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Outsource magazine: thought-leadership and outsourcing strategy | August 17, 2017

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The “I” Word: Innovation in the finance function – the Shared Service Centre as an innovation engine

The “I” Word: Innovation in the finance function – the Shared Service Centre as an innovation engine
Outsource Magazine

The concept of innovation is something that has been at the heart of every SSC setup ever since the shared services and outsourcing industry got started in the last decades of the last century. From the outset, centres have been set up and structured in an innovative manner. The setup of a SSC (in- or outsourced) in itself is already an act of organisational innovation and required a drastic change for the entire organisation – and a long period for some to get used to it.

Cooperation across different geographies, sometimes even continents, has been a completely new approach to back-office processes. Especially in the early days, offshoring of tasks to a third party in India was something continental Europe frowned upon as illogical and short-term-focussed. For more than a decade laggard industries and laggard countries have been waiting for the industry to fail and the work to return home, however to no avail. This laggard strategy made as much sense as “waiting for the perfect man”. It has been documented by Hackett that the first-quartile companies that have made the transition to a global SSC operation have widened the gap with 3rd and 4th quartile companies over the last five years regarding efficiency and effectiveness of their SSC organisation, demonstrating that there is a clear first-mover advantage.

As expected outsourced out-tasking was not the perfect solution; however it was directionally right and companies learned from their earlier mistakes and, as the industry matured, more organisational innovation happened on the back of the learning of the first waves of migration. We have seen a number of new organisational models over the years and today we have seen a major shift towards hybrid models with end-to-end process centres delivering service on a more regional basis. When we look back over the last 20 years we can compare this innovation to a “trial and error” approach, something which is now more widely studied and documented.

The organisational structure of an SSC is another example of organisational innovation. End-to-end process organisation (P2P) rather than functions has been another significant organisational change from the old silo functions in finance and related functions. In classical finance organisations teams were aligned to the operational Business Units and finance managers had little in-depth knowledge on each specific process. Creating in-depth knowledge on best practices in a very narrow and specific field like accounts receivable reconciliations was hardly achievable.  In an SSC environment team leaders and mangers are highly specialised and dedicated to a specific finance field. These changes in organisational shape and structure have been key to the success of later organisational innovations like “de-skilling” of activities and tasks and the enormous rise in best practices adaptation and cross-industry learning.

Another organisational innovation is the standard design of an SSC with a horizontal process orientation and a process ownership and continuous improvement function on a vertical basis (organised across processes). This matrix organisation inside an SSC has an innovative natural tension build into the organisation. The tension between day-to-day operation and the continuous improvement agenda is something an SSC Director needs to balance carefully. Letting departments get used to a certain way of working for too long will lead to organisational laziness and cause talented people to leave; however constant change in the operations, sometimes combined with business changes, can cause confusion and disarray in an SSC operation. The innovation can disrupt the daily routine of the centre’s employees and customers, with too much leading to change weariness. So carefully balancing both interests and ensuring innovation is delivered is a key skill in an SSC environment.

Furthermore innovation will have to be delivered in an SSC organisation as they have to contribute their fair share to an overall cost-reduction strategy. In some instance more than 60% of the headcount is located in an SSC environment(s), leading to a significant contribution in the cost reduction targets.

Reducing cost in a SSC environment is not as straightforward as it was in the old organisation. Operational KPIs and SLAs hold strict quality criteria to the operation and cost reduction needs to happen through innovation.

Technological innovation has been the fundamental enabler at the heart of the SSC industry. The digital revolution has brought us the capability to work globally in an integrated digital manner, which has truly revolutionised back-office work (a fabulous recent book from Brynjolfsson and McAfee – The Second Machine Age – describes this revolution and the impacts in a fascinating manner).

Besides the fundamental kick starter to the entire business, technological innovation has been remarkable in the industry itself. In the last five years we have seen dedicated niche players thrive with niche software built and developed for very specific SSC segments. The P2P area has been at the forefront of this innovation with large image capture and workflow software providers rapidly improving and enhancing their services. However a multitude of other niche software providers like account reconciliations tooling, payment providers and others have come forward.

Service innovation is one of the key areas which has been mostly overlooked until now. Service innovation redefines the entire service that is provided to the customer, evaluates the cost associated with this service in the entire business, which includes the cost of failure and rework (the famous LEAN waste elements) and develops a clear common roadmap to develop service.

An essential starting point in all of this is the understanding of the fundamental difference between a product and a service. The role of the customer is fundamental in the entire service experience. A product-based business stops at the point where a product is transferred to a customer: a producer of toothpaste will need to ensure a complete and consistent experience buying the product; the behaviour of the customer is not determining the quality of the product.

This is fundamentally different in a service business. Customers are an integral part of creating a service. When customers do not understand the service concept or do not understand their role in the process, service cannot be delivered successfully. McDonald’s is a great restaurant for some people, but if a customer sits down at a table and waits for the waiter to come and serve a customised meal, the service will fail. (Is there such a thing as a quadruple Big Mac?)

So appreciating who the customer is and what role they play in the service experience is a critical starting point in innovating the service.

Evaluating the role of employees delivering the service and educating customers in their role in the service provision are two new areas where SSC can look to improve their service offering. Firstly reviewing the role of the employee in providing the service reviews is of critical importance. A new concept is offered in the book Uncommon Service by Francis Frei and Anne Morriss. According to the authors: “What matters more is the way you’ve designed your service model, in particular, the way the model sets up average people to excel as matter of routine. Rather than creating an environment where employees have the time and space to focus on satisfying customers, many service organisations today are actually undermining their people’s ability to serve.“

Managing customers, according to the authors, is about the ability to handle customers and deliver service “while they (the customer) wander through the production floor and tinker with the production line unannounced”. They start their service innovation concept with the equation that service excellence is a function of service design multiplied by service culture. This is a radical change in approach of thinking about shared centres and how they deliver service to customers. Service innovation is an unexplored territory with significant rewards, if the innovative concepts are translated properly.

Innovation has been at the heart and the start of the SSC industry and will continue to drive the industry forward to build on its own successes.

For more from our special feature on innovation, from the Summer 2014 issue of Outsource, go to the index page.

About the Author

Ralph GeertsemaRalph Geertsema, of Seventyone, runs his own practice as an Interim Finance Transformation Director delivering large-scale transformation programs across Europe.

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