IBM Business Consulting Services
Financial
Management
IBM Institute for Business Value
Finance shared
services and
outsourcing
Magical, mythical
or mundane?
pg_0002
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.
pg_0003
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.
1
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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
70
48
45
33
27
22
8
5
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,
1
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.
2
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?
28
14
37
12 10
21
29
25
17 7
15
25
30
22 8
16
23
29
20
13
11 15
34
21
19
19
18
25
22
21
15
11
17
20
29
18
17
51
12 12 13
21
42
12
11
23
24
21
22
7
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?
74
13 13
61
18
22
62
17
21
68
9
23
72
8
20
48
29
24
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
80
66
65
61
53
51
49
43
43
38
38
44
33
51
50
47
70
57
57
76
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