It is no secret that multinational companies that centralize non-client facing operations used by multiple parts of their organization reduce costs and eliminate redundancies. Most companies employ a shared services model for finance, human resources management, and information technology. The model aims to allow each business division to focus its limited resources on activities that support the division’s business goals.
However, the rapid rise of digitization before, during, and after the pandemic offers numerous benefits and abilities that go beyond costs. Shared services teams can incorporate automation, virtualization, analytics, and other digital tools and capabilities into their existing operations. Innovative technology is helping to reduce inefficiencies and allowing humans to develop and deploy more effective ways to support business units. A core challenge for business leaders right now is reimagining what general and administrative support services should look like in a digital era.
To be successful, large multinational organizations need to solve tough intercompany challenges. Successfully managing shared services requires orchestrating three highly complicated, dynamic components -- organization, process, and technology. In this post, we deliver a roadmap to help you gain greater control, visibility, and confidence in decision-making by eliminating duplicative services and redundant tasks.
Step 1: Get organized
The best practice is to begin by examining your organizational hierarchy. Get a clear picture of its legal entity structure, its trading partners, as well as its banking and treasury operations. Teams should be process centric, for example human resources and finance, etc. Set up process areas to drive standardization, process improvements, and efficiencies. Also, consider the geographical location of each shared service unit and determine whether they are to function nationally, regionally, or globally.
Next, determine the legal and regulatory impacts of your organizational structure. Understand the difference between local and global regulations, and implement an effective review process to ensure compliance. Many countries including Italy, India, and Egypt are adopting e-invoicing to transform their indirect tax collection procedures.
After that, review your organization's banking and treasury agreements. Banking agreements for shared service centers require careful planning. Each country to which a correspondent bank sends payments can have its own rules, regulations, and requirements.
The tax impact of your operating model should also be determined and continually monitored. Does the shared service deliver tax efficiency and incentives? How will the tax structure be optimized? What indirect and direct sales taxes are incurred by the shared service? Each country has its own country by country reporting requirements. BEAT (Base Erosion & Anti-Abuse Tax) is 10% minimum tax when intercompany charges are billed into the U.S. for services provided. Corporate income tax and withholding taxes are based on country-specific rules, and the provisions for expense deductibility or sufficient supporting documentation can differ as well.
Also, factor transfer pricing into your organizational planning. What is the right price to charge for intercompany services based on countries guidelines? Different countries also have different employee tax rates. Fortunately, shared service centers present an opportunity to standardize and automate tax reporting and filings, potentially leading to considerable savings in tax compliance costs.
A core tenet of implementing a shared services model is the standardization of operations. Instead of managing multiple locations with different systems and processes, establish one global standard operating model and related procedures that everyone follows.
Step 2: Design processes
Organizations need standardized processes to generate standardized data for accurate analysis and confident decision-making. Without standardized procedures, it is impossible to tell where your organization is leaving money on the table and how you can fix problems to create financial gains.
Introducing a shared service center to your organization, perhaps in a foreign country, introduces the risk of losing consistency in and control over that operation. To overcome this, processes need to be standardized and monitored continuously.
When designing processes, determine whether general business services or local teams are responsible, which certain processes management wants to keep close, what processes need specialized knowledge (e.g., intercompany) and what processes can be automated by technologies and design each process in detail to the activity level. Determine also the legal and regulatory impacts of each approach. Understand the difference between global and local compliance and implement an effective review process to remain compliant.
According to the Global Lead, Intercompany Billing COE (Center of Excellence) at one of the world’s largest multinational companies: “Collapsing all our record-to-report accounting functions into a shared service allowed us to offer that service to any entity. It enabled us to build that work out in a tax-compliant manner that satisfied accounting and controllership guidelines. It also recovered costs where the headcount was actually performing the work.”
FourQ’s solution and guidance provided the multinational with a solid sense of control and defense against disorder as it overcame the challenges associated with acquiring new business entities and dealing with localized tax and regulatory requirements. FourQ met the company's goals and drove operational productivity and efficiencies within one year of deployment while reducing tax risk ensure compliance with government regulations.
Step 3: Innovate with technology
While effective process design is the engine of efficiency for shared services, innovative technology supercharges these operations. For example, the right technology allows shared services teams to focus on more high-value tasks by taking care of the repetitive ones. For one of the largest multinationals in the world, FourQ improved end-to-end intercompany automation to an astounding 80% from a mere 15% while growing transaction volume from three billion to 34 billion dollars.
However, technology should go beyond automating manual processes to reduce compliance and tax risks, and optimize resource efficiency. Many shared services teams use cloud-based case management platforms, cognitive technologies, and enhanced analytics to streamline interactions and track performance. Making the right tech picks, however, requires examining what is best for your organization and how it runs.
Running shared services with disparate data centers make data transparency challenging. 21.4% of the global multinational respondents to a recent Deloitte survey said that disparate software was the most significant challenge to streamlined processes.
Implementing end-to-end automation via a software solution that brings together disparate ERPs in a manner unique to your business is critical. This requires specific expertise in international compliance, intercompany invoicing, reconciliations, settlements, invoicing workflows, and scalable technology implementation and maintenance. However, the benefits far outweigh the costs.
Some shared service centers are using technology to reduce the actual personal touch on their non-client facing operations. Technology gives businesses the opportunity to centralize and scale down their shared service teams. It also allows humans to do a better job by automating much of the repetitive, manual workload.
Get positioned for growth
The benefits of getting your shared services model right include cost efficiencies, greater productivity, less risk of financial errors and restatement, fewer tax penalties or fees, less FX exposure, and less chance of reputation damage. The organization also benefits from increased traceability and visibility, well-defined authority and dispute resolution, and full accountability and ownership of intercompany processes. Clearly it is worth getting shared services right.
COVID-19 recently redefined several traditional service delivery orthodoxies in a huge way. For example, we now have empirical evidence that physical proximity is not required to run effective processes. We know that complex processes can be delivered through shared services and outsourcing. We understand the limitations of our pre-pandemic business continuity plans. We know that legacy systems and manual processes are no longer good enough. And we are aware that the right combination of policy, process, and technology can provide adequate security for remote work. These revelations will certainly modify how shared services operations evolve.
At the end of the day, legacy systems are still able to get the job of shared services done for the moment, and some manual processes are still acceptable. However, fully automating your shared service model and moving to next-gen technologies can make processes more agile, transparent, and cost effective. Best of all, you can now quickly and easily position your shared services model for growth and scale.
Let FourQ Help You Overcome Your Shared Services Challenges
Built by finance, accounting, and tax experts, FourQ deploys intercompany financial management solutions that streamline the global operations of the world’s largest companies. FourQ helps multinational companies increase operational productivity while saving millions of dollars annually through optimized intercompany billing and payment, tax leakage mitigation, and proactive tax optimization strategies. It does this by automating intercompany processing and seamlessly integrating it with global vendor invoice management.
FourQ is more than technology; it is a solution-as-a-service providing continuous operational support and expertise across tax, intercompany billing, vendor payments, and financial transformation. With FourQ, you can cut vendor disputes by half, ensure 100% on-time payment, and double the productivity of your intercompany finance teams.