Why the shared services landscape is still changing

22nd October 2011

Approaches to shared services are changing. FSN writer Lesley Meall considers factors ranging from cloud computing and smart data capture, through the outsourcing of transaction-centric services and retention of higher value business processes, to the financial incentives offered by some European governments.

The shared service centre (SSC) has been around since the early 1990’s, but just like most other technology-based solutions to business problems, SSCs are evolving. ‘It’s getting hard to find an organisation that hasn’t adopted shared services in some form, and many of them are now moving on from the single function SSC they started out with,’ says Honorio Padron, global IT advisory practice leader at Hackett Group. ‘Once they understand that shared services is a more effective way of distributing work done for the company, they move on to a more holistic delivery model, made up of sourcing, process design and services, and the technology to deliver this,’ he adds. 

Although the move to shared services can be a waypoint on the road to outsourcing, Padron reports that around 60 per cent of shared service centres remain in house; but the outsourcing of some processes is increasing. ‘This is very targeted and tends to focus on transaction-centric services such as accounts payable,’ he reports. This can be seen by looking at how the business-to-business arm of France Telecom, Orange Business Services (OBS), has changed its approach to accounts payable (AP) over the years; exploiting advances in technology to automate and streamline the AP process, where possible, despite the fact that it remains largely paper-based. 

‘Historically, accounts payable was based in the UK,’ says Peter Loughlin, purchase-to-pay strategist at OBS, and it was handled in-house, but as OBS has expanded internationally, the AP process has needed to do the same. Over the years OBS has taken a fairly traditional route towards the eventual outsourcing of AP:  simplifying and streamlining as much of the process as possible, then partially centralising AP processing at regional finance centres (in the UK, US and Singapore), before fully centralising AP and outsourcing it to a single centre in India. But the entry of invoices has remained local, and until recently, the benefits of automation were limited. 

As volume suppliers to OBS account for 27 per cent of the 200,000 invoices it receives each year, so an e-invoicing system (with structured messages) would need to convert thousands of suppliers, in hundreds of countries, and offer little return on investment. ‘We implemented a workflow tool that allows invoices to be scanned in, wherever they are in the world,’ says Loughlin, but when they get to the outsourced AP function they have not been processed automatically. ‘People take the scanned images and then manually input the invoice data,’ he explains. ‘They apply some basic business rules, and any issues that arise are dealt with using workflow.’

But OBS is about to take what Loughlin describes as a ‘quantum leap’ with the help of an intelligent data capture system (from Kofax). ‘It uses OCR to read the invoice, but it’s a big advance on OCR,’ he says. ‘The system’s smart, so it knows that it needs to search the scanned images for numbers and logos,’ he explains. ‘Because it knows that a purchase order number will have a record in the ERP system, it checks for that record and then verifies that the amount is correct,’ he says, as well as checking vendor master data, such as VAT numbers, to ‘increase certainty’ and reduce the need for human intervention. ‘So AP can focus on being more strategic,’ he adds. 

According to Hackett Group, whilst transaction-centric processes such as AP are increasingly being outsourced from in-house ‘captive’ SSCs, the kind of business process that is being moved into them is changing, as higher value activities, such as recruitment, are pushed out to internal SSCs or business process outsourcing (BPO) providers. ‘We are seeing more hybrids,’ says Padron. ‘Companies are being more imaginative about the mix of captive and outsourced business processes,’ he adds, but it’s very circumstantial. ‘Different companies make very different decisions,’ he says. 

As the evolution of AP at OBS highlights, the transition roadmap to SSCs and outsourcing is also changing. Traditionally, the simplification and standardisation of processes was followed by a period of refinement and optimisation, designed to make a process as efficient as possible, before moving it into an SSC or passing it to a BPO provider. Now simplification, streamlining, refinement and optimisation are happening after relocation as well as before, and the transfer of processes to some sort of managed service happens at different stages, because of the ease with which organisations can exploit private, public or hybrid clouds. 

Witness the vast shared services initiative underway between Westminster City Council and the neighbouring London councils of Hammersmith & Fulham, and Kensington & Chelsea, which aims to integrate a range of technology solutions and business processes. ‘The tri-borough Project Athena forms the central plank of the corporate shared services programme,’ says David Wilde, CIO at Westminster City Council, which will lead the shared services project. ‘It will establish a framework agreement for the provision of corporate managed transactional services covering HR, finance and procurement, and property and asset management,’ he explains. 

‘It will also establish a business intelligence IT service for the analysis and management of information assets, to enable better decision making and resource management in the future,’ he adds, though how it does all of this remains to be seen. As Wilde explains: ‘For converging services we need to work out if the numbers stack up, and if the move delivers the same or better quality of service for each authority,’ and in addition to this, they will need to decide which teams will need to move, where they will move to, whether the merged services will be outsourced, and if so, to which provider. 

In theory, the three councils will end up sharing human resources, finance, and procurement systems (and service provision), but at the moment they each take different approaches. As with the OBS example, above, accounts payable serves as a useful example. One of the councils currently manages AP internally, and although the other two councils outsource it, they both use different service providers. So there is no certainty which approach will prevail. It is not yet clear how technology will underpin the delivery either,  or which services will go into the cloud (and what type of cloud); but Westminster already uses public and private clouds. 

Wilde sees cloud computing as a ‘good refinement of managed services provision’, whether it involves public clouds, private clouds, or the mixed approach  he believes most organisations will eventually adopt. Westminster already outsources 60 per cent of its IT infrastructure, with around 45-50 per cent in private clouds and 10-15 per cent in the public cloud. Capgemini runs the council’s desktop and datacentre services in private clouds (in facilities in Yorkshire and London), and a managed procurment service is operated for Westminster by Ariba and Oracle. It also uses public cloud services from Salesforce.com.

Many of the steps taken by Westminster during its transition from private data centre to (predominantly) private clouds, would have been just as appropriate if it had been doing a textbook transition to shared services, because the council has simplified, consolidated, standardised and rationalised many of its resources. ‘We used to have a range of about 40 business applications, managing everything from registrars, through social care, to environmental services,’ says Wilde, and these have been pared down to just 12 major systems, whilst the number of software packages being used by council staff has been slashed from a whopping 500 to just 150. 

Only time will tell how much of the tri-borough shared services framework ends up utilising cloud services, and how much of these are public, private or hybrid clouds, but Westminster is the lead council, it aims to have a 100 per cent infrastructure-free environment by 2015, and it’s already 60 per cent of the way there, so you can make an educated guess. It remains to be seen how many high value business processes remain captive in the councils’ SSC, how it decides to handle transaction-centric processes such as AP, and even where in the world those processes end up, if and when they are outsourced. 

According to Padron, the harsh economic conditions are already having an impact on the geographical destinations that organisations choose for their SSC sites. ‘They really roll-out the red carpet in Budapest, for example, lowering taxes and offering all sorts of incentives to encourage businesses,’ he reports, so the most economical sites for future SSCs may not be as far afield as they have been in the past. ‘I know an organisation that is running its SSC in Denmark as cheaply as it could run it in India, because of Danish government incentives,’ he says adding: ‘This isn’t happening in the US or the UK at the moment. As for tomorrow, well, who knows.’