Shared Services as a Cost-Cutting Tool Shows Dramatic Expansion

March 4th, 2009

Shared Services as a Cost-Cutting Tool Shows Dramatic ExpansionShared Service Organizations (SSOs) have achieved dramatic improvements in cost and productivity, according to new research from The Hackett Group, Inc. (NASDAQ: HCKT). 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 Book of Numbers 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.

Results from the research, which examines shared service operations at more than 150 global companies, is featured in Hackett’s latest Book of Numbers research volume, “World-Class Shared Services: Expanding Beyond the Transaction.” The research also features case histories on shared service successes at Hewlett-Packard and Royal Philips Electronics.

Hackett also announced that it has launched an open performance study assessing key drivers of overall cost and value for SSOs, and identify opportunities for companies to improve efficiency and effectiveness. The study is available online .

“With a nearly 50% increase in use over the past three years, shared services has become the standard approach to corporate finance,” said Hackett Finance Shared Services Advisory Program Leader Dr. Penny Weller. “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.”

According to Hackett Finance Advisory Practice Leader Bryan Hall, “Across the board, the results shared services has helped companies generate is quite impressive. Our 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.”

According to Hackett European Advisory Services Director Roy Barden, “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, we’re also seeing a growth in multifunction SSOs, incorporating a wide range of back-office operations beyond finance.

“We’re also seeing several other emerging trends,” said Barden. “Many companies are also now making second-phase movements of operations from near-shore locations to low-cost labor markets, and most are already doing significant work offshore, either through SSOs or outsourcers. The use of outsourcers is certainly on the rise. Overall, leadership at top SSOs are transitioning to the role of sourcing strategists, evaluating and managing a mix of internal and external options, including offshoring and outsourcing.”

Case Histories: H-P and Royal Philips Electronics

Over the past 15 years, Hewlett-Packard has developed an extensive shared services network, which now has 11 global delivery centers. “We began with the basics, such as payables, receivables, T&E, and general ledger work. What we’ve done more recently is find ways to bring higher-value activities such as financial analysis into our centers,” said H-P BPO Director of Record-to-Report John Schlueter.

“There have been obstacles to overcome, including building the necessary staff skills and getting the business units themselves used to the idea that the work would be done by people that were in another part of the world,” said Mr. Schlueter. “One key to our success has been carefully coordinated role sharing. For higher-value work, we can handle parts of the job that can easily be broken down, like transactional work, data extraction, and trend analysis, then hand things off to the business unit for activities that are high-judgment and high-impact, such as setting strategy.”

Royal Philips Electronics leverages shared services and business process outsourcing through three global captive centers in Poland, India and Thailand. While its internal SSOs delivered considerable cost savings and performance gains, the company was concerned about the long-term prospects for both additional value creation and employee morale. To address these, Philips decided in 2007 to transfer 1,400 SSO employees to Infosys, a leading Indian business process and IT outsourcing provider, as part of a seven-year, $250 million contract.

“We look beyond SSOs at strategic sourcing from a broader perspective, and as a result we’ve generated substantial value at each stage of the process,” said Philips Global Shared Business Services Finance General Manager Rens Blankers. “At this point, Infosys has the scale and automation to handle things more efficiently than we could internally, generating improvements we could not have made on our own. Our finance teams have shifted their priorities, so they’re now focused on strategies for relationship management with Infosys and long-term optimization.”

About The Hackett Group

The Hackett Group, Inc. (NASDAQ: HCKT), a global strategic advisory firm, is a leader in best practice advisory, benchmarking, and transformation consulting services, including shared services, offshoring and outsourcing advice. Utilizing best practices and implementation insights from more than 4,000 benchmarking engagements, executives use Hackett’s empirically based approach to quickly define and prioritize initiatives to enable world-class performance. Through its REL brand, Hackett offers working capital solutions focused on delivering significant cash flow improvements. Through its Hackett Technology Solutions group, Hackett offers business application consulting services that helps maximize returns on IT investments. Hackett has worked with 2,700 major corporations and government agencies, including 97% of the Dow Jones Industrials, 73% of the Fortune 100, 73% of the DAX 30 and 45% of the FTSE 100.

Founded in 1991, The Hackett Group was acquired by Answerthink, which was renamed The Hackett Group in 2008. The Hackett Group has global offices in the United States, Europe and India.


Post to del.icio.usPost to | digg this! Digg this | Add to any service | More Social Page’s

Entry Filed under: Why Outsource?