The squeeze on consumer spending means that businesses are finding it increasingly difficult to grow their top line. Emphasis has therefore turned to streamlining operations and reducing overheads. Since 2009, CFO’s have increasingly been looking to set up shared service centres. In fact a number of shared services have moved to low cost regions such as India and Poland over recent years.
A companies attitude towards outsourcing and shared service centres can be affected by cultural differences. German companies for example require 100% accuracy and will be resistant to outsourcing unless they have confidence that the quality will be maintained. US companies prefer to adopt an 80:20 approach with 80% of the business processes being outsourced. The UK on the other hand has a just do it attitude and tends to migrate the whole lot -100%.
There can be strong business cases for transforming the finance function in order to reduce overheads. Successful change management can create the necessary savings. However, the business needs to ensure that it retains the capability to review and assess the output received from the shared service centre. Change management can be an enormous challenge.
Whilst the use of shared service centres has been successful in reducing a businesses overhead base they have given rise to a number of issues. First there is a risk of a decline in quality. Expenses for example may not be adequately reviewed before they are input onto the system. This can be a common issue as employees do not often speak English. Similarly, the language barrier can prohibit the challenging of information being submitted to the shared service centre.
The key behind successful change management is to obtain buy in from the divisional units. This is especially important for large corporate groups as the business units must acknowledge that there is a problem in the first place. The Finance team can often be seen as a barrier and must make the case for change. In order to obtain buy in from the divisions the project must be seen as value add and a form of business partnering. Successful change will require strong leadership and clear direction. Quite often, the CEO must be interested in the project in order to for the business to deliver change. You will need to deliver a consistent message to sell the benefits of change.
The reduction in quality can also give rise to system issues such as those encountered at RBS who outsourced their IT systems to India prior to the much publicised systems failure where customer could not access their bank accounts for several days.
Shared service centres have not been as successful as originally anticipated and a number of companies are considering bringing the functions back in house, particularly in the US. Alternate solutions are also available. Businesses can explore the possibility of setting up in enterprise zones. Tax reliefs may also be available, for example in the computer software industry.