How to Build a Business Case for Shared Services
When to use this guide
- My organization is considering moving to a shared services structure for one or more of its support functions
- Our current back-office processes are not effectively supporting our business
- The running costs of one or more of our support functions is too high
- Our current back-office structure may not be best suited to meet the future needs of our business
10 steps to building a business case for shared services
Shared services centers (SSCs) are becoming increasing popular as a means of effectively providing support services to the business, particularly in HR, Finance and IT. They may be based on- or offshore, and may be part of the organization or outsourced. Regardless of what the end solution might look like, a solid business case will need to be built, and this guide summarises 10 key steps in this process.
1. What are the ‘drivers’ for shared services?
In simple terms, why would the business benefit from shared services? What business issues would a shared services structure address? Common drivers for SSCs include compliance, efficiency, future scalability, flexibility, cost reduction, speed of delivery and reducing the administrative burden to enable managers to focus on value adding tasks.
2. Gain supporting evidence
Once you have established your drivers, you will need to gain clear evidence as to why your current structure and processes do not effectively meet those drivers. You might consider carrying out an audit of your structure and processes, looking at areas such as compliance, efficiency, cost of function, response times etc. The results can then be benchmarked externally to gain further evidence as to how effective your current function is.
3. Assess likely future business needs
It is important not just to look at current business requirements, but also what the business needs will be in say 2-3 years time. Will the business be growing, leading to a larger number of transactions? Are acquisitions anticipated, meaning that flexibility and speed of response will become important? Think about how effectively the current structure will be able to meet those needs and compare this against a shared services approach.
4. What is the ‘burning platform’?
A ‘burning platform’ is a business-critical issue or risk that could cause significant damage to the business if not addressed. During steps 1-3 you will have gathered a number of reasons why the business may benefit from a move to shared services. Identification of a ‘burning issue’ amongst this evidence will be important in order to gain buy-in from the Board for the need to change. An example of a burning platform for a recent European SSC implementation I managed was meeting Sarbanes-Oxley compliance – this had to be done, and it would not have been possible to achieve this cost-effectively without a shared services structure.
5. Document the scope and successful outcomes
You won’t know at this stage exactly what the end result will look like (where the SSC will be located, how large it will be etc.) but you will need to define the scope of the SSC activities in order to be able to create an estimated budget. Think about what tasks or activities will be in and out of scope for the SSC. At this stage you should also document the anticipated successful outcomes of the SSC. You will have already established the drivers for the project, but in order to sell the concept to the Board, you will need to turn these into positive outcome statements. For example: "The shared services structure will… be 100% legal-compliant; have lower operating costs per employee; bring a reduction in headcount due to more efficient processes" etc.
6. Consider your project resources
Implementing shared services is a significant and time-consuming project which will require dedicated and skilled people. Do you have these resources internally, or will you need to hire in external consultants? This will have a significant impact on the up-front costs.
7. Assess the technology situation
Many SSCs are set up with the intention of bringing efficiency savings due to enhanced processes. However, enhanced processes are usually dependent on having appropriate IT systems in place and this is a factor that is often overlooked at the business case stage. Assess what systems are likely to be required for your SSC and compare this to the level of technology you currently have in place. Implementing new IT systems and even customizing existing ones can be extremely expensive and this must be factored into your estimated budget.
8. Calculate estimated implementation costs
There will be a number of one-off costs to implement your shared services solution which may include:
- Project team and consultants’ fees
- New building acquisition and setup
- Technology implementation and/or customization
- Recruitment of new staff
- Training of new and existing staff
- Redundancy payments
- Retention / project bonus payments
- Travel (if SSC is to be located overseas)
9. Calculate estimated annual savings and pay-back period
Whilst the key driver for shared services is not always cost savings, it will be important to demonstrate an annual cost saving once implemented in order to pay back the up-front costs. Costs savings may come from reductions in headcount, cheaper salaries and building running costs as well as reductions in error rates and legal issues. Centralised and consistent processes can also reduce the costs associated with auditing. Once these savings have been estimated, the pay-back period for the implementation costs can then be calculated.
10. Calculate costs of not implementing shared services
To supplement the cost savings in step 9, it is useful to think about what costs would be incurred by the business if it does not move to shared services. This is especially important when shared services is being considered in order to meet future business needs or changes. Think about what would need to be done in order to meet the drivers from stages 1 and 3 under the current structure and how much this might cost. Compare this to the anticipated cost of meeting these drivers via shared services and calculate the cost saving.
The business case produced at this stage will have many assumptions and some of the cost and savings estimates will be unsubstantiated. If approval is given in principle to the project, then the next stage will be to undertake a full feasibility study and produce a second, more detailed, business case based on real costs. Avoid the temptation to move straight into planning and implementation.
Typical outcomes from building an effective shared services business case:
- The drivers and benefits of shared services along with the ‘burning platform’ will be fully understood by the key stakeholders
- The implementation costs, annual cost savings and payback period will be transparent and made clear from the outset
- If the business case makes commercial sense, approval to proceed is likely to be granted.
- If shared services is not the appropriate solution, this will be apparent, saving significant wasted future investment.
Points of Discussion
Shared services centers (SSCs) are becoming increasing popular as a means of effectively providing support services to the business, particularly in HR, Finance and IT. This article gives 10 steps to do so effectively, such as Step 7, - ‘Assess the Technology Situation.’
1. Surely we have missed a few?! If you could three more stages, what would they be?
2. When building the business case – you need to gain evidence and reasons for implementing shared services – can you share any tips on the best way to do so?
About the Author
Stuart Hearn is a Partner at plusHR Consulting. Stuart has managed and advised on numerous business change projects including shared services, outsourcing, mergers, acquisitions and business re-structures. He has specific expertise in people management and change management, having worked both as a consultant and as an in-house HR professional. plusHR LLP is a specialist People and Change Management consulting, outsourcing and training organisation.