Introduction: The importance of strategic transformation
To begin taking advantage of the many benefits of shared services, companies must understand the challenges associated with transformation. It is important to validate that the strategy will provide business value and not introduce additional complexity. This requires a thorough understanding of the organization’s needs and the systems and processes necessary to implement them. There is no one-size-fits-all approach to shared services. By investing the necessary time upfront in developing an effective fact-based analysis, strategy, and deployment plan, companies can avoid problems and ensure their transformation delivers the greatest possible business value.
Why choose a shared service model?
High decentralization and redundancies of operations within an organization can result in higher complexity, inefficiencies, and the resultant higher cost and disengaged employees. From higher levels of standardization to lower costs, most large companies can benefit from a more consolidated approach to business support. To understand why, it is important to understand the challenges associated with decentralization and how these challenges continue to grow with the company.
What is a shared service center?
A shared service center (SSC) is an internal organization that offers services to business units within the company. Much like an external support business, it will often offer its services with contractual agreements that enumerate the cost, timeline, and quality metrics of the service. This allows companies to focus on their core business while improving costs and operational strategies while taking advantages of labor arbitrage, outsourcing and delivering best in class support tools.
Challenges of not using a shared service model
LOW LEVELS OF STANDARDIZATION
Standardization has often been cited as an enabler of continuous improvement. One of the greatest challenges associated with decentralized and dispersed services is low standardization across the enterprise. This can result in compliance issues, technical compatibility problems, ineffective IT spend, and process inefficiencies not being adequately addressed.
The most obvious problem with low standardization is compliance. Large enterprises that must adhere to strict regulations often struggle to ensure that all business units are performing their duties according to internal or external rules. By rolling these services into one shared service center (SSC), company leaders can better oversee these processes, reducing the potential for risk.
LOW LEVELS OF AUTOMATION
Decentralized and bespoke (non-standard) supporting technology inhibits companies from effectively taking advantage of automation enterprise-wide. Automation and cognitive computing are rapidly changing the way companies do business. By multiplying the productivity of workers, they allow companies to significantly reduce costs and increase efficiency, while giving employees the freedom to focus on tasks that make full use of their abilities.
MEASURING OPERATIONAL PERFORMANCE
While organizations measure and report back on business performance, the effectiveness of operational functions are often only spoken of when things go wrong. When services are undocumented and different processes and tools are used across the organization, a comparable benchmark is difficult to establish and the measures within the support functions are often limited. An SSC eliminates these problems and offers a significantly more transparent way of delivering services to business units.
LACK OF ACCOUNTABILITY
In a shared service model, it is always clear where the problem lies when there is a mistake. Under more traditional, decentralized models, this is not always the case. When there is no formal, singular SSC for a service, no one is fully responsible. This creates disincentive within the organization to perform duties effectively.
Processes are generally well documented in SSCs to provide both an effective handover tool and give clear guidance of what employees should be doing and when. Tasks that are not well documented often lead to confusion about how and when objectives should be accomplished.
Supporting dozens of dispersed back-office service delivery efforts is simply more costly and less efficient than operating an SSC. Companies with an SSC can better control their support units, deliver better service, and allow business units to focus on their core goals. This ultimately drives higher profits and reduces inefficiency within the company.
Implementing a shared service strategy
Given the significant benefits of shared services, it may seem surprising that many companies haven’t fully embraced the strategy. One of the primary reasons for this is the difficulty and perceived risks of implementation. Creating an effective shared services strategy requires a deep understanding of company needs and capabilities and the realities of the market. Without careful planning and the right guidance, many enterprises will be unable to develop a strategy that allows them to transition while minimizing risk and maximizing efficiency.
Strategy and assessment
Implementing an effective shared services strategy starts with a solid foundation. This means working with leaders and end users across the company to determine current service levels, needs, and goals for the future.
BUILD A TEAM
No successful transition will occur without a well-defined team made up of key stakeholders and technical experts from across the company. The team should be structured, with a project manager and clear delegation of duties. It is also important to ensure that company leadership is fully on-board with the team’s goals and is available to provide guidance to the effort.
SITUATION ASSESSMENT AND OBJECTIVES ALIGNED
The first step in creating a shared services strategy is to complete an assessment of the company’s state of affairs. Once a situation assessment is complete, the functional senior leadership should review and align on the objectives of establishing shared services. While cost reduction may be a primary driver, other objective such as improving internal control, enhancing employee engagement (through better tools and processes), and building a talent pipeline should also be considered.
Areas to assess include:
DEVELOP HIGH-LEVEL STRATEGY
Initially developing a high-level end state that outlines what shared services can do for the company and what high-level steps need to be taken will help socialize the concept with senior executives. This should include a business strategy supported by baseline data along with a conceptual delivery design and cost estimate. This accomplishes two things. First, it helps the company better formulate its ideas and forms a foundation for more concrete planning. Second, it is an elevator pitch to help build consensus for the transition across the organization.
DEFINE THE BUSINESS CASE
A business case is critical to gaining the support of business leaders and tracking the success of the initiative. It will help to outline the opportunities in the existing model and articulate the productivity improvements that shared services can bring.
Design and build
After high-level strategic planning has been accomplished and a consensus about the general strategy to pursue has been reached, it is important to begin developing more detailed plans for design and implementation. This means an articulation of what steps are necessary to get from the current state to a developed state. This will include creating a strategy to re-engineer or develop standard processes, identifying the technology required to effectively run shared services, determining which locations will be responsible for what services, allocating resources, and deciding how to deal with impacts on employees.
The documentation of standard best practice processes upfront help to clearly articulate:
With existing services dispersed across multiple sites, companies should evaluate each site and potential greenfield sites for available talent, labor costs, legal and tax laws, technical infrastructure, risk factors, language capabilities, and other factors pertinent to the strategy. Following this assessment, a single or multi-site location recommendation should be incorporated into the strategy.
A shared services human-resourcing strategy helps determine the make up of the SSC's human resources. The strategy should include which activities will be:
Certain shared services jobs could be thought of as an opportunity to nurture high potential talent. These positions allow employees to gain a more detailed understanding of functional operations and line management and other skills that may not be developed effectively in the business unit.
The role of consultants to provide additional insights, thought leadership, new methodologies and to challenge the status quo could also be included in the resourcing strategy.
It is important to remember that not all jobs will be preserved in an effective shared services strategy. Automation will begin to play an increasingly important role in shared services. Roles earmarked for automation could be staffed by temporary employees. Further redundancies and inefficiencies must be eliminated to guarantee success.
Technology is a critical component of implementing a shared services strategy. Effective IT solutions help service centers deliver their support to business units more effectively and efficiently. When designing and documenting the processes, the transition team must include technologies required. This is useful as a supporting document for IT funding requests.
Although shared services may reduce risk in the organization overall, any change of this nature presents new risks the company must address. A detailed risk assessment and risk mitigation action plan is an important part of the SSC strategy. Risks may include (though are not limited to) the loss of data or a reduction in service availability, systems reliability, and key staff losses. An ongoing risk assessment process should be implemented that controls these risks during the life cycle of a SSC.
Good governance is a critical component of any shared services strategy, regardless of what sourcing strategy is used. Companies must have clear understanding of how shared services units will communicate with internal customers (business units and corporate) and how they will communicate with, and manage the performance of, external supporting service providers. This clarifies roles and maintains alignment of strategies and goals across the enterprise.
At WGroup, we recommend a three-tier governance model:
1. Operational governance
For day-to-day operations, service centers should meet for weekly or monthly reviews. These cover operational concerns, allows for solving of problems and implementation of continuous improvement plans with a granular understanding of the activities and impact at both the SSC and business unit.2. Tactical governance
Meeting initially monthly and quarterly in the steady state, this level of governance reviews the performance of the operations and enables the continuous improvement activities and risk mitigation plans. The team comprises leaders from the SSC, external service providers, and business units.
3. Strategic governance
This team explores new trends and innovations and develops forward-thinking strategies to drive future efficiencies. To maximize the effectiveness, organizations should strive to leverage existing executive decision-making processes to incorporate SSC strategy into the overall corporate business strategy.
Accounting for SSC costs is an important consideration. Many enterprises run their shared service centers as standalone businesses that charge for the services they provide to business units. This allows costs to be spread across the business units based on a predetermined basis that ideally reflects a proportional use of the service. Others have elected to manage the costs centrally, thereby preventing individual business unit tradeoff being forced on the service centers or having the service center negotiate annual budgets with multiple parties.
Implement and roll-in
After detailed plans and preparations have been made, it is time to begin implementation. If the past steps have been done right, this should be relatively straightforward. However, it is still important to be mindful of potential risks and address problems that were missed in planning stages.
POPULATE DELIVERY CENTERS
Companies must begin doing the work of making new hires or transferring internally to populate the SSCs with the necessary workforce.
The reorganization and training of staff should be completed prior to the transition to avoid any service interruptions. This process will be heavily influenced by whether the company is using an outsourcing or insourcing model. In most cases, service centers will be run with a hybrid of the two.
LAUNCH NEW PROCESSES
Once service centers have been populated, the company can begin rolling out new processes. These might include new services or improved functionality.
IMPLEMENT METRIC TRACKING
Improved metric tracking is one of the major benefits of implementing a shared services model. At this stage, companies can begin rolling out the systems that will track performance of the service centers, allowing them to be run more efficiently and ensuring that they are delivering on business goals.
TRANSITION TO RUN MODE
Once the shared services centers are fully staffed and operational, companies can begin transitioning to run mode. At this stage, the transition team can take redundant services offline, closely monitoring for any problems and being ready to address them rapidly.
The shared services plan shouldn’t end with implementation. It is critical that the company constantly work to improve, consolidate, and streamline services delivered to business units. This requires an ongoing monitoring of metrics and a willingness to rethink original processes and tools. Two techniques for continual improvement can be useful here.
The lean strategy is one of maximizing customer value while minimizing waste. This is highly suitable to shared services and empowers all parties to improve processes every day.
SIX SIGMA STRATEGY
This strategy strives to use data to eliminate defects. Companies use metrics to identify obstacles and identify potential solutions. This allows leaders to define problems, measure results, analyze data, design new solutions, and verify that those solutions are effective. This gives the company the tools to constantly be building shared services strategies that are more effective than previous iterations.
Shared services are becoming a competitive necessity for larger companies. As a corporation grows and establishes many locations across several regions, the potential for redundant and inefficient support services grows. This leads to waste, compliance risks, and an inability to adopt new technologies. Rival companies with the ability to innovate more freely and reduce cost may gain a competitive advantage.
Implementing shared services requires close alignment with stakeholders across the company to ensure that new service centers are implemented and run as efficiently as possible.
For many enterprises, gaining additional insight and experience from outside consultants who have successfully implemented shared services has paid dividends.
To learn more about WGroup's services, visit http://thinkwgroup.com/services.
Alan is an adaptable and results-oriented former CFO and senior finance executive, with an established history of accomplishment in finance leadership, business turnaround, team engagement, process re-engineering, internal controls, and cash-flow management. He is a subject matter expert on shared services, outsourcing, and business process transformation.