27
Citi Perspectives
| Q1/Q2 2015
an SSC model. SSCs offer relatively
fixed costs given scalable technology
and straight-through-processing:
as volumes increase, unit costs
continue to fall.
Risk and control
In an SSC, the person responsible for
a task is dedicated to it (unlike in a
decentralized model) and can develop
a deep understanding of it. They see
the process across multiple channels
and geographies and, through the use
of standardized processes, are well
placed to identify anomalies. As a
result, risk management is improved.
Centralizing services in an SSC
also makes it easier to implement
best-in-class processes. Rather than
having to inform multiple individuals
in multiple locations about process
changes, policy can simply be
set — and implemented — in a
single location.
While centralization is undoubtedly
beneficial overall, some flexibility
is lost because, unlike at the local
level, interaction between the
service function and the business
is limited: a sales representative
cannot simply walk to their Accounts
Payable contact and explain how a
particular client likes to pay their
invoices. More generally, by focusing
solely on a specific function, there
is a risk that an SSC can lose touch
with understanding the nature of the
underlying business.
EMEA corporates are realizing that
to create a true control environment,
it is essential to ensure there is
engagement between the business
and an SSC when services are initially
transferred and on an ongoing basis.
The increasing use in EMEA of
Payment On Behalf Of (POBO)
structures, where an in-house bank
manages payments on behalf of
subsidiaries in a region, delivers
efficiency in terms of process,
account maintenance and liquidity.
However, POBO also places additional
responsibilities on the SSC, such as
ensuring compliance with anti-money
laundering, sanctions and other
regulatory requirements. The SSC
effectively becomes the gatekeeper
for the organization’s integrity.
Only by being connected to the
business — through site visits, training
and regular contact — can the SSC
fulfill these regulatory obligations
effectively. One way that the SSC can
reinforce its relationship with the
business is to be value-accretive. For
example, the huge volumes of data it
processes can provide insights to the
rest of the organization on supplier
payment terms, payment instruments
and payment costs. More generally,
as SSCs assume a wider role as a
funnel for the information generated
and required by the business, they
may need to develop relationships
with local banks and regulators in
various national markets to ensure
they are up-to-date with market
developments.
Cyber security is a critical issue
for corporates, and SSCs offer a
way to reduce the risks associated
with multiple individuals accessing
While
centralization
is undoubtedly
beneficial
overall, some
flexibility is
lost because,
unlike at the
local level,
interaction
between
the service
function and
the business
is limited.
