Shared service centers have become popular in recent times as companies look to centralize business functions and reduce costs. But a recent SunGard study shows corporations today are heading towards a centralized approach to services for other reasons besides just cost.
Out of the 485 CFOs, treasurers and other senior executives surveyed globally in the first quarter of 2013, 21.2 percent said standardizing operations was a primary driver for implementing the shared service center, a sharp rise from the 11.8 percent who felt that way in 2010 when SunGard, a software and technology-services firm, did a similar study. To be sure, almost half of the respondents still selected cost reduction as the leading reason for the center.
Still, the report noted that using shared service centers is “now about tightening up controls, delivering increased levels of service and driving improved management of free cash flow.” While reducing costs will always be an incentive, the report points out, “companies understand that they can deliver more value with their Shared Service Centers if they can standardize processes.”
Adds C.J. Wimley, chief operating officer of receivables for SunGard’s corporate liquidity business: “There is a shift going away from just pure cost savings.” Five years ago, he said shared service centers were mostly just related to costs, but now he says the centers really are about “becoming more efficient and becoming better. They are really raising the level of performance.”
Further, the visibility of shared service centers is gaining ground with different areas of corporations, which could help explain its wider use. About half of the respondents said people with non-finance titles were the ones to oversee the centers. The report said the trend was more prevalent with companies who had either set up a center or were thinking about it.
Senior executives today are also approaching the shared services concept with a more strategic focus, explains Wimley. Instead of just looking at the level of cost-savings from the centers — a priority during the financial crisis — firms are now realizing “it’s not about dollars and sense; it’s about really wanting a better business. It’s really about becoming as effective as possible. To do that, you need the non-finance people involved,” he said.
When companies do set up the shared service centers, accounting efficiency is one of the main uses. Basic accounting functions were more heavily represented in shared service centers throughout the global corporations surveyed compared to treasury, human resources and IT services. Over 80 percent of the firms surveyed are managing accounts payable and accounts receivable functions in a centralized environment. This compares with just under half or 47.9 percent of the companies having their treasury function in a shared service center and 54.8 percent placing human resources and IT in that capacity.
The report said dispersing responsibility for payments among subsidiaries could cause higher transaction costs and could ultimately lead to increased fraud risk. “Centralizing payments can reduce fees and infrastructure costs needed to support each individual local group while allowing subsidiaries to have independence on a specified range of operations and processes,” it said.
Industrial firms were early adopters of the shared service center model, according to the report. They tended to have longstanding centers in place where a variety of multiple functions were used across accounting, treasury and administrative or technology areas.
The majority of respondents were from firms that had annual revenue from $1 billion to greater than $5 billion. More than 50 percent were from North America, followed by 32 percent from Europe, 12 percent from Asia-Pacific and 2 percent from Africa.