New Thoughts on the Age-old Debate: Make or Buy?

Planning to start a Shared Services for your organization? With so many things to decide as part of your Shared Services Business Case, one of the first and the most difficult decisions that you need to make is whether to build an Internal Shared Services Center or to outsource it. Being a Navy person at heart, I reflect on this differently: What would happen if we outsourced the country's Defense Forces to soldiers of a different country? Would the outsourced soldiers fight with the same spirit, given that the costs of operating the forces are lower in the outsourced country? Would money and technology overcome passion and belongingness? It would be an interesting model to explore, given that many countries spend billions of dollars running their defense forces. There have been a lot of debates around which is better: ISSC or OSSC. Having directed both Internal shared services centers (ISSC) and Outsourced shared services centers (OSSC), here are some of the advantages and disadvantages of both, in plain English. Making the right decision can make or break your business case for shared services. Below are the top three pros and cons for both models. Internal Shared Services Center Advantages 1. Quick Stabilization: The biggest advantage of an ISSC is the ability to quickly stabilize processes, as associates are able to understand the environment rapidly due to the familiarity of the organization’s policies and processes. 2. Passionate about the company’s values and business goals: Things work better in an ISSC as employees are generally on board with the company’s business goals, and in most cases they would be making things work instead of getting bogged down in bureaucracy. 3. Innovation: Innovation is more pronounced in an ISSC as employees are able to understand various inter-functional processes and are able to implement them more easily than in an outsourced model. Disadvantages 1. Ad hoc requirements: The biggest threat to an ISSC is the number of ad hoc change requests that are received. This is mostly because it is easier to reach out to colleagues in an internal center than it would be in the case of an OSSC. Internal colleagues would expect the ISSC to support them quickly, which might affect the delivery of other projects. 2. People Dependency: ISSC employees may start taking ownership of certain processes over a given time period, without documenting them, due to their close interactions with the business. If the ISSC does not have a strict control mechanism, then it runs the risk of losing knowledge that is undocumented when staff leave. 3. Redundancy: Most of the work that is done in a typical SSC is very process oriented and is easily automatable. Hence, over a period of time, as automation sets in, it invariably leads to redundancy in the Shared Services Center. Managing people thereafter may become a more serious problem as systems start taking over the operations post stabilization of the processes. [inlinead] Outsourced Shared Services Center Advantages 1. Low Cost: The logical – and biggest – advantage is the low(er) cost of operations of an outsourced model. 2. Process driven: The outsourced model is definitely going to be more process driven, as exceptions to processes will be rare. Policies, Processes, and Knowledge Documents will be very detailed, as both parties do not want misinterpretations of processes. 3. No People Responsibility: With technology rapidly replacing processes, the onus of managing people when redundancy follows rests with the company running the OSSC. Thus, the difficult part of managing (in this scenario: firing) people will not rest with the company outsourcing its processes. Disadvantages 1. Slower pace of Stabilization: Expect stabilization to be slower as both parties tread carefully to ensure that issues do not crop up from their own end. Ownership of resolving issues will be slow, as neither side wants to take responsibility for something that went wrong. 2. Lack of Innovation: Innovation is going to slow, as changes to the systems and processes will be restricted due to contracts signed between both parties. Also, for the outsourcer, innovation would mean a reduction in headcount due to fewer transactions and issues, so the OSSC provider will be hesitant about driving and implementing innovation. 3. High Rate of Attrition in the OSSC resulting in erosion of working Knowledge: This is the bane of every OSSC as people easily tire of doing the same thing, over and over, and there is a tendency for staff to leave. When this happens, a dip in service delivery follows, as the new incumbent is bogged down by having to read up on relevant documentation, whereas the customer still has the same expectations of service. Given these major pros and cons of ISSCs and OSSCs, making a right decision can be very difficult. The biggest factor in favor of outsourcing, as of today, is the low cost of operations. Given that technology for shared services is rapidly changing the way SSCs operate, however, we can expect major change on the horizon. In fact, if we are able to leverage newly emerging technology well, we may not even remain with the SSC model as it is today. Instead, we may end up leveraging Centers of Excellence that design policies and operations so well that we may not even need an SSC, whether Internal or External. Till such time, however, the above factors should continue play a major role in your organization's Shared Services decisions.

New Thoughts on the Age-old Debate: Make or Buy?

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