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Shared Services Center (SSC)Integration and standardization of operations, increasing efficiency and reducing costs.
Preface
What is a SSC?
Why implement a SSC?
SSC benefits
Feasible areas for a SSC model
Organizational change
Main differences between shared services and centralization
SSC in operation, maturity assessment
How can PwC help you?
01
02
03
04
05
06
07
09
10
Contents
Over the past 30 years, in order to reduce costs, business groups worldwide have transformed the structure of their service areas. The accounting, finance, payroll, human resources, purchasing, logistics and systems departments have changed their structure and organization, delivering the same services under different and creative schemes, increasing the quality, efficiency and transparency of their administrative duties and back-office.
Among centralized organization models, SSC’s are the schemes that best respond to the stockholders' changing needs, providing the expected cost cut, facing globalization and market expansion, and showing a particular flexibility with respect to the new rules of governments and securities market, way above typical centralized organizations.
Migrating transactional operations to the SSC structure is a decision, whose main trigger is cost reduction; however, experience shows us that success of this conversion must include a set of indicators directly linked to each group of shareholders global strategy and vision to not fail in the effort.
01
Preface
02
It is the concentration of the organization's administrative and support activities that are traditionally distributed and duplicated in the business units and group companies.
This is how the Shared Services Center provides these activities with the support required, obtaining lower costs, increasing internal controls, quality services in its operations, simplifying and standardizing processes
A SSC is not:• A simple centralization.• Bureaucracy.• A standard solution for all companies.• Only a cost reduction initiative.
What is a SSC?
Business partner
• Capability to adapt.• Control of master data and reports.
• Strategic support.• Making of profitable decisions.• Risk and compliance management
• Approach to processes.• Sole control environment.• Standardization and simplification.
Centers of excellence
Shared services
Business unit
A
Business unit
B
Common process
Common process
Common process
Shared Services Center
Business unit
C
Shared Services Center
Culture of service
Flat structure
Lead practicesIndependent
entity
Focus on the clientBusiness
intelligence
Economies of scale
Standardized processes
Strategic
Specialized
Transactional
Business analysis and decision support
Assessment of investmentsCost Management
Tax and financial planning
Management reportsBudgets and planningTreasury management
Consolidation and reportFinancial analysis
Transaction support(mergers, transactions and
carve-outs)
Fixed assetsCustomer and suppliers
Income cycle IT
AccountingAffiliate reconciliations
TreasuryExpenditures cycleHuman Resources
03
The best startup strategy should be designed based on each company's individual characteristics, situation, needs and configuration. Companies reach better results when we first clean up the processes and later transfer and implement them in the SSC; in so doing, the center can use its expertise in improving them.
The decision factors for situating the SSC must include, aside from possible savings in low-cost cities (real estate and payroll factors), constant supply of labor for successful continuity of the SSC.
This requires strong involvement in the change management strategy by the board of directors and executive management focused on active sponsorship. It must be planned with a vigorous and early communication campaign to avoid resistance to change, mainly from middle management and key local teams.
Mostly, the companies considered no tax scope in implementing their SSC. Transfer pricing and tax savings implications should be evaluated in the business case of the package for assessment of savings in operating costs.
Making the decision to create a SSC has ceased to be a decision of the finance group, must be the decision of the organization's leaders in conjunction with the shareholders, to learn the specific needs of each of the business areas and how to tackle them. The best approximation to this approach is through a business case analysis and transformation to a SSC. Your organization's leaders must be completely involved in the planning, implementation, improvement and supervision process.
The results of the 2012 SSC Survey conducted by PwC Germany showed that the factors that the directors consider to be the most important in migrating processes to a SSC model are:
1 Cost reduction
2 Improvement of quality
3 Improvement of transparency
4 More efficient services
Implementing a shared services organization leads to centralization of common and duplicated processes that are provided to different business units under a sole leadership, working as an independent department with a focus on service and business.
Success factors prior to implementation
Why implement a SSC?
04
Higher service
quality
Simplification and
standardization of
processes
Support future growth
for shareholders
Business units focus
on strategic activities
Cost reduction
The most commonly outlined objectives in implementing a SSC were cost reduction and increased quality, however, from a current perspective, the most important factor is quality, while process transparency and service speed gain importance, as well as retaining key human capital.
• Improving user’s experience.• Improved efficiency in the administration of labor demand.• Combining services among business units.
• Internal controls, compliance and corporate governance.• Better executive information.• Documented “end to end” processes
• Increase skills and tools for business mergers and acquisitions.• Increase flexibility and trust.• Ongoing improvement.
• Simpler and more effective organizations.• Leadership in your branch of industry.
• Through economies of scale.• Through process efficiency.• Maximize investment (real savings).• Better determination of profiles.
SSC benefits
Common Systems
E. EnabledSystems
Multiple systems
Ben
efits
and
Sav
ings
Time to Implement
Current
5 -10%
10-20%
20-40%
40 +%
ERP Implementation
Economies of Scale
Labor Cost Arbitrage
Process Re-Engineering
Future
Semi-standardProcesses
Single/ Few Locations
Common Systems
StandardProcesses
Standard,SimpleProcesses
Non-standard Processes
Multiple Locations
Common Systems
Semi-standardProcesses
Offshore Location
Self Services
Multiple Locations
Common Systems
Semi-standardProcesses
Offshore Location
05
Curently, organizations that have implemented a SSC in the world receive migrated services in the following proportion:
Shared services initially focused on generic processes, with strong transactional bases and common to multiple business units.
• Need for standardization.• Advantage of concentration and specialization.• Separation thereof is possible between the business units and the SSC.• It is feasible to provide remote services.• Acceptable relationship between cost and benefit.
Feasible areas for a SSC model
Source: HfS Research and PwC EUA 2012
85%
60%55%
60%
50%
Fina
nce
and
Acc
ount
ing
Info
rmat
ion
Tech
nolo
gy
Cus
tom
er
Serv
ice
Hum
an
Res
ourc
es
Purc
hasi
ngService delivered by the SSC• Internal reports
• Accounts payable
• Accounts receivable
• General accounting
• Intercompanies
• Fixed assets
• Statutory reports
• Travel expenses
• External reports
• Taxes
• Master catalogue
• Payrolls
• Treasury
• Supply chain
• Customer service
• Human resources
Processes migrated to SSC’s vary in complexity and in number, the standard ideal a SSC should manage is not defined and an analysis should be conducted in each case, taking into account transactional processes (i.e.: accounts payable, fixed asset accounting or calculation of travel expenses), as well as more complex processes (internal and tax reports, budgets, general accounting, intercompany operations). The total number of services offered by each SSC seems to increase over time.
06
Location of the SSC This decision depends on two main factors: 1)
availability of qualified personnel, and 2) local labor
costs. However, in regard to future decisions, companies
give priority to qualified personnel, as the market
situation, in terms of recruiting better qualified
employees will become highly competitive. In the
American Continent, Latin America is the best location
for an SSC, as they have, on the average, the highest
level of maturity combined with the highest savings in
operating costs and good contribution to the
organization's value.
Implementation strategyCompanies that standardize their processes prior to
implementing a SSC achieve the best savings and show the
highest levels of maturity, particularly in terms of
customer satisfaction, as well as in terms of establishing a
strong relationship with the client. A simultaneous
approach (process standardization and migration to the
SSC in a single step) requires a high level of maturity of
accounting and finance processes for when
implementation begins.
Resistance to changeThe resistance of local management is the biggest
challenge for the successful implementation of a SSC.
An early communication strategy, as well as strong
support and commitment from the stockholders and
upper management, is essential to handling and
meeting this challenge.
50% Of transformation projects are unsuccessful for failure to properly manage the change.
In this regard, it is imperative to analyze the impact of the change of:
• The organization.• Employees.• Business units.
The greatest challenge in implementing a SSC was the resistance to change from the business and operating unit's management.
Change management should be completed from the start so as to have an influence on the team's motivation and implication, commitment and productivity.
At PwC, we have the methodology for determining, creating and providing resources, so as to successfully startup and execute a project management office.
Strategic decisions and challenges prior to implementation
Organizational change
Trainning and education
Goals, measurement
and reinforcement
Communication in terms of sales
Focus on people Responsible for success,
development, and control
Motivation Productivity
Commitment and continuing improvement
07
In a shared services environment, suppliers focus on the business units to which they provide the service. This allows corporations to secure the best features of centralization and decentralization.
Main differences between shared services and centralization
Shared Services
Development of KPI’s and SLA’s in conjunction.
A supplier of the service, independent from a set of business units.
Person responsible for service quality and response level.
"Business partners" orientated.
Location based on business needs, operations cost and demographic aspects of employees. Corporate headquarters orientated.
Strategy for increasing the value and responding to changes in the business.
Contracts with business units, with quality metrics and without guarantee of renewal.
The business units participate in management of the shared services.
Agile and scalable to business mergers and acquisitions.
Costs identifiable for the business unit, closely resembling the business's needs.
Corporate Centralization
Policies and procedures according to corporate mandate.
A company-required function.
Person responsible for prompt compliance and costs.
Focused only in the corporate office.
Location at corporate headquarters.
Cost streamlining strategy.
There are no options, no contracts, no quality metrics.
Business units do not participate in management.
Difficult disincorporation, complex structure focused on corporate, lack of agility to respond.
There is no control of business units over central costs.
08
Success factors following implementation
Exploiting the optimization potentials through a vision of processes, and to end and technological, (i.e. establishing global process owners), taking into account that segmented processes at business units usually have a level of standardization and automation below those under the SSC's responsibility.
For SSC's in operation, the effect of lessons learned can not be secured based on the number of years the SSC has been in operation. To obtain the maximum benefits of experience, SSC's must invest in managing on-going improvement and seek advisory from experts to reach the second-generation level of maturity.
To reduce operating costs, achieving an ideal mix of services managed from the SSC's, activities selectively managed by subcontractors and services provided by Centers of Excellence is beneficial.
Implementing a system for managing advanced performance, including a Balanced Scorecard and a set of appropriate metrics (KPI) that will allow for detecting and measuring improvements in performance.
Permanent focus on cost optimization and reduction, particularly on the basis of the upward impact of costs and simultaneously grants the possibility of continuing to be the preferred service provider.
Managing SSC expansion, the integration of additional processes (most likely neither standardized nor yet optimized) and stabilization of the operation and growth.
Running operating programs of excellence and climbing the value chain to the main business and its earnings.
09
Converting your SSC into your best business ally is the result of having the necessary maturity in implementation processes and on-going improvement.
The PwC maturity model classifies each SSC according to its current stage of maturity, with level 4 representing the highest maturity. Reaching this level implies that the SSC has become a business partner (second generation) that contributes value to the organization.
In the analysis of 33 SSC's, according to the 2012 SSC Survey conducted by PwC Germany, the results are surprising, if we take into consideration the global size of the organizations subject to analysis.
There are eight criteria considered by the SSC maturity model, the sum of points obtained per criterion determines the position assigned to each center within the model.
Maturity model's assessment criteria:1. Strategy.
2. Organization , governance and compliance.
3. Ongoing improvement.
4. Processes.
5. Relationship with client.
6. Performance Management.
7. Human Capital Management.
8. Systems and technology.
The SSC's determined to have the best performance have a very clear strategy and carefully determined objectives. Other attributes taken into account are clearly established performance metrics, as well as plans for on-going optimization, relationship with client and performance management.
Results of SSC model's levels of maturity
SSC in operation, maturity assessment
Level 1Beginner
Level 2In Development
Level 3Advances
Level 4Business partner
45%48%
6%
0%
10
How can PwC help you?
Challenges typical of the client
Deciding what activity and personnel will be transferred to the SSC.
The current Shared Services organization operates under the original expectations, its maturity is under development.
Personnel's resistance to change and fears.
Risks related to improper controls and weak corporate governance.
With external suppliers, review the process for the transfer of transactional operations and without exposing own resources.
How can we help you?
Develop a complete business case to evaluate all feasible options for the implementation route.
We evaluate the current maturity of your Shared Services group and we assist you in determining the steps to reaching the maturity of 2nd. generation of Shared Services.
Our experience in People and Change will help you to find the efficiencies and to handle the outplacement.
Design strategies for handling change and ensure adaptability.
Design and implementation of updates in effective and scalable models, aside from coordinating third parties.
Evaluate, both qualitative and quantitatively, the possibilities of different strategies and outsourcing exceeding expectations.
Business case Design and implementation
Improvement and growth
Advisory on Outsourcing
Mergers, acquisitions and carve-outs
11
Our focusStrategy• Strategy validation• Identification of options• Preparation of the business model• Securing project sponsorship and building of the work team
Revaluation and renegotiation• Review of the service delivered• Revalue the business case• Review the operating model• Re-determination of relationships
Optimization and transformation• Monitoring of and follow up on the service provided and trouble shooting • Review scope and business transformation • Deliver business case (showcasing the benefits)• Continously improve the service
Feasibilityanalysis• Data compilation and scope determination• Determination of the target operating model (TOM)• Change management• Location analysis• Development of business case• Risk assessment and top level work plan
Design• Design of processes and scope of services • Design of service approach, structures, service levels and work structure • Design of metrics• Governance model• Detailed construction of operating model• Preparation of detailed change management and communication plans• Develop and deliver of a training plan• Develop of transition plans• Design of offices and facilities• Updating of the business case
Implementation• Deliver change• Obtain fast results • Establish a culture• Human capital management• Transition management
1 2
5
6 3
4
Change managementProgram managementBenefit management
Governance model
12
We assist you in your shared services initiatives and outsourcing programs, from exploring the concept up to startup and operation. With have ample experience in advisory services involving the analysis, design, implementation and improvement of SSC’s worldwide.
We work with SSC’s in operation to transform them into a second generation and achieve excellence in the conversion of support services to the business, through a governance model that will allow for cutting costs, improving design and managing risks.
• Evaluation and development of business cases.
• Design and startup of an SSC.
• Development and execution of improvement
and growth plans.
• Evaluation of the SSC's maturity.
• Compliance with contracts and suppliers.
• Implementation, migration and stabilization
of processes.
• Advisory and evaluation of outsourcing.
• Implementation of technology solutions.
• Design of contingency plans.
Our passion is to ensure our clients reach success in connecting their operations with the customers and the processes that make up their corporate value chain.
PwCExperience
We focus on client value
We put ourselves in our partners’ shoes
We share and collaborate with our
partners
We invest in client relationships
We focus on enhancing the value
of our people
We put ourselves in our clients’ shoes
We share and Collaborate with our
clients
We invest in client relationship
Contacts
Armando Martínez Ríos Socio Asesoría de [email protected] +52 (55) 5263 5749
Martín Bazán Gerente Senior – Líder Práctica Centros de Servicios [email protected] +52 (55) 5263 8541
César Cruz Albarrán GerenteCentros de Servicios [email protected] +52 (55) 5263 6127
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