Insider Business Club: shared services centres

How is the shared service centre market developing?

John O’Brien, senior analyst, Ovum

From the government’s perspective, which is where the most of discussion has
been until now, the shared services market has taken off through policy
directives.

There have been attempts to share services within central government
departments such as the Department for Work and Pensions and HM Revenue &
Customs, which are in the process of finalising their shared service plans on an
HR and finance basis.

On a corporate level, it has been going on for some time. Major corporations
like BP, HP and Accenture did this when they consolidated their finance and
procurement functions into centres of excellence dotted about the globe. That
has enabled them to pursue their own agendas in terms of greater effectiveness
and efficiency. In the UK, we have seen some examples, such as Tata winning a
contract with Pearl recently to set up a shared service centre for the UK.

One of the problems, certainly with government, is that there are too many
sellers and too few buyers. If you look at local government, a different model
is emerging, where organisations are clubbing together.

How are shared finance service centres developing?

Rick Sturge, director of employer and strategic development,
CIMA

We’ve seen a lot of changes over the years, but the first deals were done in
the early 1990s with people like BP. Activity was transactional and rules-based,
and financial accounting-oriented right up to production of accounts and tax
returns.

We’re seeing a slight shift in emphasis, now. The traditional benefits of
outsourcing and shared services are based on centralisation: technology-enabled,
moving populations out of the country, getting wage arbitrage. There seems to be
a new flow of requirements now and increased demand for skills that are not
really fundamentally financial accounting-oriented at all, but are much more
about business management.

Operators are either looking to offer a higher value service or being driven
by the retained function to provide some of those services. It’s the next phase
of the skills development process and very interesting from our perspective.

You must be completely clear about what you’re trying to achieve by going
down this route. Is it something around straight cost savings or about
transformational change? Are you trying to implement new IT capabilities or
drive general change programmes? Are you trying to free up management time? Make
it clear at the outset, then you have a chance of achieving it.

Does removing transactional services from a finance function really
create value?

Melanie Knight, head of shared services, CapGemini

There is an assumption that once the transaction element has been reduced,
the retained function steps in to become the strategic partner to advise
business and better support critical decisions with a more commercially focused
attitude.

However, once a shared service agenda starts to gather pace, focus is often
on the implementation of the part that leaves the main organisation ­ the shared
service centre. This may be for a number of reasons. It’s easy to see the
business case ­ you’ve got standardisation, you’re taking heads out ­ but also
it’s more tangible.

You’re setting up a new organisation, you’ve got a new shared services
director there, so time and again focus goes onto the optimising of the
transactional element at the expense of the retained function.

Actually, a client of mine described the transaction element as one part of
the function of a jigsaw and I like this analogy as it’s a dual transformation
that’s required but often missed.

FDs are so used to controlling that transactional relationship that the first
question is how they manage when control is passed to the shared service centre.
That’s a whole piece to work through, and then I think it’s really an assessment
of what would be required and what would add value to the business or what can
be done that wasn’t done before. So I suspect there needs to be an assessment of
what would be required to add value and then a skills assessment.

It’s important to consider both the shared/outsourced and retained elements
together. If you consider either in isolation, you’re not getting the full
benefits that are available to your organisation.

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