The Challenges Facing Shared Services Centers

SSON: Michael, how do you feel the challenging economic situation in Europe and the US will impact businesses and the shared services community?

Michael Lustig: There are many predictions about what will transpire in the next year or so. Of course the subprime mortgage crisis has hit very, very hard, particularly the financial services and banking community. But there is a domino effect across the entire economy, and that impacts shared service centers. Consumer spending is way down, manufacturing and hiring are slowing and more layoffs are taking place.

Companies are probably too focused now on driving the bottom line through cost reductions versus growing the top line through revenue increases. For the foreseeable future I think we’re going to see ups and downs. The stock market is like a yo-yo, and it will take time before things settle. We simply will have to ride this hard wave until things calm down over time.

SSON: Do you think this environment supports the validity of shared services operations?

ML: I think shared services centers in general are in a good position, particularly those thinking in global terms. Just five years ago, SSOs were perceived mainly as transactions processing organizations. Now, shared services centers have taken on more prominence and are perceived as a strategic part of the business – a value provider, with metrics, analytics, trends and insightful business intelligence to provide to their customers. At the end of the day, what’s driving a shared service center’s behavior is cost effectiveness. Notice I didn’t say cost reduction. Concepts like performance management and process improvement are interchangeable with cost effectiveness, and even though executives are looking for cost reduction, they will accept cost effectiveness because that will drive the bottom-line performance much more quickly than cost reduction. As long as SSOs continually stay ahead of the pack, innovate, look globally and drive improvement. I believe they are in good shape.

SSON: Do any companies stand out as front-runners in asking shared services centers to play a strategic role?

ML: Some of the leaders are companies like Eaton, Pfizer, Lockheed Martin, Alcatel-Lucent, and Siemens, which has had a lot of activity in the shared services arena; also: Intel with its very powerful offshoring operation; Johnson & Johnson, which is very prominent globally; JP Morgan Chase; Wal-Mart and Safeway in the retail sector; International Paper; Ford; auto parts supplier Visteon; The Gap; and Disney. We see these companies as being among the best, and we actually serve a lot of them.

SSON: Do these companies have anything in common?

ML: I think the companies I mentioned have become more valuable to their business partners and customers because they are becoming much more proactive in taking on all back-office services previously performed in the field. Secondly, all these companies drive quality and push to reduce the defect rate. They truly have a Six Sigma orientation. Not all of them necessarily practice Six Sigma, but they think it. That’s really the key to success.

There are a couple of other points I’d like to make about these companies. We see that they are providing insightful data points to their customers, which takes us back to analytics and to metrics. And more centralization is leading to more effective internal controls. This is the first time I’ve mentioned internal controls, but as we all know, SOX 404 compliance and fraud detection are very big items today, globally. The companies I’ve mentioned are at the forefront of fraud detection and SOX compliance. Also, the most successful companies have a more scalable infrastructure, giving them more flexibility for growth. If shared services are not planning for flexibility, then they’ll hit a wall very quickly as they expand.

SSON: What would you say are the main challenges facing shared services centers?

ML: Certainly I think economic conditions. With an uncertain economy, it’s hard to plan five years ahead. But we do see challenges independent of the economy.

First and foremost, shared services centers are under constant pressure to reduce costs. We talk about performance management, process improvement, centers of excellence and a flexible infrastructure. But at the end of the day, reducing costs is the number one item that they hear from their bosses – the CFOs and the CEOs.

Secondly, while they are reducing costs, they have to improve quality through better customer service and a lower defect rate. So a big challenge is to somehow do more with less, and do it better. They are also challenged to increase the value delivered to the customer. And what does value mean? It’s a different definition for each company, but can include the highest quality rate, information, metrics and analytics, or data the customer can use to better their business.

The challenge is that shared services executives are being charged to provide more value, more functionality and across more locations while reducing costs; and they are being charged to streamline the number of IT platforms to a minimum – preferably one across the globe – and to role it out in a quick timeframe. So, whether it’s SAP, whether it’s Oracle, whether it’s a legacy platform, they are being charged to manage with one IT platform, get it implemented fast, reduce costs and usually people, drive more and better customer service, lower defect rates, increase value and take on more locations. That’s a handful. That’s a very difficult challenge.

SSON: What are your thoughts on the future of the shared services industry? 

ML: I envision shared services centers being a major part of business for many years to come. I do see a lot of challenges because of how things are changing around the globe. Shared services executives have to consider outsourcing, insourcing and offshoring. They’ve got to look at consolidating into one or two or three central points around the world. They’ve got to produce real-time information for their clients. They’ve got to process a tremendous number of transactions, and the demand is increasing literally every day.

To be successful, companies can’t make a U.S.-centric, Europe-centric or Asia-centric analysis. They have to look across the world and think three to five years out, to be positioned to handle the business from a global standpoint.

To do this, shared services executives should view their operations just like a CFO would. Consider every model and seek out the lowest cost alternative without compromising service. If you haven’t already done so, compare your costs and ability to execute as a shared services organization with your best outsourced alternative and execute a plan that makes you equal or better. In other words, it is best to be proactive and have answers for the CFO before questions are raised. Be proactive, think ahead, think globally and challenge yourself to be better every day.

APEX Analytix is a leading provider of services and software used by shared services organizations to conduct accounts payable recovery audits, prevent payment errors and detect fraud.