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Shared Services has been generating a lot of buzz the past few years, as more and more companies adapt this business model to reduce cost and administrative burden.  Companies with top performing shared services organizations are now seeing even greater benefits, such as expansion into higher-order services and driving company-wide productivity breakthroughs, advances in technology, and speed to market.

Background: What is Shared Services?
As corporations grow and evolve through acquisitions and geographic expansion,  they typically support each business unit and geography with dedicated, decentralized administrative offices that perform billings, payables and receivables, general accounting,  payroll, purchasing, IT support and facility management.   These dispersed support groups naturally develop and maintain their own systems, policies and procedures. The result is high operating cost, redundancy, inconsistency and lack of transparency.  Business Unit executives spend an inordinate amount time resolving transactional problems and making decisions on “back-office” matters when they would rather focus their time on building their business.   

Globalization and advances in communications and ERP technologies have been the game-changers that enabled the creation of Shared Services.  Shared Services pulls the back-office administrative processes into a single, expert organization that is chartered to provide service excellence on behalf of the business units.   Administrative work is consolidated from 100’s of local offices into one or two shared service centers which are preferably situated in low cost locations.  ERP systems, such as SAP, enable the service center to seamlessly support the entire global enterprise within a single data base.  Business processes and systems are re-designed to adapt industry best practices and to leverage global scale.   Repetitive transactional activities are “productionized” for high throughput.  TQM statistical controls are employed to eliminate defects and minimize variability.   The service center staff is continually trained and rewarded for developing functional mastery, eliminating defects and increasing customer satisfaction.    As service centers mature, they can expand their service offerings beyond providing back-office transactional processing to delivering higher-skilled, value-adding processes such as HR, procurement, financial reporting and technology development.

Shared Service Business Benefits?
The most obvious benefit is the cost reduction that can be attained from wage-arbitrage and scale-driven productivity.  But, the benefits go well beyond personnel savings. Business processes are converted to industry best-practices and are performed the same way worldwide.  The businesses derive benefit from improved accuracy and service quality.  Standardized business reporting and data structures increase transparency and speed of information access.  Procurement savings are realized by pooling requirements across business units, enabled by service center consolidation and process standardization.   By merging resources and sharing development costs, the enterprise can more easily justify investments in technology advancements and business process breakthroughs.   Business Unit leaders are unleashed from dealing with the back-office “crisis of the day”, and can now focus exclusively on innovation, manufacturing, marketing and customer service.   Some of the most advanced companies are now using their shared service centers as an innovation hubs focused on driving company-wide productivity, advances in business information, and speed to market.

What are the Critical Decisions?
Captive or 3rd Party – Likely the most controversial decision is if you should construct your own “captive” service center facility and staff it with company employees, or if you should outsource the operation to 3rd party service providers.    A captive organization offers the most self-control and presumably lower cost since you avoid paying a profit margin.   On the other hand, 3rd party providers are experienced in operating in remote environments and can leverage functional expertise across their multiple customers.  There are several trade-offs that need to be considered in this decision.  There is no one-right answer – it depends on your company’s situation and business objectives.

Service Center Locations – The key factors in determining the number of centers and their locations (on-shore, near-shore or off-shore) include cost, availability of qualified resources, language, time-zone coverage, business climate and technical infrastructure.   

Transition Strategy - If the goal is to quickly realize wage-arbitrage savings, then “Lift and Shift” is the most expedient approach.  With Lift and Shift, service center personnel are trained to perform the transactional work exactly the same way as in the legacy organization, with minimal changes to systems, data flows, controls and work process.   The draw-backs are that the service center must develop expertise in multiple processes and inconsistent systems, and scale-driven productivity benefits are muted.   

At the other extreme is “Big Bang” where work processes, systems and data structures are converted to a new corporate standard upon resiting the work to the center.  While Big-Bang requires higher upfront investment and is riskier, the overall benefits are greater and the payout is often higher.    

The 3rd option would be a Hybrid Approach which incorporates elements of Lift and Shift and Big-Bang.  

Regardless of which conversion strategy is employed, it is important that robust plans are developed for employee communications and the transition of displaced personnel.   Finally, an often underserved but crucial need is the re-training of business unit employees to operate with the new shared services model. 

What are the Keys to Success?

• Of top importance is C-level alignment and sponsorship.  The conversion to a shared services model requires top-down deployment, especially to enforce scope and define business unit decision rights.   It's key to be clear about what the company intends to achieve with shared services -- and then communicate that to the organization and manage expectations.
• Select a strong, respected leader to lead the shared services team and guide the overall company through the transition.  This person must be an exceptional communicator and have strong project execution skills.  Implementing shared services is challenging work. It involves change, moving people into new roles and establishing new service models for internal customers.
• Establish a center culture rooted in customer service, process excellence and quality control.    The secret of shared services is to always talk to the customer about service, but to always think about the end-to-end process.  The shared services organization must also have passion for simplification and standardization in everything they do.  These are fundamental to quality, productivity and service improvement.
• Statistical control is paramount for process excellence.  The most effective and disciplined centers diligently measure and track quality, throughput and timing at each process stage and as output.  Results are displayed visually and output measures are published to the customer community.
• Run it like a business, not a staff function.  After all, Shared Services is a business within a business.  Clearly define your OGSM’s (Objectives, Goals, Strategies and Measures), in support of the Corporate strategic plan and business unit action plans.  Appoint a governance board consisting of business unit and functional leaders to establish your Shared Services priorities and to review results.  Align your output requirements, key measures and charging metrics with your customers and document them in the form of Service Level Agreements. 

Tim Biehle, has over 35 years experience and is an expert in the establishment and operation of shared services organizations.  He was a leader in the design and establishment of Procter & Gamble’s financial shared services organization, where he orchestrated the consolidation of 100’s of country-based accounting organization into 3 world class service centers. P&G’s Global Business Services is widely recognized as one of industry’s most successful shared services organizations and has won numerous awards for its accomplishments.  In addition to Tim, the CCC Team includes several other consultants with expertise in IT, Purchasing, Finance, Outsourcing and OGSM who can support your Shared Services transitions.  

Can CCC help you?

Contact either Judd Weis, President & CEO, CCC, Ltd. at jweis@cincconsult.com or 513-516-0539, or Tim Biehle, Senior CCC Consultant at tbiehle@cincconsult.com or 513-516-0539

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