Even after several years of hunting high and low for efficiency savings, cost-cutting remains high on the corporate agenda. With a new financial year now underway, many managers are once more tasked to seek out any surviving inefficiencies that can be trimmed.
Shared Service Centres (SSCs) are an increasingly popular choice for organisations looking to drive efficiency and reduce the cost of back office functions. In finance, cost-cutting, improving spend visibility and compliance are just some of the key reasons for adopting a shared service model, not only driving cost reduction but improvements throughout a treasury or finance function. However, choosing the location of an SSC is key to both the quality of the service and the benefits that can be realised.
While some choose to establish these in the UK, often the cost of labour and office space proves prohibitive. Overseas locations are often more tempting to the company balance sheet but can raise concerns over language, culture and skills during the set-up phase.
Traditionally popular areas for business process outsourcing (BPO) or establishing SSCs, such as India, have declined in popularity in recent years. The rising cost of labour in these traditional offshore locations means that for many companies the cost benefits of offshoring SSCs have begun to shrink, or other locations such as East Europe have become more popular.
Competition for skilled employees, language and cultural barriers, salary inflation and staff turnover are distinct challenges with offshored services. The cost of retaining a resource base in these markets is growing much faster than in the West and putting pressure on the budgets of companies that use them.
For many organisations, when overall productivity and quality is taken into account, what began as a very attractive cost cutting strategy has become as expensive – and perhaps more inefficient – than the same service in the UK.
As costs in traditional offshore locations creep up SSC, treasury and finance professionals are turning their focus to near-shore as locations of opportunity. During the past decade, the number of BPO and new SSC deals in the Central and Eastern European (CEE) area has increased dramatically. In recent years a number of Basware customers have established service centres in this area and seen great success; electronics retailer DSG International being one of the first.
Benefits of Eastern Europe
A close cultural fit with the UK, the high availability of technical and language skills and the availability of low-cost office space makes Eastern Europe an attractive option for SSCs. The shared time zone with western markets, as well as developments and investment into infrastructure are further appealing elements to encourage establishing footholds in this area.
Personnel qualification and language skills are among the most important criteria for selecting the best location, particularly for finance SSCs where supplier collaboration is key. The primary principles around selecting a near-shore location are geography, infrastructure and language. However the similarity in culture and law can also be vitally important. By establishing a finance SSC in an area that operates under shared financial and procurement legislation, such as Pan-European Public Procurement Online (PEPPOL), companies can help simplify some of the legal complexities found within a treasury function.
Similarly, for finance SSCs dealing with sensitive company and supplier information, placing similar cultural and legal emphasis on security and privacy is a key benefit.
Cost is often the key focus when setting up an SSC. However, sustainability is an important consideration. An established SSC should drive continued efficiencies and savings, and as such the benefits of locations such as Eastern Europe begin to pay dividends.
As organisations respond to the increasing need for spending cuts and weigh up the possibilities for collaboration, there has been significant debate on how shared services and back office efficiency improvements can contribute to on-going cost and spend reduction. Similarities in culture, strong language skills and shared office hours between the SSC, suppliers and the business are important to this discussion. The ability to collaborate, share information and have a close working relationship ensures that the SSC acts strategically to support the business, rather than becoming a tactical function purely focussed on streamlining transactional processing and cutting costs.
More than Cost Savings
Understandably, cost cutting is top of the list on all corporate agendas but people recognise that there is also a need for sustainable change. For most organisations there is a point past which simple cost-cutting or price slashing will not deliver true economies-of-scale.
It’s important to recognise the long-term requirements of the finance function and how they interact with the business from the outset, particularly for those just embarking on a move to shared services. According to Nigel Chapman, change management facilitator at power and automation technology group ABB, “when you talk about finance, accounting and procurement in your organisation, it’s important to look at the areas you want to improve in relation to the overall strategy.
“What is it that the organisation wants to achieve in the long term? Select your primary goals at the outset and benchmark against best practice and industry leaders. This way you can set the areas for improvement, lay the foundation for your business case, and then monitor against these targets on a continuous basis.”
Straightening out long-standing processes and ensuring visibility and control in every aspect of daily operations is a better catalyst for holistic and sustainable efficiency. Successful SSCs deliver on both of these points. Not only do they create greater efficiency and cut costs in the short term, but also more importantly they provide information back into the organisation, which can lead to even greater, long-term savings. Such savings come from compliance, supplier consolidation, and stronger negotiation, to name but a few benefits.
While cutting the cost of finance is an essential task of an SSC, the real benefit is the transformational power that it holds. This power is difficult to unlock without aligning the SSC closely with the business. Through this finance can help drive change across the way in which an organisation conducts processes and functions as a whole.
When assessing the possibility of shared services and back office efficiency, there is a need to look beyond the short-term reductions and understand the long-term value. When considering location the sustainability of both costs and collaboration needs to be taken into account. Shared services should not be seen as a quick fix for shrinking budgets – done properly they can offer treasuries better skills and data as well as healthy savings.
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