The Case for Shared Services

Accomplishing more with fewer resources in accounts payable and accounts receivable is at the forefront of every companies agenda. Companies are continually looking for ways to decrease costs while increasing quality, efficiency and visibility. One proven method to accomplish this goal is through the implementation of a SSC. The optimization of administrative and back-office functions in AP and AR through the creation of a SSC is an effective tool that works to increase quality, efficiency, regulatory compliance and visibility. Many finance processes, such as payables and receivables management, expense reporting and payroll are natural candidates for SSC implementation for several reasons:

»» They are highly labor-intensive. Functions that make good candidates for SSC implementation are characterized by high repetition rates, skills specialization, and labor intensiveness. »» They have standardized workflows and tasks that can be segregated along the business process. They also have repeating points when data must be synchronized. »» They have the opportunity to benefit from large economies of scale and can operate more cost effectively.   While consolidating back-office processes is an important first step in the creation of a successful shared service model, it is certainly not the only step. A true shared services model shares responsibility for process excellence, service excellence, best practices, and provides additional value-added capabilities to improve overall effectiveness, management visibility and control and enhance overall process quality in operations. That’s a big definition to swallow, but when implemented successfully, a true shared service center can work to unlock tremendous potential in both AP and AR. The overall goal of a SSC is to leverage the resources of a company to create optimal value for customers and other key stakeholders.   While the majority (66 percent) of PayStream survey respondents report that their AP departments are centralized, 33 percent report they are only partly centralized or decentralized, see Figure 1. One third of survey respondents don’t have the foundation necessary to implement a shared service center, the foundation being consolidating and standardizing processes. Decentralized AP processes where invoices are received, approved and paid at different locations rather than centrally is not only the opposite of a shared service foundation, but it is inefficient and prone to errors and discrepancies.   Financial process success lies not in simply consolidating AP and/or AR services, but automating them. Shared services implementation is business process automation. This is certainly not a new concept; however, advances in financial automation technology such as more scalable ERP systems, workflows, scanning technologies, electronic data sharing technologies, and software-as-a-service models are now helping companies automate manual, time consuming tasks and improve overall efficiency. The economics behind financial process automation are much more compelling and impactful when implemented only once in a shared services environment, as opposed to having multiple instances serving broader user bases in diverse organizations.   FIGURE 1: NATURE OF AP DEPARTMENTS     Companies that have been operating in a shared service center environment taut numerous advantages. Historically, SSC have been known for their cost saving benefits, so it comes as no surprise that lower processing costs ranked as the top SSC benefit (66 percent). Survey analysis shows that companies are operating a SSC to achieve additional benefits such as employee productivity (44 percent) and fewer lost invoices (23 percent). A substantial number of survey respondents also reported improved visibility (19 percent) and quicker approval of invoices (19 percent) as benefits, see Figure 2.   While shared service center adoption has increased, survey results reveal that there’s still a long way to go. Fifty-three percent of respondents reported that they have a shared service center, while 26 percent reported they do not have a SSC and have no plans to have one. The remaining 21 percent report they are planning to implement a shared service center in the future, see Figure 3. Of those planning to have a shared service center, 20 percent report they plan to have a SSC in one to six months and the majority (80 percent) report they plan to implement a SSC in six to 12 months.   FIGURE 2: BENEFITS ACHIEVED BY A SHARED SERVICES CENTER     Aside from the benefits listed in Figure 2, additional SSC benefits include:   »» Align accounting services with business strategy »» Improved supplier relationships due to on-time payments »» Leverage state-of-the-art technology »» Eliminate non-value added activities »» Improve/re-design back office process »» Centralize routine transaction processing »» Standardize processes across operating cities, states, and countries »» Obtain consistent information and increase visibility across sites »» Free up capital for core business operations »» Accelerate and renew processes such as cash collection »» Facilitated ERP optimization »» Free staff to focus on strategic objectives   FIGURE 3: SHARED SERVICES CENTER PENETRATION     The belief that current processes work (61 percent) ranks as the primary reason why 26 percent of survey respondents have no plans to implement a SSC. A small percentage (11 percent) report they do not think there will be an ROI and an even smaller (8 percent) have no plans to implement a SSC due to lack of budget, see Figure 4.   FIGURE 4: REASONS YOUR ORGANIZATION HAS NO PLANS TO IMPLEMENT A SHARED SERVICE CENTER       Of the 21 percent of respondents planning to have a SSC over the next year, the number one goal in doing so is standardized service (37 percent). Lower administration costs came in a close second at 35 percent. Surprisingly, 23 percent of respondents reported their number one goal in establishing a SSC is that it’s part of their overall corporate strategy. This demonstrates a shift in what is happening in the SSC industry – companies are now witnessing both the short term cost cutting benefits, as well as the long term benefits of SSC. These long-term benefits contribute to a company’s overall strategic objective such as improved, streamlined processes that can drive bigger profits over the long-term.   FIGURE 5: NUMBER ONE GOAL IN ESTABLISHING A SHARED SERVICE CENTER