02 006.13 finding a suitable form of financial shared services


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02 006.13 finding a suitable form of financial shared services

  1. 1. Client LogoFinding a suitable form ofFinancial Shared ServicesAccelerate the decision-making process of sharing financial services
  2. 2. 1IntroductionCertain organizations have set up a shared service center years agobut have reversed their decision. Some other organizations nevereven started. The decision-making regarding the set up of a sharedservice center suffers very often from irresolution which can last forlong times. It sometimes takes organizations even ten years to de-cide whether or not to move certain (generic) services into a sharedservice center. Opposite interests, repeatedly starting with makingplans and then stop without generating concrete results are regularobservations when analyzing the SSC implementation decision-making process. Hence, the decision to set up a shared servicecenter is often controversial and not warmly welcomed. The hesitantfeelings are not only expressed by the employees that experiencethe largest impact of the change or where a shift of power will occurbut these feelings also originate from potential ‘clients’ who fore-see administrative difficulties and/or lower quality of the servicesprovided. This is quite surprising as sharing services should lead tomore efficiency and should make the organization more decisive.The reason for the complicated process is usually twofold. First ofall, not all stakeholders are convinced by the solution. This is be-cause a full-fledged shared service center can be a risky and costlyundertaking. Many stakeholders have the negative perception that‘their’ management information will no longer be produced undertheir responsibility and control leading to possible consequencesfor the quality and transparency of these figures. Politics are impor-tant in this respect. However, there are also other concerns such asthe fact that a smaller financial organization makes it more difficultto establish good training and development opportunities for finan-cial employees. Secondly, the arguments put forward in favor of aSSC are often not clear nor convincing. Cost reduction is usuallyused as the main argument for a SCC, but it is commonly knownthat every business case, also for a SSC, is based on assumptions.It is therefore often the case that the expected cost reductions arepresented to be much larger than can realistically be defended. Inaddition, there are often other reasons which are not communicatedor only to a limited extent. Arguments such as improved businesssupport support for mergers and acquisitions or strengthening the‘one company’ ideas are also important but less tangible. Managerswonder what the SSC will actually yield to the entire organizationand what it will specifically yield to him or her.Our experience shows that (especially in the early stages) clear pro-ponents and opponents can be identified; a clear view of ‘yes’ or ‘no’exists. There are however multiple forms of shared services and thearguments should not only focus on cost reduction.IntroductionFinancial Shared Service Centers(FSCCs) are widely known, but theyare certainly not uncontroversial.The decision-making process priorto the implementation of a SSC istypically very slow. Why are organi-zations not able to take such deci-sions faster? Capgemini Consultingargues, based on experience, thatit is not a black and white issueof whether or not to choose for aSSC since there are many forms of‘sharing financial services’. Costsavings are also no longer the pri-mary reason for the implementa-tion of shared services. By gaininginsight in the true SSC objectivesand by determining a suitable formfor sharing, the decision-makingprocess will be accelerated and thechances of a successful implemen-tation will increase.
  3. 3. 2The arguments to set up (a form of) a shared service center caneasily be divided into three categories. First of all, the most obvi-ous argument is the cost reduction argument. Secondly, there is theargument of improving the quality of the financial function. The thirdcategory of arguments relate to specific aspects of the organiza-tion’s strategy. The cost reduction argument, or improved efficiency,is the most tangible argument. The value drivers are standardizationof processes and systems or reduction of complexity, increasing thescale by centralization and the shift of activities to locations withlower (wage) costs.The argument of improving the quality of the services of the finan-cial function is twofold. On the one hand it concerns improving thequality of the services that will be performed by the SSC. On theother hand it consists of improving the quality of the services thatremain with the business units. It is generally difficult to obtainconcrete insight in the last mentioned argument, but it should notbe under-estimated as a motive. The rationale behind this motiveis that improvement of business partnering will occur as financialmanagers will no longer need to spend much attention to the gen-eration of management information. Such processes require in manyinstances quite some attention from management due to strictgroup deadlines in the short term. Since the more operational tasksare shifted to the SSC, it is possible for the management of the corebusiness activities to concentrate more on adding value to the busi-ness. The underlying drivers for quality improvement of the servicesthat will be organized in a SSC are the increased scale and levelof standardization - equal to cost reduction - which increases thespeed of e.g. period closing and makes it easier to comply with lawsand regulations.Finally, we have observed other reasons which are related to spe-cific aspects of the corporate strategy. We have seen for examplean organization with strong growth ambitions that has taken thisaspect into account in the decision-making for the set up of a sharedservice organization. The reasoning of the organization behindthis decision was that an organizational structure including a SSCwould make it easier to integrate acquired companies in the future.Another organization that consists of several business units feltthe need to increase the internal cooperation between its BUs tobe able to beat the competition. This is however very difficult in aculture where managers strongly try to protect their own business.Enhanced cooperation within the organization’s finance functionmust strengthen the ‘one company’ idea.The added valueCaseCapgemini Consulting supported abusiness services company by under-standing how various country enti-ties could share F&A activities. Thisbusiness services company is highlydecentralized with country manage-ment autonomously managing allactivities including IT systems andprocesses. This has led to a frag-mented process and technology land-scape. Since the technology neededmodernization in each country it madesense to share deployment costs.However, the business services com-pany company did not know how todo this.Capgemini Consulting supported thebusiness services company by iden-tifying the sharing options which havevarious levels of sharing. A commonF&A model was used to understandthe F&A activities in the major coun-tries so that the level of sharing couldbe chosen. Capgemini Consultingalso analyzed the technology andcosts impact of the transformationprograms that would lead to thesesharing options. The results of theapproach by Capgemini Consultingcreated insight for the business ser-vices company in their possibilitiesof sharing F&A activities within theircompany and what these optionswould cost them. In addition, thebusiness services company gainedinsight in which activities it would notshare in their journey towards simplic-ity and standardized F&A activities.
  4. 4. 3Next to obtaining a better insight in the advantages, it is equallyimportant to gain insight in the disadvantages; the costs-or missedbenefits - and risks. Of course this starts with the usual elementsof a business case such as (one-off) implementation costs and run/recurring costs. Other aspects also need to be taken into account,such as the impact on employees, HR policies (inflow, outflow,throughput), flexibility, workload and uncertainty during the transi-tional period or the relationship with external stakeholders.A clear overview of the benefitsTo accelerate the decision-making process within your organization,it is helpful to use the Benefits Logic®method. A Benefits Logic®isa schematic cause-effect diagram within which the elements of thesolution are linked to the objectives of the organization. This wayinsight is created in which value drivers really do create value forthe organization. It is also an excellent test whether the solutioncontributes to the objectives.A clear overview of the benefitsFigure 1Generic simplified Benefits Logic®for sharing financial services. This should be tailored to the organization anda specific scenarioDecrease costsReplace employeeswith employees withlower wagesConsolidate activities/enhance scaleRemove doublingsin the process &systemsReduce compliancerisks/confinecompliance effortImplementingShared ServiceCenter(s)Standardize andoptimize processes& systemsGlobal process model& systemsFast support withmergers &acquisitionsEnhance speedStrengthen businessknowledge & clientintimacyEnhance knowledge& competencesemployeesIncrease qualityof BusinesspartneringShift of activities(offshore)Centralizing activities Increase cash flows/business performanceSolution Value drivers Objectives
  5. 5. 4Forms of shared servicesThe common perception is that a shared service center needs to beaddressed as a large project, often including thoughts on outsourc-ing and/or offshoring to a low-wage country. This is certainly an op-tion but there are also more less-impact options possible. The scopecan be defined in several ways and along several dimensions. In thisrespect we distinguish between resources, processes, applicationsand hardware or facilities. In parallel, a make-or-buy decision needsto be made. When the concept ‘Shared Service Center’ is addressedthen it usually covers the complete set of these dimensions. However,there are various possible forms of ’sharing services’ which can bevery effective depending on the objectives.‘Sharing’ services generally starts with a joint IT setup: infrastruc-ture, software and applications. Infrastructure, including (system)software is a product managed by the IT department and offered tothe finance function which is of less business interest to the financefunction. In terms of selecting and implementing the businessapplications it is however of great importance that the financedepartment is adequately involved. The financial application land-scape generally consists of a number of different applications withdifferent functionalities. Some systems are of a local nature, where-as other systems can be ‘shared’. An integrated global organizationwould have a single, centralized ERP system which is supported bya number of specialized systems. It will be difficult to completelyavoid the use of several local systems or interfaces, think for exampleof an application that supports the local tax submission or an appli-cation which is needed to support a local payment. It is important torealize that although many organizations have one financial systemin name, practice shows that several local installations exist whichare managed on a local level as well. Organizations with a decentral-ized structure without a common platform generally start with thedevelopment of a platform for the larger regions or countries. Theplatform is also available for smaller regions or countries but this isnot (yet) obligatory.The next dimension concerns the processes. The development andthe implementation of a global model create a common language.The processes can to some extent not be seen separately from theglobal system. A shared system will determine the activities in acertain process to a great extent, but not all steps in the processwill be covered. This is especially the case when local laws andregulations require a different way of working. In addition, devia-tions to the standard way of working are also possible due to thenature of the type of business involved; a business unit with a fewlarge customers will - on a lower process level - have a different setup of the Accounts Receivables process than a business unit whichis focused on small and medium enterprises or individuals.The availability of global processes and systems are relatively harm-less forms of ‘sharing’. As soon as organizational changes lead to asituation in which services are offered from one specific organiza-tional unit, then the level of sharing increases substantially. Such a
  6. 6. 5Forms of shared servicesstructure is called a shared service organization. The shared ser-vice organization will be set up on a global level and the employeeswithin the organization do no longer report hierarchically to localorganizations or business. For many years the scope of the sharedservice organization activities was strictly limited to transactionalprocesses. Nowadays more and more control-related activities arealso shifted to shared service organizations. Activities concerning‘business partnering’ /strategic decision making remain within thelocal and/or business organization.A shared service organization does not necessarily imply that thefinancial employees are physically located together. However, if thisis the case then it is referred to as a shared service center. This isthe final dimension: one joint location with shared facilities. Ashared service organization can consist of several shared servicecenters, located across the globe. Also all operational finance back-office processes can be completely centralized within one world-wide location in a low-wage country. Activities which require directcontact with clients and suppliers can be organized within regionalservice centers.Figure 2The various dimensions to determine the scope of the shared servicesGlobalLocalInfrastructure /ApplicationsOne IT platformand systemlandscapeLocal infrastructureand systemsGlobal IT systemsavailable but notobligatoryProcessesWorldwidestandarizedprocessesLocal processes(differentiated)Worldwideprocesses definedbut not mandatoryOrganizationOne SharedServiceorganizationLocal financeorganizationsShared ServiceOrganization pere.g. Business UnitLocation/FacilitiesOne ServiceCenterlocationFinancialemployees onlocal officesRegional ServiceCenter locations
  7. 7. 6The different dimensions are the building blocks of a growth modelwith a logical order to start building from left to right. However, thisis not the only way and not by definition the best way for your orga-nization. Since not all combinations are logical for every case it isnecessary to asses all combinations using good sense. For eachdimension a ‘sharing factor’ can be determined. It is perfectly pos-sible that one shared service center, which is part of a shared ser-vice organization, is supported by means of various different sys-tems and that the organization can execute various process steps.Employees can also work at different locations, but can still be partof one shared service organization. The reasons for multiple loca-tions include that the organization prefers to have an employee lo-cated near the business, when it is necessary to physically deal withgovernmental organizations or when it is beneficial to have someonepresent who can speak the local language or has knowledge of spe-cific local requirements.The same reasoning can be followed for outsourcing services.‘Big Bang’ outsourcing is rare, it is perfectly possible to outsourceparts of service processes instead of the complete scope of a ser-vice center. Again it is possible to use the dimensions for guidance;the (partial) outsourcing of IT infrastructure or applications or theoutsourcing of specific processes or activities. Depending on thebenefits, costs and risks one or more external service parties canbe selected.To summarize, what does ‘the solution’ really mean? What does theimplementation of a Shared Service Center entail? The answer willnot always be a high-impact one. When considering the benefits, us-ing the objectives, and the risks it is possible that the standardiza-tion of IT and processes is sufficient for some organizations andthat the set up of a complete shared service center is unnecessary.
  8. 8. 7Roadmap to determine the appropriateform for the partsRoadmap to determine the appropriate form for the partsWhether your organization does or does not have a shared servicecenter, whether it shares the financial services to more or less ex-tent, it is recommended to assess the scope from time to time. Themotivation for this can be a cost reduction program or a changed orenhanced strategic direction of the company.For a good decision-making process to reach a realistic and appro-priate form of sharing services, without making it last for severalyears, it is necessary to move along several defined steps. Be surethat the decision is made on the appropriate level in the organizationat all times: every step needs to be finalized with full support fromthe owner and the sponsor. A project will face substantial delays inthe case that the owner or sponsor indicates that he prefers a notyet assessed alternative during the final stages of implementation.Step 1: What do we want to achieve?Determine the objectives of the program with all relevant stake-holders, not only the cost reduction objective - or the businesscase - but all objectives, also the qualitative objectives. Take ac-count of the differences in the objectives between stakeholders.It is crucial to pay considerable attention to the advantages of theshared service organization for the business or local finance depart-ments to achieve a flexible transition process. The objectives needto be aligned with all stakeholders. The process can be acceleratedby creating a joint Benefits Logic®with all the different groups orrepresentatives.Step 2: What are the alternatives?Determine the different options for sharing services in your organi-zation based on the dimensions as presented in figure 2. Combiningthe possibilities for each dimension may lead to many possibilitiesbut only a few combinations are relevant for your organization, tak-ing your baseline into account. The alternatives can be prioritizedranging from low impact and benefits to high impact and benefits.Refer to the example of several generic alternatives in figure 3. Theoverview gives guidance for further discussion. From the ‘long list’about two to three most appropriate scenarios need to be chosen tobe further elaborated upon. These options need to be aligned withthe key stakeholders.
  9. 9. 8Figure 3Example of sharing scenarios for an organizationBenefitsImpactShared Service Center foraccounting & control activitieswith SLAs on offshore locationShared Service organization foraccounting processes withlocally settled employeesMandatory application of globalprocesses with only exceptionwith respect to complianceA global process model tillprocess level 3 with localinterpretationA global financial systemmanaged by IT (mandatoryor voluntary use)Financial system managedby the IT organizationconfigured by unit/countryShared ServicesOutsourcingShared Way ofWorkingShared infra-structure & ITsolutionStep 3: Further elaboration of the short list alternativesThe short list alternatives should be further developed to determineto what realistic extent the services can be shared. A closer analy-sis of the scenarios is particularly relevant for the processes and ITdimensions.The processes must be based on a standard (global) process model.In case a process model does not exist within the organization astandard process model can be used as a starting point (and canpotentially be linked to your ERP system). This needs to be alignedwith the activity flows and the terminology used in the organization.The global process model represents the ‘To-Be’ situation towardswhich all units must ideally migrate in the future. It is no longer use-ful to extensively describe the processes of the ‘As-Is’ situation asit adds little value to the organization. During the transition it needs
  10. 10. 9to be monitored carefully which aspects of the global process modelmust be adjusted to comply with local laws and regulations. Withinthe central, global organization this aspect must be viewed criticallysince the local organizations very often argue why their situation isunique and hence exceptions should be made (process, local re-sourcing, etc).The division of processes can be determined based on four criteria:1. Complexity: the more complex a process, the better it is for a pro-cess to be executed within a Center of Expertise.2. The relationship with core business: the higher the strategic rele-vance of a process, the greater the chance that it will be executedclose to home (in-house).3. The local impact: the higher the local impact, the greater thechance that activities will be executed in a country instead of in acentral hub.4. The critical mass: the higher the volumes and the potential ofstandardization, the easier it is to achieve economies of scale bymeans of shared services.Figure 4Criteria for determining the extent to which processes can be sharedHigh impact localLow complexity High strategicrelevanceLocalLocalLocal LocalComplexityThe higher the complexitywithin a process, the betterit is to have the processexecuted within aCenter of Expertise.Relation withcore businessThe higher the strategicrelevance of a processthe better it is to executethem close to home(in-house).Local impact.The higher the local impact,the better it is to have theactivities executed in onecountry instead of acentral hub.Critical massThe higher the volumesand the potential ofstandardization, theeasier it is to achieveeconomies of scale bymeans of shared services.LowstrategicrelevanceLowimpact localGlobalHighcomplexityHigh volumeand potentialof advantagesof scaleLow volume andpotential of advan-tages of scale
  11. 11. 10The criteria can also be applied on a deeper process level, sub pro-cess level (level 3). By assessing each sub process using the criteria,insight can be obtained to what extent services can be shared, the“common denominator”, within the organization. The results canbe assessed using best practices. Figure 5 shows an example of anoutcome. By representing the processes based on the time spent oneach process an even better picture of the total work load to be di-vided can be obtained. Nonetheless, the number of processes givesa good first indication.For the IT dimension it is however, in contrast to the businessprocesses, important to create an overview of the current (As-Is)situation. For this purpose, the current system landscape, includ-ing functionalities which are connected to the processes, interfacesand hardware, is mapped. After this mapping it can be assessedwhich local systems, or functionalities, could be replaced by aglobal variant.Step 4: How does the transformation look like?To (be able to) make a good decision, it is not only necessary to beable to establish a clear view on the future situation, but also on theway to get there. A solution may in itself carry many advantages butif the benefits of the solution do not outweigh the (implementation)impact on the organization then the chance of a positive decisionconcerning the solution is small. Many disadvantages, or objections,stem from a transformation process. That is why it is important todetermine a high level implementation roadmap for all short-listedalternatives. There is no need for a detailed roadmap yet but theroadmap should provide sufficient insight to make a realistic esti-mation of the costs, risks and expected duration of the transforma-tion program.Figure 5Example of the number of processes that can be sharedNumber of level 3shared processesNumber of level 3local processesAccountsPayableTaxAccountsReceivablesRecordto ReportTreasury48 40 35 16 1021 5 9 10 2
  12. 12. 11Based on these parameters it is possible to decide on whether thetransformation will be executed by means of a two or a three phaseapproach. This simplifies the decision-making and limits the risksand the initial investment. It is preferable to implement the changestepwise to make sure that the change actually occurs instead of a‘big bang’ implementation which will never actually happen or whichis already outdated or irrelevant at the moment the implementa-tion finally gets its kick-off. Many organizations want too much toofast, are strongly thinking of outsourcing and want their SSC to befully operational too soon. This leads to a situation in which sup-port for change will not exist at all or in which the support quicklydisappears.Step 5: The decision-makingFinally, it is time for a widely supported decision concerning the di-rection to be set. It starts with listing the advantages and disadvan-tages and of course the creation of a business case, based on thedefined Benefits Logic®and the expected (project and run) costs.Be consciously aware of how and to what extent the solution alter-natives can contribute to the agreed objectives. After that it is up tothe project team, or the persons responsible for the preparation, tomake sure that a decision is made by people on the right level in theorganization.This gives the starting signal for further planning of the project witha detailed roadmap, further development of the solution, determina-tion of the most appropriate transition strategy, possibly approach-ing potential partners, etc.Once there is a widely supported choice and once the implementa-tion process has started, it is important to keep focus on the re-alization of the proposed objectives. Naturally, the world changesconstantly and forms of counteraction and/or setbacks will alwaysoccur within a change program. Moreover, a critical re-assessmentis recommended from time to time, but as long is the intendedobjectives remain in line with the company strategy and the realiza-tion of the objectives is not threatened significantly, perseverance isnecessary.
  13. 13. 12The set-up of a shared service center is a much debated topic andsuffers in many instances from slow decision-making. Clear insightsin the real objectives, for all stakeholders, is a necessary prerequisitefor a good decision-making process. Attention must be paid to thecomplete set of objectives and must not be limited to the often usedcost reduction objective. To further simplify the decision-making pro-cess, and thus to accelerate it, it is recommended that the organiza-tion not only focuses on a full-fledged - possibly outsourced - sharedservice solution but that it discusses what the possible alternativesexactly mean to the organization and which form of ‘sharing’ in whichtimeframe is appropriate for the organization. The discussed roadmapprovides guidance to reach a clear and realistic scope and ambition.Move towards a successful SSC!Conclusion
  14. 14. IN/02-006.13©shutterstock.comFor more information, pleasecontact:Ir. Liesbeth Bout RCPrincipal ConsultantTel: +31 6 1503 0372liesbeth.bout@capgemini.comMark Slomp MSc.Senior ConsultantTel: +31 6 1503 0155mark.slomp@capgemini.comSuzanne Overwater MSc.ConsultantTel: +31 6 5123 9122suzanne.overwater@capgemini.com
  15. 15. Capgemini ConsultingPO Box 2575 - 3500 GN UtrechtThe NetherlandsTel. +31 30 689 18 50www.nl.capgemini-consulting.com2013 Capgemini. All rights reserved. Rightshore®is a registered trademark belonging to Capgemini.Capgemini Consulting is the strategy and transformation consulting brand of Capgemini GroupAbout Capgemini®®With around 120,000 people in 40countries, Capgemini is one of the world’sforemost providers of consulting,technology and outsourcing services. TheGroup reported 2011 global revenues ofEUR 9.7 billion. Together with its clients,Capgemini creates and delivers businessand technology solutions that fit theirneeds and drive the results they want. Adeeply multicultural organization,Capgemini has developed its own way ofworking, the Collaborative BusinessExperienceTM, and draws on Rightshore®,its worldwide delivery model.Rightshore®is een handelsmerk van CapgeminiCapgemini Consulting is the globalstrategy and transformation consultingorganization of the Capgemini Group,specializing in advising and supportingenterprises in significant transformation,from innovative strategy to execution andwith an unstinting focus on results. Withthe new digital economy creatingsignificant disruptions and opportunities,our global team of over 3,600 talentedindividuals work with leading companiesand governments to master DigitalTransformation, drawing on ourunderstanding of the digital economy andour leadership in business transformationand organizational change.For more information:www.nl.capgemini-consulting.com