Finance Shared Services Mission & Business Case

Cost reduction in Shared Services Organisations (SSO) is achieved through Economies of Scale centred around Continuous Improvement efforts. The SSO’s mission is to continuously drive Defects and Non-Value Added Activities out of processes. Full Time Equivalent (FTE) efficiency savings can be transformed into headcount reduction, more volumes transacted (i.e. new acquired businesses) and/or new Scope Development.

The key efficiency drivers in a Financial Accounting environment are as follows:

• Purchase to Pay (PTP) Process – Three Way Match accuracy levels
• Order to Cash (OTC) Process – Customer Disputes elimination, Billing and Customer Remittance Advices accuracy levels
• Accounting to Report (ATR) Process – The PTP and OTC defects elimination reduces the need to process period end P&L correcting journals in General Ledger (GL), therefore continuously shortening the Month-End timetable. The improved accuracy and timeliness of the financial reporting allows Senior Management to make better and faster business decisions.

The Root-Cause of the defects that flow into the accounting processes generating SSO rework are often originated outside of the Finance Shared Services scope and generally sit with:

• Buyers
• Billing Departments
• Account Managers
• Sales Departments
• Customers
• Suppliers

Along with becoming an efficient and cost effective transaction machine in a Financial Accounting environment (especially when SOX compliant), the Shared Services mission is to become an effective Control Function. With the utilisation of integrated information systems (ERP), through Supplier Invoice processing, Debt Collection, Cash Application, GL Accounts reconciliation and Journal Entries review and posting activities, an SSO has the possibility to record, categorise and report against the processing issues that flow into the SSO from outside its boundaries. The utilisation of multidimensional reporting tools (Info-cubes) plugged on top of ERP relational databases allows the production of easy to read metrics in a graphic format (KPIs – Key Performance Indicators). These KPIs can be used in regular Process Improvement Forums between the SSO and its Stakeholders to identify and resolve the Root Cause of the issues afflicting the SSO rework levels.

The Benefits of this Process Improvement approach are not only for the Finance Director but for the wider Business Leadership as well:

• More efficient Financial Accounting processes also represent a reduction of the Cost of Finance as a Percentage of Revenues with a consequent positive bottom line impact
• The Governance Mechanism, enabled by a solid “SOX Type” Financial Controls environment, gives total Compliance piece of mind to the Executive Team in terms of legal prosecution risks, at the same time enabling a Quality improvement process (defects elimination) to allow Efficiency and Cost improvement end result achievements (rework and non-value add reduction)
• The continuous driving of inefficiencies out of processes does not only allow a direct cost reduction, but also enables the Business to absorb more volumes within the processes already in scope (business growth absorption, both organic and through acquisitions, with the same level of resources) or alternatively allows the SSO’s processes Scope Development. The up-skilling required to enrol more complex and value added activities will also require the recruitment of new employees. However, wherever possible, priority should always be given first to the existing workforce and their most talented members to help them progress in their knowledge base and career paths (Talent Development Programs). In a Financial Accounting environment, typical upstream scope development examples are Central Procurement and Billing, providing the SSO with more end-to-end process coverage and direct accuracy levels control. The typical General Accounting example is the GL process scope development towards Management Accounting, which in turn produces one of the most value added business benefits (although most difficult to measure), the Financial Planning & Analysis (FP&A) transformation. The Management Accounting function transformation into a full time FP&A forward thinking Business Partner, allows Executive Teams to work with a value adding Finance function supporting the development and implementation of their Strategic Business Plans
• Increased Reporting Accuracy and Timeliness ultimately benefits the Business Decision Making Process
• Cash Flow increases (due to Debt Collection improvements) produce the evident advantages of fostering internal and external investment capabilities and reducing the cost of debt

Customer Service & Continuous Improvement

Traditionally, the Finance and Business relationship is afflicted by the “us and them” culture, since the Business Leadership generally looks at Finance as a support function and necessary overhead rather than a Value Added Partner.

If the two sides find common ground, in terms of shared Outcomes (higher Purpose) out of certain improvement initiatives, then their relationship (Rapport) can be rebuilt around the alignment of their respective Values, Beliefs, Capabilities and Behaviours.

Aligning the organisational Skills and Behaviours around common end-to-end improvement objectives is the key to success. The relationship has to become blame-free and based on process issues factual analysis, which has to be Root Cause and Pareto 80/20 based (Simple Six Sigma for Shared Services).

In Root Cause Measurement and Analysis terms, there is a substantial difference between Six Sigma utilised in manufacturing processes (as originally developed for) and service businesses. In manufacturing processes, the improvement efforts are mainly focused on machineries (machines do not have opinions, emotions and relationship issues). In service businesses, the improvement challenges are represented by People interacting with People. Shared Services are a People Business and therefore People must be the first area of Change focus. If Teams are motivated and empowered to make Change happen, then Change will happen. Otherwise, resistance will inevitably be encountered with heavy direct project cost and failure opportunity cost consequences.

Six Sigma is first and foremost a way of thinking (Thinking at Cause vs. Living at Effect) and building positive cross-functional relationships between Finance and its Stakeholders. These two ways of thinking and behaving are enabled by specific Values and Beliefs. It is a key responsibility of Change Agents to make sure that the organisation and their own individuals are all “behaviourally” aligned (“Walk the Talk”) to the same set of Values and Beliefs – typical of Theory-Y cultural environments as opposed to Theory-X (Mcgregor, 1960).

Wherever possible, a Process Improvement Solution should be developed around the Six Sigma principle of defects elimination through automatic control prevention. In Financial Accounting services, the equivalent preventative control function played by production machines in a Six Sigma traditional manufacturing implementation can also be played by information systems.

The following are examples of ERP Systems preventative control standard functionalities:

• System allowing only valid combinations of accounting flex-field segment values such as cost centres and natural accounts
• Set-up of Balance Sheet accounts as machine posting only
• Segregation of duties through system menu options set-up

Other more sophisticated system preventative controls can be developed with customised solutions, which require the alteration of the applications standard code. Although nowadays ERP System customisations are discouraged, the total cost for the business (of system lack of controls) is often underestimated. A customised system control example is the VAT control functionality when processing invoices (especially for countries with the most sophisticated Statutory requirements such as Italy, France and Spain) to ensure total accuracy on the VAT Reports and no tax returns rework or audit penalty risks.

The advantages of having an SSO driving the development of this type of system improvement solutions (through a dedicated team of process and system Functional Experts) are as follows:

• Become a centre of expertise for an entire region, continent or globally
• Build a two-way partnership between Finance and IT which represents a strong advantage in developing quality solutions through the continuous exchange of technical and functional knowledge
• The possibility of sharing a certain improvement solution across multiple regions, countries or continents, making the original business case even more compelling

In conclusion, the People enabled Simple Six Sigma approach described above also transforms the traditional Shared Services Customer Service process. The original “Work Against” phase of the 1990s forerunners is pretty much obsolete now as we would mainly tend to agree that the “Work For” status (with all its SLAs and Customer Survey formalities) is the next main objective to be achieved. And in actuality, it is not, because there is a third phase known as the “Work With” or Partnership Phase. If a true Partnership Status between SSOs and their Stakeholders is in fact achieved, then Customer Satisfaction would be automatically achieved and does not need to be caged inside any SLA or Survey rigidity, which is still used today to “cover our Shoulders” and “defend” ourselves. Unfortunately, this is still an after-effect of the early stage SSOs and a consequence of the “Work Against” culture.

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