There's Money to Be Found in the Back Office
Want to save your company $314 million a year with a relatively simple change? According to the Hackett Group global advisory firm, it could be done just by sharing your back-office functions.
"As companies become more complex, they have a tradition of organizing work on a vertical," Honorio Padron, Hackett's managing director and practice leader for global business services, says in an interview. Inefficient processes and waste are the fallout of this approach. The company's research has produced numerous recommendations about how firms can achieve big savings. But talking to Padron really fills out the recommendations.
For instance, some companies have separate financial, IT and HR teams for each division or region. He believes this puts too much diversification under leaders who should be focused on revenue generation. "It can be very difficult to manage [innovation] and services work at the same time," Padron says.
Decentralization of common services also makes it challenging for enterprises to achieve global policies and standardization and to implement streamlined processes and technology. "Each group is in charge of its own budget so leaders pick their own platforms and set their own rules," he says.
Such siloes become problematic in companies where customers and business partners span multiple regions or divisions. For instance, Padron said a customer once refused to do business with a company that could not supply a real-time, uniform report of its activity across the company. The customer was concerned about over-ordering and wanted a greater sense of responsibility from the business.
Some businesses believe there are too many differences in how back-office functions are performed to consolidate them. In reality, Padron says, 80% to 90% are similar. "In most cases, siloes are a red herring for power and control," he says.
Padron advocates a culture of shared services where back-office roles are centralized and provided to all divisions via a service-level agreement. "Suddenly you change from a culture of entitlement to one of 'how may I help you?'" he says.
The $314 million in savings -- that's the average that Hackett figures is possible from Fortune-1,000-sized outfits -- comes from elimination of duplication, better management of office space, consolidation of personnel, and simplification of technology. For instance, a company can reduce costs by settling on a single payroll platform or invoicing process.
Padron warns companies not to confuse consolidation and centralization with collocation. Shared services employees should still sit in numerous geographies so that the group can develop a follow-the-sun strategy. This enables bills to be paid around the clock, help desks to run 24 hours, and other critical services to be delivered in real time. "You're going to need a well thought-out model that considers localization, regionalization and globalization," he says.
As example, there are some tasks that can be performed from anywhere, such as paying bills, and those that are unique to a region, such as understanding compliance mandates. The structure of shared services must take these requirements into account.
While workers might at first reject a shared services model, Padron encourages business leaders to explain the benefits to the organization and to them personally. A division focused on their talents provides a career path they otherwise wouldn't have had. Rather than being the sole financial person, they'll be able to aspire to lead a financial team or the entire shared services division, for instance.
The rewards of shared services reach far beyond initial cost savings. "You can close books faster, take advantage of volume discounts, improve compliance and more," Padron says. "Shared services provide the agility corporations need."