How Innovative Technology Impacts the Shared Service Model
Delivering Value Added Shared Services
Service delivery within a shared accounting services framework must be customer-focused, cost-effective, efficient, and add value. Shared service programs must find ways to use technology to offer more sophisticated and accurate services at higher speed through innovative solutions that are repeatable, scalable, and dependable.
Routine processes have always been most suitable for inclusion in shared service centers (SSC), and so technological developments may have a number of impacts on the approach to shared service programs. Far from negating the need for shared services, technological developments may actually multiply the potential benefits in both efficiency and quality. So, while e-enabling an accounting process is not the exclusive preserve of the shared service environment, it can accelerate technology implementations and optimize accompanying efficiency savings.
Best-in-class companies that capitalize on technology enhancement opportunities will excel in both efficiency and value creation, while their more reactionary competitors regard advances in technology as a cost play, not as a business and information enabler. Focusing on leading-edge process and technology will enable SSCs to free up finance resources for initiatives that enhance business effectiveness. But technologically innovative SSCs do not just reduce costs; they improve management control and enhance business performance.
Improving Control
- Consistent, company-wide control frameworks and best practice procedures
- Simplified and manageable lines of control
- A single finance team focusing on supporting the corporate strategy
- Common information systems, master data, processes, and organization structures
- Production of information on a timely and reliable basis in a common format
Enhancing Performance
- Contributing to profits by stripping out unnecessary or duplicate costs
- Ability to leverage companywide data to enable improved decision-making
- A customer-focused organization with broad business acumen that provides an evolving service direct to business users
- Effective allocation and use of resources, increasing flexibility to business change, and growth through greater ability to absorb increased volumes
A Hub For E-Business Solutions
Combining the benefits of the shared service model with e-enabled technology can capitalize on the co-location of finance staff as a driver for innovative process change. SSCs have always had continuous improvement teams but the scale of the opportunity for process change is now much greater. The SSC can become the performance improvement hub of the organization, driving efficiency and increased quality not just in the finance function but also across the business. This can, in turn, bring a different culture to the back office and move the whole nature of shared services away from the transaction factory model.
Expanding the Scope for Adding Value
One of the key considerations in shared service design phases is the question of scope. Utilizing technology to streamline and automate processes and information flows allows the inclusion of activities further up the value chain. As more transaction activities are e-enabled, the SSC deals with only the exceptions in areas such as accounts payable and accounts receivable, and consequently has more time to become involved in value-added processes, such as planning and control and management reporting (Figure 1).
Virtual SSC
If a business can e-enable shared service process flows, does this eliminate the need to colocate accounting personnel in a physical group? Can technology be used to create a virtual SSC? Can technology deliver efficiency in back-office functions without the effort, expense, and disruption of a major relocation? It is an attractive concept: One of the major impacts on the organization of creating the SSC is the massive upheaval of staff. However, it is worth stepping back to look at three areas where the SSC can be expected to drive value and increase operational efficiency, and then consider whether creating a virtual SSC would achieve the same benefits.
Sharing Tools and Knowledge
The conventional shared service model, where people are physically colocated, offers economies of scale of a truly shared service. Customers have a single point of contact for accounting services and accounting resources across geographies and business units. The colocation of staff is a key driver to effective sharing of knowledge and can be used to foster a culture of innovation and best practice.
The development of a virtual model will require a different approach. If accounting resources remain within local units, then it will be difficult to drive economies of scale. In addition, the natural tendency for business units to contact their local team first, even if they are part of the virtual SSC, will not be eliminated. Similarly, the potential for sharing knowledge and best practices is reduced. Process improvements can take longer to implement and can result in local compromise and less-than-optimum solutions.
Creating a Service Culture
One of the key goals of the traditional shared service model is to transform the mindset of accounting personnel from simply executing accounting transactions to providing a quality accounting service, with specific targets and goals. Colocating accounting teams in an SSC can create a defined service culture that immediately shows tangible changes in the accounting environment. When specific finance activities have been eliminated through new e-enabled tools, service levels, and performance, measures must be updated to take these developments into account.
In a virtual model, the cultural change may be much more subtle, and the transition from transaction factory to accounting service provider will require a more focused approach. The change to service provision will be less obvious if there is no other tangible change in the day-to-day working environment. The expected cultural changes will have to be driven much harder through the implementation of a structured service management framework that is managed and measured across the accounting service functions, wherever they are located.
The Benefits of Relocating the Workforce
One of the tools by which to drive benefit from SSCs is the detailed analysis of finance activities in each business unit and relocation of specific activities to a new location; this leads to headcount reductions in local finance units. In addition, the colocation of accounting teams fosters an environment of teamwork and continuous improvement; job satisfaction is increased as people share ideas, suggest and implement improvements.
Local unit headcount reduction can be difficult, and there is always a risk of adding additional cost to the finance function by employing new staff at the SSC, without making the equivalent savings in the local units. However, with detailed analysis of activities and tasks, and strong sponsorship and support from human resources management, staff reductions will materialize.
The virtual model has advantages since there is no risk that staff located elsewhere will duplicate tasks. However, the dispersed nature of staff in a virtual environment fails to create the same catalyst for change and workforce reduction. It is when processing begins in a new location and is backed by detailed planning and a strong focus on overall cost and quality that overall headcount reductions can be maximized.
Size and Shape of the SSC Organization
The impact of technology on organizational structure and sizing must be clearly understood. Reductions in manual processing will facilitate smaller teams when migration to the SSC is complete. The size of potential savings will be difficult to estimate when a location change occurs simultaneously with the implementation of technical developments, as there will be a number of impacts on organizational sizing.
A detailed sizing exercise will need to be carried out as part of each migration to the SSC. This exercise should concentrate on the time and effort that is expended in each processing area in local units, and should assess what proportion will be eliminated through economies of scale in the SSC and via the implementation of specific technology tools. Against this, the impact of major organizational change must be built into sizing estimates, thereby planning for higher staffing during the major period of change.
Level of Required Skills
In addition to organization sizing considerations, the skills base of the SSC employees must be reviewed. A key step in shared service programs is the design of skills and competencies required to deliver service. It will be critical to understand the impact of innovative tools on transaction processing and therefore on the skills demanded of employees; processing will be much less manual than in the past, and a higher skills base will be required. The focus of training will need to change to meet the new skills base, and the culture of the SSC should encourage and reward innovation.
Interaction With Business Users in Developing End-to-End Processes
By e-enabling processes, automation is pushed into all parts of the company, not just the SSC. Although e-enabled solutions may be driven from within the shared service program, the project team must engage fully with business users to ensure that cutting-edge solutions meet their requirements and will deliver full benefits. A culture of innovation must exist in all employees, or e-enabled solutions will fail.
For example, if purchase invoice or order authorization is to be performed online, then those who are to perform the authorization must have access to a PC and must be trained in the use of all relevant applications. Again, the use of finance portals for month-end reporting means key managers must review all reports online rather than a printed copy of the monthly reporting pack. The scale of organizational and cultural change required may surprise companies. To make e-enabled solutions fully operational these issues must be addressed early in the SSC program.
Choice of Location Through E-Enablement
One of the key SSC project phases is site selection; many companies have taken considerable time to consider the location options for their shared service center. Factors considered during the site selection process include proximity to business functions, language skills, availability of skilled labor, and cost. E-enablement will allow companies to look more widely for appropriate locations as proximity to the business users and language skills become less significant.
Processing centers in India and Eastern Europe have recently grown. Several companies have seized the opportunity here and have been able to achieve major cost efficiencies in countries where employee costs can be as little as 20 to 30 percent of those in Europe and North America.
80/20 Rule Can Accelerate ROI
E-enabled solutions may take time to deliver full benefits since they require the involvement of third parties. The whole concept of self-service (e.g., online query by customer and vendor) requires a high degree of liaison with business partners. This can slow down full rollout of solutions dramatically, but use of the 80/20 rule will be key.
In most cases if the client can come to agreements with the top 20 percent of vendors and customers, then major benefits can be achieved. As such, some benefits will accrue soon after implementation, but there will be a longer stream of benefits as more vendors and customers start to utilize self-service tools. An understanding of the lead time to benefits must be taken into account when developing business cases for e-enabled SSCs.
Technology Enabled SSCs Can Be Key in Maintaining Rules-Based Applications and Master Data
Structured input data and common master data are prerequisites for some e-enabled tools to maximize efficiency. For example, e-procurement applications, a single vendor master file, and a single common chart of accounts are critical to ensure consistency and accuracy of the procure-to-pay process. This then allows accounts payable to be a seamless extension to procurement with automated matching and approval for payment.
Lack of common data sets would force the need for interfaces and translation tables that would add inefficiency to the end-to-end process. Maintaining master data in the SSC for all finance applications enables a single point of control and is a key driver of quality and consistency. SSC design should include master data maintenance as a key process area.
How Automation Cuts Out the Paperwork and Drives Down Costs
In the SSC, the sheer volume of paper (e.g., invoices, purchase orders, etc.) with the accompanying manual keying and reconciliation can increase costs. Automation achieves real savings and can enhance customer service. Some examples:
- Structured electronic documentation results in reduced manual keying.
- Reconciliation effort is reduced through single data source and automated update of ledgers.
- Information is disseminated online.
- Self-service account maintenance from customers/suppliers/employees.
- Storage/retrieval times and costs are cut.
Key Impacts of New Technologies on a Mature SSC
The shared service model has traditionally covered high frequency, paper-based, and low value-adding back-office processes, such as accounts payable and accounts receivable. As new technologies eliminate manual processing, SSCs will need to evolve to remain centers of accounting excellence and provide the high quality, low cost service for which they were implemented.
Reducing and Redeploying the Workforce
The impact on roles must be planned for as part of any technological enhancements. Within an existing SSC, roles may be made redundant, specifically in processes with high levels of manual processing. There are several effects of this:
- Staff can be redeployed to higher added value areas using their knowledge of the business to fill vacancies and avoid recruitment costs.
- Additional work through new customers or new processes may be absorbed without additional cost.
- Redundancies will enable cost reductions that can be passed back to customers.
Fostering a Culture of Innovation
The culture of the SSC may need to change to be more focused on developing and implementing more efficient ways of processing transactions. This may mean changing incentive and reward schemes, and could impact recruitment and training policy to ensure the culture is consistent with the increased level of automation and the shift away from highly manual processes.
Realigning Service Levels
Service levels will have to be realigned to ensure they keep pace with technology development in the SSC. Clearly, increased automation will allow the SSC to process more transactions and reduce errors. These advances should be reflected through agreed changes to service level agreements and, where appropriate, the financial management agreement.
Technological innovation will have a profound affect on a number of typical shared service activities. Taking the accounts payable function as an example, electronic invoicing and automated three-way matching of purchase order, goods receipt notice, and vendor invoice will ultimately eliminate the need for any manual intervention in the process. Areas where e-enabled tools can drive benefit in shared service models include:
- Procure-to-Pay – Document imaging and invoice approval workflow, e-procurement tools, automated three-way match, e-invoice capability, Web-based vendor self-service
- Travel and Expenses – E-time & expense applications
- Accounts Receivable – Customer self-service, electronic bill presentment and payment, e-enabled collections
- Record-to-Report – Web-based journal processing, e-reporting through finance portals, consolidation applications with Web capability
- Budgeting and Planning – E-planning and budgeting applications tools
Conclusion
There has been much comment and analysis over the last couple of years regarding the impact of technology on finance processes. The concept of shared services for back-office functions has been around for many years, but the shared service model united with technological innovation creates a powerful force for increasing operational efficiency and adding value to the organization while driving down costs.
The e-enablement of finance processes cuts across the whole shared service model. It builds upon all the concepts that make an SSC successful and enhances the model further using single, common processes, applications, and organization model as key building blocks. Finance organizations must understand and apply the latest thinking and best practices while, at the same time, balancing and maintaining stewardship of traditional finance and control. New business models and innovative technologies require greater levels of finance leadership to ensure long-term viability and success.
