In the struggle for shareholder value, executives are continually challenged to deliver effective business processes. In particular, Chief Financial Officers have to:

• Create a finance and administration organisation that adds value
• Deploy consistent, high quality global e-business processes
• Process business transactions at increasingly low unit costs (typically at less than 0.5 per cent of total revenue)

The main aims of moving into a shared services environment are to:

• Enhance corporate value
• Focus on partner service and support
• Liberate business and operating units to permit focus on the strategic aspects of their operations
• Transfer business units' non-core activities into shared-services units
• Create a motivated team that provides consistent, reliable, cost-effective support
• Lower costs and raise service levels
• Make the best use of investments in technology
• Focus on continuous improvement
• Harmonise and standardise common business processes to reduce duplication
• Facilitate integration post- merger or acquisition

Approaches to shared services
A number of approaches to shared services are being adopted around the world. They range from the basic consolidation of transactional activities to creating an independent business to provide shared services internally and sell them externally to multiple clients.

There are decisions to be made and the shared services organisation will mature and evolve. At its most basic, the move to shared services involves the consolidation of transactional processing and administrative work. Payroll and accounts payables are typically mandated services in that business units are not allowed to go out and source their own payroll for example. This trend to consolidation and away from decentralisation is evident in global companies with multi-site operations.

The most obvious opportunities come from eliminating non-value-added activities such as multiple authorisation processes and reconciliations. The organisation can gain economies of scale and improved productivity by consolidating and centralising repetitive or transaction-based activities. This can involve:

• The leveraging of pan-European or global purchasing powers
• Re-designing processes to take advantage of technologies and leading edge practices
• Focusing staff efforts on providing a better quality of service to customers both external and internal.

Cost savings and customer satisfaction
Dispersed services are costly, inefficient and do not work. By adopting a shared services policy, companies have demonstrated typical savings in the 25-30 per cent range, rising to 50 per cent in some cases. But equally important is the improvement in service to internal business units. Having identical services in every business unit and operating company is a luxury that most companies simply cannot afford.

Most companies translate cost savings into a significant return on investment (ROI). Research by Deloitte Consulting reported an average ROI of more than 27 per cent. The average reported headcount reduction of 26 per cent helped to achieve this. In addition to a healthy ROI, companies reported additional benefits from implementing shared services. Many cited a significant improvement in customer satisfaction.

Increasing use of shared services
The concept is not restricted to the corporate world and is increasingly used by forward-thinking people in the public sector. The principles of shared services have been adopted, for example, in the health-care sector to reap the benefits in minimising costs and avoiding duplication of activities. Far-sighted administrators have recognised the economies of scale in pooling human resources, food services, laundry services, accounting systems and lab services, for example. National and local government organisations worldwide are also adopting shared services to provide greater value for tax dollars and increased accountability.

Financial transactions still account for the majority of services provided by shared services centres (SSCs). However, IT, HR, legal and facilities transactions are increasingly being processed in SSCs too. The rise of e-procurement and customer relationship management (CRM) is expected to have a big impact on the centres' services and technology. In particular, e-procurement is expected to offer real opportunities to reduce back-office costs.

Other benefits of shared services
SSCs provide a means to:

• Employ lower paid people who specialise in data entry and transaction processing
• Reduce the amount of management required to deliver a quality service
• Improve productivity and standardise processes across operating sites.

While costs are often a key driver, the over-riding priority is normally to take the routine transaction processing away from local controllers allowing them to focus on supporting the business. Also, tax savings can be considerable. Many firms now use a commissionaire structure under which sales are made by a central unit, which then pays the local sales organisations a commission. With this structure, it is possible to net off the group’s profits and losses, and to move more of the profits to a low tax regime.

Furthermore, shared services will allow greater connectivity across the organisation and throughout the supply chain. Limited labour pools and changing skill bases no longer need to be a deterrent to entry either globally or domestically. The organisation does not have to worry about staffing business units already handled by its SSC and can instead direct all of its attention to staffing the core business functions critical to those business units.

As with standardisation, shared services seeks cost reduction and efficiency but, unlike standardisation, cost reduction is not the only driving force. It involves a re-design of personnel, process and technology, and a realignment of organisational structure. This is all done with the objective of enhancing value and improving service levels while all the time reducing costs. It is also an ideal springboard for implementing enterprise-wide software systems.

Cost is often a primary driver for establishing a SSC, but respondents to research surveys rated service quality as of equal importance. Experience shows that organisations focusing implementation solely on cost reduction end up with poor service quality SSCs, which are more expensive to operate than a higher service quality alternative. The cost of reworking is much higher in an environment where there is little focus on performance measurement, service level agreements (SLAs) and service costing.

People do not enjoy working in an environment where there is little focus on determining and meeting customer needs. The cost of hiring and training additional staff in a SSC with high staff turnover again ensures that, in the end, it becomes a very expensive option.

Senior management support crucial
Service concerns are closely followed by the risk of low employee support. This reinforces the need for commitment from senior management and effective change management to increase employee buy-in and secure cooperation during and after the creation of a SSC. Experience suggests it pays dividends to ensure maximum support for the SSC project before you start design and implementation.

This may take a while, and may require the involvement of more people in the initial stages of the project than may be felt necessary. But by involving people and ensuring that their views are heard, there will be much less resistance during implementation and launch. The key factors are clear vision, strategy and support from senior management. Support from senior management is a must as this type of project cuts across the power base of the organisation and, as with any moving of one set of responsibilities to another location, there will be resistance. When this resistance comes, there is a need for senior management support to ensure that the project moves forward.