From ERP to Service Centralization

May 7, 2008 by Gianni Giacomelli

Over the past few years, many providers of ERP systems – SAP in particular – have evolved significantly, taking on board many of the changes in clients’ organizations. One of them is the new way of running general and administrative (G&A) functions. Increasingly, organizations deploy ERP to support shared-service centers (SSC), grouping G&A functions like finance and accounting into regional processing units to harness the effect of scale and optimize processes across the entire enterprise, regardless of geographic boundaries.

Estimates vary, but finance and accounting are to some extent centralized in about 70 percent of the Global 2000, and HR follows a similar pattern. Finance – including procure-to-pay – and HR rely heavily on ERP to automate processes and provide access to information. Today’s ERP solutions provide a comprehensive suite of services that, when properly deployed, can fully support clients’ processes as well as organizational structures, including internal shared services, business process outsourcing (BPO), and “hybrid” service-delivery models.

Fulfilling a new set of requirements

The large ERP providers – especially those like SAP who have dedicated units focusing on service centralization requirements – have drawn significant experience from the internal or BPO SSC deployment model and injected it into product development, consulting, and support. All of these have a profound influence on how the ERP solution can support the transition from distributed to shared services going beyond simple co-location.

The results include better access to self services; the related UI for employees, clerks, and managers; and the respective data migration tools and methodologies.
Many ERP products have filled functional gaps with respect to the tools required to run excellent SSC operations, like self services, client interaction/contact centers, and workflows. This development paves the way to a highly efficient and effective layered model of the customer’s service-delivery organization.

Layered model of service delivery

  • Tier 0 is typically a self service, pulling real-time data from applications and databases.
  • Tier 1 is a layer of call/contact center clerks who heavily rely on scripts and automated tools to respond to queries.
  • Tiers 2 and 3 include more specialised staff requiring access to policy repositories but also reporting and other analytics.

Integrating functional silos

The key attribute of ERP products that enable SSC operations is the integration of all “functional silos,” such as employee data, payroll, time and attendance, and other compensation data, and of the various finance sub-ledgers, all the way to consolidation of financial data. Last but not least, the “multi-tenant” application architecture – the ability to run multiple business customers on the same instance (a key aspect of SAP’s ERP applications) – has significant impact on the ease of maintenance and upgrade.

ERP providers today – at varying degrees, depending on critical mass and focus on SSC requirements – have evolved their products, building better solutions to cater to the “factory-like” economics of a shared service center, whether internal or external (BPO). They also provide information-workers with an easy, Web-based way to access their data. This is organized to fit the needs of the function or process they perform, such as accessing electronic payslips or vacation information.

Key to success

Examples of how SAP has kept pace with these new trends are its BPO business unit and, more recently, the Shared Services ERP Group, which support customers and BPO providers in outsourced SSC scenarios. They do this both during the decision-making process, by providing trusted advice, and during operations, by collaborating closely with BPO providers.

Specifically, the model used by SAP in BPO has successfully consolidated industry learning and fed it back into a community of BPO providers, customers, and internal SAP product development. The market results have been very positive – in addition to providing valuable experience and data for SAP.

Using ERP solutions to support service centralization of G&A functions is essential – but not necessarily a trivial exercise. Much of the potential of centralizing in an SSC structure, or of the technical, process, and functional capabilities of an ERP system, can easily be lost without taking the time and effort to design the target environment.

The finer details of ERP implementations are often left to the CIO’s organization. However, there is great value in having business leaders understand what drives success in a service-centralization ERP redesign – harnessing economies of scale, process optimization, and labor arbitrage.

This kind of change in back-office processes is the ideal time to address basic process-reengineering issues such as building a more scalable, tiered service delivery model and improving end-to-end process integration. This avoids compromising the implementation and storing up problems for the future.

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