Many of the world’s biggest organisations have used shared services and outsourcing to transform their finance functions: cutting costs, creating new structural models that improve finance operations and processes, and driving improvements in business performance. Now the lessons learnt may be used by mid-sized businesses that want to follow in their footsteps, as FSN writer Lesley Meall discovers.
Cost, efficiency, effectiveness, providing agility for growth, speeding up new market entry, integrating acquisitions more easily, creating greater cost transparency, improved governance, and providing business insights. Although the reasons for finance transformation initiatives are many and varied, the strategies for achieving it are a little less so, and over the past decade, the finance leaders of global businesses have increasingly used shared services and outsourcing as primary strategies for change – with some success.
‘Shared services are now recognised as a key component of a best-practice finance function,’ says Peter Moller, partner, Deloitte Consulting, adding: ‘It is an idea whose time has come.’ When the Everest Group researched use of shared services and outsourcing in the United States (US) in 2011 it found 70 per cent of Fortune 500 companies using these models for their finance and accounting operations, and there are similarly high adoption levels amongst large, global businesses with complex structures in other parts of the world too.
So how large, how complex, or how global does an organisation need to be before it can exploit shared services? ‘Any organisation with multiple back office finance functions is likely to benefit from a shared services structure,’ suggests Moller, ‘whether it be run as a captive [by the business itself] or outsourced to a third party.’ Though it is worth noting that for some organisations, the transition to a captive shared services centre is a pre-planned waypoint on the road towards some sort of third party outsourcing arrangement.
Finance transformation is a journey, and just as not all organisations will reach (or even aim for) the same destination, they don’t always start from the same place either.
For some, transformation is about improving finance function processes. Let’s be clear, this doesn’t even have to go as far as shared services to deliver benefits. Just rationalising on one single platform or product for accounting systems and various other types of business software, and then eliminating multiple versions of them, can reduce costs and increase efficiency.
But more can be achieved when this sort of rationalisation is combined with business process re-engineering and continuous improvement, or with methodologies such as Six Sigma. For some organisations, finance transformation goes beyond being a ‘functional fix’, and becomes a business solution that can unlock value across the enterprise. ‘The CFOs that I work with see finance transformation as a vehicle and tool to drive change,’ reports Anoop Sagoo, senior business process outsourcing executive, Accenture. ‘What they are most interested in is performance.’
According to research results in Finance transformation: expert insights on shared services and outsourcing (learn more about this Association of Chartered Certified Accountants report here), this represents a fundamental shift in the vision and core purpose of finance change. ‘Finance leaders that are trying to drive business performance see beyond the finance function, focusing on its connectedness to the rest of the business, transforming and aligning end-to-end processes, regardless of where they are housed.’ This could be within the business, the retained finance function, or in a shared service or outsourced environment.
‘The starting point for our finance transformation journey was the recognition that the finance function had to support our global business as it evolved,’ says Patrick van Hoegaerden, finance transformation director for Europe at the Coca-Cola Company. ‘Our first goal was superior service delivery to the business,’ he explains. ‘We then evolved our finance model to ensure we had the right balance of local support with deep expertise to support local business decision making, complemented by regionally based operations that drove finance processing excellence and scalability, but that were still highly ‘embedded’ to serve the needs of the business.’
Taking a business-led transformation can be more of a step change for finance, because it calls for a broader vision and a broader skill set. According to the ACCA report, it requires a strategic approach across end-to-end processes that bridge business functions and integrate the ‘front-end’ of the business with the ‘back-end’; but this process-led approach has distinct advantages. ‘We are not taking a functional approach because greater benefit to the business can be generated more quickly by taking a cross-functional process approach,’ says Simon Newton, vice president, shared services, at Kimberly-Clark.
All of this demands significant influencing capability, internally and externally, and a focus on the business needs – evaluating the best means to integrate finance into the business in order to be effective. ‘The hardest part is always change management,’ reports Graham Russell, and he knows what he is talking about. The business process outsourcing director with WPP Group has assisted in the evaluation and implementation of BPO across the media communication services group, and he was formerly the global head of shared services at AstraZeneca, where he led the transition to a regionally-based, shared services and outsourcing environment.
Change management was identified by finance leaders and outsource providers in the ACCA report as the biggest barrier to finance transformation, and people are the key to this. ‘Our internal challenges were all around change management and change readiness,’ reports John Ashworth, global head of business process outsourcing with Pearson, the education company, where he has previously been MD of its shared services team and now runs its global BPO deal with IBM. Many finance leaders also cited business ‘inability to assimilate new ways of working’ as a key challenge. Fortunately, there are ways in which finance leaders can get buy-in across the business and stack the odds a little more in their favour.
It’s not enough to simply dangle carrots such as more cash, more transparency, more information, more service, or more business intelligence to drive business performance, you also need the stick that is high-level leadership buy-in. ‘Having a strategic mandate supported from the top was critical to the change journey,’ reports George Connell, at the oil giant Shell, where he is both its head of strategy for finance operations and its centre finance lead, Glasgow. Without this, according to the ACCA finance transformation report, limited leadership buy-in outside the finance function and reluctance to adopt new rules means that the status quo often remains.
It is not unusual for finance transformation initiatives to cross geographic borders and this can make change management more complicated. It is important to be sensitive to cultural differences and to understand and make allowances for the different responses to change among organisations and individuals. ‘Developing a communication and change approach that recognises everybody is quite different and at different stages of acceptance is critical,’ advises Coca-Cola’s van Hoegaerden, adding: ‘Patience is important, and timing your move.’ Though this can be difficult in some fast-paced outsourcing scenarios.
Another area where it is important to carefully manage change is within the retained finance function, because their new role within the business will change the emphasis on the sorts of skills that can be most valuable, as their responsibilities shift away from delivering finance processes to managing and governing finance processes and managing service delivery relationships. The ACCA report suggests that the new skills needed include: skills for managing change, problem solving skills and communication skills, and influencing skills. Engagement and motivation need managing carefully, as all of this requires a different way of working and thinking.
The retained finance function needs to demonstrate the value being added by the new sourcing model (whether this is a captive or outsourced shared services) and get buy-in from key stakeholders in the business. ‘It requires a certain sort of behaviour, which is to embrace the change and look for opportunities to push deeper and create purpose for the retained function,’ says Newton, from Kimberly-Clark, and the transition can be too much for people who are too attached to their old self-image. ‘In any new sourcing model, it’s important to move from functional arrogance to a service mentality,’ ads Newton.
Perhaps the biggest key to the success of a finance transformation project involving shared services is to plan ahead, be clear about what you are trying to achieve, and what you need to do to make it happen. ‘Everyone wants to get Hackett best-in-class, but nobody wants to take the effort to make it happen,’ suggests Gautam Thakkar, vice president and global head for enterprise services BPO at Infosys, the IT services company that was a pioneer of offshore outsourcing. If you want to use shared services to transform your finance function and processes, in a captive set up or using a third party provider, your organisation will need communications skills, programme management skills, and sufficient resources for the transition.
‘More often than not, we find clients ill-prepared for change management,’ says Terry Balzanella, VP for the EXL Finance and Accounting Centre of Excellence in Europe. Though Newton from Kimberly Clarke makes a similar comment about some service providers: ‘They don’t always understand the additional change management issues of an outsourcing programme over shared services.’ But if you really want to get the best from finance transformation, the key is to think big, even if you are not big – and look beyond pure transactional activity. Chris Stancome, global head of finance and accounting outsourcing at Capgemini recommends ‘thinking strategically’ at the outset, and recognising the greater benefits the journey can deliver.