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Share the burden

A shared services model will do much more than reduce costs, writes Joe Kelly

26 Jan 2012

By Joe Kelly

Sharing the burden

THE CREATION of shared service centres has become an increasingly common feature of the finance landscape. Aside from cost-saving benefits, the potential for financial shared services to make a broader contribution to the overall success of a business are huge. Some of the more proactive players in the commercial landscape, particularly in the retail sector, are empowering the evolution of shared services into a more valuable function than the original template would suggest.

Many shared service centres start with the narrow remit of being straightforward processing hubs and many continue in that same vein, being a useful component of the business. Typically, these centres come to life in three stages. Initially, the focus is on centralising the operation. The next stage is to look at simplifying and streamlining, which might involve eliminating low-value activities, for example. Third, the imperative should be to standardise processes and service levels to help encourage a consistent level of performance.

However, whether captive or outsourced, the more advanced shared service operations are driving significant collaboration with the organisations they serve, who can be helpfully viewed as ‘customers’. They have made a true leap to become contributors of value and a strategic driving force behind the way the organisation ultimately performs.

Figures show that the three most popular reasons for adoption of a shared services strategy are reduction of operating costs, operational stability and information accuracy. Less commonly cited, but perhaps even more important drivers are service improvement, flexibility of business support and enhancement of finance capability.

For an accounts payable department, for example, settling disputes with vendors in a timely fashion might be a basic requirement. But that same department could generate value by analysing payment data to help inform future decisions on buying and procurement. In this way, the shared service centre matures into a strategic partner, ultimately helping to drive the efficiency savings that can have a very real impact on overall performance.

Pushing on to that next level demands that a framework of important measures to be put in place and that staff members are willing to join the journey wholeheartedly.

The most common reasons for the failure of shared service programmes to meet expectations are unclear service level definition, insufficient process and organisational design, insufficient transition and migration planning and ineffective communication and change management.

The most fundamental requirement is to understand the service expectations of internal customers and stakeholders. These needs and priorities might change, but it is vital for a shared service operation to start that dialogue in order to become an asset to the wider organisation.

Once expectations are understood, it is good practice to draw up a Service Level Agreement (SLA). The collaboration involved in drawing up SLAs can be a useful process in itself, especially when overcoming a simple ‘cost reduction’ mantra.

Aim for creating a simple SLA and think about how performance will be tracked and measured, because accountability is paramount. The best results are achieved when fairly rigid metrics are applied to factors such as error rates, operational effectiveness and delivery of service.

When appropriate benchmarking is also applied, there is a useful tool for comparison. These elements might seem to be an administrative burden in the short-term but this is outweighed by the long-term value of having them.

One of the benefits of this approach is that it is immediately obvious when predetermined objectives are not being achieved and that allows for investigation into the causes. By identifying what is inhibiting progress, solutions can be created.

For example, one client drew from the activity-based cost insights generated by the above exercises and introduced a pilot initiative where customers were charged for their use of a certain area of business. The goal was to trigger a behavioural change among customers, who, realising the cost of a particular service, used it more moderately, rather than exploiting it unnecessarily.

The shared service centre might find ways to improve cash flow, for instance, or detect patterns that could be adjusted to eliminate certain costs. The question shared services should be asking is: How could we contribute to the bottom line? All of these steps, however, must be underpinned by the commitment of staff to adopt a more proactive role, in which they play their part in a customer-focused, profit-minded business operation.

What begins to emerge from all these efforts is a very compelling proposition. A proposition which elevates shared service centres to the position of business partner, delivering added value to an organisation by leveraging its insights.

Such is the scale of transformation in the role of shared service centres, that we will soon have to consider giving them an entirely new name. ■

 

Joe Kelly is managing director of client services at global audit, analytics and advisory firm PRGX

 

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