Shared services operate within organizations by providing services to internal clients. They operate on business principles and provide internal services at a cost and quality that is acceptable to its clients, when assessed against alternatives. They are referred to as shared services, because their activities are shared by units across entire organizations, instead of duplicating similar services within in each unit. Typical services include finance, treasury, human resources, information systems, legal, marketing, purchasing and R & D. Some internal units generate revenues for the parent organization by selling services and expertise to third parties. Businesses referred to as ‘outsourced’ shared services also provide a range of common services, using similar processes and systems to achieve economies of scale and by leveraging expertise through “sharing”.
The rationale for shared services is undisputed. Why have six finance or HR departments doing the same thing with various levels of expertise within the same company, when one highly skilled team can support the entire organisation more efficiently and more cost-effectively? In general, processes that are homogenous across business units are suitable for shared services. Shared service centres tend to be responsible for rule-based, high-volume, non-business-critical transaction processing.
Outsourcing administrative function is a realistic option at any time in the process of establishing shared services. Some organisations may see outsourcing as the only option as they do not possess the skills or resources to create effective shared services in-house, or wish to avoid the inevitable disruption implementation can cause. In the context of existing shared services, outsourcing can be viewed as the ‘third’ phase. Having decided to create internal shared services (phase 1) and followed through by implementing best practices (phase 2), some shared services operators realise that they will never be able to reach the standards of world class operations in certain of their activities. Outsourcing parts of shared services operations becomes a viable alternative (phase 3). Read on about the realities of outsourcing.
The move to a shared-services culture will often involve an adjustment or extension of an organization’s information technology (IT) arrangements, the two most helpful applications of which are in enterprise resource planning (ERP) and call-centre technology. The aim is to combine the various (perhaps incompatible) systems operated by different business units into a common system platform. It may not be possible to switch from multiple systems to a single system overnight, but an initial target of a reduction to no more than five systems should be achievable.
Establishing a shared-service unit allows internal clients to choose the type, level and quality of services they want at a price they are willing to pay. The service providers, on the other hand, can charge an appropriate fee for their services, building in all the associated costs, including overheads. Internal clients pay the true cost of the services they receive, just as they would if they had gone to an external service provider. This means, however, that the shared-services unit must match external performance levels or at some point clients will exercise their right to use alternative suppliers.
Shared services needs to operate like any other business, delivering services that clients need and are ready to pay for at a cost, quality and timeliness that is competitive with alternatives. Employees of shared services know that they are crucial to the overall success of the “team” and its business objectives, whereas before they may have been considered a ‘necessary evil’ tagged on to each business unit.
The main aims of moving into a shared-services environment are to:
- enhance corporate value
- focus on partner service and support
- liberate business and operating units to permit focus on the strategic aspects of their operations
- transfer business units’ non-core activities into shared-services units
- create a motivated team that provides consistent, reliable, cost-effective support
- lower costs and raise service levels
- make the best use of investments in technology
- focus on continuous improvement