10 MORE Mistakes Made When Starting Shared Services
When SSON published "Top Ten Mistakes Made When Implementing Shared Services" advice from experts across the shared services and outsourcing space on the most common errors organizations make when creating a shared services organization, the response was so popular that we decided to return to the issue. After all, the litany of potential errors doesn’t stop at ten! So here are Ten MORE Common Mistakes… Recognize any? Let’s hope not…
Mistake #1 - Underestimating the needs of small clients
One of the most crucial advantages of the shared services model is of course that a great variety of clients - potentially differing significantly in size and diversity - can be served by a single SSO. However, there is a danger that the needs and requirements of the larger and possibly more powerful clients can force themselves to the front of the service-delivery queue. Allowing this to happen is a big, though common, mistake: an SSO that doesn’t satisfy the demands of all its clients, however small, is one that isn’t performing the role it was designed for. After all, even the smallest clients have their place within the wider organization - otherwise they wouldn’t be there in the first place…
"Most SSCs have many clients of various sizes, and the 80/20 rule can almost always be applied (80% of demand comes from 20% of clients). However, it is not unusual to make the mistake of focusing almost exclusively on those big clients when designing and implementing SSCs and ignoring the smaller ones because it is thought that their demand volume will not be significant enough. If we do that, we may discover after implementing the SSC that those smaller clients have particular needs and requirements that were not taken into account when designing the SSC - and that they can also be quite loud about it. Summing up, no client should be underestimated and each client is equally important when defining SSC products and processes. If we take this into account, we can make sure that we will run into no surprises in the operating stage," believes Alejandro Abella, partner with Ernst & Young in Argentina.
Mistake #2. Not instituting coherent allocation or chargeback mechanisms
Not every shared service organization operates a chargeback model - but it’s becoming the norm as the most effective way to ensure a true assessment of, and minimize, costs to the business. It’s critical to get the chargeback set-up right from the off - not merely to get those costs right, but to avoid disputes with business units that might otherwise feel hard-done-by - or conversely, might escape without paying their fair share for the services they receive.
"When organizations don't set-up appropriate allocation or charge-back mechanism for shared service arrangements," warns KPMG’s Cliff Justice, "business units can likely question whether the shared service cost is aligned with their demand. It’s not always straightforward and easy. Adopting a simple ‘one size’ allocation approach can not only create resistance from the business units, but it doesn't give the enterprise an accurate picture of the cost of service."
Mistake #3. Removing implementation-focused governance mechanisms prematurely
Ensuring your SSO has a strong governance team prior to and during implementation is an absolute must: many of the most commonly reported difficulties with implementation spring from a lack of correct governance procedures. But the temptation is there - and understandable - to take out those implementation-focused governance mechanisms once the SSO seems to be operating smoothly. By retaining them for at least a while, while a more "as-is" governance set-up is established, you can avoid many issues which might lie dormant during the majority of the implementation period, only to rear up and bite in the most painful place in the absence of strong and well-defined oversight at a critical period.
"Don’t give up the governance or oversight too soon," cautions Kathy Bishop, former VP/GM Finance Shared Services at Pitney Bowes. "The support of the governance team or committee can be of significant value, even after the shared service is implemented and well on its way. They can help with ‘opt-out’ mentality, investment requests and operational or tactical issues. Speaking of ‘opt-out’ mentality, find a way to verify that people are onboard with shared services. Sometimes you may think you have buy-in but you don’t."
Cliff Justice of KPMG adds: "Whether the shared services functions are outsourced to third-parties, or kept in-house in a captive arrangement, governance is a critical component to align the delivery of services with the objectives of the overall business. Many organizations assume that governance is ‘vendor management,’ which is not needed in an internal delivery model. But without capable governance, the interests of the shared services organization and the businesses it serves can drift apart. Many organizations are starting to realize that true efficiency comes when the governance organization is sophisticated enough to manage the complexity associated with multiple functions and multiple service providers."
Mistake #4. Not installing an adequate change management architecture
As with a lack of proper governance, a major cause of problems throughout an implementation of shared services is underestimating the change-management element of the project. A great many SSON contributors have pointed out that in the absence of a dedicated change-management strategy the end-users of shared services can find themselves under prepared for the radical transformation which SSO implementation entails, and as such either suffer from a lack of engagement or a lack of understanding about precisely what’s required of them - and, importantly, what the advantages of the transformation are for the business as a whole.
"Companies sometimes forget that adopting a shared service arrangement is like any significant structural or operational change that should be properly managed to achieve enterprise-wide acceptance. When people and services are not properly aligned, not only can stakeholders be dissatisfied, but business units may create their own arrangements. And in large enterprises, when shadow organizations develop, they are often not easily detected, so organizations can inadvertently cause a more inefficient system than was in place previously," says KPMG’s Cliff Justice.
Mistake #5. Ignoring interfaces
Changing a process can lead to great efficiency gains - but the consequences for other areas of the business can be profound, and unless these are fully analyzed and possible dangers understood (and mitigated) those efficiency gains could pale in comparison beside the disruption to operations across the organization. Transforming a process in isolation is a sure-fire way to create difficulties elsewhere. Remember, just as "no man is an island", nor is any business process…
"No business process is a stand-alone entity," warns Peter Allen of CSC. "There are always existing stimuli and input, as well as downstream responses and outcomes. The derivative effects of a transformed business process can be additive, or introduce complications. Know what happens when each string is pulled."
Mistake #6. Only transferring basic processes to shared services
The rationale behind a shared services implementation can be relatively straightforward: "we can do Process X at half the cost, twice as quickly." However, organizations frequently forget that it’s not JUST the more transactional processes that can be moved over to an SSO: a great deal of added value can be extracted from shared services by transferring higher-end "knowledge process"-type activities as well, either straight away or at a later date (but with the potential to do so included from the off in planning). After all, this represents a significant cash investment and change management effort: it’s worth getting the very most out of it via moving over work that might lie off the radar of less broad-minded organizations.
All to often, according to PwC’s Charles Aird, organizations "do not aggressive pursue the full range of processes that can be moved to the SSC environment. Too often just the low-end transaction services are considered. We have found that if any organization begins with the assumption that 80% of the work can be transitioned to the SSC, then typically 65% of the head count can be transferred to the lower-cost environment."
Mistake #7. Getting tangled up in SLAs
Well-drafted and sensible service-level agreements are crucial to shared services success. But they should be taken as a framework rather than cast-iron commandments: the idea is that SLAs should represent the means rather than the end, and all too often a great deal of precious time is wasted getting far more granular than is actually necessary.
"We all agree that SLAs are key elements in the SSC model, and that they are essential to properly document the relationship between the SSC and its clients, since they provide clear information on service levels, costs and requirements so that it can ensured that those conditions will be met," says Ernst & Young’s Alejandro Abella. "However, one should not try to put everything in writing because the resulting document may be impossible to use and comply with. Many companies make the mistake of believing that a SLA should include every little detail about the elements defining the relationship with the client and end up with documents containing hundreds of pages and a number of clauses written by lawyers much larger than the ones exclusively related to the services that will be granted. The SLA is not intended to be a document that will be submitted before a court of law; rather, it is a key element in the relationship between the SSC and its client, and it should be kept simple, practical and dynamic. Otherwise, it will soon be doomed to oblivion."
Mistake #8. Relying too heavily on received wisdom
There’s no shortage of extremely capable consultants, and very useful guidelines, to help with a shared services implementation, and no-one in their right mind would advise starting a shared services journey from scratch with no experienced advisors (either in-house or external) helping you along the way. However, it’s imperative that you realize that there’s no "one size fits all" methodology here; you need to tailor your SSO to the needs of the business, not change your business to fit someone else’s idea of what’s worked for other people. Sure, advice can be invaluable - but you must ensure that you’re using, and not relying on, that advice…
"Don’t rely upon the standard methodologies! Or ‘experts’!" urges Paul Hopkins of HE-Shared Services. "They are written as generalized guides, however they are dangerous in that every situation is different and you have to use your native wit to operate within your business area. Much of what we do is linked to people and relationships – yet a painting-by-numbers methodology is likely to induce a false sense of knowing what will happen next! And somebody who has done something similar but somewhere else at some other time and with some other people is often at best a ‘guide’. They have valuable experience but it does not necessarily work in the same way in your organization as it did in theirs!"
Mistake #9. Accepting "constraints" too easily
Everyone faces constraints when planning a shared services organization - financial constraints, spatial limits, bandwidth, the works. However, being over-ready to accept those constraints without at least attempting to overcome them, remove them or (most likely) adjust their parameters could mean the difference between a five-star world-class SSO and one that merely "does the job". Presumably if you’re at the planning stage you’ve already got buy-in from the top - so without jeopardizing those relationships it’s surely worth at least testing the water to see if some of the apparently inflexible constraints you’re up against might be able to flex, even a little…
"When developing and deploying a SSO, it is the best time to use inductive thinking and challenge the perceived constraints that might unduly influence the design. Perhaps there CAN be investment made available for technology-enablement that would not otherwise be obvious. Frame the questions with an ROI focus," advises CSC’s Peter Allen.
Mistake #10. Underestimating working costs
Anyone looking to implement shared services should cost that implementation down to the nearest fraction of a cent - after all, the devil’s in the details. But it’s not just the implementation costs that count: operational costs are just as vital, and getting an accurate assessment of working costs - especially in areas which it might be tempting to overlook prior to implementation - is indispensable even long before they kick in: after all, you’re almost certainly going to face tough questions about working costs while you’re making the case for implementing shared services in the first place.
"[Organizations] often underestimate the investments required for ongoing governance, process transition, and SSC technology enablement," reveals PwC’s Charles Aird. "The ongoing operational costs for items such as communications, electricity, transportation in low cost locations, and labor cost increases may also be overlooked."