Financial Shared Services: Benchmarking Success for Treasurers

The concept of Shared Services Organizations (SSOs) – one part of an organization providing a service to other parts of the organization – is proving increasingly attractive to companies seeking the benefits of standardized processes, better aligned resources and a culture of excellence as they expand globally. When properly designed and deployed, Financial Shared Services Organizations (FSSOs) can significantly reduce the costs associated with treasury management and help optimize working capital.

J.P. Morgan Treasury Services, along with The Hackett Group, a financial services research firm, recently polled 171 treasurers, over half from large corporate organizations, that are either contemplating a move to shared services or looking to increase the efficiency of their existing shared services operations. The key findings of this poll include:

• Cost and controls remain the most critical reasons to establish shared services. Over the past five years, SSOs have increasingly become a key component of corporate strategies. Eight out of ten treasurers who responded to the poll cited reducing costs and headcount as the key reasons for establishing an SSO. These findings are supported by The Hackett Group's 2010 Global Business Services Study; in that study, cutting administrative costs, decreasing headcount and improving controls and compliance were identified as the primary reasons for establishing an SSO.
• SSOs are becoming more prevalent and global. According to the Hackett Study, global shared services more than doubled from 2004 to 2010; 62 percent of the companies that participated in their study had operated SSOs for less than five years. The recent J.P. Morgan poll showed similar results with nearly half the respondents indicating they operated SSOs at both national and global levels and for fewer than five years. According to Dr. Penny Weller of The Hackett Group, "SSOs are everywhere. The largest number of SSOs in the poll are in North America, followed by Europe, Latin America and Asia-Pacific."
• Measurement and sharing results are critical components. Successful SSOs use benchmarking and metrics to validate that the services they provide are reducing costs and satisfying internal customers. Sixty-four percent of those polled measure—or plan to measure—success by implementing a regular benchmarking and key performance indicator program.
• Lower costs and efficient processing drive the need for a Financial Shared Services Organization (FSSO). While an SSO focuses on consolidating and streamlining general administrative services, such as human resources, information technology and procurement, FSSOs focus primarily on driving down costs specifically as they relate to accounts payable and accounts receivable. Through standardization and harmonization of processes, operations are consolidated and economies of scale achieved across all treasury and finance functions. When executed correctly, an FSSO can help reduce costs by eliminating redundancies, increasing financial transparency and lowering foundation costs and bank fees. According to the FSSOs in the recent J.P. Morgan poll, their top three goals are standardization of processes across their organizations, decreasing processing costs and centralizing or automating accounts payables processes. According to Dennis Gniewosz of J.P. Morgan's Global Advisory Solutions group, "When you standardize, harmonize and coordinate, you take very complex financial processes in your company—of which there are many—and make them into something simpler and more streamlined that can support everyone. You don't have to buy 10 systems or print checks 32 different ways. As you reduce costs and shorten cycles, you are also expanding your capabilities."
• Loss of control and change management impact the type of FSSO developed. While seeing the benefits of an FSSO, polled treasurers expressed concerns that a move to financial shared services might result in a loss of control over decisions, unsuccessful change management or potential business disruptions. "This concern proves how incredibly important it is to do it right. An FSSO that's not organized properly is not going to help anybody sleep at night," says J.P. Morgan's Gniewosz.
• FSSOs are a tool for driving increased efficiency. There are several possible FSSO models. The most prevalent – an independent service model – provides a high-quality product at such a reasonable price that the other business units in the corporation can no longer justify performing the same work themselves. The second model – based on a servicing agreement – allows core services to be extended via centers of excellence. The third – used by larger corporations – is a finance company set up to provide core services plus investment and liquidity management. Forty-two percent of those polled had either already established a payment factory or were contemplating setting one up, while 56 percent had recently consolidated bank accounts as part of their shared services strategies. "Companies on a financial services path evolve from information management to cash management to payables and receivables," says Gniewosz. "The trend is to build internal functions up to external functions."

Taking the right steps for the foundation and execution of an FSSO is critical – from designating a change management "owner" to developing a complete inventory of functions that the center will perform and successfully phasing in new processes and procedures. Companies that have done this correctly have made big changes with the help of consultants and their banking partners. Successful SSOs leverage best practices and technology to reduce complexity and redundancy and make things easier for their internal customers. With the right kind of consulting and banking relationships, those improvements can be benchmarked and measured and have a significant positive impact on a corporation's bottom line.

Click here to access a replay of J.P. Morgan’s Shared Services Webinar.