Optimized Governance

SSON News and Analysis
Posted: 07/09/2012

Leading companies have recognized that a solid governance framework is essential to an optimized shared services organization. It serves to drive the partnership between the shared services group, key stakeholders, and customers. Governance defines how decisions are made regarding scope, breadth of services provided, delivery, and how the operating model is managed. 

Regardless of the maturity level of a shared services organization the complexity and challenges posed to governance structures is increasing.  As companies expand their operations and subsequent shared services footprint in terms of geography and services the governance model, and processes, must adapt to the changing environment and new competitive realities.

Governance Today

There is no clear best-practice governance structure for companies to adopt. Companies have several different governance structures to choose from and this decision can have a lasting impact on the organization.  Companies must adopt the structure that best fits their organization, culture, strategy, and implement solid governance elements around it.

The adaptation that occurs is evident in the maturing process organizations go through when transitioning from a start-up to an operational structure. During the development and implementation stages of their shared services operation the majority of companies adopt the traditional governance structure of reporting through a senior executive (Figure 1).  However, the hybrid design with the combination of a traditional reporting relationship with some customer involvement is also prevalent with 35% of companies utilizing that structure during the start-up period.

Governance Fig 1 

Once shared services is fully operational, the hybrid governance structure that includes significant customer involvement is highly adopted with 47% of companies utilizing it. The traditional reporting structure is in place at 39% of the companies, while just 14% utilize a customer council to provide oversight to the shared services organization.

In support of the respective governance model companies implement a variety of process elements to support the overall effectiveness of the shared services organization. These elements include service level agreements, performance metrics, and customer liaisons (Figure 2).  The intent of these elements is to formalize quality decision-making, ensure that the voices of stakeholders are heard, and to provide a consistent approach through which shared services functions and processes are effectively identified and implemented. 

Governance Fig 2 

Challenges with Current Models

Utilizing the results of a recent survey with leaders of shared services groups three aspects emerge in terms of the challenges organizations are facing with their governance models today (Figure 3).

Governance Fig 3 

Governing Body Support

The first challenge is found in the level of support from the governing body. 41% of organizations report receiving limited to no support from the governing body in terms of oversight or direction. As with any oversight association, it can be difficult to deal with such distractions as competing priorities, business unit requirements, and time to truly understand the issues facing the organization.  However, the impact is a shared services group that is not optimized and potentially not focused on the right priorities. The solution is not mysterious in that in most cases the governing body does not clearly understand their role and impact. They are looking to the shared services organization to identify, recommend, and drive actions given they are closest to process.

Customer Connection

The second challenge is in achieving a strong customer connection to drive service level results and process compliance.  Shared services organizations continue to experience difficulty in monitoring and communicating service performance levels to customers. This results in the shared services organization not knowing where to focus service improvement efforts, and creates the potential for accountability and responsibility issues at the business unit level. Unless business units trust the shared services organization will perform as expected in terms of quality, process, and timeliness then they may never assume their share of accountability and responsibility within the governance model. Lastly, the quality of the relationship between shared services and the business units it supports has varied within the governance process.  Interestingly, a large percentage of companies indicate that they have an excellent relationship with business unit leaders, but only a small number claim that is the case with business unit operational contacts.  Clearly, there is an opportunity to strengthen these types of relationships.

Consensus Decision Making

The third challenge involves removing consensus decision making from the overall governance process as this creates a significant barrier to continued improvement. The positives of this type of decision making are that it is inclusive and allows as many stakeholders as possible to participate. Facilitated in the right way, the process can work. However, given the consensus decision process seeks the agreement of most participants, and the resolution or mitigation of minority objections the results are usually less than optimal. Not only is the process more time consuming, but also organizations will typically experience preservation of the status quo, disruption, or the famous Abilene Paradox resulting in decisions counter to what is right for the business.

Future Governance Challenges/Opportunities

In addition to existing governance challenges, as shared services organizations mature and expand in terms of geographies served (regional and/or global) and the services provided the complexity of the governance structure and processes will increase. Organizations can expect to experience continued communication opportunities with customers and even within the shared services organization. Shared services and outsourcing combinations will require companies to adjust their current governance model to support and drive the necessary process improvements and oversight. The potential does exist, as with some companies today, that organizations will have to manage multiple outsourcing or joint venture relationships. The addition of stakeholders from acquisitions or service expansion will require a review of the Governance Board structure and processes.

Though the challenges are significant the opportunities for advancement and value are just as noteworthy.  Those organizations that diligently work to evaluate and refine their governance structure have the opportunity to become a strategic partner within the business to drive innovation and process improvement guided by the governing body.  In a recent interview with Mckinsey Quarterly, Filippo Passerini, head of global business services (GBS) at Procter & Gamble (P&G) described his organizations transition from internal service provider to strategic partner. GBS played a key role in the speedy integration of Gillette, which P&G acquired in 2005, and has emerged as a strategic partner with the operating units of the global consumer products group by providing innovative solutions in consumer and customer interactions and in product development.

Governance Practices for the Future

Leading companies striving to build strategic partnerships between the shared services and the business units establish a governance mind-set throughout the organization as a foundation for achieving business success. They develop a holistic view which begins with a commitment to elevate governance to a level of strategic importance and not just as a required task.  They see governance as a means to process improvement and as a strategic asset in identifying future value opportunities, creating innovation, and successfully mitigating future risks.

Where companies must start is by evaluating their current governance model to assess the maturity of the enterprise. This is necessary to adjust and match the governance structure with the service offerings and customer service levels as the organization grows.  Companies should view this as a "health check", and even consider including this as part of their regular internal process audits. The mistake companies can make at this point is in over-engineering the process. A pragmatic approach with a basic structure and guidelines can achieve impressive results.

In terms of ensuring governing body participation, oversight, and direction shared services organizations need to ensure member roles are understood.  Besides developing a standard governance charter with clear guidelines and issue resolution procedures, the shared services group may need to take the initiative and actively reach out to members to get them engaged. Another practice companies can adopt to increase engagement is to rotate governance membership, much like a board of directors, and present it as a growth opportunity rather than a requirement.

Leading companies are figuring out better ways to communicate with customers as the complexity increases to improve the overall relationship. Some organizations have established customer councils as a way to fully connect and drive improvement. Others have instituted regular review cycles and are distributing "flash reports" of performance levels. Still others have focused on developing a structured communication plan that emphasizes providing the proper information to the correct parties at the appropriate time. In essence these organizations are segmenting their customers and tailoring their communications based on the role of the receiving individual(s) from decision maker to true customer.

Lastly, where companies can find success in managing and responding to changing environments and complexities is by establishing Partnership Agreements rather than detailed Service Level Agreements. Using Partnership Agreements allows organizations to adopt a problem-solving approach and the flexibility to adjust service delivery according to specific business unit needs while maintaining better performance targets. 

Summary

Leading organizations establish a form of governance and management to create an effective shared services environment that balances customers, stakeholders, and operational management. As companies expand their operations and subsequent shared services footprint in terms of geography and services the governance model, and processes, must adapt to the changing environment and new competitive realities. Complexity is going to increase, as well as the challenges. Those organizations that continue to consider governance a strategic asset, evaluate their process, and who update their model to meet changing conditions will be successful in the future. 

About the Author

David Lambert leads Clarkston Consulting’s Strategy Center of Excellence with responsibility for developing methodology and intellectual capital in Business, Operational, Information Technology, and Human Capital Management Strategy. He has more than 17 years of business experience with a strong background in both industry and consulting. He has significant experience in business and IT strategy development and in helping drive company-wide operational improvements. He has successfully designed and implemented strategic initiatives for global Fortune 500 clients across multiple industries and functions.

Contact: dlambert@clarkstonconsulting.com
Web: www.clarkstonconsulting.com

SSON News and Analysis
Posted: 07/09/2012

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