The 3 Cs to why the recession has been good for shared services
Author: Susie West, CEO sharedserviceslink.com
Prague in October can be a fairly grim place. As I flew through a snow cloud looking out from my comfy British Airways seat, I pondered on all the gems I was set to pick up from the conference I was on course to attend. Surely one key theme was going to be the role of shared services during the recession? The recession has touched every company we interact with daily. Even Goliath institutions like British Airways are feeling the pinch. So how does an organisation like BA use shared services to help them endure an economic winter? And has the role of shared services changed as a result of organisational pressure?
Deloitte Consulting runs an annual conference on shared services and this year they decided to host the event in the Czech capital. One of the best things about the event is the opening presentation by Head of UK Practice Peter Moller. He sets himself the ‘One Slide Challenge’ where, for 45 minutes, he talks about a few bullets which stretch to no more that one slide. One point for discussion was how shared services has fared in 2009. The conclusion was that the recession has actually been good for shared services. As an observer of trends in this market, I’m glad he said this. I have been sensing this for a while now, and have broken the benefits into three key areas:
1. Cost
Not surprisingly, companies are currently struggling to fatten margins through top line growth. So, in order to sustain some semblance of profitability, attention on the bottomline is evident across every organisation that intends on being around in 2010. Shared services is the most obvious route to operational savings, certainly for larger scale organisations, and historically shared services was borne out of the need to reduce costs in the finance function. Companies that hadn’t previously applied shared services to finance, are now reconsidering this choice. And those that had already selected the shared services path are simply widening their application of it. This is why we are seeing shared services organisations swallow up more activities, both through sweeping up functions outside finance like HR and IT, and raising their focus so more financially strategic activities are now being catered for by the SSO. According to a recent survey by The Hackett Group covering 150 multinationals, 50% organisations have multi-functional shared services today versus 25% in 2003. Furthermore, according to the report, mid-size organisations are looking to apply shared services, but they are looking across functions to find the scale in order to justify the investment.
So the cost driver is pronouncing the importance of shared services and enabling it to be ushered into to various parts of the business world which have historically remained untouched.
2. Control
Control means visibility, and certainly in the first six months of this calendar year, senior management and senior finance were thirsty for daily/bi weekly reports illustrating the true state of money owed by customers and to suppliers. Heads of Accounts Payable and Shared Services Directors have been chanting for years that processes need to be standardised, compliant, and automated in order to provide reporting which is meaningful. Perhaps only during times of financial drought does senior management realise why this is the case. Control has driven many a shared services operations to invest in technology like e-invoicing, OCR, workflow and workbenches. It has also driven many finance organisations to partner with procurement to drive purchase order compliancy and P2P process compliancy. If a CFO wished to have a view of all liabilities, yet only 60% of spend was on PO, it made that CFO feel very vulnerable about the certainty of its financial stability.
So control is one reason why we are now seeing more technology adoption in shared services, and more alignment in purchase to pay.
3. Cash
I read a report a few months ago that said 71% of companies that go into administration are profitable, it’s simply that they run out of cash. Running my own business, these words struck a cord with me around January of this year when, as a company we were profitable, but customers were sitting on invoices for 15 days longer than usual. Many shared services organisations are putting a huge focus on Days Sales Outstanding (DSO) and Days Paid Outstanding (DPO). The importance of the balance sheet over and above the importance of profit and loss has been affirmed and re-affirmed during the past 12 months.
DSO and DPO are terms being embraced by shared services, and again SSOs appreciate that in order to impact the position of these ‘book ends’, P2P and O2C processes need to be fully understood in order to be able to influence your DPO or DSO.
In addition to this, accurate cashflow forecasting is now a primary aim of finance, and to enable this, process compliancy is key (ie POs being raised at the right time in the right way) as is the adoption of technologies like e-invoicing and P2P automation.
Conclusion
When we look back to 1999, the top 3 drivers for shared services were Cost, Cost, Cost. In 2009 the drivers are more complex and the ramifications of shared services as an enabler penetrate deeper and wider into the organisation. We are, as a result, seeing key trends ripple through, which I have split into 8 key trends. Over the next few weeks I will be talking about each trend in my blog, so be sure to check it out trend by trend. In the time being take a look at The AP Automation Summit in December in Paris and if you are one of the many SSOs looking to apply the perfect mix of technology so you can impact cash realisation, cost reduction and drive control, then register here.
