Shared service centers (SSCs) have been in existence for many years, implemented primarily to reduce business’ costs. However, as the competition for work has driven prices up in offshore locations, the cost benefits of SSCs have become marginalized – and new drivers, such as increased efficiency through automation, are now shaping the future of shared services.
Being lumped into a broader back-office SSC has long limited the potential of the global payroll function. However, now payroll has the chance to embrace a new generation of efficiency-focused shared services, thanks to the opportunities afforded by advancements in automation and analytics.
The Here and Now
A multicountry payroll function run as part of a broader, global back-office SSC typically reports into Finance or HR. According to PwC findings, in organizations with less than 10,000 employees, Finance is usually in charge. In companies employing more than 10,000 employees, payroll is often run by HR.
Consistent with the findings from the PwC survey, we find that payroll shared services are typically deployed using one of the following three models:
- The centralized system: The most common model for payroll shared service centers, the centralization model sees all your business support services in one single global center. It delivers the best opportunity for cost savings, yet it’s also the most complicated model to run, potentially requiring significant restructuring of operations.
- Regional clusters: Something of a stepping stone to the centralized system, the regional model involves running several SSCs rather than one, providing services on a region-by-region basis. For instance, you might have one SSC supporting your Northern European countries, another to support the USA and Canada, and others spread across the globe, depending on where your operations are clustered.
- Capability-led ‘Centers of Excellence’: This model sees global organizations playing to their strengths by moving individual business processes to the location that houses the greatest skill and experience in that specific area. So if your strongest payroll team is based in France, for example, you’ll look to them to deliver the function for all your European entities.
Multiple Models, One Common Limitation
Regardless of the methodology employed, the levels of payroll efficiency achievable through SSCs have, in most cases, reached a ceiling. This is mainly due to the legacy technology in place: Originally designed to support the whole back-office, it has gradually become outdated and increasingly unfit for purpose.
In some cases, SSCs still operate on an aging system landscape that predates the concept of shared services itself, let alone today’s Software-as-a-Service (SaaS) solutions. Today’s business users expect more from their internal supporting operations; in instances where a company starts to grow internationally, both the older technology and the people delivering the service will be pushed to their limits.
Often the impact is felt more at a local level, which in turn can lead to an increase in hidden costs. Overall savings are typically realized centrally, but the pain of a failing payroll shared service mostly hurts individuals in-country. This may cause local management to vote with their feet and seek alternatives for ensuring payroll is delivered as it should be.
It’s the cumbersome, difficult-to-change nature of these outdated SSC systems, rather than the benefits they deliver, which has led to their longevity. Nevertheless, payroll must find a way to keep pace with the evolution of the business. The development of cloud technology now brings the opportunity for change: Cloud platforms are quick to deploy and far more fit for the purpose of a modern payroll SSC.
5 Aspects of the Next-Generation Payroll SSC
An ever-changing landscape means continuous improvement should always be the goal of a global payroll SSC. But the drivers for future SSC developments have now mostly moved beyond cost savings and should instead be more focused on value creation and business performance. As you look to the future of your payroll SSC, there are five key areas to focus on:
1. Technology platform
Existing technology is often a major stumbling block preventing payroll from evolving far beyond its original setup as part of a shared service. By leveraging the power of the cloud, modern payroll technology provides an opportunity for far greater efficiency and standardization, increased self-service, and valuable analytical insight.
In particular, analytics ties into the process of continuous improvement, giving you the power to identify where your payroll processes are underperforming and why. Equally, modern global payroll analytics can provide an array of strategic insights, using global employee data to inform boardroom-level decisions—for example, on the most effective deployment of resources.
With the benefit of data centralization, cloud-based platforms can provide information instantly and in real time, replacing the archaic manual methods that saw traditional reports taking days to produce and decisions based on outdated data. Robotics technology also facilitates the automation of reports, so you can schedule reports to run without draining key human resources.
2. Automation & standardization
With the increases mentioned above to offshore staffing costs, organizations are increasingly looking to lighten the manual load on payroll delivery by automating as much of the process as possible. This is being driven by advancements such as robotic process automation, or RPA. The latest payroll platform technology facilitates the automation of many data management tasks, as well as calculations and reporting, reducing the time and resources needed to complete the end-to-end payroll process.
Combined with other emerging trends, such as the rise of machine learning and predictive analytics in payroll, automation delivers significant cost reductions and reduces the risk of error—a benefit which, in the sensitive field of global payroll, is not to be taken lightly.
Whether an organization’s payroll is in house, outsourced, or a mix of both, data management and integration are essential to ensuring smooth payroll delivery at both a local and global level. The trend has been to use external global payroll aggregators, which use a network of regional partners to manage payroll processing and reporting on a customer’s behalf. However, a more cost-effective alternative can be a unified global payroll solution, which maintains complete payroll data, processing, and reporting for all locations on a single platform.
Through data centralization, cloud-based platforms can provide information instantly and in real-time, replacing the archaic manual methods that saw traditional reports taking days to produce and decisions being based on outdated data.
4. More effective compliance
If performance and value creation are the drivers for the next generation of SSCs, then it stands to reason that subject matter expertise is increasingly important—especially when it comes to payroll compliance.
As global payroll compliance becomes ever more challenging and the cost of non-compliance grows harder to swallow, trained subject matter experts are becoming increasingly indispensable to global organizations. Your experts can monitor legislation updates, track compliance status in real-time, and implement changes across the SSC, ensuring you stay in step with global payroll compliance.
Co-location with other business functions, such as Finance and HR, will also enable payroll to play a more strategic role in the next generation of shared service centers. Primarily, this will be driven by the need for people-related data that helps to drive improvement in workforce visibility and performance.
Payroll will be central to how this information is collected, aggregated and visualized, as organizations look to act on one single version of the truth for all their employee data. As such, keeping global payroll close at hand across the shares services ecosystem is key to success.
The next-generation of shared services centers is upon us, and with it comes the ideal opportunity to reevaluate your back-office processes and the role that payroll plays. Can you continue to manage everything in-house in a captive model? Is aging technology holding you back from increased efficiency and effectiveness?
Global payroll now has the chance to embrace the new generation of shared services, from automation to analytics, compliance to co-location. And as multinational companies work toward a revised future of service delivery, the most important thing to ensure is that any new partnerships and technologies have all of the above competencies covered.