BING Shared Services in an Age of Finance Transformation | BlackLine Magazine

Shared Services in an Age of Finance Transformation

Financial shared services have come a long way since they started gaining popularity in the 1990s. Seen as a way to leverage economies of scale for large organizations, shared services centers, or SSCs, made it possible to transfer basic accounting processes like accounts payable, payroll, and purchasing to offshore entities with lower cost structures.

In the decades that followed, SSCs proved their value, especially for global enterprises that could benefit from the consolidation of services and standardization of their transactional accounting practices.

Today, it is estimated that 80 percent of Fortune 500 companies have implemented some type of shared services model. But as they grow in maturity, it has also become clear that not all SSCs are alike, and many subpar examples may even do far less to boost efficiency than hoped.

In a recent report, The Hackett Group found that best-in-class shared services organizations drew 43 percent lower finance and accounting costs than their average-performing counterparts.

At a high level, the benefits of implementing a financial shared services model are compelling. They offer an ability to consolidate and standardize processes and a greater flexibility for adding new business units or expanding into new markets. They also free up an organization’s core F&A operation to concentrate more fully on adding strategic business value through financial analysis and planning.

Bob Hirth, chairman of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and a senior managing director of global consulting firm Protiviti, says that setting up or upgrading an SSC often gives the organization the option to bring in new technology – a new ERP system, for example – as part of the growth process.

“You might see a company using a new or upgraded SSC as an opportunity to move to a new ERP system or a new instance of an existing ERP system,” he says. But he also points out that there are significant challenges in upgrading or replacing older technology with new. “There’s always risk around the whole transformation activity. Will it be on time? On budget? Will it operate as planned?”

Shared Services Challenges

In fact, technology can be as much of a challenge as a reward in an upgraded SSC.

Consolidating six accounting groups into one might mean replacing six sets of controls with one new set, for instance. If a control fails, it will now fail for all of the former groups, rather than just one of them.

Also, a haphazard approach to upgrading technology might result in some combination of automated and manual processes, with accounting staff transferring ERP output into spreadsheets for review or tracking, and then back into the ERP system for more processing. The risks of error – of omissions, oversight or data inconsistencies – can pile up quickly.

Another challenge is visibility. Michael Shultz, Director of Finance Transformation for BlackLine says, “Whether they’re onshore or offshore, shared services organizations generally are not located where the core accounting teams are, so the core teams often don’t know what’s taking place at the shared services organization. Of course, they know what their duties are, but it might take the core team a few hours or a day to get a response to an email.”

Meanwhile, SSCs are constantly looking to improve their performance by adding new technology. Their goals are straightforward: to reduce transactional workloads, centralize and de-duplicate processes, create stronger controls, and improve visibility – for themselves as well as the core accounting teams – into their operating performance.

Turning these goals into reality is the challenge. Technology can be the solution, but only if it is implemented wisely. For instance, cloud technology has had a massive positive impact on SSCs by cutting implementation times and the risks of capital expenditures that went hand-in-hand with major automation projects. Automation itself has enabled organizations of all sizes to reduce the manual content of many F&A tasks.

But as valuable as they are, these advances are just a starting point according to Shultz. To achieve best-in-class status, a shared services organization embarking on a technology upgrade must consider two important axioms:

Automate processes, not just tasks. It does little good to automate some tasks but not others in an accounting process. Haphazard automation can create manual integration points between and within financial processes, and these can introduce risk of data errors, incomplete documentation and other dangers to a successful, on-time close. Instead, planners should take a big-picture, process-level view of any automation upgrade.

Measurement is key. Available today are tools that let SSC managers compare their group’s performance against industry peers. The best of these tools use benchmark KPIs derived from data supplied by real companies, actual industry peers, which is anonymized and then made available for analysis and comparison. Measurement not only shows how to continuously improve processes; it provides a credible vehicle for demonstrating results to stakeholders, and helps SSC management construct meaningful service level agreements, or SLAs, for their business-unit customers.

The Future Is… Cyber?

Shared services organizations will always be striving to drive up utility, drive down costs, and deliver better economies of scale than they did the year before – and the year before that.

That is no small order when you consider the ever-growing mountains of finance data that require processing, the ever-higher expectations for shorter and more accurate financial closings, and the inevitability of tightening budgetary constraints.

Business will continue to look to technology for help, and it is likely that new technologies will, in fact, deliver. An example of what is possible and increasingly available comes from the technology known as robotic process automation, or RPA.

RPA is more than just “automation.” It applies machine-learning techniques to take on higher-level decision-making that is required in transaction-processing and controls-monitoring processes.

Today, for instance, RPA is used in some F&A products for exception handling. If an outcome exceeds a threshold, RPA software can determine if the exception warrants a remediation workflow. If it does, RPA will start the workflow automatically. This can happen in a fraction of a second, rather than the minutes or hour it might take for human intervention.

For a large organization with hundreds of controls to monitor every month – or in a Continuous Accounting application, every week or every day – the savings, in time as well as labor cost, can be substantial.

RPA’s eventual impact on SSCs could be substantial as well. RPA will continue to learn as it goes, so it will be appropriate for making higher and higher-level decisions.  A look into the theoretical crystal ball shows what is possible: cyber-sourcing, where the SCC becomes increasingly virtual and less constrained by geography.

Of course, some things will never change – death, taxes, and the fact that finance will always be tasked with keeping the books, generating analysis, and adding value to the business. How it goes about these duties will be open to change, and eager for improvement, into the foreseeable future.