Extending back 10 years or more the term ‘Shared Service Center’ was really equated with cost savings. The notion was simple: create a Shared Service Center (SSC), put it in a low cost area, share resources across multiple business units and there you have it – cost savings. Right? Wrong.
As companies migrated to this model for finance and accounting, they soon realized that any cost savings could easily be wiped out by poor results. For instance, if DSO (days sales outstanding) were to creep up, customer service to decrease, and controls on payments to be out of sync with cash flows, then the cost savings realized would essentially be obliterated by the low service levels and poor performance that actually drove up bad debt expense, increased borrowing requirements, lengthened exception processing, and ultimately drove up transactional costs.
I want to share with you a recent SunGard Insights study that revealed disparities when comparing perceptions about Shared Service Center (SSC) levels and capabilities. According to the study, 40% of respondents whose businesses are serviced by the SSC felt that it was not meeting their Service Level Agreements (SLAs), while 3.4% of respondents working from within the SSC identified that this was a problem.
Additionally, 36.5% of the respondents whose businesses are supported by the SSC state that they are dissatisfied with service level results while only 19.7% of the respondents from within the SSC report the same perception. The predominant underlying issues in these gaps are lack of communication, workflow and visibility, all of which can be mitigated through recent technology advancements such as online portals, workflow tools and sophisticated reporting functionality.
The study also reveals a shift in the drivers for migrating to an SSC. Companies are realizing that they can derive more value from their SSC and operate smarter and more efficiently if they are able to standardize processes and improve on those processes with technology. Compared to a similar SunGard study from 2010, the driver to operate more strategically by standardizing operations grew from 11.8% in 2010 to 21.2% in 2013. For those companies with mature SSCs, when asked what they would do differently when setting up an SSC, 58.9% of respondents said they would standardize processes and 53.5% said they would implement technology.
For this reason, many companies are now seeking to create true centers of excellence, with increased collaboration and communication between the SSC and each business line. Centers have moved from one global center to multiple regional centers, and in some cases a centralized service that is actually physically distributed across multiple sites. With this, Service Level Agreements have been established and success metrics reach far beyond cost savings. Focus has shifted towards delivering greater value to the organization with an overall benefit of increasing cash flow. How SSCs deliver that value though is the key to their success, and will be the topic of my next blog.
Has your company centralized A/R functions into an SSC? I’d like to hear about your experience.
Download the study