Decision Making for Back-Office Consolidations

Action Matters

Fast-Tracking Finance: Decision Making for Back-Office Consolidations

The recent economic recession is pushing many organizations to re-examine operations, enhance productivity and reduce costs. This strategy shift comes on the heels of more than 20 years of efforts directed at driving enterprise value and streamlining cost structures by implementing shared services for back-office functions such as finance and accounting, information services, human resources, sales operations and legal. The results are well documented, with average cost reductions of 10 percent to 30 percent¹ of baseline functional costs – which also positioned organizations to proportionally support growth. But what have these experiences taught us about how best to achieve these benefits?

Whether you are a multibillion-dollar company with a proven track record of driving enterprise value through shared services or a company just beginning your journey, the experience of the last two decades has uncovered several key considerations and lessons learned from building the case for change, assessing the existing organizational model, and designing and implementing the shared service organization.

Building the Case for Change

The business case defines the current state baseline and economic justification for moving forward with shared services. When building such a case, it is important to keep the following key considerations in mind:

Establish a clearly defined plan and ensure a common understanding across the organization to facilitate definition of the current state cost, resource and capacity baselines to be able to measure the benefits post implementation
Identify and catalogue all benefits, tangible dollar and intangible “soft,” as well as any risks to the company (e.g., loss of knowledge capital, impact on customers, impact on labor contracts, etc.)
Recognize all one-time implementation and ongoing costs to avoid surprises

Developing a Plan

While shared services can drive material benefits, it is not the “silver bullet” to address all issues. Even though the initial business case may show an economic justification, this does not mean the achievement is a foregone conclusion. Assessing the existing business operating model, market conditions, potential customer or labor implications, and defining how the organization will be governed, will help determine if shared services makes “business” and economic sense. Some key conditions should be considered before deciding to move to shared services, although the absence of these conditions does not necessarily mean that you will be unsuccessful; it reflects an increased challenge to achieving the targeted benefits.

If there is ample business justification and the company is conducive to shared services, designing an organization and process structure that supports your existing structure, while increasing efficiency and enhancing scalability, is critical. Implementation then focuses on executing the design, managing the people-related process and defining the critical governance model to drive efficient performance and optimal service levels. Some key guidelines include:

Design a shared service organization to support your existing structure (e.g., if your company is organized around lines of business, develop your shared service around those lines of business, despite any absence of savings)
Define a governance structure to resolve issues, manage internal customer relationships, and measure service level and cost performance, including a governance board composed of business and functional leaders to drive high customer service and accountability
Stay true to the business case principles and revisit them regularly to ensure the targeted benefits stay on track
Do not underestimate the learning curve, ensure adequate training and parallel processing time, and phase the implementation appropriately

Conclusion

Many successful shared service implementations have taken place over the past two decades, but there are also many that struggled to achieve the benefits stream they sought. Lessons can be learned through both successes and failures. So heed this advice: