What Makes Shared Services Unique?

Carmen Wey

Shared services are an increasingly common organizational response to the pressures for more efficient service delivery.

After the boom years, companies will now be looking for organization models to enhance productivity. In the current global economic environment, characterized by downsizing, uncertainty and recession, global operating companies with mature product lines and increasing investment costs in R&D, marketing and sales and distribution will be forced continually to improve their productivity. With this turmoil, while some companies will prefer to opt to centralize functions, streamlining the services on offer hoping to achieve cost savings, many companies will tend to move to an outsourcing model under the supposition that an outside vendor can provide products and services faster and less expensive (at least in the short term). Some of them will try to decentralize functions to get rid of centralized, non-essential activities, and to concentrate on key issues, thus achieving financial savings.

The shared services model is a collaborative strategy in which a subset of existing business functions are concentrated into a new, semi-autonomous business unit that has a management structure designed to promote efficiency, value-generation, cost savings, and improved service for the internal customers of the parent corporation. But introducing shared services purely to cut costs is limiting and short-sighted.

Shared services is, above all, about customer satisfaction: this should be the overall goal and, ultimately, shared services needs to be run like a competitive business.

Shared services acts like a business competing in the open market. The business units created under the shared services model are not run like monopolies, as they tend to be under the traditional centralized model; this traditional centralized business model often fosters an entitlement mentality among its employees, resulting in a "take it or leave it" attitude. Instead, the shared business unit is run more like an independent business.

Creating shared services cannot be achieved overnight and is not a panacea with "copy & paste"; there is no one-size-fits-all, risk-free business model. Shared services needs deep insight, know-how and strong business acumen.

Implementing shared services is a dynamic, constantly evolving process - when well implemented - and the reported benefits are substantial.

What is Shared Services?

  • Shared services creates a dynamic internal marketplace for services
  • Shared services requires an understanding that the role is to provide a service at cost, quality and timeliness that is competitive with alternatives, to a clearly defined group of clients
  • Shared services is not the same as "centralized functions" – the difference is the principle of the marketplace

Don’t confuse Shared Services with Centralized Services

  • Centralizing functions is a strategy in which common functions are combined into a central department or division in order to achieve as much profit as possible from the value chain

  • A centralized organization controls the staff resources and decides on which services and quality level to offer to the business units. The centralized function has a monopoly over one or more services and is run as a normal expense/cost center
  • In a shared services environment, business units are customers. Like a business competing in the open market the customer is free to chose the services from whom to buy
  • A shared services operates as a Revenue Center or Profit Center, regulated according to the laws of demand & supply

The Rules of the Marketplace

  • In a shared services environment, business units are customers. Like a business competing in the open market the customer is free to chose the services from whom to buy.

  • Services are owned, paid for and directed by clients; the business being served
  • The focus is on what clients wants and need, not on what services the group wants to provide
  • Clients and service providers share the opportunity (after e.g. 2 years transition period) to source services outside
  • Clients are responsible for managing their demand for services and working with the service provider to lower costs

Benefits of Moving to HR Shared Services

  • Improved customer satisfaction – getting products / services at the level, quality, costs that clients are willing to pay for
  • Business divisions and line management can focus on what they do best – running their business
  • Reduced overall costs to the organization due to reduced duplication of services from consolidation and elimination of non-valued services

Uniqueness or Superlatives in Shared Services

  • Service culture: Treat business units like customers, offering services they value and charging for each. The staff in the business unit has to compete for business, like a typical company in the open market
  • Price transparency: each service has its price and the business can determine how much service it wants
  • Business management: manage the service like a business, not has a fixed cost
  • Market responsiveness: provide the services the business want, not the levels staff think they need
  • Mind-set: entrepreneurial spirit - more motivated employees foster more effectiveness and efficiency
  • People: From transactional processors to consultative knowledge-workers. Innovation is job number-one

Success is often associated with a tendency to become conservative, to avoid risk, and to rely on proven ways of doing things. These inertial forces hold organizations hostage to their distinguished pasts and stunt innovation and change. Without the creative tensions associated with clear performance or opportunity gaps, organizations become stagnant. They reinforce the status quo and consequently become highly vulnerable in the face of long term change.

Shared services is an innovative model, a valuable corporate strategy to support the internal competitiveness of companies acting in high competitive global marketplaces. But shared services is not only a fancy innovative model and a strategic approach; innovation is also about execution, about getting it done. Strategic clarity is not sufficient. Many competitors have similar visions and strategies. Success comes not from the articulation of vision, strategy, and objectives, but from their execution. To succeed, managers need to build organizations that are capable of accomplishing their strategic objectives more rapidly than their competitors. This requires that they build organizations to get today’s work done more effectively and to anticipate tomorrow’s discontinuities. Innovation results from creative ideas successfully implemented. Competitive advantage is as much about execution as it is about strategy.

"The best shared services are those that are never discussed"