Meridian Retail Group: sequencing a shared service centre after three acquisitions
Meridian Retail Group has made three acquisitions in four years. Each business still runs its own ERP: one on Sage 200, one on SAP Business One, and one on a legacy AS/400 system that only two staff can maintain. Group finance employs 96 people, 41 of them in transactional work - accounts payable, accounts receivable, GL reconciliation and payroll. The CFO has a board mandate to take 15% out of the finance cost base within 24 months and to release capacity for commercial analysis. A systems integrator has quoted £2.4m over three years for a single ERP plus a shared service centre in a regional hub. The group FD prefers outsourcing AP and AR to a business process outsourcer at roughly £1.1m a year. IT says the ERP cannot be live before month 18. Transactional staff turnover is 22%, and the three businesses currently close their month-end on three different dates.
1. Recommend the order in which finance activities should be moved into the shared service centre, and justify your sequence against explicit criteria.
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Criteria to rank activities
- Homogeneity and volume - how identical the process is across the three businesses and how much labour it consumes.
- System dependency - whether the activity can be run on today's systems or only on the target ERP.
- Business-specific knowledge - how much local commercial or customer judgement is embedded.
- Error visibility and control sensitivity - payroll and statutory reporting fail loudly and publicly.
- Risk of doing the work twice - migrating a process that will be redesigned at month 18 wastes the transition cost.
Recommended sequence
- AP invoice processing and payment preparation. Highest volume, rule-driven, near-identical across entities and largely system-agnostic with a workflow tool. Delivers visible savings fastest.
- AR cash allocation and credit-data maintenance. High volume and standard, but keep collections with local teams initially because they carry customer relationship value.
- GL reconciliations and intercompany. Needs a common chart of accounts, so run this alongside the ERP rather than before it.
- Month-end close. Do not migrate the close until the three closing calendars are harmonised - that harmonisation is a cheap early win and a precondition, not a by-product.
- Payroll. Last, or never. It is jurisdiction-specific, contractually sensitive and any error is immediately visible to every employee.
Why not simply take the biggest activities first? Payroll and the close are large but carry the highest control and reputational risk with the least standardisation. Sequencing on volume alone would front-load the group's worst transition risk.
2. The group FD wants to outsource AP and AR to the BPO now. Assess whether Meridian should outsource, wait for the shared service centre, or take a third route.
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Assess against decision criteria
- Speed: the BPO can be live in roughly four to six months; the SSC cannot operate properly before month 18. Speed matters because the 15% target is measured over 24 months.
- Cost: £1.1m a year is significant against a £2.4m three-year systems and SSC programme. Compare the BPO against the fully loaded retained cost of the 41 transactional roles, not against zero.
- Control and knowledge retention: outsourcing both AP and AR hands the BPO the process knowledge Meridian needs to specify and configure the new ERP. That is a real cost, not a soft one.
- Reversibility: BPO exit is slow and expensive if the contract has no break point aligned to the ERP go-live.
Recommendation - a hybrid
- Outsource AP invoice processing only, on a three-year contract with a break at month 18, TUPE provisions, a data-processing agreement and step-in rights.
- Retain AR collections and reconciliation in-house, moving them into the SSC beside the ERP so that credit judgement and customer relationships stay with Meridian.
- Contract the BPO to hand over process documentation and time-and-motion data as a deliverable - use it as ERP design input.
- Enforce a no-double-running rule: no process is live in both the BPO and the SSC.
What would change this answer? If the BPO cannot offer a month-18 break, the case weakens sharply, because Meridian would pay twice for the same transition.
3. Identify the principal risks in delivering the 15% cost reduction and state how the CFO should mitigate each.
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Risk 1 - cutting before stabilising. The 22% turnover is both an opportunity and a warning: roughly nine transactional roles leave each year anyway, but the two AS/400 specialists are a single point of failure. Mitigation: deliver most of the reduction through managed attrition and a hiring freeze rather than redundancy; pay retention bonuses to the AS/400 staff until migration completes; hold a contingency of 10–15% of the target.
Risk 2 - control breakdown. Migrating AP while changing systems is when duplicate payments and fraud appear. Mitigation: move controls with the process, not after it. Pre- and post-migration reconciliation, master-file freeze during cutover, and internal audit review at each wave.
Risk 3 - savings leak into working capital. A cost target applied to AP and AR often shows up as late supplier payment and softer collections. Mitigation: put DPO and DSO on the same scorecard as cost per transaction, so a cost win cannot be booked at the expense of cash.
Risk 4 - capacity is released but not redeployed. If the 15% is delivered and the analysts still spend their week on reconciliation, the mandate fails and credibility goes. Mitigation: define the target mix before the savings (for example, transactional effort falls from 43% to 25% of finance hours), name the business partners and their business units in advance, and report hours shifted to analysis quarterly.
Risk 5 - three closing calendars. Until they are harmonised, the SSC inherits three peaks instead of one.