The client’s own shared service centre

The term SSC is most commonly used to describe attempts by major client organizations to centralize a function like finance by continent or even globally. Multinationals have always been concerned about the theoretical waste involved in having separate accounting and other services in all or most of their overseas subsidiaries.

Few of these major organizations had risked making any moves in this direction until the onset of the 1990s. But then communications and other technological advances reached a stage that made their desires a possibility. Elizabeth Arden, Union Carbide, Whirlpool and Mars had all centralized their accounts in one European country by the first half of the decade and many others have since followed suit. The European finance directors of many of the American multinationals now meet on a regular basis to swap ideas on how to improve the service from their SSCs. In effect, they have created a benchmarking club.

Tax advantages and the relatively low cost of employment may both be positive factors for centralizing in some countries whereas culture difficulties may be negative factors.

By the middle of the 1990s it was generally assumed that if a multinational carried out sound re-engineering of its total finance operation then it could achieve savings of around 30 per cent on what existed prior to the centralization. However, a widely held view also developed that a further 10 per cent may be possible for the client company if a major outsourcing service provider was involved to ensure continuous improvements.

Inevitably, this led to a number of arrangements where ostensibly the client organization started by trying to develop a global or continent-wide SSC to be run and managed entirely in house, but then changed tactics before the project ended. It was often a surprise to many people when the consultants helping with these changes were brought in as joint venture partners. Each new deal of this type appeared to differ quite significantly from the one before it.

For example when, in mid 1997, Shell Oil set about creating continent-wide SSCs for its finance area it eventually chose to enter into a 50/50 European partnership with the firm that had done its audit for over 100 years, Ernst & Young. The resulting joint venture is called Tasco Europe and is based in Glasgow.

Shell decided upon the SSC route after carrying out an extensive feasibility study. However, after taking into account the speed at which it needed to work and the consolidation work necessary over many individual companies across Europe, it decided to look for a partner. Six service providers expressed interest and Ernst & Young was chosen. Like most of the big accountancy firms at the time, Ernst & Young had only limited experience of actually doing day-to-day accounting transactions but it was very keen to get into the accounting outsourcing market.

Shell and Ernst & Young both fund 50 per cent of the joint venture and have equal representation on the board. However, every effort has been made to make Tasco independent. To begin with it had to ’sell’ the benefits of the new service to each of Shell’s 12 Western European subsidiaries.

Tasco has set itself a target of becoming the European market leader in accounting services. To do this it has to find new independent clients. Presumably, most of these clients are targeted to come from the ranks of the multinationals that have operations in different parts of Europe.

At the time of writing it would appear that Tasco Europe has made some significant progress both in integrating the services of the Shell subsidiaries and in its preliminary discussions with potential new clients. Nevertheless, I think that it will be some time before they can be sure that all the potential ongoing benefits have been achieved. In a conventional outsourcing arrangement the service provider will be expected to assume responsibility for the future design of systems. The provider will be seen as the specialist organization and the client’s staff, both those retained and those being transferred, will usually accept the logic of the service provider’s leadership. The risk inherent in these 50/50 SSC partnerships is that the leadership and responsibility for development direction is not always so clear-cut, even where the contract specifies each party’s responsibilities. This will be particularly true where two strong teams are brought together as is the case with Shell and Ernst & Young. Therefore despite Tasco Europe starting off with a fistful of advantages, there will be some difficulties to overcome and it remains to be seen how successful this venture will be.