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How Financial Shared Services Can Reduce FTE Numbers

I recently spoke with Brad DeMent and Trey Robinson, partners in ScottMadden’s Corporate & Shared Services practice, about the benefits, challenges, and future of financial shared services. They will both be joining me for our September 25th Webinar—Finance Shared Services: New Metrics and Best Practices.

MD: The research we recently did together on financial shared services centers (SSCs) has a statement in the executive summary that says that only 10 percent of study participants run a single global center. What are the main reasons so many companies shy away from the single global center model?

BD & TR: While we are seeing movement toward a single global center for highly transactional back office activities, many of our clients prefer to operate in a regional model. We think a few things are driving this, including a need to deliver quick and accurate issue resolution to the business lines by staying in closer proximity, thus facilitating knowledge of business strategies; local market conditions; regional vendors; and local regulations. The combination of speaking a local language and residing in a similar time zone facilitates quick and accurate response times as well. Some of our clients intentionally design regional centers to allow “follow the sun” 24 hour processing capability and built-in business continuity allowing data to be transferred to another region in the event of a disaster.

The executive summary also says that over 70 percent of organizations studied are providing planning, budgeting, and forecasting services. Are you saying that even the higher-value-adding dimensions of that activity—e.g., advising operating managers on how to better understand cost drivers—are done by the SSC? Or do the SSCs handle mainly the transaction aspects?

When we think about the shared services delivery model, we include both transactional processing centers and centers of expertise (COE). Centers of expertise are defined as a small team of specialists who promote collaboration and the use of best practices for a specific focus area common to multiple business units in order to drive business results. While 70 percent is higher than we would have expected and subject to interpretation of the definition of planning and forecasting, we are certainly seeing a continuing trend of bringing higher-value services into the shared services delivery model, not just the transactional components of these activities. Beyond planning, budgeting, and forecasting, we are also seeing other financial services, such as pricing and business analytics, incorporated as COEs into the shared services delivery model.

The study shows that in the core transaction processing areas—accounts payable and accounts receivable—organizations that are in the bottom quartile need nearly three times as many FTEs to get the work done. What do you see as the most common drivers of relatively high staffing levels in these areas? Where should the SSC leader begin in an effort to improve this situation?

There are three primary drivers that we believe lead to a significant reduction in the number of FTEs in transaction processing areas. First, the centralization of transactional services allows dedicated work to be placed on accounts receivable and accounts payable as opposed to numerous distributed resources in the business lines that are “wearing many hats” and often not possessing good transactional skill sets. Second, process standardization plays a key role in improving processing efficiency enabling a cadence in the processes that increases efficiency and allows easier scale as companies grow by acquisition. The third driver here is automation. By rationalizing the number of systems and automating standard processes, many of our clients realize even greater processing efficiencies. We advise SS leadership to focus first on policy and process standardization since it requires minimal investment and delivers the most “bang for the buck."

Top performers complete the monthly financial close in five days, while the bottom performers take 11 days. What do you tend to see as the best practices among the top performers that give them the speed here?

There are many leading practices that help reduce the number of days required for a financial close. Some of the most common we see include establishing materiality levels, moving work out of the close cycle (e.g., reconciliations, account maintenance, etc.), considering a soft close for non-quarter months, rationalizing the number of accounts, and establishing performance metrics to measure the speed, cost, and quality of close activities. In addition, technology can be leveraged to automate account reconciliations, provide a window into unfinished distributed accounting work, and incorporate workflow into journal entry approvals.

Do you expect to see a growth in the use of predictive or forward-looking analytics among Finance SSCs over the next 1-2 years? If so, what’s behind this? If not, do you urge SSC leaders to consider adopting such practices?

The growth of business analytics is one of the top three or four trends we are seeing across shared services as a whole. We see a few drivers behind this evolution, but one of the biggest is the rapid increase in the availability of data within shared services centers. In addition, unstructured data, like that from social media, is now able to be captured and analyzed. As we hear more and more real examples of companies using business analytics to accurately predict when customers might leave, where the sales force should focus, what prospects may not pay, it is difficult to imagine not seeing continued growth. We believe we have only scratched the surface with analytics now enabling shared services to add value to the top line, as opposed to what was done historically by only focusing on limited savings through headcount reduction.

How might predictive analytics increase the business value that SSCs could ostensibly deliver?

We are seeing predictive analytics being implemented as a Center of Expertise within the finance shared services delivery model. By becoming more outward looking, the best analytics COEs are identifying ways to improve company revenue vs. decrease company expenses. Whereas one can only decrease expenses so much, there is no ceiling on increasing revenue by, pointing the SS business line customers to new markets, better external customers, optimal pricing, better investments, etc. We see the implementation of a business analytics function as a shared services imperative over the next five years.

Brad DeMent leads the finance and multi-function shared services practices at Scott Madden.

Trey Robinson is a business strategist and shared services leader, specializing in financial advisory and shared services design, implementation, and improvement.

If you would like to learn more about finance shared services, join Brad and Trey for our free webinar on September 25th—Finance Shared Services: New Metrics and Best Practices.