Shared Service Centres; benefits, risks, why and when

While it might be relatively straightforward to make the strategic decision to create a SSC, actually creating one is a different matter.

Shared Service Centres (SSCs) are one of the key ways forward for large corporations with geographically widespread and diverse businesses. Shared services are a formal method of internal outsourcing where a function – such as accounting – is re-engineered and standardised. SSCs allow business processes to be brought together in a single location to support multiple business entities on a customer-supplier basis. While it might be relatively straightforward to make the strategic decision to create a SSC, actually creating one is a different matter.


Listen now:


Hi, I'm Peter Williams, I'm a financial journalist, joining me is Peter Charles.

PETER W: Peter, you spend a lot of time working with major corporations on their Shared Service Centres. What's the issues that worry CFO's about SSC's.

PETER C: When they're working on shared services, CFO's are concerned primarily about bringing down the cost of the finance function. In other arenas they have other concerns, but particularly on shared services that's the primary cause for CFO's being interested in financial shared services.�

PETER W: Is it all about cost?� Is it all about driving down cost?� Finding that new project that will just take down the cost a little bit further?

PETER C: I think that the battle that goes on here is that for the CFO they go into it for lots of reasons.� For the people who have to operate the shared service, they know and people who work in shared services a lot know that something that's done right first time is much cheaper to do and much quicker to do and therefore less costly than it is to get it wrong and have to clear it up. Because the CFO goes into the exercise primarily concerned about getting the cost down, what often happens is that the expected cost profile, the expected cost reduction profile of the shared service runs ahead of what is actually capable of being done and keep a quality job, and in the end that's the point at which people call me is when the shared service has got itself in a muddle because they've pushed too hard at cost, instead of looking at the other aspects.

PETER W: OK, so who tends to bring you in? Is it the CFO? Is it person running the shared service?

PETER C: By the time I get to hear about it, it has normally been delegated down to a Financial Controller, although the CFO will still be interested, partly because it's not going well and it's not looking good. I think what the approximate cause of asking someone from the outside to come and have a look is that they have tried all the traditional things already.�� They've tried maybe getting a big firm to look it over, they've tried auditing something into excellence and they find that things just aren't really working.� What they then need to do is to actually look at the thing in a different way and understand what's actually going wrong underneath in the shared service.

PETER W: OK, so what are the sort of issues that you've been looking at recently?

PETER C: I guess I can give a couple of examples. One current client, they have been working on the shared service project now for four years.� Inside the company there is an enormous amount of political resistance to going into the shared service at all, and therefore they haven't actually made any progress at all. So, my primary role there is to be mostly a catalyst.� Understanding what has gone wrong in other shared services in other companies, guiding them to make sure they don't do those things, and we can talk about in a moment what those things are that go wrong, and putting together a package of steps that they are going to take for their shared service which are capable of being� implemented. So sometimes these things have been done from top down and therefore they are not capable of being implemented by people who understand from the inside out what they are� trying to do. Let me give one specific example.� The vast majority of companies can't fire all of their accountants and all of their clerks and clear them all out and start again� with a brand new set of shared service people, and even if they could it wouldn't be sensible. So what happens is, is that the people who have never run it before design a new one.� And the traditional way of doing these things is that a firm of consultants comes in and they run focus groups and they run workshops with people, and they ask the people on the ground how we are going to design our processes for our shared service. Well, that's the blind leading the blind. Those are the people who couldn't possibly know how to run the shared service. So if the consultancy firm helping the company doesn't know how to do it, because they are asking the people on the ground, and because they have never done it themselves, and because the� people on the ground have never done it, you can't get a good result that way. Somebody has to come in and take a leadership position and say I know how this works, I know what works, I know what doesn't work and lead people to getting a good answer out.� So one of the things that goes wrong is asking the wrong people how to design in.

PETER W: Right, so you're saying that you take that leadership position, or do you help the person whose got to take that leadership position?

PETER C: OK, so two different examples. In the example where I am working at the moment, what the company has very sensibly done, is they've hired one of their insider, ten years experience finance director, trusted by the organisation, and this is a very big company, so the politics in the organisation are absolutely paramount in getting this right. So, actually my role is very quiet, I very quietly sit with the finance director and his very close team in terms of pulling together the shared service, and I'm not visible at all beyond that very, very close team. In essence my job is to advise them.� They learn from me, not about how to run their own company, they know that already, it's about how do we not make the mistakes that others have made in putting together the shared service.� They then go out confidently knowing they're doing the right thing, and argue to case for doing the right things around the shared service, and actually the package of things they are now doing for their shared service is very, very coherent, very implementable and they are not going to fall into some of the pitfalls, there might be other pitfalls, but they are not going to fall into the traps that I have seen others fall into in the past. Another example would be a shared service where the Deputy MD in this particular case went round and twisted the arms of the three big beasts of the jungle, the three MD's and FD's, twisted their arms and said you must come into this shared service, you must share these pieces of work. That person then left, and they then went into a very kind of English non cooperation with the shared service, and therefore quality was going down, they were hiring people on both sides, people were checking each other's work and there was distrust all round. So in that particular case, my role was to actually take over the shared service on a part-time basis for a period of time alongside my team, and we went in and we just fixed, primarily the thing that we did is work that didn't really belong in the shared service. Work that requires judgement, work that is dealing with the future, we actually moved that work back into the primary finance function and said no, that works belongs to you, that's for the Business. The second thing that we did was that we took that work which is entirely appropriate for� a shared service, and we asked the Business to give us back the work that was sitting outside the shared service that should have been ours.� What's quite interesting is that borderline, this happened in financial shared services and as it happens in customer services, as we were also running that, that borderline had been an area of contention for three years, and even people were falling out over it.� The moment we had the right policy in place all the heat went out of it and everybody was happy, and suddenly there was an idea okay that's fine that works belongs to you and this work belongs to us. Suddenly the peace over that line allowed people to then begin to cooperate.

PETER W: OK, so that border between who does what is very important, but you can't legislate for it because each business is different?

PETER C: I thing each business is different. I always talk about shared services being effective, and effectiveness in a shared service is that they don't try and run the Business. The shared service gets on with its job of being proudly in the back office.� It has to be efficient, that is the transactions have to be efficient and correctly processed, it has to be economic of course, you have to get the price down, but you need to get the price down at the right time, that comes after the other two activities.� The key other thing is that a shared service that's operating for a brewery or for, I don't know, somebody who works in airport services, is very, very different for a shared service that works in publishing or works in music or works in marketing, advertising agency or whatever, because engineers in the end, people who are trained in engineering will normally follow the rules they have been given, and in the nicest possible way, people who are trained in marketing won't, and therefore you have to have a different way of coaxing people into what they need to do.

PETER W: You seem to be suggesting that a lot of shared service centres are just badly thought out.� Is that fair? Is that true?

PETER C: No, I think that is fair.� That's slightly unfortunate.� I think there are fads in business and we've seen them.� I think you could probably name some fads, and maybe in a moment you might name some fads that you've seen over the years.� There is always a slight danger that something like shared services is the latest faddy thing that comes along.� We're doing it because the others are doing it.� So that's a risk.� I think the other risk is that people focus far too much on cost.� If you focus on quality, if you get it right first time, the cost will drop out anyway. So when we say quality we don't mean Rolls Royce style quality, we just mean get it right first time, think about what you're doing and set it up carefully. The other trap is that we ask the people who are there already to design the future without any leadership around.� Actually these are the things that actually work. If you take those slightly faddy elements, we're doing it because the others are doing it, we're doing it only to get the cost down and we don't have proper leadership and knowledge about how to do it, then actually yes you can end up with elements of the shared service that are ill conceived at the beginning.

PETER W: Whenever I talk to CFO's I try to ask them about their shared service centres or the way they run their accounts, and they are often very dismissive about that.� Is the shared service centre the CFO's dirty little secret do you think?

PETER C: Actually they're quite difficult to run and I think there's an idea that there's no honour in just getting things right. So I'm working with a different client and we're dividing the finance function into those parts, using a very slight shared service model, but it's a single company, but a very big one and we're dividing the finance function into those people who produce the numbers or produce the forecast or produce other aspects of the material that's required to run the company and those as it were that interpret the information and everybody, even the ones who are completely ill suited for interpretation think that they want to go an work in the sexy part of finance which is the front end of forecasting and interpretation, and actually the ones who are being gently guided towards actually getting the numbers right are feeling slightly insulted that they are being put into production areas. Well actually I think there's a lot of honour in being the one who gets things right and gets things right first time. So I think usually the finance director is being promoted as somebody who wasn't the person who got the numbers right, they were the ones who were good at interpreting them, so in part they might not answer your question because they have no idea but they think they should.

PETER W: From your experience on working in shared service centres what are the must do's and don'ts?

PETER C: I think the must do is be realistic about what can be achieved in the time. I wouldn't say that one of the must do's is bringing in external resources or consultancy.� I don't think that's the case. I think what is the case though is thinking very, very carefully about what is and what is not going to work in your organisation, and maybe a small smattering of people who have worked on shared services before. And just take your time, because you will get the costs down but don't rush at it. That's probably the must do. Probably the mustn't do, and I can think of a couple of examples of companies who are doing this right now, the mustn't do is spend enormous amounts of money on expensive ERP type computer systems thinking that somehow if you've invested in the software then everything else will be all right. That is the mustn't do. Get your processes sorted out first and then computerise sensible processes, don't do it the other way round.

PETER W: Peter, shared services have been around, I don't know, 20, 30 years starting in America, So I get the impression that surely everyone has got one now. Is that actually the case?

PETER C: First of all, it's not actually the case.� I know some very large organisations which you would expect to have shared service centres by now, but haven't for all sorts of reasons. I think it's also not necessarily the right thing for every company. I can think of a company that� I worked for recently where they decided they were going to go into shared services but first before they were going to do that they were going to cover the world in Oracle. They did that, they had a single instance of Oracle worldwide covering all of their systems requirements and then strategically they went out and bought another company which had covered the world in SAP. So now the two big beasts of the jungle in terms of massive ERP systems were competing, and they were completely stuck in terms of their systems requirements. They could have gone into shared services in a much lighter way without doing the systems platform first, but you certainly shouldn't go for big, monolithic approaches to running the company when you are still developing it.� If you are still in the middle of mergers and acquisitions, you've got a portfolio approach, you're either buying or selling, then actually it's not necessarily right for you and maybe there should be other lighter ways of reducing your costs. I think another example would be if the organisation is primarily going into shared services because actually what it's trying to do is a cost cutting programme, then why go to all the trouble of having a shared service in order to cut cost, why not just have a cost cutting programme.� So we were invited as a team specifically by a company.� The CEO wanted to cut costs and he said, here you are guys come in for six weeks, here's all my numbers, I've got �40m of overhead and I want you to get it to �30m and tell me what I need to do. Now that's a much cleaner way of getting the cost down, a much clearer more specific around that objective. So if you're objective is to cut cost, do that first, then if you're objective is to straighten out your processes and you want to have more continuous improvement and cost reduction over time maybe that's an opportunity to go into shared services.

PETER W: OK, so if I am thinking about shared services, what are the sort of risks as a CFO that I should be aware of?

PETER C: OK.� First of all establish in your mind whether or not you've still got a portfolio approach to your business.� If you're buying and selling pieces of business then yes you can have shared services, but focus on the processes, don't focus on the platforms, don't spend a great deal of money on systems and then you can get a good platform that allows you to get financial control over your target company very quickly. But don't do it in too rigid a way.� The other thing that you need to think about is why you are going into shared services.� If your primary reason for going into shared services is to reduce cost, then why not first of all just have an old fashioned cost cutting programme, get that put in place first and then think about your shared services next, so just focus on what you are trying to do. In terms of your the CFO, you're thinking about the way the organisation wants to go and you're say OK strategically the company is now about where it needs to be, we now need to bolt together and gain control over a number of portfolio companies actually shared services can be a very good way of let's say breaking down the baronies, making sure that other parts of organisation are properly plugged in, in a financial way, getting a flow of information about what is really going on underneath and primarily and shared services are particularly good at this, getting control over all those bank accounts and all of the cash pools that sit all over the company. You can been much more lean on working capital in a shared service than you can in any other environment.

PETER W: Peter Charles, thank you.