Shared Services is a business model that enables resources to be leveraged across an entire organization resulting in lower costs with agreed-upon customer-service levels. In many instances, It is a separate business unit created within a company or agency accountable for delivering a suite of services to both the operating business units and the corporate functions.
What Differentiates Shared Services from Centralization?
Shared Services has the mindset of a business and views the rest of the organization as its customers. As a service organization, their accountabilities are delivering value (balancing cost and service levels), as well as identifying ways of further leveraging their operating model. The operating model is built on three primary capability levers: People, Process, and Technology. While centralizing the services may be a component of Shared Services, the broader objective is to gain efficiencies beyond consolidation through a methodology of continuous improvement that results in more efficient and standardized processes, with much of the activity automated through enabling technology.
Generally, Centralized Services tend to be heavily focused on compliance and control while Shared Services have added accountability of value creation through a leveraged model as well as managing to agreed service levels.
What are some of the Primary Benefits of a Shared Services Model?
- Economies of Scale – Lower costs
- Agreed-Upon Service Levels – Value decisions on what and how much to provide
- Standardization of Processes – Best practices
- Common Technology Platform – Enables the coordinated transformation of the front, middle, and back-offices
- Culture – People with the skill and mindset to optimize the model beyond the back-office
- Operating units free to focus on their operations and external customers – Rely on Shared Services for support
- Corporate free to focus on strategy – Rely on it for statutory compliance, controls, and information
- Decision Support – Data analyzed and delivered as reliable and actionable information
- Flexibility – It can be sourced through multiple delivery channels and/or geographic locations
- Scalability – The Shared Services delivery model can be scaled for both acquisition/geographic and service scope expansion with relatively low incremental costs.
What has been the Evolution of Shared Services?
The typical evolution of a Shared Services organization has followed a track similar to the one below:
- Single function Shared Services for Accounting and Finance – Initially transactional services (e.g. Accounts Payable, Accounts Receivable, General Accounting).
- Multi-Functional Shared Services – With the success of single-function, Shared Services silos by function emerged replicating the initial success (e.g. Human Resources, Procurement, Information Technology).
- Integrated Shared Services – As many of the underlying elements and enablers are similar (e.g. Service and Project Management, Service Levels, Sourcing Methodology, Technology Enablement, Business Process Management, Knowledge Management) organizations created a Shared Services Operating Unit, usually distinct from any particular functional area.
Is there a Difference between Shared Services and Business Services?
As Shared Services organizations matured and continued to integrate broader services that crossed front, middle, and back office, as well as included decision support services, many integrated Shared Services organizations re-branded themselves as Business Services. Much of this re-branding was a result of overcoming existing impressions that it is related primarily to transactional activities as it did in its earlier stages.
Today, many Shared Services organizations are providing higher-level services that would be considered by some as Business Services and there are many Business Services organizations that provide only transactional services.
Where Does Outsourcing Fit into the Equation?
Outsourcing spans from a large strategic company initiative to a purely tactical sourcing decision for selected activities.
Companies that would like to move to a model that brings the benefits of Shared Services quickly but lack adequate internal resources (some combination of human, technology, and capital) may choose a strategic “lift and shift” strategy. This can bring large immediate and guaranteed benefits to the company. Outsourcing providers are usually located in low-cost regions so benefits come primarily through labor arbitrage, as well as through gaining greater scale from the provider. Companies that opt for a “Lift and Shift” solution may have a Shared or Business Services organization that will oversee the provider and continue to work on process standardization and optimization in conjunction with their outsourcing partner.
Companies that generally have had initial success with a captive Shared Services organization tend to view outsourcing as a selective tactical sourcing decision. These are usually more mature organizations or those that have the resources and scale to improve their current model internally through the capability levers of People, Process, and Technology. The timeline for benefits realization is usually slower but provides greater value creation over time as activities can be “improved and moved” when the optimal time is determined if moved at all. Detailed methodologies for end-to-end process improvement are critical for these organizations, as well as one or more outsourcing business partners who are ready and willing to integrate the activities while the organization shifts the sourcing seamlessly from internal resources to an external provider.
With the proliferation of excellent outsourcing providers, it is critical that a company and their Shared Services organization choose their sourcing strategy wisely depending primarily on an assessment of their current state of capability levers as well as their economic needs (immediate short-term return versus longer-term residual benefits). The best-case scenario is to have the option of multiple delivery models using both internal and external resources and choosing what is best for a given set of circumstances and objectives.
What do the terms Captive, On-Shore, Near-Shore, and Offshore refer to?
- Captive refers to a Shared Services organization that is primarily sourced by company employees. “Shore” type refers to the location of the people doing the work.
- On-Shore generally means that the work is performed in the same country or region, as the Shared Services customers are located. (For example, work for European countries done in Hungary).
- Near-Shore means that the work is performed in a lower-cost location in a time zone close to where the core of the Shared Services customer base is. (For example, work for US-based operations done in Mexico).
- Offshore refers to work performed usually in another continent from where the Shared Services customers are located. (For example, work for US-based operations done in India).
One of the benefits of Shared Services is the flexibility of being able to move work where it can be best sourced based on a combination of variables (cost, service levels, skills required, etc.).
Regardless of where the work is located and who the resources are employed by, it is critical that it maintains accountability for service delivery, cost, and overall process ownership and be the operating unit responsible for overall coordination and results.
What are some of the Biggest Issues Faced When Implementing Shared Services?
- Resistance to Change – Effective change management must be a component of any implementation regardless of sourcing.
- Legacy Systems – While not always possible, Shared Services and system integrations as part of a business transformation project can yield excellent results. Limitations of legacy systems can sub-optimize results.
- Leadership – There will be tough times, everyone has to be on board and visibly and vocally supportive.
- Shared Services Team – The attitude and skill set of a service-oriented team looking to use enabling technology to optimize processes may not exist in the organization today. Find and pre-qualify the right people before you start.
What are the Key Success Factors for Shared Services Organizations?
- The Attitude and Approach to Service of the Leadership and People in the Organization
- Governance Model and Decision Rights Well Defined, Communicated, and Understood
- Key Performance Metrics (Balanced Scorecard: Cost, Productivity, Quality, Service, Controls, Employee Value Proposition)
- Executive Support
- Operational Business Knowledge
- Embedded Culture of Continuous Improvement (Preferably formalized program)
- End-to-End Process Orientation (Ownership or Influence)
- Enabling Technology Platform (Preferably single-instance ERP)
- Part of Research Community – Contributing and Receiving Best Practice Insights