The good, the bad and the ugly of SSO

October 2019  |  FEATURE  |  BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

October 2019 Issue


Though by no means a new concept, shared services organisations (SSOs) have become increasingly popular in recent years. According to a Chazey Partners report, 90 percent of Fortune 500 companies use shared services.

The appeal of shared services models is clear; they allow companies to deliver corporate support by combining and consolidating services from headquarters and business units into a distinct entity based on market-like principles. And there have been many examples of companies using shared services to reduce costs, improve services, improve compliance and streamline processes. Done properly, SSOs combine the better aspects of both centralisation and decentralisation and enable companies to consolidate those back-office operations that are used by multiple divisions, eliminate redundancy and allow each division to focus its resources on activities that will support the business’ goals.

In recent years, shared service models have had a positive impact in the finance, human resources and information technology (IT) departments. According to PwC’s 2017 ‘Global Shared Services’ report, although finance has consistently been the most popular function for shared services centres, interest in other functions has risen sharply, with supply chain and manufacturing experiencing some of the largest increases in adoption.

Key drivers for utilising an SSO structure

The primary concern for many organisations when adopting a shared service model is often financial. According to MorganMcKinley, shared services can reduce HR costs, for example, by approximately 25-40 percent. This reduction results not only from increased productivity, but also from saving managers and employees from having to perform certain practical tasks.

However, shared services extend beyond cost savings and can revolutionise the way companies operate. Organisations that operate a fully realised share structure model may explore the idea of spinning off the SSO into its own separate entity, which then provides services to both the parent company and other external customers. Though this is a complex and challenging task, it can benefit organisations that have already streamlined and improved their SSOs as much as possible, if the company can navigate the financial, legal and tax considerations of spinning off the SSO.

Downsides

However, critics suggest that shared services models do not offer the advantages, such as services offered at a lower cost with an equal or better service level, that many of its proponents claim. SSOs experience varying levels of success, and in some cases, depending largely on the industry in question, companies can experience increased costs and slower internal processes and programmes.

There is a compelling case for the adoption of shared services, provided that organisations are aware of its limitations.

While shared services can be a boon operationally and financially for organisations, cost savings should not be the driving force behind adoption as it may ultimately hinder productivity or restrict other business areas. Cost savings are desirable, but a shared services strategy should form part of a more holistic approach to overhauling a company’s operations.

To that end, companies first must be aware of their own needs and limitations. This requires a thorough internal and external investigation of the firm’s circumstances before establishing a centre. Ultimately, SSOs must be able to cope with different structures and operations across jurisdictions. It is vital, therefore, that companies are able to accommodate variances. One size does not fit all.

Strong leadership is also important when adopting a shared services model. Installing someone to direct and coordinate the company’s efforts is key. This individual will need to focus primarily on delivery and coordination of shared services, allowing other senior managers to focus on their own responsibilities.

Rise of the robots

Companies must also be mindful of the future, particularly as shared services continue to move up the process value chain for many organisations in the coming years. There will likely be significant changes to SSOs going forward. The emergence of robotics and robotic process automation (RPA) will fundamentally alter shared services in the coming decades. RPA is an emerging and disruptive technology that will dramatically reduce the effort required for routine, labour-intensive tasks, delivering significant savings for companies that adopt it. As a result, more organisations will begin researching and implementing RPA pilots in the future.

Digitalisation will also likely play a pivotal role as more companies transform their back office functions and front office operations. Robotics, virtualisation, advanced analytics and other digital technologies can help to streamline shared services. According to McKinsey, digitalisation can achieve significant savings in both time and money through potentially 50 percent increases in efficiency in some back-office functions, for example.

There is a compelling case for the adoption of shared services, provided that organisations are aware of its limitations.

© Financier Worldwide


BY

Richard Summerfield


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