Financial Shared Services: Benchmarking Success for Treasurers

The concept of shared service centres (SSCs) – one part of an organisation providing a service to other parts of the organisation – is proving increasingly attractive to companies seeking the benefits of standardised processes, better aligned resources and a culture of excellence as they expand globally. When properly designed and deployed, financial SSCs can significantly reduce the costs associated with treasury management and help optimise working capital.

JP Morgan Treasury Services, along with The Hackett Group, a financial services research firm, polled 171 treasurers, over half from large corporate entities, that are either contemplating a move to shared services or looking to increase the efficiency of their existing shared services operations.

Key findings of the poll:

1. Cost and controls remain the most critical reasons to establish shared services

Over the past five years, SSCs have increasingly become a key component of corporate strategies. Eight out of 10 treasurers who responded to the poll cited reducing costs and headcount as the key reasons for establishing an SSC. These findings are supported by The Hackett Group’s 2010 Global Business Services Study; in that study, cutting administrative costs, decreasing headcount and improving controls and compliance were identified as the primary reasons for establishing an SSC.

2. SSCs are becoming more prevalent and global

According to the Hackett Study, global shared services more than doubled from 2004 to 2010; 62% of the companies that participated in their study had operated SSCs for less than five years. The recent JP Morgan poll showed similar results with nearly half the respondents indicating they operated SSCs at both national and global levels and for fewer than five years. According to Dr Penny Weller of The Hackett Group: “SSOs are everywhere. The largest number of SSCs in the poll are in North America, followed by Europe, Latin America and Asia-Pacific.”

3. Measurement and sharing results are critical components

Successful SSCs use benchmarking and metrics to validate that the services they provide are reducing costs and satisfying internal customers. Sixty-four percent of those polled measure – or plan to measure – success by implementing a regular benchmarking and key performance indicator programme.

4. Lower costs and efficient processing drive the need for a financial SSC

Closing day of a merger and acquisition (M&A) deal is full of complexity for treasurers, most of it arriving in the form of different types of cash flows – merger proceeds, shareholder payouts, capital injections, and debt repayments. Execution of the deal can be jeopardised by the failure of cash to move smoothly. Banking partners can bring considerable consulting expertise to treasurers planning their closing day execution, from helping minimise the number of banks involved in cash transfers to setting up foreign exchange (FX) transactions at pre-negotiated spreads. The right consultative banking relationship – both on the investment banking and treasury management fronts – can do much to help treasurers in all stages of the M&A process.

5. Loss of control and change management impact the type of financial SSC developed

While seeing the benefits of a financial SSC, polled treasurers expressed concerns that a move to financial shared services might result in a loss of control over decisions, unsuccessful change management or potential business disruptions. This concern proves how incredibly important it is to do it right. A financial SSC that’s not organised properly is not going to help anybody sleep at night.

6. Financial SSCs are a tool for driving increased efficiency

There are several possible financial SSC models. The most prevalent – an independent service model – provides a high-quality product at such a reasonable price that the other business units in the corporation can no longer justify performing the same work themselves. The second model – based on a servicing agreement – allows core services to be extended via centres of excellence. The third – used by larger corporations – is a finance company set up to provide core services plus investment and liquidity management. Forty-two percent of those polled had either already established a payment factory or were contemplating setting one up, while 56% had recently consolidated bank accounts as part of their shared services strategies. Companies on a financial services path evolve from information management to cash management to payables and receivables. The trend is to build internal functions up to external functions.

Conclusion

Taking the right steps for the foundation and execution of a financial SSC is critical – from designating a change management ‘owner’ to developing a complete inventory of functions that the centre will perform and successfully phasing in new processes and procedures. Companies that have done this correctly have made big changes with the help of consultants and their banking partners. Successful SSCs leverage best practices and technology to reduce complexity and redundancy and make things easier for their internal customers. With the right kind of consulting and banking relationships, those improvements can be benchmarked and measured and have a significant positive impact on a corporation’s bottom line.

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