Economists from all camps have been fiercely debating whether to end the U.S. government’s fiscal stimulus program or expand it. In the process, they’ve been making predictions about the outlook for unemployment. One cynic said this week that unemployment will stay stubbornly high for the next 5 to 10 years. That’s quite a grim picture!

Beyond the specter of poor souls in soup kitchens, I began to wonder about how large companies plan to grow and compete effectively on the world stage if they continue to dampen hiring. Maybe they will repopulate the ranks of the revenue drivers in the next 24 months. But it’s a sure bet that they won’t add legions in the back office, particularly in core business finance.

Readers of this blog know that I’ve recently been channeling the film director Ridley Scott — envisioning financial management processes being performed by server robots in the dark — in a kind of Blade Runner scenario. The gloomy jobs market for the American middle class reinforces this notion. APQC Open Standards Research, which contains a myriad of financial management productivity benchmarks, also underscores this view.

The Economics of Shared Services Robots in the Cloud

Let’s look more closely at the evidence. First, many large employers will aggressively pursue more productivity in finance (read: do more with fewer people and go faster) because they will keep doing what works. Many have become very good at executing large-scale centralization-and-automation programs. Indeed, we know that for quite some time, U.S. organizations have been successfully whacking away at overhead and labor costs, specifically, by adopting the centralized, highly automated shared-services model for core financial transaction processing.

Whether these shared services centers are located domestically or run by “captives” based in low-wage countries — or even outsourced in whole or in part — the first big prize has been significant reduction of expensive American head count. That’s typically accomplished by redesigning aged processes (e.g., eliminating redundancy) and plugging in tools and technologies that automate data processing, data management, and workflows.

The second big prize — also courtesy of more and better IT — comes in the form of higher-quality information and useful business analytics generated by the finance staff left standing. The third “bonus” prize takes shape as a bank of blinking dashboards that managers can monitor in the merry hunt for continuous improvement (read: endless productivity gains).

And that’s not the end of it. Adopting shared services and standardizing processes and systems around, for example, invoice approval and payment can lead to the capture of more early payment discounts and, subsequently, a steep cut in the overall costs of producing goods and services. Process improvements available from next-generation shared services can also do wonders for the cash conversion cycle, trade credit default rates, relationships with suppliers and customers, and internal cross-functional cooperation.

Just think! Productivity gains galore with fewer people, less office space, and more computers.

Cheaper

APQC’s OSR data prove my point. (Note: We are looking at accounts payable [AP] process for illustration purposes. We could run the same study on accounts receivable to the same effect.) APQC’s AP data suggest that the love affair with highly automated shared service centers will continue — and more U.S. finance jobs will be eliminated. As illustrated in Figure 1, organizations using shared services centers to process AP transactions spend less of their revenue on AP than organizations that manage AP transactions at the business-unit or headquarters levels. Top performers for this benchmark survey question using shared services centers spend $0.26 per $1,000 in revenue, whereas operating/business unit structures spend $0.66 and headquarters arrangements spend $0.45. For a $1 billion organization that earned a place in the top-performer category, a shared services center approach for AP generates $400,000 in savings.

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More Volume

Clearly, shared services centers lead to process cost savings. But how strong is their contribution to process productivity? Figure 2 shows that top performers for this benchmark survey question who do use shared services centers process more than 20,000 invoices per AP full-time equivalent (FTE), whereas top performers in headquarters arrangements average almost 5,000 fewer and operating/business units average about 8,000 fewer.

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Faster and Cheaper

This strong relationship between greater volume of invoices processed and lower accounts payable costs is apparent in the rest of APQC’s examination of the accounts payable process. As Figure 3 shows, survey respondents that process more AP invoices per FTE use less of their revenue for the AP process altogether. In order to process more invoices, organizations have to invest in more automation and standardization, and these changes are easier to apply to a centralized shared services center.

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I’m not suggesting that all of this is a walk in the park. The investments in change programs of this scale can be hefty initially. And the total cost of ownership of the IT is going to be a porker every year. Eventually, though, somebody will figure out how to move this all safely to the cloud, and the tech bill will shrink measurably.

If the changes are well-planned and executed — and not all are — a CFO would be foolish, in the eyes of investors, to delay going down this path. But I still wonder about all those job cuts. Can it really be that we will have an economic recovery that eventually gains good traction while the bread lines grow longer? You could become cynical in following that question to its natural conclusion.

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