What’s behind shared service centres?

Most finance directors and finance professionals recognise that a shared
service centre is a document factory, a transaction processing plant. It takes
raw materials of invoices, receipts, etc. and processes them through an agreed
and established procedure.

Not all agree the SSC should go a step further and produce the management
accounts – but without that next step management accounting remains a cottage
industry. And in the 21st century it needs to match the scale and sophistication
of the whole organisation.

An SSC should be responsible for all the mechanical, routine and predictable
activities of the finance function – right up to the production of the first
draft of the monthly financial statements. These activities are generally
susceptible to clear rules that can be adhered to and will prevent the SSC
seeking clarification from other parts of the business on a frequent basis.

Raw materials

In a traditional management accounting process ‘raw’ management accounts are
constructed from data held within the general ledger, which is based on
transactions from the accounts payable, accounts receivable, expenses and other
sub-ledgers/data sources.

From the general ledger a set of management accounts are produced, usually on
a monthly basis. The standard management accounts package includes profit and
loss account, balance sheet, and variance analyses. While the raw financial
statements can more efficiently be dealt with by an SSC, the variance analyses
need to be completed by financial (or business) analysts working closely with
the business managers.

An SSC provides advantages by ensuring all processes are performed by a set
of rules which ensures there is a consistency in method and a quality in output.
All the staff in the finance function are adequately qualified, trained and
supervised. To ensure maximum efficiency staff (either within the SSC or
elsewhere) should only perform tasks suitable to their qualification and
experience. Highly qualified staff performing more routine functions offer poor
value for money, while staff working on tasks for which they are not
appropriately qualified create risk of error.

In this model, only the SSC is able to actually input transactions into the
general ledger. It is possible for certain personnel to have access to the
information held by the SSC under agreed protocols, but that access is ‘read
only’, they are not able to post or alter transactions – including journals.

Any transfer of routine work to an SSC should see an improvement in
effectiveness, efficiency and quality. By drawing the management accounting
function together in one place issues such as best practice, benchmarking,
systems upgrades and change initiatives should be much easier to handle and to

In a management accounting system where centres are diffuse and
responsibility is shared such processes have to be performed as many times as
there are finance teams.

A successful implementation of an SSC results in an improvement in the
consistency and quality of the financial information produced. The output of an
SSC will be measured against agreed and known key performance indicators. At
present draft management accounts may have considerable and fluctuating variance
from the version in many companies. Under a properly constituted SSC the
difference between draft and final should be known, consistent and measurable.

One of the key advantages is that it caters for the company’s growth whether
organic or through acquisition in a cost-effective way. So any acquisition, new
product or service line can be serviced with only a marginal increase in

It’s not all upside. Any change management initiative has its risk and
interfering with a core operation such as the production of monthly management
accounts needs proper planning to ensure minimum disruption.

Introducing an SSC represents a cultural change. It is a more formal
structure and this has to be recognised. Many organisations have a ‘do it now’
approach because the staff are on hand. An SSC reduces that flexibility but also
its cost.

It also has implications for human resources. Jobs and tasks are relocated.
An SSC breaks up empires, senior people lose teams and the status which goes
with them.

It is important that the cost reduction is not lost through the emergence of
a new layer of bureaucracy, ‘shadow’ teams in the original location which are
deemed necessary to cope with the SSC or repeat some of the work now
transferred. This is overcome by clear lines of communication and an explicit
understanding of where roles and responsibility lie.

IT strategy experts assert that any technology interface works best when the
least amount of data has to cross. This logic works equally well when applied to
the interface between an SSC and other parts of the organisation. The two sides
of the interface represent a natural separation of duties. So it would require
both parties to introduce or overlook mistakes or inaccuracies in order for the
error to remain. The key part of the interface element is that it should
represent a natural check on the work and data that flows between the two
without introducing a specific checking process.

A set of draft management accounts sent from the SSC to the divisional
financial analysts contains far less data than the full transaction listings
required to build those management accounts.

As accountants we have been trained to see the raw basis of accounts, the
carefully produced transaction listing, accruals and prepayments, the
spreadsheets and the journal postings as the stuff of our professional work.

But technology has commoditised and de-skilled the processing of that data
into usable financial information. Big systems, if carefully set up, have the
capability of producing high quality (first draft) financial statements.

The more that clerks can capture data accurately at the beginning of the
process then the more accurate the end result will be. But this disenfranchises
highly skilled, highly qualified accountants chasing around the building and
re-formatting the accounts once they have been produced. As moving this work to
an SSC – where much of the work will not be conducted by qualified accountants –
it undermines the essence of much of the professional work accountants are used
to performing, then courage is required.

Peter Charles is a business consultant and chartered accountant

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