Finance Shared Services and the Distributed Organization: Building the Whole Picture
Looking back at the shared services programmes I’ve worked on over the last 10 years or so, I’ve realised that one common feature has been the absence of clarity when it comes to what the existing, distributed, organization is expected to look like once the shared service center is up and running. Companies that don’t have a culture of clear instruction from the top tend to shy away from clear communication at all levels. Unfortunately this can lead to the necessary redesign of the organization being pushed back to late in the programme resulting in mixed expectations, misunderstanding, negativity towards shared services and, in the worst cases, missed opportunities to maximize cost savings.
If we face reality up-front, building a SSC will create jobs in the SSC's location but will remove jobs from all the locations that are serviced by that center. The operation that remains across the distributed business units should look very different from its pre-SSC predecessor. Individual jobs in the distributed units should be very different post-SSC as they will have different responsibilities and will probably work to a more formalized range of process steps, often with new systems. Management should also be different with fewer people purely managing, and more clarity of performance expectations and achievements. In many cases, whole departments should disappear altogether from the distributed organization. If these things don’t happen, optimum performance of the shared services model will not be achieved.
A shared service center is reasonably easy to describe and to visualise: a large team (larger than the team in any one existing business unit) working in a single location. With a few additional pieces of information, an audience of executives, management and staff from the existing, distributed operation can quickly build a picture of what this new addition will look like. Similarly, a new system and standardized processes will be recognizably imagined even if met with a little scepticism of the "I’ll believe it when I see it" variety.
Then the announcement of the real substance of change: "through Shared Services we’re creating a consistent, high-quality, compliance-controlled, efficient and cost-effective environment to support the business with a client-oriented, service-driven culture across all our business locations".
But what does that look like?
The audience have been told what is being added to the operation (an SSC, a system, some redesigned processes) and realize there will be some changes but, other than a fairly obvious reduction in staff, have nothing from which they can visualize their part of the organization after the changes.
This is probably the root of most conflict on the path to shared services; absence of a common picture shared by existing operational staff and programme leadership and a lack of trust through the absence of tangible information (an assumption that "they’re not telling us everything" is probably slightly ahead of "they don’t know what to tell us" although the latter is equally damning!).
So, a high priority for programme leadership should be to design not only the SSC and its supporting infrastructure but also the future distributed organization. It is insufficient to simply re-size that organization based on the anticipated capacity of the SSC and then produce a redundancy/retention programme to implement the reduction (unless, of course, you’re working on such a pared-down programme that there is nothing more sought). To gain the full value of the organizational opportunities, the structure and roles across the whole operation should be defined as if the distributed parts were as much of a "start-up" as the SSC.
With the benefit of several years’ experience of building and running SSCs, there is a wealth of knowledge amongst shared services practitioners that has enabled some benchmarks and common understanding of the required components of an SSC. The knowledge and experience also exists in relation to the design of the rest of the organization; it just needs to become an integral part of the whole shared services design on a regular basis.
Here are a few thoughts and suggestions based on personal experience:
1. There is no substitute for good information. Before starting the design process, whether to size the new SSC or design the future distributed organization, it is essential to have a strong understanding of the work of the existing operation. Who does what and how much?
2. Complete functional areas can be managed from the SSC; both processes executed in the SSC and those executed elsewhere. For example, if all Finance purchase-to-pay processes except some query resolution can be performed in the SSC, any staff performing query resolution could be managed from the SSC rather than being part of a separate structure. In this way it is the purchaser or purchasing department that is the internal client of the SSC, not an additional management structure left from the preceding Finance department.
3. Business Partnering roles need to be clearly defined with objectives and corresponding performance measurement. The concept of "having time to increase and develop support of the business" as the future purpose of the business unit Financial Controller is insufficient. When adequately structured, there is potentially great value to be derived from a Finance specialist being tasked with maximizing the financial benefits extracted from sales and purchasing arrangements as well as controlling budgets and financial risk. The role can benefit both the local unit management and corporate HQ. Its description and purpose can easily be quite politically sensitive so there needs to be absolute clarity and agreement (or at least acceptance). In most cases, local management could have introduced the role for themselves over the years if they had wanted to, so to have it suddenly imposed may not be readily acceptable.
4. Following the holistic concept of shared services, it may be good to have SSC representation in the local business units as a design feature rather than a solution to individual specific issues. Whilst the process location default is the SSC and processing in the SSC should be split by function, not client location, there will be a number of parts of processes that may remain unique to a location or require a high level of direct interaction locally. The solution may be to appoint representatives of the SSC, under SSC management, to be responsible for the receipt and distribution of specific work for/from the SSC and for query resolution embedded in processes (certain types of payables queries for example). I have used this both as part of a medium-term organizational structure and as a short-term fix in the absence of process automation. There are some disadvantages, particularly if the local organization already feels a loss of ownership, but these should be considerably outweighed by the benefits:
- The tasks undertaken should be necessary for the SSC so headcount impact should be insignificant, if any.
- Staffing should be from the lower salary ranges for local employees, minimizing the difference with costs at the SSC even if located in a low-cost area. If appointing a member of the existing team, savings in redundancy/retention incentive costs should equal or outweigh salary differentials at this level over a number of years.
- Communications between local units and SSC are enhanced. The local unit retains some direct face-to-face contact with the process "supplier". In addition, the SSC has access to feedback that may otherwise fuel resentment and conflict but not be openly voiced.
- Immediate post-go-live query resolution is simplified and improved. Local history is more accessible.
- Relationships between the SSC and local unit can be built and monitored more effectively. The SSC organization can build relationships directly with "client" departments without always being filtered via a local Finance department.
5. Draw up a role-based organization chart of the whole organization, both SSC and distributed as part of the feasibility process and secure the full support of programme sponsors and Human Resources. Ensure HR advice and support is focussed on enabling, not restricting.
6. Provide the fullest information possible when announcing the intended changes. Although many in the audience may not initially like what they hear, they will appreciate being told as much as possible and the extent to which change to their part of the organization has been included in planning. Obviously, different countries’ employment legislation may determine the extent, timing and communication of planning and decision-making but openness, honesty and consideration go a long way to preventing a stampede to the lawyers’ offices.
A well-designed, -planned and -implemented post-SSC distributed organization will simplify the SSC implementation, shorten project timelines and ultimately both reduce payback period and increase cost savings.
About the Author
Jim Whitworth built CA’s EMEA Sales Accounting SSC in the late ‘90s, moving over 70 jobs out of the distributed organization without any compulsory redundancies. Local shared services representative roles were an integral element of the organizational design. He has subsequently developed worldwide shared service strategies and now works as an independent consultant providing hands-on management support for shared services programmes in both the technology and manufacturing sectors. Jim has worked on programmes located in Western and Eastern Europe, including managing projects for Hitachi Data Systems and TRW Automotive.