Shared Service Centres
A Shared Service Center (SSC) is the consolidation of one or more back-office operations used by multiple divisions of the same company - such as finance, information technology, customer service and human resources, which reduce the cost of processing and improving controls. By creating a stand-alone or semi-autonomous SSC, companies have been able to eliminate redundant activities, improve compliance and control, and improve efficiency, services and customer satisfaction. Most of the savings come from standardizing technology and processes on a national and regional basis, making it easier to provide support for multiple business units, reduce personnel and improve the speed and quality of service.
There are now thousands of SSCs world-wide, which are operated by some of the world's largest companies and also by much smaller companies as they all try to cut their costs and improve controls. SSCs also provide an important opportunity to improve transparency of operations and compliance. The centralisation of processes, the introduction of clear policies, and the focus on documentation and control are key elements of any SSC operation, and are critical for compliance with the Sarbanes Oxley. How SSCs are used in Corporate Treasury
Generally Shared Service Centres provide three main services for the finance department - accounts payable processing, accounts receivables and general accounting. The typical services for the corporate treasury department include:
- payment factory operation
- collection factory operation
- inter-company netting
- liquidity management administration
- FX and interest rate administration.
Location of SSCs
To achieve the maximum cost savings SSCs were located in low labour and office cost environments. The first-generation SSCs in Europe were in Amsterdam, Dublin and London. India was a big centre in Asia, and in North America, a small number of preferred locations emerged. As the use of SSCs grew more locations developed the service infrastructure and attractive tax structures to encourage the setting up of SSC, new centres were introduced much more widely. The next generation of SSCs were set up in: Asia-Pacific in - Korea, Malaysia, Thailand and Australia; South America in - Brazil, Costa Rica and Mexico; Europe in - Czech Republic, Denmark, Finland, Hungary, Norway, Poland, Cork in Ireland and Spain.
Many governments around the world are trying to attract SSCs to their countries as it can provide employment opportunities for their citizens. Attracting SSCs is becoming increasingly competitive.
When choosing a location for their SSC companies need to consider the quality and skills of the local labour pools, the political and economic stability of the country, the regional tax and regulatory environment.
When and How To Implement a Shared Service Centre
Mid-sized companies are now implementing SSCs. It is not the size or turnover but rather the geographic reach, technology infrastructure, including the accounting systems, and the volume transactions that need to be processed, which will determine whether investment in a SSC is cost-effective. Smaller companies can use the wide range of process outsourcing services rather than set up their own in-house SSC, so the cost barrier to implementing a SSC is now much lower than it was five years ago.
A key element in deciding whether to set up a SSC or not should be based on the nature and business direction of the company. If centralisation of processing is a core part of the company's business culture and strategy, then SSC will work. If not, they won't. SSC need to improve the overall business operation of the company, not just cut transaction-processing costs.
A successful move to a Shared Service Center model requires careful planning and implementation. Most experts recommend that when implementing a SSC it is best to:
- standardize processes before the moving to the new SSC
- ensure that key employees are not lost as the services are centralised so avoiding disrupting services
- re-engineer systems and processes as they are set up in the SSC
- ensure that all key departments join the SSC and that they all can see clear improvements in using the service and cost savings
- communicate clear vision and early successes to top management.
Main Trends
Over the last five years the main trends in the use and development of SSCs have been:
- most SSC have become multi-functional and many now offer a range of services, including: financial services - accounts payable and receivable, general accounting and cash management services; supply chain support - sourcing, supplier management, contracting; human-resource services - payrol and benefits, recruiting staffing, compensation benefits, travel expenses management
- locating SSCs in countries with lower labor costs, e.g. Hungary, India, but as the labour costs have risen in these locations, the savings from moving to these lower-cost countries are lessening, there is increasing focus on improving technologies, processes and providing more usable, effective services to the end user a growing number of small and medium-sized organisations are setting up SSCs to cut their costs, and improve controls and compliance with Sarbanes Oxley and other regulations
- interest in outsourcing SSC functions to third party processors is growing, particularly now there are clear standards for outsourcing business functions (the SAS 70 standards)
- increasing use of key performance indicators to drive performance of the SSC.