Introduction: How to Maximize Savings And Operational Efficiencies When Working With Small Entities

Pedro Moreira is a Senior Corporate Accountant with over six years experience gained in large multinationals. His experience includes working with the Shared Services operation at Siemens, where one of the projects he ran included a migration within the company’s finance group. When he had to choose a topic for his Masters in Business Management course, therefore, the choice was clear: "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. "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", explains Pedro. The recommendations he 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. "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." SSON is delighted to host a series of articles based on Pedro’s research, starting with this introductory overview. Introduction What is the true impact on an entity when migrating its accounting activities to an SSO? Pedro 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 that services which would not be core to the SSO need to be considered as part of migration. This creates added cost and complexity. Pedro recommends that companies rolling smaller entities into their SSO should do so via a special "small entity migration wave". Shared Services The success of organizations depends on their ability to operate globally, where they are constantly challenged by the need to shift strategies, create new business models, and adapt their processes and operations. Within this context, big corporations frequently create their own Shared Services Organizations (SSO’s), sometimes with multiple Shared Services Centers (SSC’s), where they concentrate their support activities with the objective of optimizing and promoting efficiency, creating value, reducing costs and providing a service of excellence to the entire organization. While much of the existing research and literature around financial shared services is focused on implementation, benefits and advantages, little attention is given to how best to serve small client entities, and how to maximize their savings potential and operational efficiency. The reason for this is that when it comes to finance migration projects, the rules applied to small entities are the same as for any other entity. This keeps project complexity low and allows SSCs to rapidly ratchet up volume and deliver results. Small Entities Small entities have their own specificity and reality, however. They can be identified by factors such as the total number of finance FTE’s and/or by their revenue and finance costs falling within the 4th quartile, group wise. These entities require a different approach when considering a finance migration, as well as a specific mentality, set of rules, and services on the part of the SSO. SSO projects are generally executed in waves, where activities that are easier to transfer and expected to deliver greater impact are migrated in the initial wave(s). Due to their more limited impact on savings, small entities are generally considered for the last wave(s), with no different criteria than that applied to larger entities. [eventpdf] Unique Challenges The specificity of a small entity means that it faces unique challenges, however. For example, it could be difficult to make roles redundant, as staff roles and responsibilities are broader in a small finance department, and some could be partially outside the scope considered for the migration (i.e., part of a person’s work may not be in scope of a migration so that person cannot be made redundant. An example would be where someone is doing AP work as well as ordering office supplies. You can take AP to the SSC, but you still need someone to order office supplies, so you cannot make that person (entirely) redundant). In the case of an FTE reduction, the remaining finance team may not be large enough to secure stable operations for remaining tasks, or resources are kept on to counter the risk of mitigation, as the new model is not trusted. This leads to inefficiencies and unnecessary costs. Recommendations A different approach should be taken from the start, for finance migration in small entities, but where this is not possible, special consideration should be given at a later stage. A dedicated project phase for smaller entities is of the utmost importance to reduce risk, increase financial benefits, and optimize operational efficiency. This phase is important because, although for the SSO one small entity may represent a low risk factor (e.g. for compliance and audit), clustering these entities may increase the risk to a considerable level. For this stage to be successful, therefore, the project needs to have the mandate to organize finance activities on the entity’s level, reorganizing tasks and FTE’s and considering all finance and accounting activities for possible transfer to the SSCs – including those that fall outside the SSO’s core business. This also requires the SSCs to adopt a new kind of structure that better serves small entities and that is, on one hand, better prepared to absorb non core activities; and on the other, increases the operational efficiency of those entities and the SSCs. Specifically, this kind of reorganization requires the creation of a sort of "Small Entities Department" within the SSC. This department handles the transferred non core activities and serves as a point of contact between finance and the entities, while core activities will be handled as before (e.g., AP, AR, C&B). On the entity side, local personnel needs to be trained and motivated to properly and efficiently operate in the new organizational environment, not only as consequence of the mandated reorganization but also on the basis of the general approach taken for migration projects. Editor's note: If you like this content – please share it with your social media groups across Twitter and LinkedIn. Just use the buttons on the left of the page. Please also add any comments below, to contribute to this discussion. 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

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