Moving to a shared services model reduces costs and optimizes performance, but taking the right steps is necessary for a successful outcome. Explore the initiatives and challenges of a common chart of accounts and calendar for companies moving toward enterprise-wide shared service center operations. This paper will focus on how standardizing the data streamlines business processes, eliminates silos and facilitates the new functionality of Oracle® E-Business Suite Release 12.
Shared Services Centers in Today’s Market
A shared services center (SSC) is an operational entity which performs all of the non-core business processes for all of the divisions within an enterprise (e.g., accounting, human resources, etc.). Rather than having to dilute resources on back-office functions, each division is able to focus more closely on its intended objectives, which instead can be performed on a consolidated level by an SSC. Companies seeking to remain competitive in today’s market are gradually shifting to this model, because it streamlines operations and reduces costs.
As early as of 2009, more than 93 percent of the world’s 1,000 largest companies, based on revenue, were capitalizing on the use of shared services centers according to a Hackett Group survey. The number of companies that transitioned has only increased since then. Some notable corporations who rely on SSCs include Siemens, McDonalds, Federal Express, Microsoft and American Express. Even for smaller companies with revenues below $1 billion, the shared services center model is becoming more common.
The primary appeal of implementing an SSC for any company that takes the initiative to implement is the financial savings. Moreover, operating an SSC helps mitigate risk as there are fewer control points and variations when completing a transaction. Considerations to account for include deciding how your enterprise wants the SSC to be set up and what organizational challenges need to be met, as will further be discussed in this white paper.
How Shared Service Centers Operate
The effectiveness of an SSC is based on the principle of an economy of scale. The more that common business processes can be standardized throughout the divisions of an enterprise, the greater the amount of transactions that the SSC can handle. Similar to the way a production plant operates, personnel are trained to perform specific tasks efficiently, such as preparing invoices. Therefore, fewer employees need to be dedicated to common operational responsibilities, although they are still able to complete them at a significantly lower cost due to the high volume.
According to a 2013 study by Deloitte, of the more than 270 companies surveyed, 74 percent were headquartered in the US, Canada or Western Europe, and 54 percent of companies had SSCs in the same regions. The current trend is to locate shared services centers in regions where labor costs are low, such as Tennessee or Ireland. Additionally, 75 percent of the organizations polled for the study operated in more than ten countries, and 58 percent indicated that they had more than one SSC. Although multiple shared services centers within an organization can be the result of different specializations, there are also instances where several of them are performing the same tasks due to sheer volume, or because they have some strategic purpose.
For example, the business practice known as “Follow the Sun,” which was originally coined and developed for American Express, relies on multiple SSCs functioning in coordination with each other on a 24 hour timeline. In order to keep the business operating without interruption, each of the centers is approximately equidistant from the other, in terms of time zones. This way, as the business hours of one region ends, the responsibilities are rolled over westward to the next region’s SSC. Not only does this prevent a global organization from relying on the local office hours of a particular office, but it also allows the company to offer around-the-clock customer support.
Companies that decide to transition to a shared services center are faced with the choice of insourcing their operations to an internal entity, or to outsource them to an external third-party, which is also referred to as a Business Process Outsourcing (BPO). An internal SSC is comprised of your own company’s employees, acting as a profit center. Although the principle of economy of scale continues to be a driving factor for its implementation, a more popular reason in recent years has been the desire for high-quality work which can be achieved thanks to a staff specializing in a particular set of tasks. Conversely, certain organizations desiring to benefit from SSCs, may not have the resources available to restructure their company, and so will rely on an external BPO service acting as a cost center. Popular providers, such as Verizon Business partnered with Accenture, offer expertise and support to transitioning companies. BPO services tend to offer cheaper rates than an internal center because they have many customers. However, since it is external, none of the capital stays within your enterprise as it would with an internal center. Another distinction between an internal and an external SSC is that with an insourced model, your organization can standardize its processes in a way that suits it best; whereas an outsourced model comes with the disadvantage of having to conform to the BPO’s operations.
Challenges and Critical Success Factors for A Shared Services Center
If your organization is going to take on an ambitious project like an SSC implementation, then you will need to take certain steps to ensure its success. This is accomplished through data and process standardization, creating a common chart of accounts (CoA), and introducing the appropriate accessibility and governance rules. The moment that an enterprise is not meeting these conditions, it is no longer recognizing cost-savings benefits.
As stated in the previous section, cost savings are possible because of a high volume of transactions, which reduces the cost of individual processes. However, for that to happen, there needs to exist a common format for business processes and data entry. You do not want your SSC employees to waste time consolidating information from disparate sources. Moreover, if your enterprise has multiple ways of performing a task (e.g., each division has its own payroll system), then not only will more time and resources be spent on training an SSC employee in every method, but it will also result in different levels of data, which increases complexity and makes it more challenging to get accurate information regarding business performance.
Global organizations using SSCs also face the challenge of observing local and statutory requirements. Although this has always been a daunting task for enterprises with legal entities throughout the world, it can now be easily managed in Oracle® E-Business Suite (EBS) Release 12 (R12). Within this latest version, Oracle introduced a transformative feature known as secondary ledgers, which makes operating off of a single global instance easier than ever before. Reporting requirements are addressed by setting up a single operating unit (OU) in the primary ledger, and by then adding a secondary ledger for each legal entity. With such a setup, data will only need to be entered once for it to post everywhere it needs to, thereby eliminating possible errors. Finally, streamlining your EBS will grant your company’s leadership the ability to review the organization’s status in real-time.
Multi-Org Access Control (MOAC) is another new feature of R12 that may seem like an alternative to consolidating to a single operating unit – especially since it permits transactions across OUs. However, this feature has limitations which lead one back to the model discussed in the previous paragraph. The biggest problem is that MOAC does not ensure that standards (e.g., pricing, discounts, credit limits, etc.) are translated across operating units. Inconsistencies among operating units will not only affect the efficiency of a shared services center, but also your company’s bottom line.
Even if a business is not operating off of a single primary ledger or instance, a common chart of accounts (CoA) is essential to any enterprise capitalizing on a shared services center. Incongruences between CoAs will be reflected in the data quality. Even if your SSC staff managed to consolidate the information derived through disparate charts of accounts without error, the process would take significantly more time, which again, further cuts down on potential savings.
Another factor affecting your return on investment is data accessibility. Data access is configured appropriately based on a user’s position and responsibilities. Therefore an SSC employee may be granted permission to access all transactional data of a certain type enterprise-wide, whereas a manager reviewing quarterly figures will be granted full permissions relating to his or her division. Any information silos that popped up over time are no longer viable and need to be broken down as well. By the same token, governance rules are adopted to segregate data based on its appropriate sources. For example, if you outsource your financials to a BPO and they have no way of discriminating amongst your divisions, then the subsequent errors will cost your organization time and money. Finally, if there is data that you do not want accessible for everyone, then you can implement cross-validation and security rules, as well as limit access by requiring additional permissions.
Roadmap to Implementation
Whether your company decides to implement a shared services center internally or externally, it needs to develop a roadmap to ensure a smooth transition and a maximum return on investment. Below, you will find a series of generalized steps that will help you prepare your own roadmap:
- Determine what processes the SSC will cover. Initial evaluations of business processes are to reveal which of them share the most overlap amongst the different operating units. The more common the process, the greater priority it has for implementation.
- Standardize common business processes. Although the different divisions of your enterprise perform similar tasks, their methods may vary. Any processes you wish to consolidate to a shared services center need to follow an aligned methodology that still meets the needs of every affected division.
- Identify common data. The input information for the business processes also needs to be standardized. When an SSC employee spends additional time consolidating information from disparate sources, then the cost associated with that process increases.
- Measure current operating costs. A shared services center implementation needs to be justified quantitatively by predicting the potential savings. Your organization’s initial cost per process needs to be determined to establish a baseline.
- Acquire benchmarks. Market research companies offer compiled data providing insight regarding benchmark maximums, minimums and averages for enterprise operating costs. Your company can use such information to see how you currently stack up against the competition and what the best practices for improving your performance are.
- Set up a service agreement. Since your shared services center is going to be operating either as a profit center or as a cost center, your company needs to establish prices and conditions for what each division is responsible.
- Implement better business practices. Introducing a common chart of accounts and standardizing ledgers will streamline your organization’s information as well as improve the efficiency of the SSC. Secondary ledgers reduce the complexity involved with statutory and regulatory reporting, and also allow you to post data across multiple ledgers with a single entry.
- Recognize the actual return on investment. After your shared services center has been implemented, the final step of the project will be to compare your current operating costs with the original ones, and determine what percent of the actual benefits were realized.
Shared services centers provide a cost-cutting, streamlined solution for non-core business functions by relying on an economy of scale and standardizing common business processes. An enterprise interested in a transition to an SSC model needs to evaluate its current operations and meet the challenges associated with data quality prior to implementation. Although a company can expect a direct financial benefit, it is also reasonable to anticipate a reduction of errors and redundancy.
In order to recognize the return on investment, the organization must first quantitatively measure the costs of doing business both prior to, and after the implementation. This way, with proper planning, the business can recognize the benefits.