SSOs & Small Entities (Chapter 7): Recommendations
This article is part of an on-going series by Pedro Moreira, based on his experience at Siemens’ Shared Services operation, where one of the projects he ran was a migration within the company’s finance group. Moreira focused his Master’s thesis on the impact of Financial Shared Services, with a special focus on how Shared Services supported the migration of a small Siemens entity into the Global SSO.
His research shows that as SSO transitions generally try to keep complexity to a low level, they tend to leverage a standard or generic approach to all business units. When dealing with smaller entities, however, this creates a danger, as their rules, reality and dynamics are unique. Small entities, with Finance functions staffed by 10 or fewer people, generally have broader responsibilities within one role, so services that would not be core to the SSO need to be considered as part of the migration. This creates added cost and complexity.
Moreira recommends that companies rolling smaller entities into their SSO should do so via a special "small entity migration wave".
"The findings and recommendations of my thesis are quite important in terms of analyzing common organizational structures within an SSO, understanding how Shared Services serves small entities, and, also, how it can ultimately lead to less than optimal savings and operational efficiencies", explains Pedro. The recommendations he makes point to organizational changes and measures required to reverse the negative impact, as well as tips on where and when this can occur.
"Since starting my thesis, I have used SSON’s online resources as a source of information and ideas on the latest SSO developments and technology," Pedro explains. "Now, I'd like to contribute back to this community by sharing the knowledge I have acquired."
The previous chapter covered the conclusions, in which the combination of all data collected, literature review, interviews, questionnaire and field work were given a perspective. The viewpoints of the case study entity, an expert and the latest information on the Siemens SSO were acknowledged. Based on this, a set of recommendations were produced with the objective of generating optimization, greater efficiency and effectiveness in the inter-dependent processes between the entity and the GSS. We also sought to bring about a bigger benefit and profit from the finance bundling project to Siemens.
- Recognize that small entities like our case study entity have their particular reality and own specificity, requiring from the GSS a mentality, set of rules and specific services for these clients. This will make the GSS more apt and oriented towards small entities;
- Adoption by Siemens and the GSS, of measures that increase trust and acceptance in this SSO model. Such measures will lead to a decrease of redundant and duplicate work and therefore, greater efficiency;
- Considering that the finance migration undergone by the entity was a first wave project, consider executing a second wave project. This project should have specific assumptions and objectives for Siemens small entities. Visit the entity (as well as other small entities which are served by the GSS) to analyze and determine if on one hand it’s being served the right way in terms of organizational structure and operational excellence, and on the other if the current level of service can be expanded, thereby increasing the scope of service, taking into consideration all non-core activities;
- For this second wave to be successful, it’s important to analyze and understand the current activity split, who is doing what. This way it will possible to adopt measures aimed at greater efficiency and work reorganization. For the successful execution of these measure a greater legitimacy (mandate) is required;
- We recommend a renewed analysis of the current structure serving small entities. The picture below shows us the current structure and it reflects current limitation in operations that we saw previously in terms of communication, double executions, controls and resources and ultimately this structure is not prepared for an increased service level.
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We propose a hybrid structure (see also Kai Zabel’s article Shared Services for Smaller Entities*), which is better adapted to serve small entities (see picture below). This requires that a dedicated "Small Entities Department" is created. This department should:
- Be the only point of contact with the small entities;
- Coordinate with the other GSS departments and transfer to them activities which are their core activities (e.g., AP, AR, GL);
- Be ready to absorb and assume responsibility of activities/task which are not GSS’s core business. This means that this is a specialized department, not only knowledgeable of the way the other GSS departments operate but also regarding tasks that are migrated in an expansion of the service level scenario. The demand for additional knowledge required is directly related to the level of increase of service; a higher increase of service level will require a higher specialist expertise (e.g., local GAAP, taxation, IFRS, the small entity business);
[click image to enlarge]
On the entity’s side there should be a designated "Finance Contact", someone that serves as the main contact between the entity (internal personnel in charge of AP, AR, GL and so on) and the "Small Entities Department" (GSS). In the chart above, the entity’s internal positions are dimmed because if an extension of service by the GSS is large enough, some or all of them may become redundant. If an expansion of service is carried out, the following change of structure is necessary:
- Investment in the (re)training of the entity’s personnel, so that they can effectively perform in the new organizational reality as they increasingly assume controlling, audit or other tasks;
- Measures that stimulate trust and motivation of the "surviving" personnel at the entity and maintain clear and open communication from the top organizational level. This is important. Recent studies show that when workers feel trust and are motivated, their productivity rises;
- If a new reorganization requires additional FTE reduction, the offer of real career options and in extreme cases outplacement are important. Clear and timely communication is key as there is no proof that in this situation productivity or the risk of sabotage are any different than normal.
Leads for Future Investigation
Throughout our research, certain leads have been revealed, even though these were not in the scope of the investigation objectives they are relevant for future investigations. SSO’s as a truly global model are relatively recent. This is complemented by two factors. On the one side, the majority of information on the subject focuses only on the positive aspects of this reality and how to achieve them; on the other, as we discovered, when companies adopt the SSO model they feel pressure to demonstrate success, and fast. These factors can create short term expectations for the project stakeholders and the companies themselves, particularly in the current "tornado" that world economies are experiencing.
It is not our intention to remove merit from the SSO model or the results that can be achieved. It is, however, important to state that the organizational reality is more than process standardization, economic benefit and cost reduction. A model like this that has spread throughout the world will certainly have an impact on finance professions, work methods, work relations and nations, and this impact hasn’t been properly studied until now. In part because some impacts are only perceptible in the long term, but also because as a result of the current instability of world economies, short term rules.
Thus, it will be important that future investigations of SSOs study the impact on motivation, loyalty and productivity of local entity workers; the impact caused by loss of transactional knowledge on local entities; the impact on careers caused by the automation of transactional activities; and the migration to emerging markets as well as entry positions in organizations; and the impact on organizations and nations, and the pressure exerted on the latter, caused by the migration of projects to countries with less regulated labor and human rights.
A Word from the Author
As this series draws to a close, I acknowledge that curiosity was the major driving force behind the completion of this work and study. Curiosity to more deeply understand the shared services model, how it came to be, why it was so vastly co-opted, how it fits into the current economy and how it impacts organizations and the socio-economic fabric. This curiosity was furthered by the fact that the majority of information available focused solely on the benefits. Ultimately I believe that only by knowing and acknowledging both benefits and hindrances can we achieve the best contribution.
I’d like to close this "Shared Services for Small Entities Series" with a special interview with Tom Bangemann and Kai Zabel, both of whom are important references in the field of shared services. Their contribution will surely be essential to understanding the current status and future trends.
* Shared Services and Smaller Entities by Kai Zabel