the data provided by the transactional part of the shared services structure to deliver management information, business intelligence and strategic information to the rest of the business in order to identify patterns, opportunities for cost savings and even opportunities for margin growth (certainly when they influence or indeed own pricing decisions). Centres of excellence are moving into the realms of adding value, and providing more support within an advisory capacity and financial planning.
Companies with centres of excellence include Cisco Systems, Lexmark, and Steria.
Trend No. 4 the increasing role of outsourcing
Most professionals in shared services will be able to mention five BPOs without too much effort. This is because BPOs are increasing their hold over the transaction processing market. And in the past three years, the grip and reach of this hold has strengthened and widened.
There is a general appreciation that, if you don’t add value to an activity, and it doesn’t add value to it, it is a prime activity to be outsourced. According to Peter Moller, Head of the UK Shared Services Practice at Deloitte, around 400 F&A BPO arrangements have been struck since 2001. And 200 of these deals have been realised in the last three years. So although we may not be on a hockey-stick curve just yet, we’re certainly experiencing an accelerated upward curve.
The reason for this is that most shared services today see BPO fitting in to their shared services delivery model to some degree. Should your service delivery model be multi-tiered, chances are you have outsourced or off shored the transaction-processing piece of AP. Or perhaps you have outsourced the whole of AP. What shared services organisations are considering when they look at outsourcing is service and continuous improvements. It is no longer just about cost, and a BPO won’t naturally win a client just because they are the cheapest. Nissan is very open about its lessons learnt on outsourcing. For them first time around, the only driver was cost. As a result some unacceptable practices came into play, and the service standard dropped considerably. This resulted in an entire review of the outsourcing approach, and how enhanced service delivery must be a key reason to outsource the activity.
Because service delivery, as well as cost, is driving the actions of many SSOs today, there needs to be absolute comfort that your BPO can deliver the job better than you can. Seeing that you have had staff in AP for 20 or so years, who have a deep knowledge of the process, people and organisation, expecting outsiders, often thousands of miles away to do the job better is a big ask. So investing significant energy and attention into service provider selection, transition, and post transition support will mean your BPO project should be a success.
Trend No. 3 no longer just about cost
If you asked a shared services organisation five years ago what were the three drivers for shared services, the answer would have been 1. cost 2. cost and 3. cost! My, how the world has changed! Of course cost is still very significant, and if a business case fails to exist for the company, it’s unlikely shared services will get off the ground. However, the view now is that cost is a chief driver, but not at the expense of service excellence.
Outsourcing has been very popular over the past seven years, and the main prize when taking such a leap has been the promise of extensive savings. Companies went gooey eyed when presented with the favourable business cases that BPOs unveiled before them, and decisions to outsource were made without fully factoring in the massive impact offshoring or outsourcing would have on service delivery.
Today outsourcing and offshoring decisions look very different and companies are much more street wise about the service implications. The idea of outsourcing for cost, and clawing back because of bad service, fills operational people’s minds with terror. So, much better to build a case around cost and service and measure the impact of both on an equal footing as possible.
When I talk to shared services directors these days, service excellence is the key theme. The chief question that seems to be asked is ‘How can we best serve our customers so they can perform at their best?’ The only issue is that this service brilliance needs to be attained on a shoe string budget.
Trend No. 2 the recession has been good for shared services
The recession for most of us feels like a part of our history. We are experiencing economic anomalies right now, having undergone a recession caused by the banks, and trying to skirt around a possible second dip recession caused, in Europe, but ‘the countries’. As Greece slips deeper into debt, even the stronger European nations are regarded with hesitation when it comes to their own economic stability. But what does this mean for shared services?
Most authorities on shared services will agree: the recession has been good for this F&A operational model, and where before there may have been resistance to change, now there is acceptance and diminishing protestation. I talk of the three Cs driving change in shared services, and it’s these three Cs that now have the attention of senior management and have in turn nurtured the broader development and growth of shared services across the corporate world.
Cost: Cost reduction has won the attention of C-level executives with real success. The cost of finance for multi-nationals doing shared services successfully is 0.6% to 1% of their revenues. Compare this to the organisations which haven’t done shared services or have just centralised their AP operations, and the cost of finance is well over 4%. This 3% difference helps companies survive during a recession. And seeing that revenue is seen as a factor which many companies can’t control during a recession, energy is channeled into the area that can be controlled – cost. And what is one of the best cost reduction enablers in multi-nationals? Well, shared services of course!
Cash: It’s a well referred to statistic: in 2008 71% of companies that went into administration were profitable… unfortunately for them they had run out of cash. During the recession senior management has almost gone into panic mode, expressing the importance of needing to know the company’s cash position, and now! If senior management want to know the true state of commitments, then procurement needs to be much more vigilant raising requisitions and POs. This has allowed shared services operations to drive through continuous improvement projects where increasing first-time match rates and driving out non-PO invoices have been the focus. If senior management want to know how much spend is ‘out there’, the devil is in the process, and it’s the purchase-to-pay process where the root of this information exists.
Control: This leads on from the above point. During a recession, senior management want information to be complete, accurate and timely to help them know the true state of their business health. They want to be able to hit a button and see how much they owe, is owed, is in the bank, is due for payment on what day, etc so they can make decisions around payment terms with suppliers, and chasing customer payments. This control comes from having a clean process, having correct data, and then having automated technology to pull out the required data to tell the required story at the required time. So it’s not surprising that we hear investment in technologies like purchase-to-pay automation (data capture, OCR and scanning, e-invoicing and reporting) has, according to vendors in this market, increased since August/September 2009.
So the key message from this is, now is the time to drive through change. If you have been wanting to push through a reform recently, now is the time to deploy as resistance is weaker than during bullish economies.
Trend No. 1 build shared services and then eliminate it!
I remember when I first heard Peter Moller say ‘you need to build your shared services organisation and then eliminate it’, I saw the colour fade from the faces of all the shared services directors in ear-shot. Everyone knew at a sensible level that if they did their job properly and successfully, that they should be out of a job when the project was over. But still, to hear the words ‘and eliminate it’ still came as a bit of a shock.
There are two ways to eliminate: outsource and automate. Trend no. 1 is the adoption of automation. The Hackett Group is a great source of reliable data. In a survey the group did last year, they found 100% of world class respondents said they were embracing automation technology to support their future aims, as opposed to 82% of non world class.
The path to automation is clear: centralise transactions, look to consolidate systems, standardise processes and drive up process compliancy, and then automate. Is there much point skipping the middle steps? Some might argue the point, but there is a lot to be said for moving through this sequence of events to really maximise your automation possibilities.
Once a shared services organisation has deployed automation, it can certainly find itself in the realms of touchless processing, where finance shared services simply police and improve an automated process, and then use their human resource to translate the data provided into meaningful, powerful information. Finance is then about BI, planning, finance advice, pricing, owning P&Ls, and controlling working capital. Finance is then about being a business partner rather than a data inputer – about adding value rather than draining resources.
If you have any comments to make regarding these eight trends please email me directly at Susie.West@sharedserviceslink.com – I always enjoy hearing feedback from our readers and members!