Financial Shared Services

HOW THE FINANCIAL SHARED SERVICE IMPACTED THE CORPORATE PLANNING AND DECISION MAKING In todays rapidly changing and highly competitive environment, it has become very difficult for an organization to maintain its competitive advantage without managing its cost. In the race of capturing high market share, only those organizations are successful which are using scarce resources in the optimal way. Cost efficiency has become an important ingredient for achieving desired profits in the market. That is why the concept of Shared Services is now a days becoming immensely popular. Shared Services is a new model for delivering corporate support, combining and consolidating services from headquarters and business units into a distinct, market- efficient entity (Aguirre, Couto, Disher, & Neilson) Instead of establishing different functions for every department or in case of multinational companies, establishing different functions for each subsidiary, large organizations are now a days moving towards the modern concept of Shared services that includes the consolidation of business operations or activities that are used by multiple parts of the same organization (SearchCIO). Shared Services has become an effective way of keeping cost down and improving efficiency along with effectiveness by moving certain functions of an organization to one central location (Fahy, Currie, & Fahy, 2002). That central location is called the Shared Service Center. Shared service center moves major business processes out of individual business units and concentrate them in order to improve cost efficiencies, service levels, and market responsiveness. As companies globalize and e-business builds momentum, the shared services model is attracting increased attention and resources (Price Waterhouse Coopers) Shared services are used to eliminate redundancies and reduce complexities because they centralize back-office operations that are used by several departments of the same company. The goal of a shared services delivery model is to allow each business division to focus its limited resources on activities that support the divisions business goals (SearchCIO). Today, most successful companies use a shared services model for the functions of finance, human resources management and information technology. One of the major contributions of shared services model is in the domain of Finance. Financial shared services are providing several advantages to businesses especially in current environment where resources are scarce and companies are in great pressure of reducing cost. Efficiency is the core benefit of finance shared services, which in turn can result in large cost savings. Business typically report cost reductions of around 50%, although they can be as high as 70% (Sharedserviceslink).

Financial Shared Services

With the help of financial shared services, organizations can merge the unneeded processes of a dispersed financial operations environment to reduce costs, improve productivity and increase quality and effectiveness. Now a day, many large organizations are converting their major financial processes such as accounts payables and receivables management, expense processing and payroll into shared services. These processes are mostly chosen because they are highly sensitive to repetitions and also they present an opportunity to benefit from large economies of scale (Fischer). Properly managed and executed financial shared service centers are very well in catering repetitive transactions automatically, increasing financial transparency and achieving economies of scale beyond the firms expectations. They can drastically reduce the costs associated with treasury management and help optimize working capital. Setting up a financial shared services atmosphere makes ways for organizations to achieve high quality in financial operations, to force standardization among the processes and to improve consistency and reliability. Additionally, consolidating data in a shared services environment makes reporting and audit tasks more efficient and enhances visibility into corporate financials, arming organizations with the timely information they need for decision making (ibml). These are the reasons behind the success of my large organizations we see today. According to a survey conducted by the Hackett Group, adopters of financial shared services report benefits of up to 30%. Also a research study by Ibid says that financial shared services can reduce finance costs by 20% - 40% over three to five years. In its 2012 Global Business Services Study, the Hackett Group described that the main reasons behind adopting financial shred services approach are cutting the administrative costs, decreasing headcount and improving controls and compliance. According to a poll result by J.P. Morgan, the top three reasons for establishing financial shared service center are the standardization and harmonization of processes across their organizations, decreasing processing costs and centralizing or automating accounts payables processes (J.P.Morgan). According to a research report named Financial Shared Service Center: Opportunity and Challenges for Accounting Profession prepared by ACCA, over 60% of Fortune 500 companies now have financial shared service centers. In Europe, over 50% of major multinationals had implemented shared services by the year 2000. The list of multinational corporations who have chosen to set up FSSCs continues to increase on a monthly basis (Fahy, Currie, & Fahy, 2002). A study by J.P. Morgan on Global financial shared service centers shows that the realized cost savings from the establishment of a Financial shared center in the areas of Invoicing customers and accounts payable is 40% each, in the area of accounts receivable it is 50% and in the area of general accounting, it is 75% (Optim2). Also, the 2010 study of the Hackett Group about shared services usage within large enterprises shows that in the area of finance, 47% of the companies with established financial shared services saw more than 10% of productivity improvement, 43% companies saw more than 10% improvement in quality and 35% companies saw more than 10% of customer service improvement (SAP, 2012).

Financial Shared Services

The above described information shows that most of the times the reason behind the establishment of financial shared services are cost reduction, efficiency and effectiveness of firms processes. This does not mean that the advantages of financial shared services are restricted to cost related activities only. Financial shared services have huge impact on corporate planning and decision making as well because companies are now more focused towards their long term strategic benefits as compared to short term financial benefits. Many large companies of the world have already begun to convert their financial shared services from doing just cost related functions to be more efficient and to better support corporate planning and decision making. This step has given these organizations a good competitive advantage. Any company that is not taking advantage of its financial shared services in this way is putting its competitive position at risk (CIMA, 2010). Some sophisticated financial shared service centers also have the facility to provide training programs for accounting personnel. These personnel could even be set up to operational areas to help drive value and support strategic decision making. Corporate planning and decision making are the initial steps of management to identify the future direction of a company. One of the major portions of corporate planning involves financial forecasting and analysis that includes activities like cost analysis, budgeting, performance reporting etc. These are the activities that are used to form long term corporate strategies and help in identifying and achieving goals in a most accurate way. These activities are among the key indicators of a companys success and help to link strategic goals to performance and provide timely, useful information to facilitate corporate planning and decision making (Kono & Barnes, 2010). Today, the scope of financial shared services is expanding to include all these activities. A research conducted by the Hackett Group shows the percentage of finance related corporate planning and decision making activities that are provided by financial shared service centers of World Class companies i.e. those companies which are in top quartile of both efficiency and effectiveness and Peer Group companies i.e. those companies which are in middle quartile. According to the research study, the World Class companies are already providing higher value services such as 50% performance reporting, 30% interim forecasting, 25% performance analysis, 20% cost analysis, 20% budgeting and 30% cost accounting through their financial shared service centers but few Peer Group companies are providing any of these services through financial shared service centers today, only 20% are providing performance reporting and 3% cost accounting. However, the research study also shows that in near future, World class companies will provide 75%, 75%, 63%, 50%, 38%, 25% and Peer Group companies will provide 26%, 41%, 41%, 41%, 25%, 22% of performance analysis, cost analysis, cost accounting, performance reporting, budgeting and Interim forecasting respectively through their financial service centers (CIMA, 2010).

Financial Shared Services

One part of overall corporate planning is the planning for cost and savings. In the 2005 book on Shared services in Finance and Accounting, Tom Olavi Bangemann wrote that results from establishing a finance shared service are very positive in terms of cost benefit or savings. He said that 40% of European companies have savings of more than 21% and another 40% have savings of more than 11% US- based companies have achieved relatively high savings of about 41-80% just because of setting up a Separate shared services centre of finance whereas (Bangemann, 2005). Better practice and continuous improvement is one of the biggest objectives of corporate planning because without changing according to the dynamic environment and without improving old ways of working, a firm cannot achieve its strategic goals created in the process of corporate planning. Finance shared services also help firms in this regard. In a decentralized framework, it is difficult to do all work according to company policies. For example, there are many difficulties related to Account payable like delays in purchase orders, lack of loyalty to standard suppliers terms etc. All these problems can create a lot of hindrance in ordinary course of work. Also there is always a possibility for locally formed functions to bend to the pressures of certain influenced personalities in management. All these obstacles can be removed by setting a separate centralized finance facility that can work easily in accordance with the policies of the firm and that facility is Finance shared service centre. Decisions regarding financial items are very difficult and often include a complete analysis. Working capital is an important item that requires special focus because it fulfills a companys short term cash needs. When it comes to local decision making, the decisions about working capital are often made and managed on an ad hoc basis without any prior analysis. Finance Shared services help in solving this problem because these shared services always include accounts payable and accounts receivable. These items when handles effectively and efficiently in a Shared service centre can improve working capital and ultimately help in better decision making about it. Despite of all these benefits of financial shared services, some companies believe that along with benefits on some part of corporation there are negative effects on other parts of the organization. These companies with separate independent business units believe that centralized financial service centers are not allowing them to think freely about administering their business hence creating problem in corporate planning. That is why they say that a financial service centre does not fit with their corporate strategy (Bangemann, 2005). Also they believe that setting up a financial shared service might result in a loss of control over decision making and it might also cause delays in decision making because of lack of decentralized finance domain. The role of finance in an organization is considered to be an important strategic resource. Whether its is financial forecasting for valuating a company or budgeting for the purpose of future expenses, financial activities enable organizations to effectively make their corporate plans and successfully execute strategies to obtain short term as well as long term goals. The thought of removing direct access to these resources by making a separate shared service for finance is
4

Financial Shared Services

sometimes scary for finance professionals because of their dependence on these resources. The transformation brings change for these professionals like handling financial support for local operations from distance, change in transactional flow and communication channels. These changes directly affect the planning and decision making of local operations. That is why some companies are still resistant to form a separate shared service for the domain of finance. As a whole, financial shared services have more positive effects on corporate planning and decision making than the negative effects. To offset the negative view, it is necessary for the organizations to make their financial shared service center personnel to focus on being the ultimate service provider, with good information flow between different local operations and a sound communication methodology (Johnson, 2012). By removing these fears, all companies can easily feel the positive effects brought by the financial shared services. The Hackett group says Financial shared services are one of the cornerstones of todays strategies for the redesign of organizations (ibml).

Financial Shared Services

Bibliography
Aguirre, D., Couto, V., Disher, C., & Neilson, G. (n.d.). Shared Services: Management Fad or Real Value? Retrieved April 5, 2013, from Boozallen: http://www.boozallen.com/media/file/33890.pdf Anti Essays. (n.d.). Shared Services. Retrieved April 8, 2013, from Anti essays: http://www.antiessays.com/free-essays/326115.html Bangemann, T. O. (2005). Shared services in Finance and Accounting. Aldershot: Gower Publishing Limited. Bergeron, B. (2002). Essentials of Shared Services. John Wiley & Sons. Cecil, B., & Williams, L. (2011). Up Then Out? Shared Services strategies that help promote best practice. Infosys . CIMA. (2010). Improving Decision making in organizations: The opportunity to reinvent Finance business partners. CIMA. Deloitte. (2011, March). 2011 Global Shared Services Survey Results. Editorial staff of upply and demand chaion executive. (2009, February 19). Hackett Study: Finance Shared Services Now Standard Approach; Shared Services as a Cost-Cutting Tool Shows Dramatic Expansion. Retrieved April 2013, 7, from sdcexec.com: http://www.sdcexec.com/news/10327010/hackett-study-finance-shared-services-now-standard-approachshared-services-as-a-cost-cutting-tool-shows-dramatic-expansion Fahy, S. C., Currie, J., & Fahy, M. (2002). Financial Shared Services Centres: Opportunities and Challenges for the Accounting Profession. London: Certified Accountants Educational Trust. Fischer, B. (n.d.). GETTING THE MOST OUT OF FINANCE SHARED SERVICES. Retrieved April 5, 2013, from SAP: http://www.sap.com/community/flash/kw11_08_story_2.epx ibml. (n.d.). Organizations Shouldn't Overlook Financial Shared Services in Their AP Automation Planning. Retrieved April 5, 2013, from ibml: http://www.ibml.com/financial-shared-services-inautomation-planning.php J.P.Morgan. (n.d.). Financial Shared Services: Benchmarking Success for Treasurers. Retrieved April 5, 2013, from JPMorgan: http://www.jpmorgan.com/tss/General/Financial_Shared_Services_Benchmarking_Success_for_Treasure rs/1291506227820 Johnson, K. (2012, July). Sharing Services is Saving. California CPA Magazine . California, USA. Johnston, C. (2011, September 6). Fast-Tracking Finance: Decision Making for Back-Office Consolidations. Retrieved April 7, 2013, from A&M: http://www.alvarezandmarsal.com/fast-trackingfinance-decision-making-back-office-consolidations

Financial Shared Services Kono, P. M., & Barnes, B. (2010). The Role of Finance in the Strategic-Planning and Decision-Making Process. Graziadio Business Review , 13 (1). Local Government association. (2012). Services shared: costs spared? An analysis of the financial and non-financial benefits of local authority shared services. London: Local Government association. National Audit Office. (2007). Improving Corporate Functions using Ahared Services. London: TSO ( The Stationary Office). Optim2. (n.d.). Finance Shared Services. Retrieved April 6, 2013, from optim2.com: http://www.optim2.com/wordpress/pdf/shared-services-insights.pdf Price Waterhouse Coopers. (n.d.). How to design a shared service center that works. Retrieved April 5, 2013, from pwc.com: http://www.pwc.com/us/en/issues/efficient-shared-servicescenters/assets/shared_services_qualifications.pdf RONA, D. (2008). Finance shared services Delivering the promise. UK: KPMG. SAP. (2012). Implementing Financial Shared Services. SAP. SearchCIO. (n.d.). Shared services. Retrieved April 5, 2013, from SearchCIO: http://searchcio.techtarget.com/definition/Shared-services Searle, P. (2008, June 2). What is The Role of Finance? And What Exactly is Decision Support? Retrieved April 5, 2013, from FDE: http://www.the-financedirector.com/features/feature1972 Segantini, L. (2005). Shared services, OUTSOURCING, TECHNOLOGY as options to F&A transformation. Brussels: The Outsourcing institute. Shared Services and Outsourcing Network News and Analysis. (2012, October 1). Top 10 Mistakes When Implementing Shared Services. Retrieved April 2013, 7, from SSON: http://www.ssonetwork.com/business-process-outsourcing/articles/top-10-mistakes-when-implementingshared-services/ Sharedserviceslink. (n.d.). Finance Shared services. Retrieved April 5, 2013, from sharedserviceslink.com: http://www.sharedserviceslink.com/file/92757/finance-shared-services.html Steve, R., & Stewart, S. (2005). Finance shared services and outsourcing: Magical, mythical or mundane? Somers, NY: IBM. Valentine, V. (2011). Shared Services Demand on the Rise. Information Management. Venables, P. (2012, April 2). Implications of a shared service model. Retrieved April 7, 2013, from CIO: http://cio.co.nz/cio.nsf/focus/implications-of-a-shared-service-model Weller, P. (2008). Building a Word- Class organization. NASC National Conference. Denver Colorado: The Hackett Group.