Insider Business Club: shared service centres

Event sponsor: Capgemini

HOW CAN ORGANISATIONS GET THE BEST OUT OF A MOVE TO SHARED SERVICES
DELIVERY?

Cliff Evans, vice president, shared services, Capgemini

For the back office, shared services can certainly deliver efficiency and
greater quality of data, but you must have the right spend scope as a business,
and the right mindset to get the value out of implementing them.

In other parts of the business, such as packaging or marketing, one strives
for different values from shared services, which could include better customer
response, more improved responsiveness or even compliance. So it’s not a
panacea. But in the right environment – and with the right motivation – it can
certainly deliver substantial benefits.

It’s not something you approach lightly; it’s something you have to stick out
and keep going along the journey.

Shared services people set out – and I think there is a particular danger of
this in the public sector – thinking that shared service is a magic bullet to
suddenly get the cost saving. What they then find is that, as they set out on
the journey and have done their benchmarks, management comes in and also runs
some benchmarks, and they work out that the finance function in total is 30% off
what might be classed as a best-in-class cost base. Then they think the magic
bullet is to put it into a shared service. But, actually, they miss the point.

An awful lot of the cost of what they put in the shared service then sits in
what is left of the finance function.

If they don’t then transform the rest of the finance function, they will look
back in a couple of years and find out they have got reasonably efficient shared
service, but that actually the total cost has not gone down because they simply
haven’t addressed the whole problem.

IS IT A MAGIC BULLET TO CURE ALL CORPORATE ILLS?

Phil Searle, MD of Chazey Limited and former CFO of Cendant TD
S

You can get the triple benefits of lower costs, improved service levels and a
tighter control environment. It isn’t a quick fix and it isn’t easy. You have to
invest in it. There has to be a certain amount of determination and input in
terms of resourcing and planning and management support, and you have to adapt
it for your own culture.

It is a great solution for many companies, but it isn’t a one-size-fits-all
solution, and it is an investment that doesn’t come for free.

I wouldn’t say that some objectives are more easily achieve able.

Leadership is critical and a large part depends on the focus. I have had
conversations with certain companies over the years and met some that went in
with the sole objective of compliance. They probably got more benefits out of
compliance and concentrated less on cost.

The important point is that while it can achieve all three, it will be
differently weighted depending on your background and circumstances, and your
own drivers.

When you start off you would probably go with relatively easy or
transaction-based services, such as accounts payable, accounts receivable and
general ledger. From my experience at 3com, we started off with light general
ledger accounts payable and accounts receivable, and moved up the value chain
over time, doing sales commission, controlling and stock administration.

I was with a potential client a couple of weeks ago and one of the first
things the CFO said to me was, ‘I’m not interested in the old-hat shared
services stuff. I’m interested in the treasury, business decisions support and
those functions.’

WHAT BENEFITS HAVE YOU REALISED?

Nigel Smith, head of finance, shared services, Royal Mail
Group

We have been doing it for six years in total, so you would expect to see some
benefits, otherwise we would have broken the thing up again by now. This is very
much a long-term thing – it needs commitment and investment. We didn’t really
see any benefits for a couple of years, but like a football manager coming in to
manage a new team, you don’t generally see sustainable results very quickly but
after a few years, benefits start to flow through. That certainly has been our
experience.

If you stick with it, you will get three benefits. In our case, we were clear
at the start that our shared service centres were set up for cost-reduction
purposes.

The interesting thing was, having done that, we found that the improved
quality came alongside cost reduction. The compliance benefit actually was a new
one to us when we set up; we didn’t expect to get that. Back in 1999-2000, that
really wasn’t high on our agenda. It has come as a sort of bonus, though. And
certainly in terms of compliance with a group policy and compliance in the
Sarbanes-Oxley sense, we have had those benefits as well. Initially, it was all
about cost in our case.

In the case of finance, customers within the organisation are generally
business unit finance people, so we are speaking the same language. The business
overall wants to see results in terms of compliance, efficiency and
effectiveness, so we’re preaching to the converted a bit in terms of our
customers internally in the organisation because they want to see the same
things as us.

I think that is a kind of benefit you get by positioning your shared service
centres functionally.

Facts and figures

• 60% are already using shared service centres
• 40% have or would opt for them to improve cost control
• 22% say they have no confidence in a shared service centre option
• 11% saythat governance issues are holding them back