VideoSuch duplication wasn't cheap. CFOs found that not only were they spending more on finance, they lacked visibility into the various operations of the business. This time, the solution was shared services. Pull routine finance processes away from the businesses, make them the same, and do it in one place, and you would create immediate savings — typically 15 percent. (Additional savings were possible through improving the process and adding technology.)
Today, the Sarbanes-Oxley Act is providing an extra nudge for adopting shared services. "Companies are finding that if you have your key controls in one place as opposed to 300, it is much easier to comply with [Sarbox]," says Gary Moran, managing director of Alvarez & Marsal in New York. In fact, companies with a high use of shared services spend 33 percent less on compliance, according to The Hackett Group. (But some argue there are better means to the same end; see "Kill Your Shared-Services Centers?" at the end of this article.)
Obviously, finance departments aren't trying to stage a return to the days of the Eisenhower Administration. This time, the idea is to separate the routine work from the "value-added" work, centralize the former, and decentralize the latter. Technology helps by giving business units easy access to centralized information.
Control Problems
But the change still means pushing a certain amount of centralization on an organization that is headed the other way. And just as business managers complained 15 years ago that corporate finance was an obstacle, there is still concern that relinquishing control of even routine processes could create problems. "If you are a business-unit head and you control all parts of the transactional finance process, then you feel issues with suppliers or customers will be resolved with a greater sense of urgency," says Eric Olsen, CFO of Lafarge North America, a $4 billion construction-materials company. "You know you won't have a supplier yelling at you to pay your bill."
The challenge can be great for a large, entrepreneurial company. Consider the case of AutoNation Inc., a $19 billion auto retailer that began as an agglomeration of 275 existing auto dealerships. "We aren't like Home Depot, where you build on a greensite and replicate the model over and over," says executive vice president and CFO Craig Monaghan. "Instead, we inherited 275 unique computer systems, 275 charts of accounts, and 275 cultures."
Monaghan has been working to impose some order. So far, one-third of the company's stores are doing some of their basic accounting in AutoNation's shared-services facility. Twenty stores have shifted over entirely. Monaghan predicts the project will take another two to three years. "This is not easy," he says. "It's naïve to think that when you do this, you're just changing the finance organization. As we change our back-office activities, we inevitably force the front end of the business to change as well. For example, the way you sell a customer a car and help the customer get financing is unique to every store today, but will have to move to a national standard. And there's the rub: everyone thinks their way is best."
Such beliefs often contain some truth. While there's little reason to have hundreds of different accounts-payable processes around the company, there can be subtle — but important — differences in what businesses need from that activity. For example, if one business unit is focused mainly on cash flow, it may be more concerned with the cycle time of the collections process than with its cost. For another unit, the concern might be around error rates, because its customers have been upset in the past about incorrect bills.
Dillon of Agilent Technologies agrees that a shared-services operation that is out of touch with the specific needs of its customers can create problems. Agilent's solution has been to encourage both shared-services and business-finance employees to do rotations within the businesses they serve. "In the area of cost accounting, for example, it's true that you are going to learn better when you are on the shop floor than if you are in Bangalore," says Dillon. "By aligning employees in our shared-services center to that business and offering rotational assignments, we get some good cross-fertilization."
What is difficult for basic accounting is even harder for higher-level processes such as management reporting and budgeting, planning, and forecasting. Dow Chemical is one company that centralizes all of these processes. According to corporate vice president and controller Frank H. Brod, planning activities are managed by the corporate finance function, which determines what global assumptions (such as currency rates) the entire company will use. A six-person "shared reporting team" works with the company's four business finance directors to come up with the plan. Business-unit executives contribute to the process.
This works for Dow, which has arranged its hundreds of businesses into just a handful of portfolios, but other companies will prefer to leave more of the process in the hands of the businesses. "I'd be very concerned about centralizing an activity like forecasting," says Lafarge's Olsen. "With our 1,000-plus operating sites, we would lose the touch and feel of where those businesses are going."
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