Shared service centres debate: The benefits of centralization

BE, Corning Shared service centres represent the functionality of ERP systems and financial processes that can be standardized. Easy to reach areas are: general accounting, disbursements, collections and asset management accounting. Our centres in Shanghai and Budapest also manage treasury aspects. By centralizing activities you can execute them more efficiently and there is a greater ability to maintain a critical mass of resource and skill, education, recruitment. I would like our in-house banking to be more integrated into the shared service centres but this cannot always be fully achieved in one location as they are dependent on different regulatory frameworks, tools and skills.

JL, J&W Associates Swati, what drivers do you see?

SM, Citi Corporates are centralizing for reasons beyond reduced labour costs, including compliance and the need to have centres of excellence that bring together transaction processing, reporting and internal controls. Globalization is influencing thinking about where to locate the shared service centre and which functions are centralized. Mergers and acquisitions have expedited the move to centralization. It is difficult to integrate new companies within a short period of time unless you have centres of excellence.

JG, Dell Dell’s main driver is getting back-office efficiency through standardizing business processes, creating one centre of excellence. Having everybody located in one area also helps.

AB, GSK After the establishment of a country SSC, one of our prime drivers was labour arbitrage.

APR, Deutsche Bank Key factors are cost and the need to gain visibility and increase controls over corporate affairs. Corporate management is helped by the centralization of data, which can facilitate improvements in commercial performance through a better understanding of counterparty relationships, behaviour patterns, profitability and allowing for more informed decision making.

PD, UPS UPS only recently implemented a standardized ERP platform across our subsidiaries in Europe and this has enabled the accounts payable and general ledger processes to be migrated to a shared service centre environment. An initial advantage is wage arbitrage. There are also benefits in enabling standardized processes and procedures. The synergies of having one shared service centre supporting our business units across Europe allow economies of scale.

APR, Deutsche Bank From a corporate’s perspective, the cost impact from changes in the banking structure is potentially small when factored against other savings opportunities. The implications within the business are broader and would come from savings that can be achieved, for example, through technology platform rationalization and standardization.

JG, Dell You might be selling yourself short! It is extremely important. Once you try to centralize an activity, you see how disconnected everything is. A bank with global scale can service multiple countries and enhance efficiency.

JL, J&W Associates Where does the shared service centre fit at UPS?

PD, UPS Most processes inherited by the shared service centre were originally managed by finance and accounting, and the centre allows us to implement working-capital policies. Ensuring all suppliers are paid to terms is much easier now. We had already developed the in-house bank concept before implementing the shared service centre. We had a centralized treasury function and a global multi-currency cash-pooling operation. We had our liquidity structure in place, and the shared service centre fitted in with that.

JL, J&W Associates Who are the banks working for?

APR, Deutsche Bank Group treasury is our first point of contact. However, it is rare that a bank will convince a corporate to move into a shared service centre. We advise on market movements, corporate best practices and what comparable businesses are doing, and that typically prompts interest. We support the thought process, help the treasury navigate through banking implications and opportunities, highlight where rationalization or consolidation can take place, where automated links can be established and how changes within transaction processing models can fit in with a working capital or liquidity management project. We therefore work for treasury but also the broader business.

SM, Citi Given strong relationships with technology companies that were early adopters of centralization models, we often play a consultative role in the early stages. Typically, the banking dialogue is with treasury. Procurement, credit control and supply chain functions have become more visible. Some companies have done a good job of linking the broader organization, and others continue to operate in silos. We often see disconnects between liquidity and funding decisions treasury makes versus what the SSC does.

AB, GSK  Treasury is usually the primary contact.

APR, Deutsche Bank Once a company launches a centralization strategy, we typically consult with treasury to help define an appropriate banking strategy. Then relationships migrate and corporate project teams including SSC heads, treasury, IT and operational managers become key contacts.

JL, J&W Associates Surely there has to be a decision at the CEO or COO level?

BE, Corning Shared service centres are mainly driven by senior management. It normally starts with: ‘Your processes are inefficient – costs are too high, find a way to reduce them.’

Cultural issues

JL, J&W Associates What were the cultural and business questions for Dell?

JG, Dell  In each country we have back-office operations that are part of the local finance operation. The decision was taken at the CFO level to centralize back-office activities into a shared services organization. Then it becomes the vice-president of shared services’ job to get that done. You focus the finance staff on value-added work, pricing products and budgeting. You want the local finance function working on higher-value-added activities.

SM, Citi In some industries, such as consumer and healthcare, CFOs assess what is core, and whether they want to process transactions in-house or outsource to a business processes outsourcer. These decisions are often taken at CEO or board level.