| Navigating the maze of obstacles and making shared service centres work |
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| Marian Corcoran examines the evolving role of the finance director, and writes on how shared services can help in providing increased cost-efficiency. |
These are challenging but exciting times for shared services and finance directors in Ireland. The same forces that have created the new economy have given them the opportunity to assume new positions of leadership and the tools for improving the overall performance of their companies. These, among other issues, were discussed at the Accenture second annual Global Shared Services Conference in Dublin in June.
At first glance, the finance director might appear to be in a less than enviable position these days. Working in the tumultuous world of e-commerce, where the rules for business seem to change daily, finance directors must respond not only to external pressures that are redefining operating conditions and the finance function itself, but also to internal pressures to deliver more relevant and value-added services at higher speed. At the same time, finance executives must continue to maintain fiscal prudence, discipline and excellence.
Finance directors once focused their efforts on positioning their companies for long-term growth, basing their strategies on historical performance and strict performance measures. Today they must take on the additional responsibility of providing their companies with innovative models for managing fluctuating market shares, new revenue/cost streams and unanticipated performance management issues.
Yet despite all the upheaval, the finance director’s job has not changed in one critical respect. It is still defined by three core finance activities: governance, business-decision support and transaction processing. In their pursuit of excellence in these activities, today’s finance directors will be helped by new, web-enabled capabilities that provide an effective approach for managing the challenges and capitalising on the opportunities of e-commerce. Transaction processing has long been identified as an area suitable for shared services and despite the emphasis on new e-commerce strategies, some of the finance director’s more traditional concerns remain. Enterprise Resource Planning implementations have moved finance toward higher levels of efficiency. But the finance organisation still feels intense pressure to reduce the cost of processing transactions further.
Additional web-based tools will complement these efforts, in part by supporting ‘lights-out accounting,’ in which transactions are processed without costly human intervention. There is a managerial downside here for finance executives: This approach will require complex, seamless collaboration with the IT department, both inside the organisation and outside.
Companies can also reduce the costly internal administration of basic finance functions. One way to do this is through the automated process of time and expense reports. Time and expense processing is also a good candidate for outsourcing as a means to increased lower costs.
On another front, electronic bill presentment and payment can strengthen customer relationships and substantially reduce transaction costs by enabling customers to view and pay bills on the internet. Invoices are displayed either on the supplier’s website or via third party consolidators. The electronic bill presentment and payment can be used for both business-to-consumer and business-to-business transactions and it appears positioned for significant growth over the next few years. As acceptance grows, further benefits will be realised through collaboration on the investigation and resolution of invoice discrepancies.
If they are planned and managed properly, these kinds of activities have been successfully centralised in a shared service centre to deliver substantial benefits. The most obvious advantage is cost cutting through economies of scale - companies, which have set them up, have cut operating costs by between 25 and 40 per cent. The new approach also allows organisations to create ‘centres of excellence’ where skills and resources are pooled and processes refined to improve the service offered to internal customers.
With shared service centres, companies have the opportunity to improve the financial service they provide to the business, and that opportunity should not be lost in the drive for cost-efficiency. There is a danger of concentrating on cost-efficiency to the detriment of service. In shared services centres you get critical mass, which enables you to employ higher skill levels than in other decentralised smaller locations. More functions and higher skill sets enable you to achieve a higher service quality.
It’s essential to ensure that the service provided by the centre is better than it was before, and is seen to be better. In effect, you’re taking away from a local operation responsibility for provision of service, so you have to exceed the service expectations of the original provider.
In order to reap such benefits, organisations have to steer their way through a minefield of potential pitfalls. Setting up a shared service centre is a complex project and raises management, logistical and cultural issues.
Many organisations underestimate the size and complexity of such projects, which would typically take between one and three years, while a pan-European service centre for a large multinational could take up to five years to set up. The main challenge facing an organisation is its ability to manage ‘change’. Mistakes that can be made are that there isn’t adequate senior management buy-in and sponsorship; therefore the whole people aspects are not considered adequately which leads to internal resistance to change.
As pressure to automate the back end of the financial function grows, more and more companies are likely to take these risks to reap the benefits of economies of scale and improved services to internal customers thereby developing internal centres of excellence. As the service centres evolve, that leaves the companies free to concentrate on more critical areas of their business.
These are exciting and challenging times for the finance directors who want to leverage the value that new finance initiatives present. They can lower costs by applying new finance capabilities to the transaction-processing activities. They can become more effective leaders by introducing technology that will enable rapid decision making and implementation. The role of finance remains pivotal to the long-term success of all companies. The finance executives that survive and thrive will be those who recognise and pursue these innovative solutions. |
Marian Corcoran is a partner with Accenture.
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| Article appeared in the July 2001 issue.
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