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Sarbanes Oxley : Technology : Outsourcing
Good Things Come From Sarbanes-Oxley
By
John Nettleship
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John Nettleship
FCA
British Midlands
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Although many C-level executives may not feel this now, Sarbanes-Oxley really is a good thing. Truly. While compliance may be ?proving an unusually burdensome? task according to news reports, transparency in financial accounting should reduce the sleepless nights for chief executives and financial officers.
But compliance in the long-term pays off and can render additional unforeseen benefits.
Control over numbers is the key. While this may seem like a simple statement, it still is not surprising to see corporations with finance functions spread around the world, increasing chances for reporting and human error. Moreover, many of these functions are duplicated causing inefficiency and waste of resources.
What is the solution?
Many corporations are moving to shared service centers. They work. Otherwise, major organizations such as PricewaterhouseCoopers, Ernst & Young, Sara Lee and other leading firms would not have made the investment.
Even government executives from around the world agree that shared services ?are important to helping them achieve strategic goals.? A study by Accenture ?Driving High Performance in Government: Maximizing the Value of Public Sector Shared Services,? found that ?governments around the world are facing similar challenges focused on improving public sector value. For most, ?meeting efficiency targets, reducing costs, and responding to citizen demands for improved services are at the top of their list,? the study concluded.
Does this sound much different from the private sector? Just substitute ?citizen? demands for ?shareholder?. And what investor doesn?t want more efficient targets and reduced costs.
Just how effective can a shared service center be?
As way of illustration, I managed a financial shared service center for a manufacturing client in Britain. Prior to establishing an SSC, they had a number of autonomous finance units they relied on for financial data. When they came close to breaching their banking covenants, the group financial director called his finance people asking for every bit of spare cash on their balance sheet. One local finance person had a surplus of more than $1 million he decided to keep for a ?rainy? day. Money was found elsewhere, but it was a close call. Two things happened: first, they established an SSC to put all the books in one place for control and transparency. Two years after establishment of the SSC, they ended the year with zero audit points and no surprises in the balance sheet. The second thing: they fired the hoarding financial person.
While this is a dramatic and obvious reason for a shared service center, there are less obvious benefits.
Benefits Beyond Compliance
PricewaterhouseCoopers UK found consolidation of back-office services in a shared service center not only succeeded in reducing process costs, it also had an additional benefit for the tax practice. It allowed executives to concentrate on high-value advisory services and it freed them to develop new business.
Through consolidation, staff members were able to focus on their specialties. Before concentration of compliance work in a single center, staff was spending time on a wide range of activities. Now, they focus their efforts in one area providing true expertise in areas such as tax compliance, transfer pricing and treasury tax.
Christopher Burns, a PwC partner and business team leader for tax compliance, said the company wanted to centralize services to enhance quality. At the same time, consolidation provided the firm with the opportunity to invest in technology that would not only enhance services, but also reduce costs.
"What we were creating would require a fairly large number of tax professionals. Initially, you might think of London, but it was too expensive. Since one objective was to cut costs, you don't set up in the most costly market in the country," Burns said.
PwC established two service centers in The British Midlands, an area in the heart of the United Kingdom. The company also established a human resources shared service center. A case study of PwC?s shared service center may be found at www.thebritishmidlands.com/shared-service-centre.html.
While a shared service center is a viable way to comply with SOX, corporations should not only look at it for financial departments. Just as PwC established an SSC for human resources, other support functions may benefit from the same consolidation.
Take any support function and list the processes that make up all the activities within that function, regardless of jobs or organizational hierarchy. Plot them against this graph:
Any process which falls as high volume and low strategy should definitely be considered as a candidate for an SSC. While this is an oversimplification, it does give a good starting point for those functions which sit at the extremes of the scale. While I was at Arthur Andersen we did this exercise and were on track to saving more than $1 million at the SSC in Nottingham, England.
While the results of establishing an SSC will reveal great benefits, the decision and the implementation can be a separate process in itself. The decision has to be made at the highest level of the company in order to illustrate the benefits of transferring work to a center. In many cases, it is done at the board level.
The best and most successful SSC?s create an effective and viable ?business within a business? with its own culture and strong healthy relationships with customers and partners. It is important to plan certain aspects, such as people management, communication, role definition, and customer approval.
Where, geographically, you set up an SSC is vital.
Many have chosen the U.K, widely known for its experience. Many companies are leading European practitioners of best practice in a number of business disciplines. There is a wealth of established business knowledge and expertise in the English workforce.
Culturally, the UK has established itself as a bridgehead between the United States and the European Union, with a foot solidly in both camps. Andersen used the UK, not only to develop a shared service center to cover Europe, but the Middle East, Africa and India.
What may be obvious is language. Yes, we speak English, but because of the proximity to the European continent, most British speak at least one or two other languages. English is the accepted business language for communication within the EU.
Access to an educated workforce is also vital for expansion. The British Midlands, for instance, has a highly educated and flexible workforce. Other companies that have chosen this area for services include The Gap, Toyota, Oracle, Capital One and Cadbury?s, to drop a few household names. Currently the UK attracts 40 percent of all U.S. investment in Europe.
The British Midlands was picked as the top location out of 26 possible shared service center sites for offering good value for the money.
The bottom line is that shared service centers give a business flexibility to respond more quickly to mergers, divestment and acquisitions. Remember, the best shared service centers are not just processing factories; they are centers of excellence and knowledge. It makes sense to keep all your knowledge in one place. Moreover, a price cannot be placed on investor confidence.
John Nettleship
FCA
British Midlands
John Nettleship, FCA, is a financial consultant who has established and managed shared service centers for large corporations for more than a decade. He specializes in setting up and building large SSC teams, covering industry sectors from manufacturing and leisure to professional services, retail and automotive. He is based in Nottingham, England.
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