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.

METRICOFTHEMONTH2Some 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.

Metric of Month for March 2017 SSC

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.

How Do They Do It?

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:

  • Territory. Just 16% of the best performers maintain single-country SSCs, and, according to ScottMadden, that number goes down each year. More geographic coverage correlates with better performance.
  • Centralized governance. Top performers have taken steps to connect country  or regional-level SSCs through one governance body.
  • Global process owners. In the last five years, GPOs have played a growing role in SSC governance. These senior leaders design and improve processes, manage related policies, oversee process metrics, and clarify others’ roles.
  • Technology. At top-performing SSCs, more vendors are tapping into company portals and broadly using such services as supplier onboarding, invoicing, and self-service. Top performers have also invested heavily in an integrated ERP solution, with 47% standardizing to just one platform. Top performers don’t tolerate a crazy quilt of transaction processing systems.
  • Analytics. Top performers analyze their own SSC performance. But they also take advantage of a wealth of supplier, customer, and employee data and offer strategy-oriented insights to internal customers.

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.

, , , , ,

4 responses to “Metric of the Month: Financial Shared Services Centers”

  1. And on the flip side, the SSCs enable CFOs and their teams to focus on the business and be value-adding partners….

  2. While it is probably a truism that Shared Service Centers can process an invoice more efficiently than distributed accounting offices, the proponents of SSC’s miss the most important reason why an SSC is a BAD and very costly idea. The best accounting staff employed by a company have ownership in that company. They know what is bought, they know what is a good price, they see duplicate, or fictitious invoices, and weed them out. Employees of SSC’s, in general, are lower paid employees whose sole measured goal is to process and pay an invoice as quickly as possible, irrespective of incorrect sales tax rates, unapproved purchases, duplicate invoices (with different numbers) whether by mistake or design.

    In my past, I ran a “parallel” experiment comparing the processing capabilities of my own accounting staff, and a US based SSC, and the SSC failed to find $336,000 of errors in the three month trial period, which my own A/P staff, paid far less than $336k, uncovered and corrected.

    It is so easy to miss the big picture, in these days of big data. But step back and recognize that all procedures depend on human involvement, which create unintentional errors, and there are a million scams out there which are far easier to perpetrate on employees who have no close ties to the company for whom they are processing invoices.

    Thus, SSC”s should be viewed with care.

  3. SS are needed to facilitate new technologies. Greater competition means you need fast efficient tools & Processes

  4. Interesting article. It was mentioned that more geographic coverage correlates with better performance. It would be great to see which countries performed the best. Whether that was Europe (either East or West) or which continents performed the best. For example, Lithuania in Eastern Europe is performing better and better each year regarding shared service centers development, more information can be found here (companies that had already successfuly invested): . It would be nice to see how Lithuania (or any other country) is performing in comparison to other countries. Also this article seems interesting as it shows how service centers provide competitive advantages. Some parts could be definitely elaborated. Have a nice reading time and waiting for comments.

Leave a Reply

Your email address will not be published. Required fields are marked *