Thursday, February 19, 2009

Shared Services as a Cost-Cutting Tool Shows Dramatic Expansion

Shared Service Organizations (SSOs) have achieved dramatic improvements in cost and productivity, according to new research from The Hackett Group, Inc. While SSOs have been rewarded for such good work, business expectations are now forcing companies to drive toward a second wave of value creation utilizing complex operating models.

Hackett's latest research finds that companies seeking to move up the value chain are implementing a multi-layer shared services model that incorporates transaction processing centers in low-cost regions, centers of excellence, and high-level onsite support for analysis and decision-making. Many SSOs have also expanded beyond finance to incorporate functions such as IT, procurement, and HR -- in fact, an "everything in G&A" approach is leading edge. At the best SSOs executives make sourcing decisions relating to scope and geography within a continuous improvement and customer service culture.

With a nearly 50% increase in use over the past three years, shared services has become the standard approach to corporate finance. These centers have played a critical role in helping reduce the cost of finance. Today, typical companies spend almost 40% less on finance operations than they did in 1992. World-class finance organizations, which spend only half of what typical companies do, have seen even greater cost reductions.

Across the board, the results shared services has helped companies generate is quite impressive. Hackett research finds that 65% of all companies with SSOs have cut costs by 21% or more, with some seeing savings of over 60%. At the same time, they're showing dramatic improvements in productivity, quality, and customer service.

As next-generation SSOs move beyond pure transaction processing, world-class SSOs are evolving towards a three-layer model. Most have established large-volume transaction processing centers, often in low-cost labor markets. In addition, they've established centers of excellence, which are responsible for service delivery and are the primary interface to the business leaders. These are often much closer to the business geographically. Finally, high-level knowledge workers are likely to be co-located with the business units, so they can serve as on-site business partners. All this puts them in a better position to provide value-added services such as decision support and reporting and analysis. Within this three-layer model, Hackett is also seeing a growth in multifunction SSOs, incorporating a wide range of back-office operations beyond finance.
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