Transforming Finance? Consider Shared Services

In today’s fast changing and complex global environment, CEOs are demanding an elevated level of value-added insight from their finance organisations. Yet concurrent with these increased expectations, competitive pressures and economic conditions are also driving finance organisations toward lower cost operating models.

 
These sometimes conflicting demands can result in tension. This can be eased by finance transformation that, at the same time, presents large value creation opportunities.
 
Shared Services
The new finance vision is shifting focus from traditional accounting and control to value-added decision support and analysis. Finance organisations are having to improve efficiency by redirecting scarce resources from low value activities. This also improves service, speed, financial control and allows access to leading edge technology and processes.
 
To improve effectiveness, finance must partner with the business to drive shareholder value creation, improve scalability and responsiveness, move towards a more service-oriented culture and derive higher productivity from a smaller workforce.
 
These lead many to consider shared services to capture economies of scale and consolidate traditional transaction processing at lower overall costs. Those that are most successful in this endeavour do not focus solely on the cost savings potential. Rather, they think in broader terms and in the process, establish shared services that help them on their journey to high performance.
 
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Economies of Scale and Skill
Two primary sources of cost savings are reductions in administration headcount and management levels. Consolidated functions and processes eliminate redundancies and reduce the cost of transaction processing.
 
Companies can also gain additional savings by leveraging specialty skills such as legal, tax and environment/health/safety across the organisation. Doing this can increase the payoff over time by fostering a culture of continuous improvement.
 
A shared services structure can reduce the resources required for low-value activities while allowing finance to focus on strategic areas.
 
Infrastructure Costs
Shared services initiatives contribute to reductions in infrastructure costs such as technology, facilities and services. Typically, a shared service centre will be based in a lower cost location than the geographies serviced, thereby benefitting from wage arbitrage and other lower expenses.
 
The bulk of IT budgets on maintenance can be reduced substantially by eliminating less effective technologies through standardisation and consolidation. In addition, the shared services model can accelerate adoption of new technologies such as document imaging and recognition, as well as workflow solutions.
 
There is higher return on investment for the large volume of transactions processed in a shared service. Newer ERP systems increasingly integrate these technologies, allowing more efficient processes.
 
Supporting Growth Strategies
Changes in organisational structure and operating models are often necessitated by joint ventures, mergers and acquisitions. The cost of continuously adjusting and integrating new support organisations detracts substantially from the value realised by shareholders and ultimately impedes a company’s ability to execute its strategies effectively.
 
Shared services can provide new options to assimilate growth rapidly. By defining common business processes, data structures and technologies, the shared services organisation can help provide the necessary support for new acquisitions without reinventing those functions thereby improving scalability and responsiveness to the growth agenda of companies.
 
Playing the Role of Business Partner
Benefits are realised as shared services consolidates information across business units and geographic boundaries. As the focus changes from function to business process, the opportunity to achieve these potential benefits increases dramatically.
 
Additional benefits can be achieved through enabling technologies such as business intelligence tools to support a virtual close and self-service financial reporting.
 
With all these developments, shared services as a model is well-positioned to move up the value chain. There has been a clear trend of organisations that have migrated transactional processes as part of initial phase of activity, and subsequently increasing the scope to include analytical and certain judgment-based processes thereby enhancing the business partnering capability of shared services.
 
We are seeing many examples of organisations successfully gained the benefits described above. For example, the shared services initiative of a global chemical company played a key role in integrating acquired businesses into the group by deploying standard systems and processes. Additionally, an oil super major with local operations is expanding its shared services scope to higher value activities such as tax services.
 
It is clear that shared services, having mastered transaction processing, are becoming more involved in strategic decisions and indispensable to organisations wanting to achieve high-performance businesses.
 
About the Authors
Tan Joon Suan is Senior Manager and Esther The is Manager at Accenture Management Consulting.
 

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