The evolution of financial shared services – from labor arbitrage and cost reduction to value delivery

By Shak Akhtar, SVP Finance Automation/Customer Experience Officer, Redwood Software

Despite moves to ease the lockdown, no one needs reminding that it’s still far from business as usual. The huge changes to working practices and processes forced upon us by the COVID-19 pandemic have highlighted the failings of some traditional approaches to finance. As an extension of many organizations’ accounting capabilities, financial shared services is far from immune to this increased scrutiny, with the current situation prompting questions about how smarter approaches are now needed more than ever before.

The trend towards financial shared services continues its seemingly unstoppable march. According to the latest market research report by Technavio, the global shared services market is expected to accelerate at a compound annual growth rate of almost 17% until 2021. As part of this continued growth there is an increasing shift to more global, multifunctional models and an expectation that they will provide not just lower cost but higher value.

It pays to put this into context and look back at how the financial shared services model has evolved. Many were originally set up with specific financial processes in mind, such as posting (but not preparing) journals or reconciling balances (but not adjusting for differences). The organizational rationale that dictated which aspects were handed over to the shared service center (SSC) versus which should be retained by finance occurred on a lift and shift basis, based largely on a labor arbitrage play and the perceived benefits of moving the same work to a lower-cost location. It’s fair to say that process transformation and improvement wasn’t historically a factor in that decision.

There are several issues with this approach. While labor arbitrage benefits can be accrued initially, they are difficult to scale as the emergence of SSC employment hotspots drives up staff attrition rates and wage inflation. And that’s before you’ve factored exchange rate risks into the equation. What’s also true is that financial SSCs create more handoffs and handovers in process, which need to be carefully managed and orchestrated.

More importantly, simply moving a process to another location means organizations are unlikely to realize anything more than small, incremental process benefits. By failing to look at and transform the end-to-end processes, perpetuating old and inefficient ways of working may carry more risk in the way they’re executed in the financial SSC model. The current pandemic has further highlighted the significant challenges posed by a reliance on manual financial processes, and the risks created by significant handoffs and handovers of work between different people and teams where this is not managed by technology.

Similarly, the absence of self-service functionality puts pressure on already overstretched finance staff to respond to requests for information, while the reliance on on-premises back office ERPs, finance systems and data stores presents no end of access and support challenges. Without distributed approaches to financial processes, organizations have unwittingly opened themselves up to a single point of failure. The combination of finance automation and end-to-end process transformation provides the answer to many of these challenges. Eliminating manual effort from processes makes them more efficient, sustainable, and scalable. It enables financial SSCs to increase their capabilities and capacity without the need to increase headcount.

At a time when the shape and scale of finance team workloads has changed beyond recognition due to unprecedented demands forced upon the business by COVID-19, transparency and visibility are critical. Having bulletproof controls in place that give you the helicopter view of what’s being done, where it’s being done, and by whom. This view, along with dashboards that flag up bottlenecks in your processes and outstanding tasks isn’t just a nice to have, it’s business critical.   

What seems clear is that CFOs who fail to embrace the full process transformation opportunities presented by shared services are missing a trick. “Shared services as a concept has moved far beyond finance transaction processing and now includes value-added services in finance and beyond,” warns Gartner in a report published in February. Now is the time to shift the conversation away from pure cost reduction and instead towards value delivery.

Find out how to transform your finance processes with Redwood’s Finance Automation

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