Over the past 16 years, finance organisations within Europe’s biggest companies have been able to dramatically reduce the cost of their operations, while at the same time improving effectiveness and strategic alignment. A key strategy has been migration of transactional finance processes to a shared service organisation (SSO).
An SSO is best described as a form of ‘internal outsourcing’, a converging and streamlining of an organisation’s back-office functions to ensure best services are delivered effectively and efficiently.
Hackett’s research on the subject demonstrates that the best-performing finance organisations have higher SSO adoption rates than typical companies. Beyond cost savings, SSOs have proved effective for enhancing the quality of service delivery and productivity of finance departments.
Hackett found that nearly three quarters of all European companies have established finance SSOs. Most are generating significant benefits as a result; 84% of all European companies using finance SSOs made cost savings of more than 10%, and just over half made savings of more than 20%. Most have also been able to generate improvements of between 10% and 40% in quality, productivity and customer service.
Through centralising transactional finance activities, companies are also improving compliance, risk management and decision support.
Hackett’s research proves that SSOs in Europe are maturing. This is leading to a new scope and mission towards providing better alignment with corporate strategy. Hackett also concluded that European companies historically locate SSOs close to headquarters to minimise risk, but today they are either taking advantage of labour arbitrage by positioning new SSOs or by transferring existing ones to low-cost countries.
Steps to an SSO
- Make sure it meets the goals that were set for it. While it is proven that an SSO can improve performance, this is only true if it has the correct models of control and measurement. Executives need to ensure that appropriate service level agreements are in place to maintain service quality. SSOs need to take a truly client-oriented approach to be successful, much like an outsourcer.
- Exploit the possibilities of centralisation and globalisation. Globalisation has created an environment where executives must constantly re-evaluate sourcing options, such as where to locate processing, what function to centralise, what to keep in house and what to hand off to a third-party outsourcing provider. Today, 37% of SSOs support only one country – down from 60% two years ago. So companies are expanding the scope of their SSOs globally. Yet many are located in the headquarters country of the parent company, even if headquarters are located in a high-cost western European country such as the UK, Germany or the Netherlands.
- Decide if the SSO scope is appropriate. Currently about half of European SSOs cover only the finance function and just 38% perform or maintain decision-support activities. Many executives have yet to recognise and evaluate the opportunity for improving the SSO’s value to the organisation through widening its functional coverage to encompass other back-office areas, such as human resources or procurement, and undertaking more complex, higher-value activities.
- Assess if measurement is adequate. Crafting the right key performance indicators and service level agreement components is critical to establishing good governance, as well as acting on lessons learned from the results. SSO executives should be aware of the potential benefits achievable from deploying best practices to improve performance.
- Understand the regulatory and compliance implications of moving operations into an SSO. A major area of concern to finance executives is compliance with regulations. Moving operations to another country and major re-engineering of processes involves a risk to an organisation’s ability to meet compliance needs. Because processing is centralised, an SSO can add value.
Joel Roques is head of European finance advisory at the Hackett Group.