Virtual Shared Services – is it a Possibility?

Editor's note: I recently reread this article by Richard Alvarez that we posted online last year and felt that his comments regarding the launch of domestic (India-for-India, China-for-China, Malaysia-for-Malaysia) shared services were even more relevent right now. I am reposting it here. Shared Service and Outsourcing has been a huge success in the last two to three decades. Many service providers initially concentrated on the labour arbitrage and key accounts of multi-nationals to move their processes to offshore destinations like India, east Europe, LatAm, etc. With that arbitrage opportunity now optimized, the next target is moving the domestic industry to shared services, especially within the Indian context. The domestic industry is characterised by three important characteristics: First, the traditional businesses (though one may debate whether some industries like cement would be traditional) like textiles, chemicals, cement, metals, etc. are multi-located, in low cost and aften remote locations. Here, the infrastructure cost is pretty low and is already sunk, without much opportunity cost. Even the people cost engaged in support functions are relatively lower. Second, the scale benefits are not huge as the transactions have high value, rather than volumes. Third, the units have been in existence for some decades. This has led to people with high seniority carrying out transaction processing for years – and their mobility is greatly restricted. In such cases the traditional approach to Shared Services is not practical. Taking the same route as for conventional SSC and Outsourcing, where labour and infrastructure arbitrage exist, does not work. There has to be a radical change in the approach. [eventpdf] Matrix forms of management have been in existence for quite some time, even in traditional organizations. Though multiple reporting – dotted line and hard line – is not the optimum form of reporting, it has value if used with proper checks and balances. Although it is more suited to people higher up in the organization than to transactions processing staff, nevertheless, it works. Coming back to the radical approach to Shared Service for traditional businesses, this approach – often referred to as a Virtual Shared Services – could work: First, since the physical proximity to business is not important, this means that, with technology (like ERP, Workflow and DMS), a person sitting in any location can process transactions of any location. So, Instead of centralizing all processing staff at one location you can leverage people from where they are currently based. But the way they work, who they report to, what they do, and how they are measured will change. They would administratively report into the local heads but would functionally report into the SSC head sitting in a central location. There definitely would be an issue in parity among SSC and other staff, to account for. Second, all other aspects of Shared Services remain the same as in a central SSC. While the technology cost would remain same as in the centralized SSC, the benefits are basically three fold: Extract efficiency benefits of 10-15% Eliminate Infrastructure cost of setting up new centre since the existing location have capacity and it is a sunk cost anyway (as it is a plant). And the biggest of all: Eliminate change management efforts and cost – which include attrition, severance, etc. This approach needs to be time tested before it gathers momentum. I believe it woudl work well. Thoughts invited! [Note: if you liked this article, please use the buttons on the left side of the screen to share it across your LinkedIn groups – and contribute to this discussion by posting your thoughts in the comment section, below. Thank you for being part of SSON's community - Barbara Hodge]

Virtual Shared Services – is it a Possibility?

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