Finance shared services and outsourcing Magical, mythical or mundane?

IBM Business Consulting Services

Financial

Management

IBM Institute for Business Value

Finance shared

services and

outsourcing

Magical, mythical

or mundane?

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IBM Institute for Business Value

IBM Business Consulting Services, through the IBM Institute for Business Value,

develops fact-based strategic insights for senior business executives around critical

industry-specific and cross-industry issues. This executive brief is based on an

in-depth study by the Institute’s research team. It is part of an ongoing commitment

by IBM Business Consulting Services to provide analysis and viewpoints that

help companies realize business value. You may contact the authors or send an

e-mail to iibv@us.ibm.com for more information.

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Finance shared services and outsourcing

Magical, mythical or mundane?

Executive summary

Within finance organizations, cost reduction has been

a constant focus – inherent in the very nature of the

function. But many companies are recasting the role of

Finance. They are attempting to transform Finance from

a backward-looking, number-crunching organization to

one that is future-oriented and focused on providing value

through deeper analysis and insight.

To get a glimpse of how that journey is unfolding, the

IBM Institute for Business Value, in cooperation with the

Economist Intelligence Unit, conducted a survey of 210

senior finance professionals from 45 countries. From our

analysis of the results, three prevailing themes emerged:

• Striking a balance – CFOs face constant trade-offs as

they attempt to maintain efficiency, effectiveness and

control while managing complexity and risk in pursuit

of profitable growth. S ound corporate governance,

enhanced control environments and effective risk

management are all critical. But Finance also has to

offer high-caliber insights that help create competitive

advantage and drive growth. And all of these objectives

must be achieved without sacrificing the past decade’s

hard-won efficiency gains.

• Facing structural complexity – A trail of inadequately

integrated acquisitions, rapid expansion into new

markets, and decentralized business models have left

Finance with inherent structural complexity. In addition

to the associated inefficiencies, this fragmentation

is making it difficult for companies to achieve their

global aspirations.

• Moving beyond a shared services bias – The potential

magic of shared services to reduce cost and improve

performance trumped Finance’s initial fears and, today,

the use of shared services is widely accepted. While

the initial my ths that surrounded shared services

have been dispelled, actual results have been more

mundane than magical. And yet, as Finance grew more

comfortable with shared services, it developed a natural

bias toward them, while transferring a similar shroud of

fear to outsourcing.

To help Finance overcome these obstacles and make

headway on the transformation journey, we recommend

three strategies:

• Build in balance – Implement a three-tiered

organizational model for Finance that is specifically

designed to provide both stability and flexibility. Working

in concert with the business, the top tier, Business

Unit Finance, focuses on driving profitable growth.

Central Finance, the middle tier, balances risk and

performance. A combination of shared services and

outsourced activities form the bottom tier, which helps

manage complexity through automated reporting and

efficient transaction processing.

• Think globally, but execute globally and locally – Factor

in the corporate strategy and operating model when

designing Finance’s operating model. However,

commonality should be the pervasive goal. Leading

companies set standards globally, and then work

closely with local leaders to address valid deviations.

• Blend approaches for faster results – Accelerate the

transformation through a combination of outsourcing

and shared services. Consider opportunities to bypass

the natural evolution from decentralized activity to

shared services to outsourcing; though it may require

overcoming some initial apprehension, a direct path to

outsourcing can often provide a faster, less expensive

route to desired results.

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IBM Business Consulting Services

Introduction

For more than a decade, finance organizations have

been pursuing a cost reduction agenda. Simultaneously,

Finance has been attempting to transform itself from a

backward-looking, number-crunching organization to a

function that is future-oriented, with a focus on analysis

and problem solving. While many can lay claim to

achieving their cost and efficiency objectives, far fewer

have created an effective organization that provides

insight to the business that drives bottom-line impact.

Shared services have been used as a key enabler of

change, but with mixed results. What is the next step?

How does the CFO continue to balance the intercon-

nected dimensions of effectiveness, control and efficiency

while managing complexity, supporting profitable growth

and balancing risk?

In recent years, a number of studies have focused on

the cost savings provided by labor arbitrage through

outsourcing. Few have specifically addressed finance

functions. And very few, if any, examine outsourcing’s

strategic and transformative benefits beyond the primary

pursuit of cost savings.

Our discussions with clients led us to approach this topic

from another perspective: analyzing the strategic benefits

and the effectiveness of shared services and outsourcing

in Finance. Our study highlights a number of important

challenges associated with the finance organization’s

transformational aspirations. Further, the study results

provide guidance for finance executives on how they can

re-imagine the shape and purpose of their organizations,

as well as how they can better execute a combination of

shared services and outsourcing to improve Finance’s

organizational efficiency, effectiveness and control.

About the study

To better understand how enterprises are reshaping their

finance organizations to address key challenges, meet

end-state objectives and improve enterprise value, the

IBM Institute for Business Value, in cooperation with the

Economist Intelligence Unit, surveyed 210 senior finance

professionals from 45 countries. The participants, who

represent organizations from a wide range of industries and

company sizes, were predominately (82 percent) senior

finance professionals with titles of Chief Financial Officer

(CFO), Deputy CFO, Senior VP of Finance, Finance Director

or Controller. The balance represented senior management,

business unit leaders or country directors (see the Appendix

for study demographics). In addition to the survey, the

research team conducted several interviews with repre-

sentatives of leading companies across the globe to obtain

additional perspectives.

Striking a balance

The objectives for Finance have changed. It used to

be about standardization; it’s now about managing

complexity. It used to be about controlling cost; it’s now

about profitable growth. It used to be about performance;

it’s now about balancing risk and performance.

We believe the CFO of today is focused on striking

and maintaining balance… increasing the top line and

improving the bottom line, while mitigating the risk within

the appropriate levels of control. The challenge for

Finance is to maintain balance across these dimensions

without unduly favoring any of them. We found that the

top concerns of the CFO and the finance function were

related to all three objectives (see Figure 1).

Good governance is an excellent example of the required

balancing act. Not surprisingly, we found senior finance

professionals are concerned with enhancing control

environments and increasing effectiveness without surren-

dering their hard-won efficiency gains. Executives today

have less leeway when making trade-offs between the

desired level of control and its associated cost. Sarbanes-

Oxley, in the United States, and similar legislation

worldwide have renewed the emphasis on visibility, control

and process documentation. Organizations that cannot

It used to be about standardization;

it’s now about managing complexity. It

used to be about controlling cost; it’s

now about profitable growth. It used to

be about performance; it’s now about

balancing risk and performance.

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Finance shared services and outsourcing

respond effectively and fully to compliance require-

ments will spend the majority of their time responding

to government inquiries and demands – not running

their business and certainly not building competitive

advantage, driving value creation and creating high-

caliber insight.

Given the current environment, 70 percent of finance

professionals believe corporate governance and effective

handling of risk/controls are critical. Further, seventy

percent or more report that transparency, continuous

monitoring, proven controls, timely periodic reporting as

well as evidence of robust data quality and measurement

systems are important in reassuring stakeholders of

sound organizational governance. Clearly, effective

handling of risk/control contributes to business success.

Ensuring good corporate governance

and effectively handling risk/controls

Driving value creation and

continuous improvement

Creating high-caliber insight and

analysis for enterprise reporting

Maximizing the overall

effectiveness of resources

Improving performance management

Identifying where our future

profi ts will come from

Improving links with the business

Defi ning our core business

0 10 20 30 40 50 60 70

Source: IBM/Economist Intelligence Unit survey; IBM Institute for Business Value analysis.

Figure 1. Critical issues facing the CFO and the fi nance function.

Percent

Profi tability Revenue

growth

Risk

mitigation

Off balance

Creating high-caliber insights, driving value creation

and optimizing resources also help maintain balance by

increasing the effectiveness of the business units and

Finance. Nearly half of the survey respondents view value

creation and high-caliber insights as critical. However,

with more than half their time devoted to transaction

processing,

many finance professionals face challenges

in simply meeting compliance deadlines, with even less

time left for providing high-caliber insights. Regulatory

compliance, transaction processing and the sheer pace

of change have finance organizations off balance.

Although Finance seems to be drowning in data, insight

gleaned from that data remains elusive. Only 9 percent

of survey respondents rated themselves “excellent” at

gathering, interpreting and conveying information in a way

that drives profits (see Figure 2). Contributing further to

this problem, 50 percent indicate that, while information is

plentiful, it is not focused, not relevant and not suitable for

taking action.

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IBM Business Consulting Services

One-fifth of the survey participants say that performance

of their finance organization is poor or very poor – and

more than one-third of those who rank their organizations

in that category are associated with companies with more

than US$10 billion in annual revenues.

Our findings suggest that Finance often lacks the time,

skills and tools to focus on insight development. In

particular, systems have not kept pace with the growth

of larger organizations. Finance needs new tools – as

well as the time and expertise to use them – to realize its

aspirations of creating high-caliber insights.

According to the IBM 2004 Global CEO study, four out of

five CEOs believe that revenue growth is a major priority

for the next three years.

Yet, many organizations struggle

with planning for profitable growth. Over 40 percent of

the finance professionals surveyed felt their organizations

lacked integrated planning across strategic, management

and operational units. Additionally, over forty percent

reported inadequate forecasting abilities and nearly

forty percent believed budgeting processes were overly

complex. Considering the finance transformation efforts

implemented over the past ten years, one can readily

see that progress in this area has been hard-fought. With

these continued challenges, it will be hard to identify and

deliver profitable growth and predictable financial results.

Without renewed focus on operational excellence,

balance will be difficult to find.

Figure 2. Respondents’ ranking of ability to gather, interpret

and convey information to senior management in a way that

helps drive profi ts.

9% Excellent

20% Poor and very poor

36% Good

35% Satisfactory

Source: IBM/Economist Intelligence Unit survey; IBM Institute for

Business Value analysis.

Consider the following questions:

• To what extent do you believe Finance is providing the

appropriate risk mitigation strategy?

• How effective is your finance organization at turning data

into information that aids senior management in better

decision making that results in revenue growth and

greater profitability?

• How well equipped is your finance organization to

evaluate the risk/reward of revenue growth opportunities?

• Have you identified integration points between risk and

performance management initiatives to get the most out

of your compliance efforts?

• What barriers prevent you from obtaining a view of

enterprise value and its creation?

Facing structural complexity

On any given day, it seems that at least one business

journal discusses a company that is “going global.” But

what does this mean and how does it impact Finance?

Although more and more companies are adopting a

global perspective, a dearth of common global finance

processes drives complexity into key accounting process

and technology improvements (see Figure 3). While

“global” is not possible for every business, most organi-

zations experience tension between global aspirations

and local or regional level execution, which leads to

inherent structural complexity. The reasons are under-

standable: partially integrated acquisitions, decentralized

business models, or rapid geographic, market or product

expansions. However, the impact can ripple throughout

the organization. Today, it’s not enough to think globally;

Finance must execute globally to keep up with the trends

of the best performers.

Organizations with global common

processes were twice as likely as

organizations with local common

processes to have employed global

process and technology improvements.

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Finance shared services and outsourcing

Standard policies

Continuous improvement/

process reengineering

Common processes

Common platforms

Functional best practices

ERP implementation

Shared services

Global sourcing

Integrated analytics

Industry standards convergence

0 10 20 30 40 50 60 70 80 90 100

Percent

Country level Regional level Global level

Figure 3. Which of the following process and technology improvements has your company’s fi nance function already undertaken?

12 10

17 7

22 8

11 15

12 12 13

Next 3 years No plans to adopt

Source: IBM/Economist Intelligence Unit survey; IBM Institute for Business Value analysis.

While just over half of the surveyed organizations set

global policies, the design of processes to carry them

out remains fairly localized. In analyzing the survey

results, we found that organizations with global common

processes were twice as likely as organizations with

local com mon processes to have employed global

process and technology improvements. But on the whole,

technology, best practices and platforms remain country

and regionally focused, much like the finance processes

they try to transform. With this fragmentation, companies

have difficulty achieving their global agendas of leverage,

reach and value enhancement, and instead are settling

for cost savings at the country or regional level. Without

continuous focus on reducing structural complexity,

the tools aimed at improving efficiency will remain less

effectual. Though they are fairly recent developments,

the decrease in communication costs, the increase in

computing power and the promise of middleware capable

of linking disparate systems puts globalization within

closer reach.

In an attempt to reduce complexity, Finance has used

shared services as a mechanism for achieving both

efficiency and effectiveness. Eighty percent of the survey

respondents currently use, or plan to use, some kind of

shared services for one or more finance processes at

a local or broader level. Given this prevalence, shared

services, which provided a strategic advantage in the

past, have now become a tactical necessity. This high

percentage may be somewhat deceptive. When imple-

menting shared services, organizations predominately

do so at a country or region level. With only 22 percent

adopting global models, the ability to achieve global

finance objectives remains very limited. As with other

improvements, the shared services story mirrors the

common process story.

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IBM Business Consulting Services

Given the exogenous drivers, complexity within Finance

will never completely go away. Consider your finance

organization and ask yourself:

• What are the drivers of structural complexity in your

business (e.g., mergers and acquisitions, globalization,

etc.) and how have they changed over the past ten years?

• How has the structural complexity of Finance changed?

• Are your common processes more local or global? What

steps are you taking to make them more global?

• Is your finance organization sufficiently flexible to address

increasing business complexity and an accelerating pace

of change?

• Have your underlying tools and systems kept up with the

pace of change?

• To what extent are you relying on external parties to help

manage your growing structural complexity?

Moving beyond the bias

Over the last decade, shared services have become

almost institutionalized and are now seen as an effective

delivery model for achieving end-state objectives (see

Figure 4). However, with such a consensus on shared

services, can they truly be a “game changer”?

These results reflect the maturity of shared services.

Once perceived as risky, they are now readily embraced

by finance organizations. While many companies

have trusted shared services to drive down the cost

of Finance, have organizations truly excelled at the

end-state objectives listed in Figure 4? Have shared

services helped organizations with the struggle to strike

a balance? Looking beyond what has been accom-

plished through shared services, nearly one-third of the

survey respondents recognize the next step-change

in operational cost savings will come from outsourcing.

These results imply that while shared services have

Consistent measurement

and reporting

Predictable fi nancial results

Increased effectiveness in

product/pricing

Increased effectiveness in risk,

regulation and compliance

Increased effectiveness in

working capital

Increased effectiveness in

fi nance operational cost

0 10 20 30 40 50 60 70 80 90 100

Percent

Internal shared services Outsourcing Not sure

Figure 4. Which delivery vehicle would be most effective in providing end-state objectives?

13 13

Source: IBM/Economist Intelligence Unit survey; IBM Institute for Business Value analysis.

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Finance shared services and outsourcing

Standardized processes and systems

Streamlined tools and technology

to mitigate risk

Provision of scale

Structured processes (e.g., procedure

documentation

Embedded analysis for

repeatable analysis

Improved cycle times

Visibility of costs and returns

Data managed as a strategic asset

(data governance and integrity)

Enforceable contractual obligations

Centers of excellence in enterprise

resource planning

0 10 20 30 40 50 60 70 80

Figure 5. Benefi ts delivered by outsourcing.

Percent

Profi tability Revenue

growth

Risk

mitigation

Total population Current outsourcing users

Source: IBM/Economist Intelligence Unit survey; IBM Institute for Business Value analysis.

gained acceptance among finance organizations, they

have not become an overwhelming magic potion for

cost reduction and performance improvement. Often,

shared services initiatives lack the mandate from senior

management to drive migration and compliance. Thus,

the time to benefits is delayed, the return on investment

lowered and the risk increased.

Meanwhile, many respondents acknowledge benefits

from outsourcing, such as accelerated or improved

process/system standardization, risk mitigation, scale and

structured process documentation (see Figure 5). These

benefits may go a long way in helping finance organiza-

tions strike the elusive balance they seek. Approximately

half the organizations surveyed have experienced or

anticipate additional benefits like visibility of costs and

returns and improved cycle times to support performance

management and control activities. In short, these

respondents believe outsourcing can not only clarify how

costs are incurred, where revenues are earned and help

speed up revenue-earning activities, but also make their

companies stronger and more competitive over the long

term. Based our discussions with clients, early adopters

seem to concur, adding that outsourcing providers

ultimately offer continuous improvement, enduring savings

and centers of excellence – benefits that are rarely

foreseen at the outset of improvement efforts.

Facing fear

Given the perceived benefits of outsourcing, why

does a bias toward shared services remain? In a word:

fear. Once perceived as a risky option, the long-held

myths about shared services have been debunked.

Those myths, however, have been transferred to the

concept of outsourcing. This is not atypical for an early

adoption phase.

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IBM Business Consulting Services

“[In our case,] the service providers

are running our processes. We are

still very much involved in a lot of the

day-to-day stuff that goes on. Whether

we should be or not is a debate for

another day. But [fear of losing control]

has not been a problem for us.”

–

Regional Controller, Global Integrated Oil Company

For example, over 60 percent of those surveyed indicate

concern over losing control of planning and controlling;

40 percent fear a loss of control over sensitive data or

potential leakage of that data; and a third perceive a

loss of control over the processes and function. Almost

a quarter believe that their corporate culture could not

handle that kind of disaggregation, outsourcing would

be too expensive, or they do not know a qualified

provider. A fifth consider their finance functions too

unique to be outsourced despite more than sixty percent

in Figure 5 perceiving benefits from standardized and

structured processes. The finance organization’s time and

experience with shared services has led to a recognition

that shared services myths were just that, myths. It will

most likely be the same with outsourcing.

We “nominated global process owners

(e.g., for accounts payable) – [and

considered it] one of the first and most

important steps we took. The process

owner can override constraints,

obstacles and worries that they see as

unfounded, including misplaced fears

about loss of control.”

–

Global Accounts Payable and Asset Accounting

Executive, Global Technology and Services Firm

Yet, our interviews suggest that as leading companies

outsourced processes, they learned their fears over “loss

of control” were unfounded. These companies proactively

managed the relationship with their providers to

understand day-to-day obstacles and work through them.

This relationship management, in some cases through a

global process owner, has proven to be a critical success

factor in overcoming these fears.

To a great extent, many finance organizations have found

that shared services have not delivered on their initial

promises. The reasons are numerous and complex (e.g.,

political, cultural, economic, etc.) but usually center on the

organization having a conceptual commitment without

a true transformation of processes or people allocation.

This may be, in part, why outsourcing is viewed skeptically.

We pose some thoughts to consider about your own

finance organization:

• Did your transition to shared services provide the

anticipated benefits?

• Do your shared services centers continue to provide

strategic advantage?

• What would it take to move your shared service centers

to best-in-class processes and systems? Is your organi-

zation willing to do it?

• How can you combine your current shared service

centers with finance and accounting outsourcing to

enhance risk and performance management?

• What are your organization’s key challenges in adopting

outsourcing?

Recommendations for action

Based on the results of this study, the IBM Institute for

Business Value has identified a number of areas where

organizations can improve balance and accelerate the

transformative benefits through a better blend of shared

services and outsourcing:

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Finance shared services and outsourcing

Source: Bramante, Jim, Gregor Pillen and Doug Simpson. “CFO Survey: Current state and future direction.” IBM Business Consulting

Services. 2003; Read, Cedric, Jacky Ross, John R. Dunleavy, Donniel S. Schulman, James Bramante. “eCFO: Sustaining Value in The New

Corporation.” John Wiley & Sons, 2001; IBM Institute for Business Value analysis.

Current

Past

Shared services/

outsourcing

Central

fi nance

Business

units

CFO

Decision support

Specialized fi nance services

Transaction processing

CFO

Transactions

performed by most

effi cient provider

Future

Effectively driving

profi table growth

Automated

standard

reporting

Supporting innovation,

merger, acquisitions

and divestitures

Planning, forecasting

and decision analysis

Balancing risk and

performance

Managing

complexity

Figure 6. Finance has changed in both size and shape over the past few years...

15%

20%

65%

24%

26%

50%

37%

29%

34%

... and shifted focus

1999

2003

2006

Flexibility

and stability

Build in balance

Develop a three-tiered finance organizational model

that provides both the stability and flexibility to support

profitable growth, balance risk and manage inherent

complexity.

For a very long time, Finance focused on providing

transaction processing services. Pay the bills. Invoice the

customer. Apply the payment. Record the journal entries.

Close the books. Specialized services were limited and

decision support was provided on a narrow basis (see

Figure 6). But enterprise systems and automation in

conjunction with shared services presented Finance with

the opportunity and the means to provide higher-value

services to the business.

Struggling to support profitable growth, balance risk and

manage inherent complexity, Finance will be challenged

to provide both stability and flexibility. However, a new

model for Finance is emerging (see Figure 7).

Performing this balancing act is never easy, but with

a transformation agenda in place, it becomes more

achievable. The transformation agenda should be specific

and unique for each finance organization. However, in

order to position Finance for its new role, the agenda will

need to include:

• Decision support and controls fully embedded in the

business, enabling better decisions at the operating

level, but supported by Finance through a combination

of internal and external providers

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IBM Business Consulting Services

• Core finance activities, such as capital structure

management, consolidated into a small, focused

centralized finance team

• Transaction processing and specialty services (e.g., tax

and internal audit) handled using the most efficient and

effective provider, enabling a substantially lower and

more variable cost structure.

Business unit finance activities will focus on effectively

driving profitable growth. Working in partnership with

the business, these executives will provide the flexibility

to address new business issues. Decision support will

be embedded in the business. Reporting and decision

support activities, long considered the ultimate, but

elusive, goal of finance organizations, will be transformed.

Standard reporting will be automated, allowing finance

professionals to focus on driving insight and value related

to nonstandard issues.

Central Finance has the responsibility of balancing risk

and performance. They provide the effective handling of

risk and controls. It is also their responsibility to provide

transparency, continuous monitoring, timely periodic

reporting, and robust data quality and measurement

systems to reassure stakeholders of sound organizational

governance. To do so, control points must be embedded

in each process; those points must be understood; and

auditors must be able to confirm process output.

To manage complexity, Finance can use a combination

of shared services and outsourcing to drive com mon

processes and systems and make it easier to absorb

back-office functions from acquisitions and geographic,

market or product expansions. A structured merger and

acquisition strategy can actually reduce complexity over

time. Whenever possible, finance organizations should

structure these common processes and systems globally

to enable greater benefits and to address structural

complexity.

SG&A shared

services/

outsourcing

Central

fi nance

Business units

CFO

Transactions

performed by most

effi cient provider

Flexibility and

stability

Effectively driving

profi table growth

Automated

standard

reporting

Supporting innovation,

merger, acquisitions

and divestitures

Planning, forecasting

and decision analysis

Balancing risk

and performance

Managing

complexity

Figure 7. Finance’s new model.

Key

characteristics

• Partners with business units

• Owns revenue quality and recognition issues

• Confi rms earnings quality

• Embed decision support and controls in the

business; link fi nancial and nonfi nancial information

• Identifi es future revenues and profi t pools

• Focuses on profi t stewardship and optimal

enterprise value

• Provides core fi nance functions (e.g., capital

structure, cash, hedging, risk management)

• Confi rms legal compliance

• Automated reporting (70% of reporting

considered transactional)

• Focused on data quality

• Reduced data gathering

• Increased analysis and insight

• 100% of low-value transactions executed by

most effi cient provider

• Established controls

Source: IBM Institute for Business Value analysis.

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Finance shared services and outsourcing

• Autonomous business units (BU)

• Diverse product sets

• Diverse markets and customers

• Distinct supply chain differences

• Unique process requirements

• Strong BU decision making

• Affi liated business units

• Some commonality across:

- Product sets

- Markets

- Customers

- Supply chain

• Similar process requirements

• Limited BU decision making

• Geographic/market defi ned BUs

• Homogenous product set

• Commonality across customers and

markets

• Common processes

• Common ERP

• Centralized mgmt; corporate policy

• Distributed fi nance organization

• Limited corporate fi nance function

• Financial controls defi ned at BU level

• BU specifi c fi nancial systems

• Summary level fi nancial consolidation

• Shared services provide transaction

processing across businesses

• Distributed fi nance activities

support business-specifi c

requirements

• Financial controls defi ned at

corporate; implemented by BU

• BU-specifi c fi nancial systems

supported by common middle-ware

• Limited corporate fi nance function

with summary level fi nancial

consolidation

• Strong central fi nance presence

• BU fi nance focused on decision

support

• Common processes / standards

• Tightly integrated fi nancial systems

• Detailed analysis of consolidated

results

“Portfolio of businesses”

“Federated”

“Operational center”

Source: IBM Institute for Business Value analysis.

Figure 8. The Finance operating model will vary based on the business operating model.

Think globally, but execute globally and locally

Pursue finance transformation within the context of your

overall corporate strategy and operating model.

To address inherent complexities, it’s not enough to think

globally. Organizations have to execute globally and

locally. They must consider the realities of their corporate

strategy and operating model but drive as much

commonality in processes, systems and best practices as

possible (see Figure 8).

Leading companies are using a global approach for

standard setting to optimize costs and benefits from

transformation initiatives. Process owners recognize the

real differences between countries but are also able to

articulate clearly the benefits of common practices and

to work closely with the appropriate country leaders to

mitigate unfounded concerns and to address those that

are valid.

“We’ve seen that a global approach

to internal standard-setting is the

best way to optimize the cost/benefit

point of a given sub-process activity...

Clearly there are real differences

between countries, but prior to

standardization, the global process

owner engages with the local finance

management team and explains the

benefits of coming onto the common

practice... The process owner decides

which concerns are unfounded and

which are valid.”

– Global Accounts Payable and Asset Accounting

Executive, Global Technology and Service Firm

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IBM Business Consulting Services

Additionally, there is not one right answer. Transformation

must take place within context to be truly successful.

Therefore, the finance organization must recognize and

identify how the company’s unique business operating

model creates challenges and obstacles from a political,

cultural and funding standpoint. These challenges and

obstacles must be mitigated, but the chief mitigation

factor is often a senior executive mandate for change.

Blend approaches for faster results

Accelerate transformation and responsiveness through

a combination of outsourcing and shared services that

mitigates the my ths and fears about perceived loss

of control.

Growth and change are inherent in today’s business

environment and the speed of change continues to

accelerate. In order to maintain pace with the business,

Finance must be able to balance speed with stability, and

control with risk.

Figure 9. Currently outsource or plan to outsource to an external provider.

Travel and expenses

General accounting

Business analysis

Accounts payable

Treasury tax management

External reporting

Invoice to cash

Planning and performance management

Management reporting

Fixed assets

Project and cost accounting

0 5 10 15 20 25 30 35 40

Percent

Country level Regional level Global level

45 7 7

5633

66410

56 48

Next 3 years

44 43

Source: IBM/Economist Intelligence Unit survey; IBM Institute for Business Value analysis.

Over one-third of the organizations

surveyed have turned to outsourcing

one or more of their finance

processes to meet new expectations

and challenges.

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Finance shared services and outsourcing

We found that over one-third of the organizations

surveyed have turned to outsourcing one or more of

their finance processes to meet new expectations and

challenges. However, as in shared services, local/regional

arrangements for outsourcing are more common than

global ones (see Figure 9).

This pattern is not surprising. Many organizations have

taken a look at their shared services centers and asked

themselves if they really needed to own them. Therefore,

the processes moved to external providers reflect the

geographic footprint of those shared service centers.

Individual and standardized processes like travel and

expense, general accounting and accounts payable,

are most likely to be initial candidates for outsourcing

to an external provider. Though nascent, some

finance organizations are already outsourcing higher-

order responsibilities like planning and performance

management. But, for most, the decision of which

processes to outsource and which to maintain internally

will be subject to overcoming the fear of loss of control

and determining core versus non-core processes. Since

fears, in many cases, are the result of misinformed or

uninformed finance leaders, education and understanding

the realities of outsourcing are paramount.

Until fears are fully mitigated and competitive pressures

dictate, the widespread adoption of outsourcing of higher-

value processes will be slow. As more success stories

are shared, fears will abate and finance professionals

will better understand how to address the concerns.

Meanwhile, agile, forward-thinking finance professionals

are expanding their outsourcing efforts into additional

areas to achieve greater effectiveness and resilience more

quickly. As a result, outsourcing across finance functions

is expected to grow an average of 41 percent, given the

plans outlined in Figure 9.

As the incremental cost benefits from shared services

are exhausted, Finance will need additional leverage.

Furthermore, in many organizations, improvement and

effectiveness of shared services has stalled, and CFOs

are seeking alternatives to reignite the change process

momentum. Combining shared services with outsourcing

can provide needed leverage. Cost is a common driver

of outsourcing decisions; expense reduction is a simple

but compelling rationale for change. Additionally, early

adopters report that hidden strategic benefits often

emerge as the organization’s experience with outsourcing

grows – in large part because companies are able to

focus on their core competencies.

As one leading company indicated, the mere process

of defining what is to be outsourced enforces a

beneficial level of discipline. Contractual obligations

and service level agreements require process definition

and documentation. Policy making and transaction

processing can become intermingled. The documentation

required for outsourcing forces the organization and the

external provider to delineate what is performed by each

party. Ultimately, this collective understanding drives

standardized policies and work redesign that, in turn,

provide greater cost control. Additionally, the extensive

communications and controls surrounding the reporting

processes help support organizational governance

models and regulatory compliance requirements.

For example, a leading company indicated that a single,

global shared service center for Finance created an

opportunity for one-time cost cuts and the continuous

pursuit of further efficiencies. But after it achieved these

reductions, the company looked at the various pieces of

the shared services center and asked which it actually

needed to own. This approach allowed the firm to

determine what was core and what was non-core.

“One board member said, ‘Are you

telling us that an outsource provider

can do this better than you can?’ We

said, ‘Yes – because of the economies

of scale and leverage that they have,

and they have a lot of practice at this

and they can do it better and cheaper.’

Management is looking for something

that really adds some value.”

– Vice President, Accounting and Controller, Global

Energy Exploration Company

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IBM Business Consulting Services

Other companies use outsourcing as a tool for

rebalancing the finance portfolio. In these cases, they

moved directly to outsourcing because they recognized

economies of scale, expertise and “plug and play”

component possibilities.

Some companies may be considering the use of shared

services for certain processes. For these organizations,

conventional wisdom has been to implement shared

services and new technology in parallel (e.g., the "big

bang") because that approach offers a shorter (though

more intense) disruption, a more cost-effective imple-

mentation and faster time to benefits. This alternative

includes consolidation, knowledge transfer and, possibly,

some transformation. But, the competitive environment

suggests that implementing shared services is “catch up

ball” not innovation, and a tactical necessity rather than a

strategic advantage.

“If companies keep doing what a

specialist can do better, they are simply

diverting resources to do things that

are non-core and don’t add value to

the business. By outsourcing, say,

repetitive activities, it frees up my

time to do the higher-value activities

like decision support and providing

better information.”

– Director of Business Transformation, Global

Technology and Services Firm

Pursuing transformation in three distinct steps – consoli-

dating processes through shared services, transforming

internally and then eventually outsourcing to increase

competitiveness – can be costly. By moving directly to

outsourcing, companies can spread the investment over

the life of the contract, drive transformation through the

provider, share the risk and provide a catalyst for faster

benefits. Outsourcing providers have typically invested

in best-in-class processes and technology. They can

also implement improvement initiatives (e.g., Six Sigma,

functional best practice, etc.) to address the root causes

of issues and improve quality and performance.

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Finance shared services and outsourcing

Conclusion

The findings from this survey reflect an overarching theme

that is consistent across industries and organizations of

different sizes: Finance is balancing competing demands

in a complex internal and external environment. A shared

services approach, once considered to be the panacea

for all finance challenges, is now viewed as a commonly

used element in the much broader finance agenda.

Finance must strike a balance between top-line protection

and bottom-line improvement. The objective used to

be about standardization; it’s now about managing

complexity. It used to be about controlling cost; it’s now

about profitable growth. It used to be about performance;

it’s now about balancing risk and performance. The

benefits of striking a balance are strategic, transforma-

tional and financial.

Shared services no longer offer a distinct strategic

advantage; they are a tactical necessity. Shared services

were once considered a my thical entity: an organiza-

tional construct that would reduce cost, improve data

consistency, upgrade the skills of the financial organi-

zation and enable Finance to truly become a business

partner. But, as we have noted, these benefits can be

elusive, and shared services have become another

mundane component of businesses today. By reener-

gizing shared services and combining them with

outsourcing, organizations can recreate the “magic.”

Although the once-common my ths about shared services

have been debunked, new ones have emerged about

outsourcing. These my ths will disappear too, as finance

organizations realize anticipated (and unanticipated)

benefits from outsourcing.

The staid, unchanging finance organizations of the 20th

century must evolve into the rapidly changing, flexible

finance organization of the 21st century. There are new

tools, new points of view, new rules and regulations that

must be analyzed and supported. The face of Finance is

continuing to evolve. Shared services and outsourcing are

both enablers of change, and together, they will play an

integral role in Finance’s success.

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IBM Business Consulting Services

20% Asia-Pacifi c

46% Europe, Middle East and Africa

34% Americas

Survey participants by region

Survey participants by sector

16% US$500M - US$1B

38% More than US$10B

15% US$5B - US$10B

31% US$1B - US$5B

Survey participants by revenue

10.5% Communications

8.0% Public sector

20.5% Distribution

30.5% Industrial

30.5% Financial services

Appendix

In November 2004, IBM Business Consulting Services

and the Economist Intelligence Unit completed an online

survey of 210 finance professionals from 45 countries.

Eighty-two percent of the respondents were senior

finance professionals with titles of Chief Financial Officer

(CFO), Deputy CFO, Senior VP of Finance, Finance

Director or Controller. The balance represented senior

management, business unit leaders or country directors.

About the authors

Steve Rogers is responsible for conducting research

on a variety of financial management topics for the IBM

Institute for Business Value. Steve is based in New York,

New York and can be reached at

rogers.s@us.ibm.com

Susan D. Stewart is an Associate Partner with IBM

Business Consulting Services. With extensive shared

services experience, Susan has worked with U.S.-

based and international clients on all aspects of shared

services from strategy, process and organizational

design to Finance and Accounting outsourcing. Susan

is based in Cincinnati, Ohio and can be reached at

sdstew@us.ibm.com

About IBM Business Consulting Services

With consultants and professional staff in more than 160

countries globally, IBM Business Consulting Services

provides clients with business process and industry

expertise, a deep understanding of technology solutions

that address specific industry issues, and the ability

to design, build, and run those solutions in a way that

delivers bottom-line business growth.

References

Bramante, Jim, Gregor Pillen and Doug Simpson.

“CFO Survey: Current state and future direction.” IBM

Business Consulting Services. 2003.

“Your Turn: The Global CEO Study 2004.” IBM Business

Consulting Services. 2004.

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