As globalization increases the competitive pressures faced by almost
every firm, identifying the most efficient method for performing each
function of the organization is critical. This is especially true for
support services, which are difficult to convert into a source of
competitive advantage other than to perform them as inexpensively as
possible while maintaining the necessary degree of quality.
One approach that has been taken to meet this objective is the
adoption of financial shared services centers. Although such centers
have generally cost more to implement than expected and resulted in
fewer savings than projected, significant cost reductions have still
been achieved. In the case of evaluating the inclusion of cost and
management accounting in a financial shared services center, one must
consider opportunities for cost reduction, service improvement, and
strategic benefits compared with the traditional approach of having
the function distributed throughout a firm's operations.
When evaluating cost reduction opportunities, the first area to
consider is whether or not there are economies of scale to be had
through centralizing the function. In the case of cost and management
accounting, there are several. First, cost and management accounting
in the modern firm is largely computerized using Enterprise Resource
Planning (ERP) systems. These systems, which require specialized
skills to operate them, are usually best implemented in a centralized
fashion so that as few people with the specialized skills required as
possible are used in order to operate and maintain them. Training
many people at the operational level to use a complex computer system
when they would only use the system part-time is very inefficient.
A similar argument can be made for cost and management accounting
personnel in general. CPAs and auditors are highly skilled
individuals who command sizable compensation. Because the needs of
each operation for such skills can fluctuate substantially over time,
staffing at the operational level is very difficult to optimize so
that each operation has precisely the right number of skilled
personnel to match its particular situation. More likely, some
operations will have more cost and management accounting personnel
than they need while others will not have enough. Transferring
personnel from one operation to another when their reporting structure
and career path are based on an individual operation can be highly
disruptive. By centralizing cost and management accounting personnel,
they can be allocated to the various operations as needed so that they
are kept fully utilized but not overburdened. Furthermore, a person
with the appropriate skills can be matched with each problem instead
of having people at the operational level try to solve problems that
they may not be qualified to properly address.
Although moving people from one operation to another can be
inefficient in the short term because time and training are needed to
bring them up to speed on characteristics unique to each operation,
such inter-operational moves can produce a strategic benefit over the
long term. Many projects, particularly cost and management accounting
projects, extend across many operations or even the entire company.
By having a staff that is familiar with the operational
characteristics of multiple aspects of the firm, such projects are
usually much easier and faster to implement. The traditional
approach, with each operation having an independent staff, can create
a "silo mentality" and make the determination of how to trade-off the
different interests of the various operations effectively very
difficult.
Another strategic advantage to centralizing cost and management
accounting in a financial shared services center occurs when a firm
undergoes a merger or engages in acquisitions. It is often less
disruptive and time-consuming to scale up a financial shared services
center to accommodate new entities than it is to maintain the new
organization's existing cost and management accounting systems and
personnel at the operational level and integrate them into the broader
corporate information systems. Particularly for companies whose
strategic plan includes growth through acquisition, centralizing
support services to the greatest degree possible facilitates the rapid
integration of new operations.
An additional advantage to centralization of cost and management
accounting exists from a corporate governance standpoint as well.
Many of the recent financial frauds in the United States and Europe
involved collaboration between operational-level accounting personnel
and operational managers. Such collusion is facilitated when
accounting personnel report to operational managers. By separating
the cost and management accounting function from the operational
reporting structure, a greater degree of independence exists,
hopefully resulting in a checks and balances system that makes fraud
much more unlikely. Furthermore, given that financial fraud by
accountants is also not unknown (for example, WorldCom), having
operational managers have a moderate degree of skepticism of corporate
accounting can be helpful.
Finally, moving to a financial shared services center for cost and
management accounting can promote process improvements beyond simple
centralization. Stock taking is often better done by outsourcing it
to firms specializing in that area. Such firms already have trained
and experienced personnel, which can enhance speed and accuracy.
Outsourcing eliminates the need to place this unpopular task on
employees. Furthermore, stock taking can be much less disruptive to
the firm's operations when the firm's employees do not have to be
taken from their ordinary activities to count inventories.
In the case of variance analysis and problem solving, most issues are
capable of being evaluated by existing operations level personnel.
The vast majority of such problems do not require specialized cost and
management accounting training to resolve. As a result, using a
person with those skills is wasteful and inefficient. It is far more
cost effective to request a person with those skills from a central
group when needed. Given that most problems require a team -based
approach to understand and solve, drawing specialized resources from
other organizations is increasingly common, whether it be for
specialized technical skills, marketing skills, and/or accounting
skills. Suppliers, customers, and third-party consultants are also
frequently used. Therefore, centralizing the cost and management
accounting function and drawing resources from it in this fashion is
reasonable.
Because of the opportunities for cost reduction, improvements in
service, strategic benefits, and improvements to corporate governance,
incorporating cost and management accounting into a financial shared
services center is clearly a desirable goal. Even if complete
centralization does not occur, evaluating opportunities for
outsourcing and for interorganizational cooperation and resource
sharing can be highly beneficial to the firm.
Sincerely,
Wonko
An interesting report on shared service centers titled, "Shared
Services: The Evolution of Higher Performance" is available from
Accenture (February 2004) at
http://www.accenture.com/xd/xd.asp?it=enweb&xd=services\finance\insights\fpm_ss_high_performance.xml |
