James Harper, CPA
Consulting Director

Most transactional processes are not core to your business.  Typically, your business’ core competencies are likely something other than accounting, processing payroll or handling payable transactions.  However, in order to manage the business, you are reliant on outputs (monthly reports, sales data) from these processes.  If not managed well, especially if your business has grown over time, these non-core processes can take time and resources away from operations, depress margins and cost the business thousands of dollars in wasted cash flow. 

Consider, for example, the monthly financial accounting close in a five-person accounting department.  If it takes two weeks to complete the accounting close and deliver reliable figures to management, but an optimal close is three days, this translates to:

  • 90 weeks of wasted effort – one-third of each accountant’s year spent on close procedures
  • Wasted cost of over $150,000 – cost that could be spent on higher value activities or projects

The downstream effects of optimizing the accounting close is tangible:  it delivers critical information earlier to decision makers, frees up accounting resources to work on value-added projects, engages employees, reduces attrition, allows the process to scale for growth and positively impacts your bottom line. 

What Does Optimizing Mean?

The Merriam-Webster dictionary defines optimization as an act, process or methodology of making something (as a design, system or decision) as fully perfect, functional or effective as possible.  In accounts receivable, it means designing your order to cash process not to just achieve a good day’s sales outstanding (DSO) metric, but to achieve the “best possible” DSO. If your company’s DSO is languishing at 67 days, but its best possible is 35 days (based on credit sales and terms), you may consider taking a hard look at your collection process.  In financial planning and analysis, it means having clearly defined and accurate information available from sales, procurement, other departments and business planning, including timely and accurate actuals from accounting. 

Centralized Processes versus Shared Services

Most small- to mid-size companies have centralized processes.  This means transactional processes such as accounting, payroll, and accounts payable are conducted by departments at a central location; usually at corporate or the site of the original business.  These centralized processes serve one or two plants, retail or other locations, and the structure is not overly complex.  However, although the business structure may not be as complex as in large, multinational companies, the non-core processes themselves may be complex (through intentional design or otherwise).

As companies grow organically and/or through mergers and acquisitions, transactional processes become redundant in separate business units and at corporate, contributing to wasted resources, non-scalable processes and reduced agility. Many large companies have moved to a shared services model, which takes non-core processes out of divisions and other locations and moves them to corporate or a dedicated shared services site.

The Shared Services Center (SSC) is run like a separate business, including service level agreements with its internal customers, providing more efficient transactional processes and eliminating redundancy.  The following chart is a simple illustration of transactional processes centralized in a small/mid-size organization and the shared services model in a large organization:





How Do I Optimize?  Lessons from Global Shared Services

In order for shared services to be truly successful, transactional processes are required to have a significant level of optimization.  In a mature shared services accounting process, for example, the accounting period may close in two days, is entirely paperless, is transparent to its internal customers and includes workflow and dashboard metric reporting.  This level of optimization typically requires many iterations of applying lean concepts to the closing process, reengineering aspects of the process, establishing employee training and engagement processes, applying metrics and actionable feedback mechanisms and implementing enabling technology. 

However, employing just some of the concepts and procedures large companies use to create successful shared services organizations may pay big dividends to your mid-size company.

Service Delivery Model

Each transaction stream provides a service or an output:  accounting provides accurate, controlled and timely financial information; accounts payable provides accurate, on-time vendor payments.  The service delivery model in an SSC clearly defines what, when, how, who and where those services will take place and be delivered.   Service Delivery Models and the creation of them can be quite complex. 

However, thinking about how your company’s centralized processes deliver value in terms of a Service Delivery Model can help identify non-value added activities and areas for improvement.  You may ask your process owner :

  • What services are being offered by this process?
  • What skills are necessary to deliver and successfully execute these services?
  • How is the process designed?
  • How is technology an enabler?
  • How is information protected and reported?

Facilitation of the answers to these questions, by process, will help guide you toward action steps to improve efficiency and effectiveness. 

Efficiency Practices

Applying “lean” principles to transaction streams (including accounting, forecasting and reporting), can reap big benefits.  In order to successfully create an SSC, process owners (usually with assistance from project managers, transformation managers or outside consultants) first apply lean concepts to each process – identifying the value within a process, mapping the value stream (mapping the process flows…what happens, who does it, in which system, when and for how long), and identifying and implementing improvement opportunities to create efficient process flow.  Applying lean concepts helps to standardize processes first, and then both identifies and creates areas to optimize the process using personnel, technology or other resources more effectively.

For example, if your accounting period close cycle is not consistent, has routine manual corrections for errors or takes more time or “brute force” effort than is reasonable to support the organization, you may consider conducting a 2-5 day workshop to map the close.  As noted above, the mapping exercise is an effective method to help define the process, identify areas of wasted resources, identify areas for standardization and improvement and identify areas where technology may play a part to optimize the process.

Measurement and Consistency

Peter Drucker has said, “what gets measured, gets managed”.  Establishing measurement models for efficiency (cost) and effectiveness (quality) are critical to a successful SSC.  These measurements or “key performance indicators” (KPIs) give indications of how well the process is performing against a benchmark, against a target or stretch goal, against an agreed-upon measurement (i.e., a service commitment as outlined in a Service Level Agreement) and/or against a prior period.  If a KPI is above or below an acceptable level, it is generally an indication of a breakdown somewhere in the process.  By having established KPIs, a process owner can react quickly; if a process is not measured, it may take a considerable amount of time to identify if a problem even exists.  If you do not already measure KPIs for your processes, consider the following:

  • Cost:  process cost per transaction, process cost/percent of revenue
  • Delivery:  cycle time, days to close, days payables outstanding
  • Productivity:  transactions per full-time equivalent (“FTE”), automation levels – self-service technology employed, electronic input/output
  • Quality:  first-pass yield, unplanned downtime, defects received/produced, error rate
  • Employees:  training, education/certification, engagement, suggestions
  • Initiatives:  progress on initiatives
  • General:  best practice utilization, Service Level Agreements (“SLA”) met, customer satisfaction, continuous improvement savings dollars/number of ideas implemented

Great organizations tend to establish a systematic, measurable and consistent approach to strategy and processes, and have the internal discipline to maintain it.  In his influential book “Great By Choice”, Jim Collins underscores this point by observing that great organizations establish a specific, methodical and consistent (“SMaC”) approach to their strategies and processes:  “a SMaC recipe is a set of durable operating practices that create a replicable and consistent success formula; it is clear and concrete, enabling the entire enterprise to unify and organize its efforts, giving clear guidance regarding what to do and what not to do.  A SMaC recipe reflects empirical validation and insight about what actually works and why.”

To Do:

It is good practice to never leave a discussion about improvement without taking some action in that direction.  So, here is your homework assignment:

  • Understand your organization’s vision and obtain a written version; this will help you align your finance strategies with the organization’s overall mission.
  • Identify the finance strategies that support that vision. Again, make sure you write them down.  If you do not have clear, concrete strategies, consider holding strategy workshops.
  • Choose one process (i.e., the accounting close) and map its value stream.  This will give you insight into the process – manual workload drivers, areas of wasted effort, areas to standardize, actions to eliminate, areas where technology may be a process enabler, etc. – and momentum to consider more standardization efforts in other processes.


Large, multinational companies create business models out of necessity in order to be proactive and flexible in the global marketplace.  Lessons from transactional process changes, business models and other paradigms employed at these companies can translate directly to mid-size organizations.   Applying elements from a Service Delivery Model concept, lean principles and measurement KPIs may impact your transaction-based processes considerably, delivering positive value to your organization.

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