Low-Cost or Value-Adding? How do Shared Services Truly Stand Out?
Most successful organizations have clearly articulated strategies and business models in terms of their customer service proposition. A clear, defined approach is not always evident in the way organizations source and deliver internal support services. Options range from insourced, onshore models, to outsourced, offshore models, with most organizations choosing one strategy or the other.
I have long believed that there is a third way, a middle ground to the various sourcing options, which delivers financial benefits, an improved customer experience and exciting opportunities for internal staff to fulfil their career ambitions.
To launch this proposition, two factors are vital: Firstly, there has to be a leader of the function who passionately believes that shared services will make a material difference to the overall performance of the organization. This person will not only champion the cause but will, as for any business unit, develop a sustainable business solution with a time horizon of several years. The experience, competency and entrepreneurial outlook of this leader needs to dovetail seamlessly with the second essential element: iron commitment and visible support from the corporate executive team. The most senior business unit executives, from the CEO down, must not just want this to succeed, they need to truly believe it will succeed, and must be able to articulate the benefits to the organization.
Having established these prerequisites, the organization needs to agree, quickly and clearly, the scale and scope of the work the shared service function is going to be responsible for. At the outset this may be single- or multi-functional, and will typically include finance. There are a number of other key elements to creating and delivering a successful shared services model, but in this article I am going to focus on the specific elements that I believe create real economic value for the organization.
Whilst SSCs are rarely profit centers they should behave with a strong commercial bias, optimizing corporate resources. As a leader, I have always encouraged my team to think of the shared services center as a small to medium sized company that needs an executive board to lead and manage effectively. This board should have a CEO, a finance director, an operations director, a customer services director, an HR director and a business development director. But the right structure is only part of the success. Recruiting the right people into these roles, and moulding them into a high performing leadership team, is far more important. The team also needs to create and communicate a vision, a mission and values to the business: where is it going? How will it get there? These are essential elements for success.
Back in 1997, I joined the internal shared services center of Arthur Andersen in the U.K. The performance of this internal operation was not what you would have expected from such a prestigious organization. In fact, it was in dire distress, having seriously broken down in terms of processes, people and elements of its technology systems.
How bad the situation had become is best illustrated by the CEO’s comments when I took the rescue plan to the board: "Nobody doubts the need to take decisive action, or indeed the need to invest. The big question is whether the patient is so sick they will die on the operating table, however skilful the surgeon may be!" After a further review, the board decided to accept the plan, agree the patient was strong enough to survive, and nominated me surgeon! It is a matter of public record that their judgement was correct. Over the next four years, the center grew from supporting 5,000 customers in the U.K. to supporting 40,000 customers across 60 countries on all five continents.
Not everything went as planned. We did start with the two elements I highlighted above: a corporate executive team committed to owning and supporting the venture and a leader passionate about making a real difference and creating value.
Case Study: Arthur Andersen
Once given the go-ahead, I moved quickly to establish the organizational structure and appoint the appropriate people into that structure, with clear lines of responsibility and accountability, and with defined objectives. We invested time in creating high performing teams, in developing like-minded thinking, and in establishing the rules as well as the messages for our teams and the business.
Vision: To provide excellent business services which add value to our customers.
Mission: We will provide shared services to EMEIA, partnering with the practice and enabling the businesses to exceed their clients’ expectations. We take pride in being a Center of Excellence, achieving best practice through people, technology and processes.
- Customer Focus
- Investment in People
- Co-operation and Teamwork
- Responsibility and Accountability
- Openness and Honesty
We engaged all SSC staff in agreeing the values and made it clear these were the values of the function, not personal values we were imposing on our people.
The other clear message I wanted to convey were that this was a long-term, sustainable solution explicitly aimed at creating value and improving the customer experience; but we were not setting ourselves up to become the lowest cost supplier.
Investing in Success: The root cause of the problems in the old shared services center had been a lack of investment in people, processes, technology and management. The rescue plan now provided me with some capital to invest and I used this in three significant areas:
People: There had been an absence of customer service in the old center; not because we had bad people, but because we had never trained them or provided management support on what good service should look like and why we should provide it. We now launched four customer service and people development modules that we rolled out to everyone in the center, simultaneously reinforcing the first two of our values (Customer Focus and Investment in People).
Processes: Existing processes were difficult to follow as they were not aligned to a single common policy across the group. Virtually all transactions were recorded on paper and, once approved, sent to the service center for data entry. The center had become a huge typing pool, trying to support ill-defined processes and out-of-policy customer behaviors.
Technology: Technology represented a quick win and the fastest route to visible change and improvement for our customers. It was abundantly clear to me that we had to eliminate all non value-adding activity from the center (most of what we did!) and automate data entry, thus moving it from the users’ workstations to the central systems without manual intervention. We established some fundamental principles for our technology investment and identified the constraints.
- Right first time
- Data validated at source
- Data only entered once
- Minimize manual intervention
- Low build costs, minimal maintenance and support costs
- All data had to be entered into the global mainframe system in Chicago.
- The U.K. IT infrastructure was good (for 1997) but had limitations (bandwidth and resilience)
Three months later we incorporated three bespoke applications written in Lotus Notes Databases or Visual Basic that sat on every member of staff’s workstation and supported the most heavy-duty elements of data entry. This was not an overnight success for everyone, and was hard work, but we succeeded massively in delivering our principles and improving the experience of both users and SSC staff.
Moving Up the Value Chain
Very quickly, we had transformed the operation and eliminated large volumes of data entry. As a result, we had excess capacity in the SSC and had to downsize. Whilst this was a difficult experience, other dynamics were also going on in the center.
The strategy of investing in people, processes and technology was presenting new value-adding opportunities. Along with the improved customer service culture it was clear that the operation needed a "front of office" desk with greater customer service competencies to deal efficiently with customer complaints and queries. In addition, staff from the center who had worked on the new processes and applications had developed new skills and knowledge that made them process experts in the organization, not just in the Centers of Excellence. They now had project and change management experience that was transferrable to other areas of service delivery ripe for improvement; and they were thirsty for change — for managing, supporting, and even driving change in other areas of the organization.
At this stage we also had to make a major decision: either to bank the savings gained by eliminating the work (i.e., make substantial redundancies) or invest the savings in future value-adding activities across the group.
The SSC’s service offering had evolved to adding value, with a clear distinction between the Operational Teams, the Customer Service Teams and the Centers of Excellence. The latter were providing an internal consultancy service to the group by driving the continuous improvement agenda and acting as agents of change. Almost exclusively, these teams comprised exactly the same staff who had been part of the original distressed operation but who now possessed newly-found skills. As individuals, they had developed way beyond their original expectations and, because they were "home grown" talent with little or no formal qualifications, were contributing significantly more for less money than an external counterpart would have cost. This value-adding component took time to nurture but was one of the most satisfying elements of the program.
The Corporate Executive Team decided to continue investing in the SSC which now had the remit to identify value-adding opportunities across the group.
At this point we really started expanding on many fronts:
Geographically: The existing automated services provided for the U.K. were now offered as a fully managed service to other countries across EMEIA. What started as an acorn rapidly grew into an oak tree. At the time of the demise of Andersen, the U.K. SSC was providing fully managed services to 40,000 users across 60 countries. Staff from the U.K. SSC who had become process experts were deployed to visit these countries, undertake due diligence, assess their readiness for change, and then actively manage the migration.
New Services: The U.K. SSC which had previously been focused only on finance services now added HR services to its scope. This required recruiting some new functional competencies but was predominately covered by retraining existing staff.
Customer Service: The "front of office" team was now operating with a single point of contact and an effective IVR system. A customer contact management system was used to record, track, monitor and report all customer calls. The data was used to analyze customer problems and produce monthly action plans based on feedback captured during the contact. Monthly customer satisfaction scores were published on our intranet. We now had our rifle sights, and not a blunderbuss, on the business needs.
Middle Office Services: Some of the activities previously performed in the business units and regarded as being more skilled, or "business generation" focused, were reviewed to assess the benefits of consolidating within the SSC. As a result, a number of new activities were migrated to the SSC. For example, all set ups and changes to client data was moved from the country to the SSC to ensure better business control and improved consistency for management reporting. (Incidentally: This was contrary to other migrations and automating activity as it required a specific and additional manual intervention to apply knowledge, consistency and judgement to the process.)
Exporting Experience: One of the regional SSCs in the Nordics did not have the critical mass to justify expensive dedicated senior management, but by seconding myself three days a fortnight, I was able to share the solutions of the U.K. After 12 months, the Nordic operation was being supported almost exclusively by the U.K. team and the subsequent decision to close the center in Oslo and move the work to the U.K. was affected with the minimum of disruption and cost. An annual saving of £500K was achieved.
I was able to replicate these lessons in other organizations, most recently at BAA. There, the SSC, located in the West of Scotland, developed value adding activities via three main strategies:
1. Increased scope of existing financial services
The service offering of the finance SSC was increased when the following activities were added:
- Group consolidation accounting
- Group statutory accounting
- Tax compliance
- Fixed asset accounting
- Business unit management accounting and reporting
- Treasury and cash flow forecasting
The necessary increase in headcount resulted in the recruitment of qualified and part-qualified accountants, changing the cultural and working environment within the SSC.
2. Creation of a new functional shared service
The decision to create an HR shared services offering resulted in the Glasgow operation expanding significantly to accommodate this. The headcount in the HR SSC rose to some 100 staff, and resulted in recruiting qualified and experienced HR professionals.
3. Move into middle office.
The "front of office" (helpdesk) team identified an opportunity to leverage its people skills and telephony platform to consolidate activities being performed in seven separate locations across the U.K. The group’s engineering fault reporting and scheduling of all reactive and planned preventative maintenance was consolidated into the SSC operation. Having demonstrated significant cost savings and quality improvements, the team focused on the group’s contact with passengers and airport users. The airport-based help lines were all migrated to the SSC — again creating material cost savings and quality improvements. Business managers were now also able to receive reliable management information, for the first time consolidated at company level.
The net effect of these consolidations was to increase the headcount in the SSC from 125 to 300 over the two years of migration, whilst saving the group at net £4.3m per annum.
If I had my time again I would give greater consideration to the early structured involvement of a governance group. In fast moving environments where the corporate executive has stated its objectives, it is all too easy to get totally focused on executing the changes. There is a positive aspect to this in terms of results delivered quickly, but sometimes a particular customer group may initially be less than supportive of the changes. In my experience, particularly at Andersen’s, this was overcome by the technical competence and relationship management skills of the Business Development Team and the credibility and experience of the SSC Leadership Team. Real engagement (and therein often lies the problem; but that is a whole separate subject) from senior management recognizing their responsibilities would have eased some of the paths.
So, What Does "Great" Look Like?
For me, success occurs where a true partnership is created between the business customers and the shared services providers. I have witnessed such success many times, but it does truly require the alignment of business leadership, culture and SSC delivery teams in an integrated solution that focuses on value creation, not solely cost reduction, to deliver business support.
The insource vs outsource, onshore vs off-shore debate will continue, no doubt, in a healthy tension. I firmly believe that both have a place and that it is the responsibility of the organization to determine the appropriate model. This decision can, and should, be heavily influenced by a shared services leader who presents a compelling case to deliver a captive, onshore service that adds value to the organization by moving from a low value commodity product, to a high value service.
It’s up to you! Stand still with a low value, date entry, commodity, in a relatively high cost labor market and I can only see one inevitable outcome. Be prepared to be off-shored, and probably oursourced, to a low cost location.
Trying to differentiate yourself as a shared services provider for transactions processing and data entry is likely to result in disappointment. Your errors will be noted but very, very rarely will you be recognized for getting it right. I am certainly in this camp as a customer: in my career, I have received in excess of 300 monthly salary payments and never once phoned to thank my payroll department for getting the right amount, into the right account, on the right day! Get one element wrong, though, and they’ll hear from me very quickly.
Positive differentiation comes from offering great customer service that adds value to the user through a positive experience, and adds value to the corporate through reduced—though not lowest—cost, improved quality and business control. That is a sustainable solution.
It also creates a fun place to work.
Jo Hart is a qualified Chartered Accountant who spent eight years in the profession before leaving to undertake a number of roles, firstly as a finance manager, and more latterly as a general manager in an executive role. He has 18 years involvement with creating, managing, leading, growing and even closing shared services centers. His original roles were exclusively focused on providing finance services but this soon broadened to include HR. More recently, he managed multi-functional services offering contact centers, procurement and facilities management services. Previous roles included BAA and Arthur Andersen.