Shared service centers that handle such back-office tasks as billing and payments have become a part of the corporate landscape, many executives seem to unhappy with the performance of such centers, according to a recent SunGard survey.
The survey included 485 executives from companies around the world, some of whom worked in shared service centers (SSC) and others in business units served by shared service centers. Almost 37% of the business unit executives expressed dissatisfaction with their shared service center’s performance, although that sentiment was shared by just 19.7% of the shared service center executives.
The main complaint, that the company’s culture keeps it from using the shared service center properly, was cited by 52% of business unit executives and 65.5% of shared service center executives.
In a more jarring disparity, 40% of business unit executives complained the shared service center was not meeting its service level agreements, a view shared by less than 4% of executives at the shared service centers.
Service level agreements (SLAs) include a set of metrics ranging from the number of invoices or payments processed to measures of the centers’ costs and customer service. Shared service centers usually provide a monthly scorecard showing their performance on the metrics set out in the service level agreements.
The differences in views between executives in the two groups suggest a lack of communication and collaboration, said C.J. Wimley, chief operating officer of SunGard AvantGard Receivables.
“The folks within that shared service center and the business owners themselves, they all have these SLAs in place, but is there visibility to the results?” said Wimley, pictured at left. “It’s really a miscommunication there.”
Collaboration and visibility are the keys to success for shared service centers, he said. “If organizations aren’t setting up time to review that scorecard on a monthly basis, or at least a quarterly basis, then that’s something they need to improve.”
Wimley argues that the technology that companies deploy in shared service centers is critical to the centers’ success, as well as to companies’ ability to assess their performance. “Solutions providers try to sit on top of all of those [company systems] and consolidate the information so that you can, in a meaningful manner, look at a dashboard, look at a scorecard, look at the day-to-day things you need to,” he said.
A 2012 survey of finance priorities by Protiviti showed that finance executives put a few aspects of shared service centers high on their list of things that needed improvement, including the governance of centers, the service level agreements, and the chargeback allocation methodology that dictates how much each business unit pays for the work performed by shared service centers.
Ryan Senter, managing director of business performance improvement at consultancy Protiviti, emphasizes the importance of paying attention to the metrics showing how the shared service center is performing and then working to improve them.
“When you look at achieving the expected efficiencies in moving from a decentralized to a centralized environment, it all becomes about performance management and being able to manage to [key performance indicators],” said Senter, pictured at right. “It’s really focusing in on the accuracy of the measures that we have and setting targets to gain additional efficiencies.”
When it comes to chargeback allocation methodology, Senter says that when a company first implements a shared service center, it usually divvies up the cost evenly between the different business units for which the center does work. As time goes on, the shared service center gets a better sense of its cost per transaction and the extent to which one business unit’s work may require more time and effort than another’s.
“When you look into a shared service environment, say three years into the implementation, there will be one big segment that’s noisier than the rest and constantly needing help,” Senter says. “You want a chargeback model that enables a fair chargeback to all the parties involved. That’s just a natural progression for companies now, to fairly allocate costs back to those business segments.”
Implementing a shared service center used to be all about cutting costs. But the SunGard survey found that reducing costs was cited as the main reason to implement a shared service center by 49% of the 485 executives surveyed, down from 56% in a 2010 survey. Meanwhile, 21% of executives cited standardization of operations as the primary driver, up from 11.8% in 2010.
SunGard’s Wimley noted that when the previous survey was conducted in 2010, cutting costs was high on companies’ to-do lists as they struggled to recover from the financial crisis and recession. “Now that people have realized cost savings, you see an increase of interest in standardization and efficiency,” Wimley said.
Senter said that while shared service centers traditionally have handled transactional work like accounts payable and accounts receivable, companies with mature shared service centers are asking their shared service centers to take on work that involves a higher level of skills.
“When organizations get really good at operating their shared environment, the natural conversation is, ‘What else can we put into this operation that will give a lift to our organization?’” he said. “The natural progression from a finance perspective is [to add] treasury management, financial planning and analysis, and being able to have a core group of professionals that can provide ad hoc reporting capabilities to the finance operation and the company as a whole.”
Despite the extent of the dissatisfaction captured in the SunGard survey, shared service centers are here to stay. And SunGard notes that the executives overseeing shared service centers are more and more likely to have a non-finance title, in a sign that the strategic importance of the shared services is gaining recognition. Among companies with shared service centers, 29.2% had an executive with a shared service job title overseeing the unit, while 11.6% of the executives in charge had a global service job title and 6.4% had a business process title.