The upside of a Downturn; Shared Services as a Strategic Asset
Ask most executives how a shared services organization (SSO) can save a company money and they’ll probably cite headcount reduction, consolidation, labor arbitrage, and process efficiencies. Less well appreciated, though, is shared services’ potential to generate value in less direct ways, both by enabling cost reductions and by improving cash flow. Many of these opportunities can not only buttress a company’s performance in an economic downturn, but deliver benefits onan ongoing basis.
TURNING DATA INTO INSIGHT
Mining the data
The source of this additional value is the tremendous amount of data an SSO consolidates from across the enterprise. Accounts payable, accounts receivable, time and expense information, employee details, customer profiles – all these types of data and more can be analyzed to yield actionable business information on ways to enable cost reductions and cash flow improvements. With the current economic downturn making financial performance a priority, now would be a good time to investigate (or revisit) the opportunities for mining SSO data to look for such opportunities. And because organizational resistance to change tends to be lower in tough economic times, the downturn may actually create a favourable environment for making any improvements the analyses might suggest.
In many areas, setting up a "Center of Excellence" (CoE) – a knowledge-based shared organization – to guide data analysis and continuous improvement efforts can be an effective way of pursuing ongoing benefits. These CoEs may either be administered as part of an existing SSO, or managed separately but work closely with the SSO as needed, to analyze data and understand the relevant processes. In either case, the CoE would be responsible for driving improvements in its area of specialty, with specific duties that could include:
- Identifying potential improvement opportunities
- Requesting, organizing, and analyzing the relevant data to examine the business case for improvements
- Working with the appropriate personnel from the SSO, the business units, and/or external parties to execute improvements
- Developing policies needed to support improvement initiatives
- Monitoring and managing compliance
To effectively carry out these responsibilities, a CoE would need to be staffed with people possessing a certain level of strategic insight and "big picture" thinking as well as technical analytical skills.
WHERE’S THE MONEY?
Strategic sourcing, credit and collections, customer relationship management, and employee wellness are four examples of areas in which SSO-owned data and/or the use of a CoE to identify and help execute changes can uncover improvement opportunities. In many cases, once the opportunities are identified, the SSO and/or the CoE may also be able to help execute and maintain the changes needed to realize the benefits.
In strategic sourcing, a well-known approach for reducing procurement costs, a company establishes enterprise-wide policies to regulate what, how much, and from whom its business units make purchases. Typically, this involves negotiating rates and contracts with select suppliers, the use of which then becomes mandatory (or at least strongly encouraged) for all business units.
Though an SSO isn’t strictly necessary for strategic sourcing, having access to the kind of consolidated A/P data an SSO collects can make the job enormously easier. By examining this data, a company can identify enterprise spend patterns and determine potential costsaving opportunities (such as consolidating purchases and/or vendors or mandating the use of a specific product). The company can then develop sourcing recommendations based on the analysis, establishing or renegotiating contracts with vendors to leverage economies of scale and developing policies to guide business-unit purchases.
Besides contributing the data for the initial analysis, an SSO could help manage an ongoing strategic sourcing effort in several ways. For example, an SSO would be a logical place to house the enterprise-wide standard purchasing process and any enabling software it would require. It could also monitor business unit compliance with purchasing policies, implementing automated alerts to flagout-of-network or over-limit purchases and managing the escalation process when such exceptions reach a predetermined level.
Finally, a sourcing CoE of procurement specialists could be established to manage, evaluate, and modify strategic sourcing contracts and policies as needed to reflect changing business conditions.
Credit and collections
Effective credit and collections processes help manage risk and improve cash flow not only by pursuing and collecting payments in a timely manner, but also by identifying problem customers and adjusting credit and payment terms appropriately. A downturn may call for adjustments to both of these processes to reflect a company’s altered financial situation. Again, the consolidated financial data resident in an SSO – in this case, A/R data – can give a company the raw material for analysis. A company can mine A/R data to identify current problem customers as well as to understand whether such problems can be predicted by prior customer behavior (such as an unusually slow payment from a normally prompt client).Automated triggers for such events can be built into the A/R software, and policies developed in which the SSO either takes steps on its own to mitigate the risk (say, by adjusting payment terms or credit lines downward) or escalates the issue to the appropriate group.
A CoE for credit and collections, too, might be formed to oversee these activities, as well as to analyze A/R data and recommend policy and procedure adjustments on an ongoing basis. In fact, if a company doesn’t already manage credit and collections in an SSO, simply moving these activities to a shared environment can help improve performance by providing enterprise-wide access to relevant credit information. One company, for example, was able to significantly reduce the incidence of bad payments by connecting all of its individual financial systems with a centralized credit monitoring application housed in an SSO. When a customer passes a bad check at one location, for example, the application now notifies all of the other locations to reject checks from that customer until the bad debt is cured – a process that occurred on an ad hoc basis, if at all, before the SSO was established.
The system has also eliminated the need for customers to set up separate lines of credit at each location. Previously, each location granted credit independently without being aware whether any other locations had already granted credit to the same customer, which gave customers access to up to 10 times the total credit they should have received. Consolidating credit management addressed this issue and helped the company more effectively establish and monitor customer credit limits across the enterprise as a result.
Customer relationship management
Beyond credit and collections, proper analysis of an SSO’s financial data can support a wide range of other customer relationship management (CRM) activities. Depending on the processes the SSO performs, a company can use the data it generates to better understand profitability, segment customers, and even guide targeted CRM activities. For example, the CEO of one company made it a point to personally visit the company’s top 10 customers every year. However, because inconsistent naming conventions for customers among its seven business units made it impossible to manually aggregate raw customer data across the enterprise, the company derived its annual top 10 rankings by adding up sales to the companies on each of the business units’ individual top 10 lists. When the company moved enterprise-wide A/R activities into its SSO, an analysis of the consolidated data showed that one customer that hadn’t made the top 10 list for any one business unit was actually the company’s third biggest customer in sales overall. It was only when the A/R data were rationalized as part of the SSO effort that the analysis to deliver this insight became possible.
If a company has an HR SSO responsible for administering benefits, it may be able to leverage enterprise-wide usage data to design employee programs that can drive ongoing savings, enhanced productivity, and increased employee loyalty. If the SSO has authorized access to information on employees’ usage of benefits and services through internal systems or from third-party vendors, it can analyze the data to reveal which employee behaviors are driving costs, which programs or benefits have marginal utilization, and how effectively aligned benefits are with corporate objectives.
As an example, analyzing medical claims data may uncover specific chronic health conditions among employees, such as diabetes or heart disease, that have a disproportionate impact on health care costs. The company can then develop disease management approaches to help employees better manage those conditions, thus improving employees’ health and productivity while reducing the use of high-cost crisis interventions. Such preventative care programs can not only reduce absenteeism and "presenteeism" but also yield considerable hard-dollar savings. For instance, at one non-profit organization, health care usage projections suggested that it could save an $18 million per year by implementing medical management programs, almost twice the savings already achieved from health and welfare plan consolidation.
KNOWLEDGE IS POWER
The above areas are only a few of the possibilities for extracting value from the consolidated data an SSO can collect. Besides analyzing and acting on information an SSO currently owns or has access to, we encourage companies to consider using the SSO to capture enterprise-wide data for any additional processes in which a consolidated view could aid performance improvement efforts. For example, a company may wish to make its SSO responsible for aggregating data from any processes that need to be benchmarked and tracked for an enterprise-wide continuous improvement program.
An economic downturn is an excellent time to capitalize on opportunities for leveraging data that may have been overlooked, or identified but not acted upon, under more favorable circumstances. The uncertain environment can make stakeholders more receptive to change. The initial results can help boost short-term performance. The long-term organizational improvements can deliver lasting benefits – no matter what the economy.
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