Shared Services and Small Entities (Chapter 1): Globalization and the Shared Services Evolution

This is part of a series of articles by Pedro Moreira, based on his work with the SSO at Siemens, where one of the projects he ran included a migration within the company’s finance group. Moreira subsequently 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. "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," Moreira explains. "Now, I'd like to contribute back to this community by sharing the knowledge I have acquired." "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, importantly, how it can ultimately lead to less than optimal savings and operational efficiencies", he says. The recommendations Moreira makes point to organizational changes and the measures required to reverse the negative impact, as well as tips on where and when this can occur. Moreira’s 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, whose Finance function is usually 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 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". Previous articles in this series: 1. Introduction: How to Maximize Savings And Operational Efficiencies When Working With Small Entities Globalization, Corporations and Shared Services The globalization of economic flows is a key topic in the current world economy. Growing limitations regarding the sovereignty of states, the development of markets and new solutions that deliver better results are just some of the challenges and opportunities that economists face. A more globalized economy, together with increasingly permeable borders, has led to a growth in economic transactions in the last decades, impacting the reality of where organizations traditionally operated. As a result, instability and rapid change have entered the marketplace and companies are demanding more flexibility and adaptability than ever, as they adjust to this new reality. The crisis that started in 2007 is slowly giving way to recovery, and multinational companies are looking for new ways of increasing productivity, using the global market to achieve their objectives. Companies that benefit most from an SSO have multiple business units and yearly turnover of over one billion dollars. Many multinational organizations operate according to standard global strategies whose objectives it is to optimize expenses and profits. Shared services managers analyse and distinguish different factors between nations, identifying clear advantages and performance, and making decisions on the basis of what is legal, adequate and practical. There are some factors that all companies need to consider, such as: fiscal environment, cost / quality of labor, economic and political stability, and infrastructure. With the correct combination of these factors, a shared services has the potential to increase a company’s efficiency and at the same time reduce its costs. Finding the right people who are educated, multilingual, and business-oriented supports companies in their initiatives and ability to achieve objectives. Trends in Finance, Accounting and IT Companies aiming for cost reduction are looking for an economic advantage, which is not an easy thing. With globalization, the world markets essentially work as a single market, creating more opportunities to exchange ideas, services and technologies. It also means that companies can employ professionals, no matter where these professionals live. New technologies are constantly providing new ways of obtaining the same results – but quicker and easier. It all started with the calculator – and in the ‘80s, when companies started using computers, practices and businesses changed. The ‘90s, and the beginning of the 21st century, brought about a rapid development of computer applications for Finance and Accounting. As a result, these days you don’t need so many people to process accounts payable or accounts receivable as you did in the past, and transactional activities are gradually being eliminated. One effect of this shift is that many finance and accounting professionals became highly specialized in IT, not quite technical experts, but executing the vital link between finance and technology. Many accountants today are assuming new roles such as business analyst or project manager, connecting the needs of both functions. Even though these are highly valued professionals, some companies have difficulty in understanding their competences, seeing them as neither one thing nor the other. Every day that goes by the world becomes a little smaller and accountants cannot stay removed from what happens outside the borders of their country. For professionals wishing to remain competitive in this changing world, a continuous flow of new knowledge and entrepreneurship is necessary. [eventpdf] Trends in Financial Shared Centers Shared services centers, in particular Finance Shared Services Centers (FCSs), are experiencing these changes first hand, as companies try to maintain a balance between short term cost reduction imperatives and long term planning. For many executives, this means determining exactly which expectations should be placed on their FSCs. In recent years, the number of companies worldwide that created their own FSCs more than tripled, from 14% in 2005 to 50% in 20071. For the creation of new, e-commerce based business models in a global market, innovation is key and it represents a true revolution in organizations and business conduct. This vision leads the way to the virtual company, a concept that involves analyzing new concepts in accounting, processes, infrastructures, organizational & human behaviour, and social & political environments. The changes impacting finance and accounting, particularly in the last decade, are based on the need for comparable, compatible, relevant and intelligent information to develop a clear idea of where companies stand in terms of economic performance and positioning. Shared Services: History and Evolution From a single location, shared services organizations (SSOs) are able to provide services to multiple clients located in distinct locations. The term "shared" refers to their specialized services used by different clients and partners. The focus of these services is mostly on internal support functions, such as human resources, IT, finance and accounting. SSOs began with the need to consolidate and improve the efficiency and effectiveness of non-strategic activities. This allowed organizations to achieve meaningful cost reductions, improve their productivity, and ensure a timely service. The current economic framework supports SSOs’ expansion, allowing companies to focus on what they do best, i.e., their core activities, by consolidating support activities like accounting, finance, insurance, human resources, IT, real estate and other transactional operations. Companies that benefit most from an SSO have multiple business units and yearly turnover of over one billion dollars. When creating an SSO, organizations places non-critical processes in a separate unit that operates as an autonomous business, whose mission is supporting its client businesses. An SSO is not a reincarnation of the traditional centralized organization. It is responsible to its clients for the quality and cost of its services, a responsibility that is anchored in performance metrics and service level agreements (SLAs). In our globalized world, many companies implement SSOs in developing countries, where the presence of a cheap, yet educated workforce is a key factor. The survey "The Future of Global Business Services", conducted by PWC in 2012, revealed that India is the country that has most shared services activity, followed by North and Latin America. [Source: PWC 2008; click to enlarge] The Impact of Shared Services In a globalized economy, it’s possible for companies to take the necessary steps to increase their efficiency through access to the best technologies and business processes at the lowest price. A SSO is the practical application of this concept. In the current economic strife, SSOs generate savings and increase productivity. Verizon Services, for example, manages the group payroll and accounts payable, and generated a 15% saving in 2007 and an additional 15% the following year. By comparisson, companies might historically expect a 20-40% saving in finance and accounting over a 3 to 5 year period. The most tangible impacts of an SSO are: Cost reduction (savings) and economies of scale (e.g., transactional processes) in process standardization and optimization; Increased productivity and operational efficiency; Better information on internal customers and vendors, facilitating the development of new products, services and processes; Flexibility in the acquisition of new business units, as the SSO can immediately or within a short period of time provide its services to the new unit, thereby smoothing its integration; Systematic quality improvement; Contribution to corporate business strategy; Innovation; Compliance and transparency; Allowing business units to better focus on their core activities. Summary Improved process efficiency can be attained through transactional "mass production" which a shared services can deliver. [eventpdf] [Note: if you liked this article, please use the buttons on the left side of the screen to share it across your LinkedIn groups – and contribute to this discussion by posting your thoughts in the comment section, below. Thank you for being part of SSON's community - Barbara Hodge] Reference: 1. 10 minutes on finance & accouting shared services" – https://www.pwc.com/us/en/10minutes/assets/pwc-10minutes-sharedservices.pdf Note: Other articles in the series: Introduction: How to Maximize Savings And Operational Efficiencies When Working With Small Entities Shared Services and Small Entities (Chapter 1): Globalization and the Shared Services Evolution Shared Services and Small Entities (Chapter 2): Organization, Objectives and Relevance Shared Services and Small Entities (Chapter 3): Milestones for Shared Service Implementation SSOs and Small Entities (Chapter 4): Case Study Data Collection

Shared Services and Small Entities (Chapter 1): Globalization and the Shared Services Evolution

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