The range of available cost efficiency benchmarks are as wide for organisations using a Shared Services model as for those that do not. There is a major focus on performance measures and continuous improvement, but these have still not delivered the goods. We need an effective approach and experiences for driving process performance gains through understanding the nature of exceptions in business, recognising them in the continuous improvement cycle and using smart analytics to manage the Key Exception Indicators.
Finance & Shared Services leaders are working hard to evolve an optimized model for finance that helps both drive and support overall business performance. The cost of a world class finance function is approaching 0.5% of revenue. Finance productivity increased by nearly 10% in the three years to 2012 and the demand for more is relentless. However, the range of cost of finance between top and bottom performers in organisations that deploy shared services is even greater than for those that do not. What is going on?
As finance and business service leaders focus on measurement, there is an increasing realization that a full set of quantitative Key Performance Indicators (KPIs) reading ‘positive’ does not necessarily mean the client is happy. As lagging, ‘after the fact’ indicators, KPIs are good for measuring outcomes but not well designed to offer actionable insight to improve processes earlier in the cycle.
One challenge is that our systems do not enforce business processes, they only enforce the process for data entry and capture. This subtle difference gives rise to a large gap between ‘achievable’ standardization and ‘achieved’ standardization and associated cost reduction. However, we know that when true standardization is achieved, it also drives better information access and visibility which itself increases efficiency and reduces costs further.
These tyre tracks in the snow around the car park barrier illustrate this standardisation challenge . . .
We can measure results at the aggregate KPI level, but we need a sharper instrument to analyse the detail of process exceptions early in the process cycle, so we know what to fix.
We need leading indicators that give a better idea of what might go wrong that will later grow to impact overall performance. When we know ‘what bad looks like’, we can keep a (virtual) eye out for it, address it early and avoid major impact on our key KPIs as well as overall financial performance. These leading indicators of ‘what bad looks like’ are termed Key Exception Indicators (KEIs).
Identifying the KEI, or ‘what bad looks like’, is about defining exception conditions for critical elements of the business processes. We can now automatically monitor for these process exceptions at a point in time for benchmarking purposes or continuously as the fuel to drive continuous improvement. The role of this exception identification, diagnosis and remediation is shown in a more comprehensive Continuous Improvement pyramid.
In the examples explained in our White Paper ‘The Third Wave in Shared Services – Driving Continuous Improvement’, we show that clear and precise information on the nature of business exceptions and the management of the KEIs enables management to diagnose the root causes and implement changes to processes, policies and training to eliminate wasteful effort and reduce costs and cycle time.
Better information leads to better decisions, and nowhere is this clearer than in business exceptions and continuous improvement.
By identifying and monitoring the leading indicators of “bad” things happening in our core processes we are better placed to diagnose, take action and continuously improve. If we can broaden our knowledge of these approaches and options, start simply, iterate and drive rapid value, we can drive the performance improvement that the market demands.
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