The shared service centre is evolving to become a value-adding utility for the business. What does this mean for treasury?
The concept of shared service centres (SSCs) is not a new one. For over 30 years, corporates around the world have established these centres to consolidate and outsource operational tasks – often in low-cost markets – as part of broader centralisation projects. This has allowed them to drive economies of scale, increase efficiency and control – and, most importantly, reduce operating costs.
The role of the SSC is changing, though. Forward-thinking organisations are beginning to see these centres as more than mere cost-saving devices, and are giving them the tools needed to become value-adding centres of excellence. This is a trend that is not only redefining the role of the modern SSC but is also impacting corporate treasurers.
Origins of the SSC
The first SSCs were created in the late 1980s by European multinationals keen to consolidate offshore operational processes in areas such as finance and accounting, procurement, HR and IT. These companies had many different reasons for establishing SSCs. Some, for example, were looking for economies of scale, while others were chiefly interested in improving efficiency and control.
For most companies though, the main goal was to cut costs – something that remains a key priority today. To do this, organisations located SSCs in markets with cheap operating and labour costs. To this end, SSCs have been a roaring success, helping to cut costs by as much as 70% in some cases.
From a treasury perspective, the first SSCs offered very little benefit. As Karlien Porre, Partner, Treasury Advisory Services at Deloitte, explains: “Treasury itself was still an emerging function and it was keen to keep its processes in house. Also, the complexity of many treasury tasks, even those that are operational in nature, didn’t make it an easy function to outsource.”
Centres of excellence
Over time, more treasury back office functions began to shift to SSCs. “Moving some of the operational tasks conducted by the treasury to the SSC became a necessity for many treasury teams,” says Porre. “This is because many departments were increasingly being asked to do more with less and simply no longer had the time or resources to conduct these tasks.”
“Today, SSCs are doing more than they ever have before, covering everything from liquidity management, inter-company netting, accounting, tax and FX to interest rate management.”
Sara Castelhano, EMEA Core Cash Head, J.P. Morgan
As the role of treasury has become more strategic in nature – and SSCs have matured – more treasury activity has moved to the SSC. “Today, SSCs are doing more than they ever have before, covering everything from liquidity management, inter-company netting, accounting, tax and FX to interest rate management,” says Sara Castelhano, EMEA Core Cash Head at J.P. Morgan.
“What is interesting about this trend is not that SSCs are taking on more functions, but that they are increasingly responsible for more complex functions,” adds Castelhano. “This is part of a broader trend that is seeing business leaders look to transform SSCs from processors to value creators and giving them the tools and mandate to do this.”
Indeed, Deloitte’s latest Global Shared Services report states that the adoption of more complex, knowledge-based processes has doubled, or in some cases tripled, since 2013. As a result, many SSCs are now much more focused on accurate and reliable reporting, cash optimisation and reduced error rates. They are also developing the processes and knowledge needed to become a centre of excellence.
By becoming centres of excellence, SSCs can transform into what HSBC calls global business service providers. “These are SSCs that have moved beyond simply being reactive to the business to ones that are considered as business partners,” says Kee Joo Wong, Asia Pacific Regional Head of Global Payments and Cash Management at HSBC. “These have increased responsibilities including advisory, analytics and full ownership of certain finance and treasury processes.”
For the most part, it is technology that is enabling this to happen. Deloitte’s Porre highlights how companies have worked hard over the past decade to modernise and drive uniformity in their technological set-up – especially the ERP. “In treasury, the proliferation of cloud-based TMS systems has enabled users to access a standardised and consistent data set no matter where they are in the world,” she says. “This has boosted the ability for the SSC to develop analytical capabilities and better predict the needs of the treasury department.”
Leading SSCs are now taking this one step further by introducing more innovative technology into the SSC so that they can harvest and utilise all this data. “New technology and the application of big data will be a positive disrupter underpinning the SSC’s transformation from a processor to a value creator,” says HSBC’s Wong. “We are already seeing some of our clients begin to leverage intelligent process automation (IPA) by using robotic automation and machine learning to mimic the activities once performed by people within a SSC.”
Deloitte’s SSC report puts this point into context, highlighting that over 50% of organisations are currently using, piloting or researching tools that leverage robotic process automation. Unsurprisingly, cost cutting remains a big driver for this work, with a third of SSC professionals expecting that robotics will deliver cost savings of 20% or more.
However, the use of robotics is about more than cost savings. The report notes that the technology might “lay the groundwork for more advanced cognitive technologies that augment or replace the need for human judgment in complex, knowledge-based processes”. This will allow the SSC “to efficiently perform higher value tasks and analysis – such technologies could lead to fundamental changes in how SSCs operate and deliver service to customers”.
In many cases the banks are leading the way, experimenting with innovative technology within their own SSCs. Citi, for instance, talked to Treasury Today Asia earlier this year about how it is using optical character recognition (OCR) technology to digitise and more readily process the paper-based trade documents that it receives. This is allowing the bank to improve its processing and turnaround times and more readily share information with its corporate clients.
The use of such technology can also help the SSC protect the business better against emerging risks such as cyber-fraud. J.P. Morgan’s Castelhano explains that SSCs have already gone a long way towards mitigating risk by taking on more complex tasks and establishing robust controls around these. “If the SSC can have access to a wealth of data and tools to analyse this in real-time then they can be even more effective in mitigating the risk of cyber-fraud,” she says. “This is what banks have been working on for the past few years and we are seeing an increasing focus on cyber controls within corporates as well.”
A true treasury value creator
The growing scope and effectiveness of SSCs will clearly have an impact on treasury departments. And with effective communication between the treasury and SSC, this impact can be very positive. “The ability for the SSC to support the treasury effectively has always been dependent on the communication between the two departments,” says Castelhano. “The need for more effective communication will only increase as the SSC takes on more treasury activity and operates as a value-adding support function to the department.”
HSBC’s Wong agrees, saying that “it is very important that treasury and the SSC maintain a close relationship built on clear roles and responsibilities, mutual trust and appreciation of the true value of the SSC’s role”. He notes that he recently had a conversation with the regional treasurer of a leading chemical company, who noted that without the fundamental tasks performed by their SSC they would not be able to function effectively. “They rely on the SSC’s regional coordination with the various Asia finance and treasury teams to consolidate into a single set of data points to execute treasury policies,” he says. “The SSC is recognised as an invaluable partner to treasury providing accurate data feed for treasury to execute against their positions and policies.”
Other treasurers use the SSC as a global payment centre and global reconciliation centre that assists the treasury by providing insight into the group’s liquidity position for treasury to facilitate the global daily funding requirements. “The accuracy, efficiency of payment and collection processes performed by the SSC is the foundation of cash flow forecasting work and FX management performed by the treasury team,” adds Wong.
An uncertain future
The role of the SSC is changing: it is expanding from the pure execution of instructions for basic functions to become predictive in nature, offering more sophisticated analytics and consultancy to the business. Through this, SSCs are adding increased value to the treasury department by freeing up time for staff to focus on strategic matters.
However, it is worth pondering what impact the increasing use of robotics, machine learning and AI will have on SSCs in the long term and whether the structure will become a completely virtual utility. It is probably too early to predict exactly what will happen, but with predictions that robots could take on a significant chunk of the work currently done by humans, it is not outside the realms of possibility.