The idea behind doing financial management work inside shared services centers (SSCs) is to implement well-designed processes and sustain the efficiencies they deliver with economies of scale. Yet some SSCs are much more successful than others. And —surprise! — the winners are not always those funded by huge enterprises or those that have been in operation for years. In this Metric of the Month, we’ll look at some of the characteristics of top performing SSCs in the hope that others can point themselves in the right direction.
Some background: this January, my company, APQC, hosted a webinar to showcase new metrics on financial processes within SSCs — data we collected in 2016 as part of an annual benchmarking survey we administer on behalf of ScottMadden, a consulting firm specializing in SSCs and global business services. The survey covered SSC scope, maturity, governance, structure, process utilization, technology, and analytics. In the space we have here, we’ll look at two common functions in financial management: accounts payable and accounts receivable. The discussion of SSC success factors is my summary of several observations that ScottMadden shared in the webinar.
Here’s how these metrics work. Of 302 survey participants, about half of the SSC’s are based in North America, with the next-largest group based in Europe. At most of these organizations, however, services are distributed across world regions. Answers came from directors or managers of financial shared services who are close to the action and understand the drivers of success.
About 65% of these SSCs have been operating more than five years and 35% more than 10 years. The top performer group of SSCs represents the 66 that consistently scored in the top 25% on key metrics related to cost, efficiency, and productivity. The 66 top performers are juxtaposed to a “comparison group” comprised of the remaining SSCs that didn’t make the cut, or the bottom 75%.
With that in mind, we looked at the median number of invoices and receipts processed per FTE. There’s a significant gap of 2.5 times the invoice processing volume per FTE between top performers (4,706 invoices per FTE per year) and everyone else (1,905 invoices per FTE) at the median. On the accounts receivable side, the top performers are processing about four times the volume of receipts at the median: 6,774 receipts processed per FTE per year, contrasted with the comparison group’s 1,800 receipts.
Because we’re looking at the median, the best of the best performers are actually processing an even higher accounts payable and accounts receivable volume than you see here. And, interestingly, the top performers also perform both processes with about half the FTEs of the comparison group. So, not only do top performers perform these processes with fewer people, those people accomplish a whole lot more.
Some might assume that the top performers are those who have perfected the SSC model by working at it the longest.
“More mature operators are in the top performance group,” says ScottMadden partner Brad DeMent. “But you can’t ignore the 9% of top performers that have been operating less than five years. There’s nothing that says a newcomer can’t jump into the top performance group quickly. If you look at the comparison group, 23% have been at this at least 10 years. You constantly push forward because performance is not completely correlated to experience.”
Could such success only happen because some SSCs at larger companies have the bankroll to pay for continuous improvement initiatives? Funding certainly doesn’t hurt: About 68% of the top-performing SSCs are at companies with more than $10 billion in revenue. But companies at levels below that mark still make it into the top 25%, so it’s not all about having the luxury of cash, either.
Here’s a taste of what the top performers do have in common:
Clearly, the top-performing SSCs aren’t just doing one thing right. They’re doing several things right. CFOs should take note: it’s not about doing more with less. Becoming a top-performing SSC is about committing to best practices in process management, structure, governance, and technology.
Mary Driscoll is a senior research fellow in financial management at APQC, a nonprofit business benchmarking and research firm based in Houston.