Impact of a Finance Shared Service Environment

By Kathy Johnson, CPA

I have been working on a presentation about Finance shared services for the upcoming AICPA Controllers Conference in May, and  thought it would be a good subject to share with you.

Outsourcing has long been a part of corporate operations, and during the recent downturn, accounting and finance shared service centers have become popular. Companies such as Agilent Technologies, InterContinental Hotels Group, Federal Express and the New York Times implemented shared services years ago. Additionally, over the past three years, my company has implemented shared service centers for accounts payable, cash, payroll and general ledger accounting.

Our company moved to a shared service environment for the same reasons as other companies: to reduce cost and increase process/procedure efficiencies. These efficiencies generally result from specialization and the standardization of certain tasks that can otherwise be redundant when they are carried out in multiple locations. Elimination of these redundant processes is generally accomplished by centralization, which is what happened in our situation.

High-performance businesses usually think of finance executives as drivers of value. Financial thinking, value-oriented data and financial analytics create a culture in which strategic decisions depend upon metrics and financial analysis. The finance role is generally thought of as a strategic resource that enables organizations to strategize effectively to meet short- and long-term goals.

The creation of a shared services center in an accounting environment impacts the whole company. It usually involves a large-scale cultural and process transformation. For example, when a company uses a shared services facility to reduce costs and become more efficient, the company might fall short of its goals. For example, the new process can depict a hands-off, transactional approach that is perceived as disrupting the organization.

When moved to a central location, workflow significantly changes and sometimes causes re-work or duplication of work. Centralization also increases the number of times each task is worked on (which opposes one of centralization’s primary goals). For example, centralization can increase the delivery time of the services, complicate work processes and create a situation in which the people processing transactions are not as attached to the results than if they were more closely aligned with the operational departments.

In our company, we have achieved the short-term goal of reducing costs; however, the jury is still out in terms of the shared service center’s overall effectiveness. A few lingering issues include:

• Do we have the right personnel with the right skill sets in the right positions?
• Do we have the proper internal controls in place for this new structure?
• Does the new structure provide good growth opportunities to attract and retain top-level finance professionals?
• Does current finance staffing complement or help the company’s other operational departments?
• Do we have the right personnel with the proper skill sets to handle tasks remaining in non-centralized locations?
• Are finance professionals spending time in a strategic role or simply acting as a liaison between the centralized location and local staffing?

As we work through these issues that are further complicated by significant changes to our industry and in the midst of tough economic conditions, it is kind of difficult to isolate what is working and what needs revamping.  Many of us are anxious to find out what the fully developed shared services process will look like going forward. I am also curious about how others who may be going through this transition are dealing with the changes. I would love to hear from you.