Strategy questions from inside a captive shared services centre
If you are in the business of managing any large diversified organisation in the last ten years, you would more likely than not, have been asked to consider either setting up an in-house shared services centre or to outsource functins like payroll, procurement & payments, human resource administration or other common corporate services. We at the Singapore Public Service started this journey 4 years ago and this is was our experience.
We have learnt many things through the process. We have had our fair share of successes and difficult times. But first, a little bit of background about who we are. Vital.org was formally launched in July 2006 as a captive shared services centre for the Singapore Public Service, serving initially just shy of 20 agencies in areas such as payroll administration, HR, finance (primarily dealing with vendor payments) and learning & development services. Today, Vital.org serves over 100 distinct government agencies in the original service lines and new areas such as asset and travel management. Now in 2010, over a million transactions have passed through our hands, we have hired some 450 people and currently serve a population of some 80,000 public servants.
According to results from a KPMG outsourcing survey released in July 2010, which covered 280 senior company executives across Asia, Singapore came second as a popular location for shared services at 29%, followed by India at 25%. When we compare ourselves in our own benchmarking with other captive shared services centres, we find that we are all fairly unique. We have all evolved to our present situations through the strategy-choices that had been made in the past.
Captive Client or Client Choice Dilemma – Who do we want to serve?
One of the earliest choices in the design of a captive shared services centre is whether the client units ultimately have a choice in how much to outsource, what specific processes to outsource and who to outsource to. Let us call this the "Captive Client or Client Choice dilemma". Like many large diversified organisations, the Singapore public service is organised into smaller units, in our case mainly Ministries, Statutory Boards and Organs of State. These are run with a great deal of co-ordinated autonomy. If you have a diversified business, you can appreciate the complexity. Some organisations were able or prepared to mandate the transfer of services from all the different client units to a shared services centre. This mandate, where given, would remove a level of uncertainty relating to staffing of the centre and the expected gains from demand aggregation (commonly known as economies of scale). Where such a mandate does not exist, different client units would sign on at different times or permanently retain specific processes or become free to choose between different service providers. The concept of "client choice" creates far reaching implications for the operations of a captive shared services centre. It means that the shared services centre must earn its place and not just inherit captive business.
Vital.org was created without such a broad mandate and hence we earn and lose business year on year and have to learn from each episode. In time, we expect this would make us more robust and client-centric.
Shared Services or Contract Services Centre – What do we want to be?
Another key choice a shared service centre has to make is in the level of services she provides. Let us call this the "shared service or contract service centre dilemma". We understand that most shared service centres begin with many months or years of harmonization of processes so that clients come on board with an understanding that they could be signing on a harmonized process potentially different from their existing one or more importantly that they may cede some control for making future process changes, which would then have to be agreed upon by a community of peer clients.
If you are running a large diversified organisation, there are bound to be differences in both expectations and performance of processing accuracy, timeliness and volumes. In an operating environment where clients can elect to use our services or not, one would assume that the clients would only come on board only when they have weighed the cost-benefit. In theory, a shared services centre may start off lower in the quality of service ladder, work itself up the learning curve, gain even greater economies of scale and acquire more clients along the way. In our history, we did not taken this evolutionary path.
Vital.org started at the onset with the promise that we would take over administrative services "as-is", effectively promising a seamless transition of services upon switchover. It afforded us speed in starting up a shared services centre. It was not a wrong decision. We understand that some shared services centres never get out of the harmonization stage. That said, we believe we may be in the minority of captive shared services centres in taking over services "as is". The result is that the harmonisation efforts would begin later, after the centre has begun operations. The key result is that for many processes, harmonisation may not be possible for any number of policy, system or legal reasons. The effect is that the shared services centre may then effectively be running a combination of shared services and unique contract services.
Growth Strategy – Where & what next?
Over the last four years, we have had requests to grow the business in a number of ways from our clients. Among them have been calls to move to start providing citizen-centric shared services, i.e. moving from backroom corporate services to front-end licensing and delivery of public services. There have also been calls for expansion of our services to other common corporate services such as managing travel or physical asset and inventory management. Certainly, we have also taken on board more clients in existing lines of services. What is interesting from a strategy viewpoint is that these requests have made us do a fair amount of soul searching as to what businesses we should be in, what competencies we should build and what difference to our clients we can make. At the end of the day, for many of the staff who had been with us since the beginning, the ride, though sometimes demanding, has been an eventful and enriching one.
About the Author
Clarence was appointed as the Chief Executive of Vital.org on 2 January 2010.
In the public service, he has served in the Economic Development Board in both Singapore and in the United States where he was Director of the San Franscisco Centre, the Singapore Land Authority where he was Director of Land Business & Management, and the Ministry of Law, where he was Director of Strategic Planning. During his career, he has served in areas of investment promotion, business & operations management, planning & co-ordination, and legislative & policy reviews.
He holds both a Bachelor of Science degree with High Honors and a Masters degree in Electrical Engineering from the University of Illinois at Urbana-Champaign and an MBA with distinction from INSEAD. He is also a certified Financial Analyst™.