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This journey is of an Indian family owned, professionally managed, multi locational, multi segment, global listed manufacturing conglomerate. The Business segments of this organization are diverse, and its processes are unique from one another. Being a listed company, need for compliance to regulations is real-time but its implications on the business segments are not similar. Moreover, the routine and repetitive nature transactions are large but not significant enough, if one has to compare the volumes with a typical multinational organization.
In the United States of America, more than 70% of Fortune 500 companies now use shared services or outsourcing models for their accounting operations.
With this background, one needs to evaluate as to what it takes to make the Finance Transformation through Shared Services strategy successful.
Schulman, Harmer, Dunleavy and Lusk defined shared services as “the concentration of organisational resources performing like activities, typically spread across the organisation, in order to serve multiple internal partners at lower cost and with higher service levels, with the common goal of delighting external customers and enhancing corporate value.”
Till late, shared services in the Finance and other support functions other than the HR have been forte of Multinational Organizations. In the United States of America, more than 70% of Fortune 500 companies now use shared services or outsourcing models for their accounting operations. Because of the geographical spread of the business units, the compliance needs are diverse and varied, coupled with monumental volumes of repetitive transactions. It was thus imperative to adopt the outsourcing model to leverage economies of scale and in a way achieve higher employee productivity and reduce cost of operations. Lot of large Indian companies with global footprints are also adopting the shared services model for their support functions.
Therefore the essential pre-requisite for implementing a shared service model is large repetitive volumes of transactions coupled with similar regulatory compliances, which tend to deplete employee productivity, especially if it is managed through multiple locations.
What Is The Principle Objective For Implementing A Shared Service?
Efficiency is always the ticket to entry. Delivering more for less is the first goal. Less cost and less complexity through standardisation eventually result in greater transparency, greater coordination and increased leverage – in short, greater effectiveness. In fact, efficiency and effectiveness working in tandem will give a better result with an improved incidence of cost reduction.
What makes outsourcing so difficult?
The so called ‘softer stuff’ continues to be the number one impediment to achieving transformation success. Finance leaders and outsource providers alike consider ‘Change Management’ as the barrier, and in particular cite the organisation’s inability to assimilate new ways of working as a key challenge. In a typical Indian organization with multiple segments and decentralized operations, it is important that one has a clear strategy to sell the idea of shared services/ outsourcing to avoid employee discontent and insecurity. The first thought that comes to one’s mind is “what’s in it for me?” The HR function has to play a lead role in addressing this issue with tact. Else, the initial teething issues will continue.
Transformation and legacy system should run parallel for some time at least, till
such time the new processes and operating structure stabilizes.
Concerns about the capability of the retained team are equally evident. From the client side, the challenge is no longer ‘Am I doing the right thing by adopting a remote model?’ It is now a question of ‘how does the retained team add value and how can it implement a complete end to end vision for finance that best supports the business?’
The objective of cost reduction should not overshadow the need for employing capable people who are conversant with the regulatory and integrated IT environment within which the organization is expected to charter its course.
Service and Process Improvement Focus
There is a growing realisation from clients that effective sourcing is synonymous with service, and that 
while cost benefits are achievable, service benefits are rather more elusive.
Increasingly, the customers differentiate between the quality of service delivery they receive (i.e. the actual experience of service delivery) and the achievement of service level agreements. In other words, the stakeholders expect that the experience of moving to outsourcing model should be enriching and different, rather than being “more or less the same as is was earlier”. The expectation of process improvement, improved delivery standards, economics of scale and above all the unwavering commitment of the service team to meet its obligation of “customer delight” is imperative for success and acceptance of the outsourcing model.
Demand for an Agile IT
IT enablement should keep pace with standardization of processes. Shared services mostly fail if the IT enablement takes far too long to come up to pace. Therefore, before one decides to go for outsourcing, one should first evaluate its IT infrastructure and also the belief in the minds of its IT professionals that the shared service model is the best thing that could happen to an organization.
The true prize of successful finance transformation is to unlock Value, improve Shareholders’ Return and create Competitive Advantage.
Transformation and legacy system should run parallel for some time at least, till such time the new processes and operating structure stabilizes. Most organizations change over seamlessly and hence, for a short while disturb the business as usual. However, this can be overcome swiftly if the IT and Finance service team is agile and competent enough to come up with a new and transformed system.
No shared services or outsourcing model can take off in an organization unless it has the blessings of the promoters. But this should not mean that the shared service team takes it for granted that Shared Service is here to stay and “we can do what we like”, or “take our own sweet time to deliver, ignoring all go live commitments”. If this is the underlying ideology of the delivery team, then any process efficiency model would fall through in no time, leave aside outsourcing.
In Conclusion
The true prize of successful finance transformation is to unlock Value, improve Shareholders’ Return and create Competitive Advantage. The continuous use of shared services and outsourcing as a tool is testimony to the fact that many organizations are re-prioritising the re-engineering and transformation of Finance activities.
Though labour cost savings may decline over time, it is the other benefits of finance ‘remote delivery’ that will continue to prevail: Continuous Improvement, Better Governance, and more Efficiency. To this end, significant challenges will continue to remain – for example, the problems with articulation of the role of the retained team, the development of appropriate skills and capabilities, and the interplay of the retained finance team with the shared services delivery team.
Finance leaders stand firm in their belief that transformation is a journey, not only in terms of value creation but also in the evolution of the finance model. There is simply no turning back from shared services and outsourcing as a finance transformation tool.
Disclaimer: The above article is a reproduction of my personal views only and has no reference to any particular person or organization and its management styles.
ABOUT THE AUTHOR
Joydeb Chatterjee is a Finance Professional with 23 years of rich, all rounded experience since 1993, across diverse Industries, spanning Media, Healthcare, and Manufacturing. Currently, in his role as Senior Vice President and Chief Finance Officer of the Technical Textiles Business at SRF Ltd. June 2013, he is responsible for overseeing group accounts, insurance, internal audit, corporate financial consolidation, and budgeting. Joydeb is a Cost Accountant and Chartered Accountant by profession (ICAI) and holds a bachelor’s degree in commerce from St Xavier’s College, Kolkata.
He has been recognized as one of India’s next 100 Potential CFO’s by the magazine, CFO India, in December 2012. He has been awarded the Roll of Honor for significant contribution in Cost Optimization initiatives in a large Manufacturing Organization in March 2016 and for significant Contribution to finance in March 2014 by CFO India.
