A growing number of organizations are choosing to move common or repetitive finance processes from far-flung corners of their organization to a centralized shared services center, aiming to reduce cost while improving productivity and efficiency.
This month’s metric comes from the Financial Shared Services Benchmarking Study, performed by APQC and sponsored by ScottMadden. Of the 302 survey participants, about half were based in North America, with the next-largest segment based in Europe. For most of the participants, services were distributed across multiple regions.
Based on key metrics related to cost, efficiency, and productivity, 66 SSCs were designated as “top performers” that consistently scored in the top 25%. Of those 66, 84% provided services to multiple countries, compared with about 40% of the lower-performing SSCs.
This month’s metric breaks down the number of shared services center full-time equivalent employees (FTEs) needed (normalized by $ billion revenue) to perform finance processes that are commonly centralized. For example, in the top-performing SSCs, it takes, at the median, 1.78 FTEs per $1 billion in revenue to perform the accounts payable process, compared with a median of 4.62 FTEs to perform the same process in the lower-performing SSCs. (See chart.)
The metric is considered a key performance indicator for efficiency of finance processes, meaning that the lower the number, the more efficient the organization is in accomplishing that process, assuming that other metrics, such as productivity, cost, and quality, are equal. Efficiency KPIs are an important component of a balanced set of KPIs for finance.
Across all major finance processes, top-performing finance SSCs have significantly better staffing ratios than lower performers do. At the median, they are about three to six times more efficient in terms of FTE usage.
For the most common functions — payables, receivables, accounting, billing, and invoicing the customer — the lower-performing comparison group requires between three and four times the staff to perform those transactional-type functions. For the bottom four functions — taxes, controls, FP&A, and treasury — the lower-performing group has six to eight times the number of staff as the top performers.
In my experiences working with SSCs, I’ve found the benefits to be real, whether they be tangible or intangible. Combining multiple finance tasks under one roof allows a business to stop housing separate finance teams in separate physical offices, which frees up space and overhead expenses that can be put to better use generating more revenue.
I’ve witnessed SSCs creating new economies of scale in the areas of purchasing, risk management, and banking, among others. Centralization also creates more understanding of processes and allows for better definition and delegation of tasks, which helps eliminate inefficient processes and redundancy and reduces the number of FTEs required to complete a process.
A side benefit of centralizing the finance function into a shared services center is that it can reduce the proliferation of “silos” that tend to damage corporate culture and limit productivity. That’s especially true when the centralized finance function has good communication with other groups or companies inside the organization.
Centralizing also consolidates management’s responsibilities to fewer people within the organization, allowing for faster identification and resolution of issues, and allows for cross-training of individuals working on different teams to serve as back-ups.
What are the hallmarks of a top-performing SSC? Top performers in this study share these traits:
Together, these traits paint a picture of high-performing SSCs that are focused on perfecting the art of finance processes. With fewer operations running in disparate locations, SSCs have been able to centralize and standardize routine finance functions so that they can perform them with maximum efficiency, which results in better staffing ratios, higher productivity, and cost savings.
For companies thinking about shifting to an SSC model, or those that want to see how well their existing SSC stacks up against peer companies, measuring FTE productivity is a good way to quantify an organization’s efficiency in managing routine processes. The next step is to compare current process efficiency, in terms of FTEs, to the baselines in this metric to get a clearer idea of whether creating or upgrading to an SSC is a smart move for an organization.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.