2024 Public Sector Perspectives

Why create a Shared Service Center? The value proposition of SSCs is straightforward. By concentrating services, SSCs offer the opportunity to lower costs and improve efficiency. Lower costs are achievable for two reasons. First, SSCs tend to be located in low-cost countries (relative to the location of the entity’s headquarters). Second, by concentrating activities, SSCs can generate synergies: tasks tend to be performed in a more consistent way, reducing errors and improving productivity. Lower Costs Concentration Higher Efficiency Cost is a key driver when it comes to location. According to Deloitte’s 2023 Global Shared Services and Outsourcing Survey (based on around 500 responses from leaders in 40 countries), 51% of organizations planning onmoving their SSCs are seeking lower costs. In contrast, 27% of firms want to gain better access to talent within the next three years 1 . Attitudes are likely to be similar among supranationals, although some may have other important criteria when choosing a location for a SSC. For instance, a locationmay be chosen as part of their operational mission, to encourage economic development and build local skills. Preferred SSC locations (ranked) 3. Mexico 4. USA 1. India 2. Poland 5. Malaysia 6. Costa Rica 7. China 8. Philippines 9. Spain 10. Portugal Top 10 Preferences Source: Deloitte’s 2023 Shared Services and Outsourcing Survey While cost is critical, it cannot be the sole determinant of where a SSC is located. Unless the quality of services meets the required standards, synergies and cost savings cannot be realized. When deciding the location, it is important to consider the skills of the local labor force (including finance, IT and language skills), economic and political stability, availability of office space, operating costs, and local infrastructure, including the reliability of electricity and other utilities such as broadband. Synergies result from the bundling of supporting processes and operations into a dedicated center of excellence. While there are potential savings from reduced headcount, as importantly SSCs allow organizations to negotiate better prices by consolidating vendors, and can enhance working capital by standardizing and concentrating treasury activities. 1 h ttps://www2.deloitte.com/us/en/pages/operations/articles/shared-services-survey.html By definition, a SSC is an environment where expertise is concentrated and can therefore be shared among employees, increasing productivity and efficiency over time. Whereas in the past various teams may have performed multiple roles (especially at supranationals) or served different internal or external customers, a dedicated SSC team learns how to perfect their role and best serve repeat customers. By concentrating functional roles, the culture of an organization can be transformed, enhancing customer experience. This professionalization can also be reflected at a management level. Traditionally, many of the jobs performed in a SSC are categorized as back- office roles and may be an afterthought for organizations. Concentrating activity into a SSC not only professionalizes back-office functions, increasing morale and productivity, but means that management is solely focused on these tasks and is incentivized to identify opportunities for improvement. As a result, service quality often improves in a SSC. Centralization of activities also facilitates more robust controls and improves management’s visibility of performance. SSCs also offer opportunities to develop additional competencies that benefit the wider organization. For many corporates, SSCs are now seen as a tool tomodernize operations and provide information and insights. For example, SSCs may provide crucial processes such as forecasting, reporting, and treasury. These improved operations allow for finance, human resource (HR) and IT departments to be strategic partners driving the growth of the organization or contributing tomore effective delivery of its mission. What progress have supranationals made? In many ways, supranationals are ideal candidates for a SSC. Supranationals are international organizations that transcend national boundaries and typically involve multiple member countries. They have to manage a wide range of administrative and support functions across multiple geographies. By centralizing these functions in SSCs, they can achieve significant cost savings through economies of scale, reduced duplication of effort, and optimize resource allocation. Moreover, many of the main drivers for SSCs are magnified for supranationals. To deliver on their missions, supranationals may operate across diverse geographies, resulting in varying processes, procedures, and policies that result in inconsistency in operations and challenges in achieving compliance with organizational goals. Inconsistency necessarily creates a certain level of inefficiency as well as making transparency and data security harder to achieve. Inevitably, productivity is reduced because of a lack of focus on administrative functions in each location where tasks are executed, while knowledge sharing is hampered by the limited interaction of the various employees undertaking tasks. Despite the potentially significant benefits of SSCs for supranationals, adoption has lagged the corporate sector. Many multilateral development banks, for example, still execute the bulk of support functions at their headquarters or across multiple country offices rather than in a dedicated SSC. However, there are some notable exceptions. To deliver on their missions, supranationals may operate across diverse geographies, resulting in varying processes, procedures, and policies that result in inconsistency in operations and challenges in achieving compliance with organizational goals. Why build a Shared Service Center? Consolidate vendors for greater purchasing power and better terms Create economies of scale from standardization and concentration of activities Increase productivity through digitization Citi Perspectives for the Public Sector 45 44 Supranationals: Shared Service Centers and Digitization Can Be Transformational