Optimized Shared Services Target Mix of Horizontal/Vertical Model
Everest calculates that, world wide, there are now over 1,700 global in-house centers (GICs), or shared services centers. As the model has matured across multiple dimensions – service delivery sophistication, capabilities, and scope – so, too, have the organizational models for GIC governance and delivery management.
Most enterprises begin their journey with a simple vertical organizational model, in which the GIC replicates the business unit / line of business / global function structure of the parent. This model is simple to implement, and offers good control by the parent / business unit / line of business / functional stakeholders, as well as high intimacy with the business units themselves.
As GICs become more complex and face delivery optimization challenges within the vertical model, they may move to a horizontal model where the GIC structure replicates the functions / services / capabilities within the business units. This structure enables more efficient leverage of resources and provides opportunities for process optimization/standardization as well as some efficiency gains.
Some enterprises have adopted a hybrid model based on a matrix organization approach, which realizes the benefits of both the horizontal and vertical models. However, because this model is based on dual reporting, it is highly complex to implement and may drive excessive overheads, power battles, and diffused accountability. While the model has real benefits, it must be managed carefully.
The most evolved organizations – those whose GICs are well into steady state – have adopted a mixed model, which is a variant on the hybrid model. The mixed model recognizes that different functions may have different needs, such as higher integration with end-user customers, greater standardization, greater efficiency, etc. This model enables the coexistence of the horizontal and vertical models, while retaining flexibility for specific functional needs.
For a detailed analysis of each of the models, see: Organization Models for GIC Governance – One Size DOES NOT Fit All!