Implications of a shared service model

Implications of a shared service model

Introduction of a shared service initiative, will only be successful if the organisation's key asset - its people - fully understand, believe, embrace and buy into the change.

Financial Shared Service models (FSS) can deliver greater benefits than traditional siloed financial operations in organisations of scale. Gartner suggests organisations can expect to reduce the total cost of their financial function by between 25 percent and 35 percent by leveraging economies of scale, reduction in labour costs and reduced compliance costs – all whilst improving service quality and overall governance. Although the benefits are easy to understand, there are a number of other critical factors organisations need to consider before embarking on a shared services journey.

Alignment to a single finance solution

Organisations that enjoy the biggest benefits from an FSS initiative use a single-instance finance solution. This approach maybe difficult to achieve for organisations with multiple instances or multiple vendor solutions, in which case centralising finance functions and standardising processes should be achieved first before undertaking system consolidation - ‘transition then transform’.

Additionally, organisations need to consider the transition approach they use when implementing a FSS solution. The ’big bang‘ method may not be ideal for every organisation, and consideration needs to be given to staff and customers impacted by the change. Most organisaitons take a less drastic approach by adopting a staged roll out by region (or business unit). This has the benefit of ensuring each region is provided the maximum focus during the transition, as well as helping to bridge any organisational change barriers, through a carefully controlled journey. In addition, the organisation benefits from the progressive learnings that each transition provides.

Ensure the shared service model is right for your organisation

The benefits of implementing a FSS model are compelling at a conceptual level, but may not be appropriate for every organisation. Before investigating FSS opportunities, organisations need to consider the complexity of the political and cultural environment - and IT system challenges that are entrenched within the organisation. Embarking on a wider shared service model without addressing these aspects introduces the risk of failure during the transiton process.

Align and prioritise standard regional processes

Standardising processes is essential to maximise the benefit realisation from an FSS implementation. Tomorrow's experience reveals that focusing on end-to-end business processes is the most efficient approach to streamlining transactional type processes. Specific customer-facing processes, such as receiving payments from customers, may need to be considered in conjunction with regional customer requirements and needs.

Create a standard organisational chart of accounts

Once a FSS operating model has been agreed, the next step is to ensure that regional finance managers define a global, standardised chart of accounts. This not only includes the account segment, but also the other elements within the accounting codes, and how these are to be used. Some organisations have used a pilot approach and have created a chart of accounts based on the pilot region’s requirements. This approach tends to be sub-optimal in the longer term especially when other regions needs are not considered up front.

Be prepared to move regional finance teams

Once centralised, organisations must resist the tendency to leave a few financial team members (sometimes referred to as “comfort staff”) in the region post the FSS rollout. Regional centres will be able to gain higher levels of support and greater efficiency through leveraging skilled resources within the shared service centre.

Automation of the work effort, streamlined processes and better reporting will free up shared service resources to focus on value-adding activities. Efficient utilisation of this additional time, and creating an operating model that includes delivery of these value-add services, will ensure support by the service center is able to be exploited by regional business units.

Organisational change management

Introduction of a significant change, such as a shared service initiative, will only be successful if the organisation’s key asset – their people - fully understand, believe, embrace and buy into the change. This must be led “from the top” and supported by a robust organisational change management strategy.

A recent Global Shared Services Survey by Deloitte (2011) highlights that communication and culture were the two biggest factors underestimated while undertaking a Shared Service implementation.

Additionally 59 percent of the surveyed respondents agreed that increasing the change management approach would have improved their implementation programme.

Introducing a FSS model is a big decision for every organisation as it will significantly impact the organisational culture and affect both internal and external stakeholders. Ensuring strong CEO and CFO commitment and due consideration of all influencing factors before embarking on this endeavour will help ensure the best outcomes are achieved for your people, your organisation and your customers.

Philip Venables is principal consultant of New Zealand business consultancy firm Tomorrow.

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