Silo-Function versus Multi-Function

Ed Martinez
Posted: 07/09/2012

Background

I spent the last several years of my career with BellSouth in multiple roles involving shared services. I had the privilege of being a major driver in creating the vision to design and implement an enterprise-wide SSC and ultimately served as executive director and president of the SSC. The new SSC, established as a separate legal affiliate entity named BellSouth Affiliate Services Corporation (BASC), went "live" in early 2000. The scope of services and organization continued to evolve into a multi-functional scope SSC, and, in 2005, it was recognized as the Best Mature SSC by the SSON in its annual US awards excellence program. In 2006, the center was recognized as a "Top SSC Thought Leader" by a global benchmarking association.

Multi-functional scope SSC vs. singular focus

Many organizations that brand themselves as shared services begin with a limited scope of services, perhaps related to a specific department or function. For example, limited accounting services such as the payables and payroll function might be centralized and report to a finance leader; or human resources might establish a centralized help desk and employee data management group, or the technology organization might centralize the management of projects undertaken by the various business units. These limited scope organizations sometimes do not evolve past their "process silos" and may not demonstrate many of the key attributes found in a successful multi-functional SSC operating model. This raises the question as to whether such an operation is a true "shared services business model" or merely a centralized functional organization.

Certain key attributes define not just a successful multi-functional SSC business model, but are common to other successful external businesses, too. As in any business, real success is defined by operating results!

Eight key attributes of a successful SSC

The eight specific attributes helped drive the BASC SSC to be recognized as a "top ranked" SSC, based on positive operating results, as measured by internal and external benchmarks. These attributes also helped drive significant integration across multiple functions within the SSC, and between the SSC and the business units. This was done without unnecessary administrative burden, and these attributes became embedded into the organization as part of its high performance culture. A discussion of these success attributes follows.

1. Multi-business unit leveragability

One of the primary objectives of adopting the SSC business model is to create economies of scale by establishing one organization to perform services for multiple business units, using common processes and technology platforms. This allows the SSC to perform additional functions and services at reduced incremental cost with increased quality and productivity. This is particularly true if the new scope of services have touch points, or handoffs, between a process within the SSC and a process outside the SSC. Examples might include accounts payable and purchase order, or payroll and time reporting.

There are also indirect process connections that could be considered for migration to the SSC. For example, HR recruiting & staffing processing could transfer to the SSC to integrate with the SSC’s payroll and employee data processing group. The SSC might also reduce cost and increase quality by integrating these processes; namely, by expanding the existing ERP platform to add modules that connect these processes more efficiently. The new functions being assumed by the SSC could also benefit from the common internal SSC support processes, at minimal incremental cost. Common support functions include project management, performance management, budget tracking, and facility services.

2. Governance

Successful businesses establish control oversight over their planning, prioritization and performance activities. This helps to avoid "silo focus" and/or conflicts of interests that could dilute optimal performance. SSC governance processes usually include the following.

  • Service level agreements - SLAs define the services, cost, timeliness and quality that can be expected from the SSC. SLAs should also define the roles and responsibilities of the business units that impact any part of the services delivered by the SSC.
  • Partnership forums, control boards and joint change management - SSC control boards and/or committees consist of members from the SSC and the business units. They meet on a recurring basis to plan and prioritize activities. For example, the SSC and the IT organizations usually form a "change control board" to identify and prioritize system program development and maintenance work. SSC leaders also meet with business unit leaders and establish leadership steering committees to jointly sponsor and provide oversight of new innovation being planned. This significantly enhances integration and change management activities across the enterprise.
  • Program Management Office (PMO) - Projects are performed by cross-functional project teams consisting of functional, system, and project management professionals. The PMO provides management oversight for the complete portfolio of projects and provides visibility via status reports.
  • Business reviews - Oversight of the SSC performance results is accomplished by conducting periodic business reviews with applicable corporate officers. These reviews focus on results captured by a balanced scorecard measuring customer satisfaction, financial performance, innovation, and employee development.

The governance activities discussed above enable these two organizations to act as one, in the successful delivery of services and performance results.

3. Discrete pricing

SSCs that run like a business might also benefit from discrete pricing and cost billing, in lieu of arbitrarily allocating cost to business unit customers. However, caution should be taken not to make the methodology overly complex or cumbersome. Consumption based costing entails assigning cost to an activity performed based on usage, or consumption, of that activity (cost per transaction). This unit cost, or price, could then be applied to the volume of transactions processed for a business unit to assign total cost to that unit. Both the business unit customers and the SSC can benefit from this methodology. It allows business units to influence SSC cost assignment by managing their volume usage more efficiently. For example, the business units might shift accounts payable manual invoice volumes to the lower priced purchase card volumes, thus decreasing cost assigned. The SSC is motivated to properly manage costs and/or to generate new volumes via increased services and customers in order to avoid price increases. In fact, the SSC will drive price decreases, or rebates to customers, as it excels in managing both cost and stimulating new services growth.

4. Balanced performance focus

The use of a balanced scorecard is widely recognized as an effective tool for driving high performance in any business. The concept is simple. Instead of focusing on only one dimension of results, such as financial results, the organization balances its focus on four key areas of success: customer satisfaction, financial results, innovation, and employee development. A balanced scorecard is easy to establish for a true SSC, since it should already be collecting important key performance indicators. An example of performance indicators includes: customer satisfaction survey results, cost performance via internal and external benchmarks, project milestones met on-time, and employee development and productivity metrics. (See also "Designing Meaningful Performance Metrics for Shared Services," Shared Services News, Vol.5, Issue 10, February 2004.)

5. Continuous benchmarking

Benchmarking is important to any business that wishes to stay competitive in cost, quality and overall performance compared to other organizations, internal or external. External benchmarking helps to define where an organization stands in performance compared to external organizations. Internal benchmarking helps define where an organization stands in performance against like activities, or time periods, within the organization. The benchmark data also defines "top ranked" performance standards. This enables a business to incorporate these standards in their performance scorecard to drive high performance. Ongoing participation in benchmarking forums across management levels stimulates a broad base of new innovation. (See also "Driving Decisions, Direction and Results Through Benchmarking," Shared Services News, Vol. 6, Issue 3, May, 2004.)

6. Control focus

A proper business control framework reduces risk, and thereby avoids costs that might be incurred if such controls were not in place. This is particularly important in the SSC environment, since weak controls in transaction type processes within the SSC would likely increase error rates, jeopardize the integrity of financial reporting, and create a higher probability of fraud. SSCs that develop and maintain a deep control focus are in a position to treat the control framework as a priority, while balancing the cost/benefit to the enterprise. Successful SSCs develop effective and efficient controls leveraging automation on things like user procedures and automated compliance alerts. Effectiveness of controls can be measured by audit results.

7. ERP web-based software and vendor software

The creation of economies of scale from multi-company processing on common technology platforms is critical for a business, and particularly an SSC, in term sof cost savings. Also, use of web based technology, workflow, and automated alerts functionality enhances the quality and speed of processing and tightens the control and compliance environment.

8. Multi-year planning

Looking into the future and developing strategic plans to create added value, usually for a three to five year time period, is critical to the success of any business. A shared services strategic plan might include initiatives such as additional automation, process re-engineering, enhanced controls, organization redesign, enhanced skills, outsourcing, and increasing scope of services. A cost/benefit analysis should be performed on these options across all processes, and initiatives prioritized based on value, payback and need. Optimal projects can then be submitted to secure conceptual agreement and funding prioritization. The final initiatives agreed upon then become the SSC strategic plan.

Summary

How successful an SSC has been in adopting these attributes can be determined by answering two simple questions:

  1. Are these attributes embedded in the SSC’s organizational culture and are they perceived as positive?
  2. Do the performance operating results of the SSC consistently exceed expectations, as measured by internal and external benchmarks?

If the answers to these questions are "yes", congratulations! If the answers are "no", there may be improvement opportunities worth exploring.

Ed Martinez
Posted: 07/09/2012

member

Join for Free

EVENTS OF INTEREST

United States
February 25 - 27, 2018
The Peninsula Manila, Makati City, Metro Manila, Philippines
March 18 - 21, 2018