Published: March 01, 2014
Shared service centres (SSCs) have reached an inflection point in their development. Expanding in scope – particularly as ongoing economic challenges encourage the pursuit of cost and process efficiencies – the role of SSCs can now look beyond ‘efficiency’ to long-term “effectiveness”, and play a pivotal role in delivering sustainable, strategic business outcomes. To support this evolution, Citi recently hosted a Shared Service Centre Forum170, bringing together market experts from a cross-section of industries to discuss the opportunities and challenges at hand.
SSCs – organisations’ internal hubs that centralise the in-common functions of otherwise separate business divisions – have been a growing feature of the corporate landscape since the 1980s, offering numerous benefits with regard to cost and process efficiencies. And, as continuing economic uncertainty and the impact of new regulations heighten the need for such efficiencies, SSCs have become more popular than ever. Indeed – according to a 2012 report by KPMG – growth in the use of SSCs now outstrips that of traditional outsourcing models, with new innovations in technology revolutionising the ability of such centres to support increasingly global businesses.
Against a backdrop of continuing economic uncertainty and new regulations, SSCs have become more popular than ever, outstripping traditional outsourcing models as new innovations in technology revolutionise SSCs’ ability to support global business. In fact, the role of the SSC has reached a major turning point in its development, expanding beyond more immediate centralisation and standardisation benefits to play a critical role in delivering sustainable business outcomes to the wider organisation, in partnership with a growing variety of business and functional stakeholders. By expanding in scope – both functionally and geographically – SSC activities can become more closely aligned with organisations’ strategic aims, and better translate ‘quick-hit’ efficiencies into long-term effectiveness.
In recognition of this shift, Citi recently brought together a number of market-leading corporate partners – treasurers, consultants and procurement managers at the frontline of SSC-supported initiatives – to encourage greater dialogue about the strategic opportunities provided by SSCs’ expanding scope and the hurdles that must be overcome to realise the greater potential. Through centralisation, standardisation and rationalisation, SSCs can increase forecasting accuracy by improving accessibility to – and visibility over – a wide variety of both financial and non-financial metrics.
Bearing in mind the continued economic pressures in the wake of the 2008 global financial crisis, it is no surprise that the forum opened with a focus on working capital. Citing the need for continued improvements in working capital management and cash-conversion efficiency rates, Daniel Windaus – managing director of financial consultancy firm REL – identified “the agility gap that has developed over the course of the financial crisis – a gap between decreasing revenue and rising costs that must be eliminated by making SSCs more global and multifunctional”.
Accurate forecasting depends on access to the right information at the right time
In a theme that resonated with all participants, Windaus highlighted the need to look beyond short-term ‘quick-win’ solutions – such as writing down obsolete stock or extending days payable outstanding (DPO) – and to focus instead on long-term, sustainable and more effective solutions. Chief among these goals – and in line with the desire to strengthen risk management – is enhanced cash forecasting capabilities. “The challenge is to translate working capital into better cash-flow forecasting,” said Windaus. “In an REL survey of the top 1,000 corporates in Europe, the USA and Japan, more accurate forecasting was cited as a top-three priority in all three regions.”
Through centralisation, standardisation and rationalisation, SSCs can increase forecasting accuracy by improving accessibility to – and visibility over – a wide variety of both financial and non-financial metrics. “Accurate forecasting depends on access to the right information at the right time – and top performers in this respect have much greater coordination between functions,” said Windaus, underscoring the strategic value of SSCs’ expanding remit and of greater coordination between regional SSCs under the umbrella of global business services.[[[PAGE]]]
Of course, the focus of SSCs should not be restricted to purely internal efficiencies. In a poll conducted and discussed during an interactive breakout session, the centralisation of procurement and receivables functions listed as a ‘top-three’ priority for many forum participants. In a clear demonstration of the way in which SSCs can support strategic business initiatives, in this instance on the procurement side, Assistant Treasurer for Vodafone Group Services Robert Pooles, discussed Vodafone’s supply chain finance programme (conducted in partnership with Citi), stating that “the maturation of our SSC, which centralised and standardised payment platforms and supplier contracts, was the key enabler of the scheme”.
By implementing supply chain finance programmes, corporates can improve their working capital by extending DPO. At the same time, such schemes strengthen the supplier relationship by giving suppliers faster access to (and visibility over) cash and access to the often lower financing rate of the corporate buyer – a ‘win-win’ situation.” Pooles said it was a clear illustration of SSC-related efficiency being translated into business-wide effectiveness.
The potential of SSCs to build foundations for sustainable business outcomes was also demonstrated by Rebecca Johnston – procurement operational improvement manager, Diageo – who discussed how Diageo leveraged the simplification, standardisation and centralisation benefits of its regional SSCs to roll out a purchasing card (or ‘p-card’) procurement initiative. This initiative – which automated the payment, transaction review, invoice approval, coding and reporting process for supplier payments – has the potential to release up to GBP650,000 in savings (in the UK and in Ireland) in the first year alone. At the same time, the electronic settlement of transactions means suppliers can now be paid immediately – once again, serving to strengthen the corporate-supplier relationship.
While such effective and sustainable business outcomes illustrate the benefit of SSCs’ expanding scope, driving and managing this SSC evolution is not without its challenges. Indeed, “change management and governance” was revealed as a primary concern for forum participants operating and expanding their SSCs. Given the number of different systems and processes at play in corporates’ increasingly global value chains, technological integration is undoubtedly one of the most significant hurdles that SSCs face today.
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For Tatiana Nikitina – cash and banking analyst at British American Tobacco – the ability to leverage SSCs for long-term working-capital improvements hinges not just on organisational adjustments but on a mind-set change. “Yes, improving working capital requires structural improvements and the installation of key performance indicators – using operational metrics, accuracy dashboards and regional controllers. But another part of the challenge is bridging the mind-set gap. Working capital tends to be seen purely as a finance thing, when it actually involves many functions and ultimately impacts the balance sheet. So it’s not just about processes and techniques – we need to change attitudes and behaviours too”.
Given the number of different systems and processes at play in corporates’ increasingly global value chains, technological integration is undoubtedly one of the most significant hurdles that SSCs face today. Internal communication and collaboration is vital to bridging such divides – not only in gaining initial buy-in from the business for the evolving role of SSCs, but in ensuring efficiency is translated into effectiveness in all areas. For example, while improved cash-flow forecasting accuracy is itself a strategic goal, truly ‘effective’ value comes from ensuring this forecasting data is then shared by treasurers with the operations side of the business.
Technology has a supportive role to play along with these collaborative aspects. But this in itself poses a challenge: as technological integration – given the number of different systems and processes at play in corporates’ increasingly global value chains – is undoubtedly one of the most significant hurdles that SSCs face today.
Such structural improvements can, in the words of Daniel Windaus, “take a long time, and are difficult and painful to do”. But as businesses become more global and organisational and supply-chain footprints spread, the need for such standardisation and centralisation is clear. Whether it be rationalising to one (rather than multiple) enterprise resource planning (ERP) system, converging virtual accounts for receivables processing, migrating payments onto one platform (such as SAP or Oracle) or gathering payments information from across time zones for more accurate receivables and payables metrics, technology is the key enabler.
Progress here is all the more important in light of new (and mandatory) regulatory initiatives such as SEPA. The end-date for SEPA, originally 1 February 2014, has now been extended by six months by the European Commission. With compliance entailing significant practical and technological challenges – not aided by varying local interpretations – corporates are under pressure to finalise XML conversions and begin payroll test runs.[[[PAGE]]]
For British American Tobacco’s Tatiana Nikitina, such challenges should be viewed as an opportunity: to expand the scope of SSCs (“SEPA is not just a treasury project – it affects finance, HR, IT, trade and logistics, and procurement”) and to introduce end-to-end process cohesion. Indeed, the breakout session poll revealed that participants viewed ‘leveraging SEPA’ – with regard to bank account rationalisation and the automation of processes – as a top-three priority.
Change is never easy. While the growing capabilities and cross-function oversight of SSCs can only serve to increase internal efficiencies and drive most effective business solutions, the scale and complexity of this task, particularly with regard to investment in technology, can be daunting. But by working collaboratively – either with a bank such as Citi, which can provide specialist expertise and technological support, or through market-focused forums, which explore new solutions and share best practices – corporates will be better placed to overcome these hurdles and realise the greater potential of SSCs to deliver strategic, and sustainable, business outcomes.
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