Introduction: The Strategic Transformation Imperative
To harness the manifold benefits of shared services, organizations must grapple with the challenges associated with transformation. Validating that the strategy delivers business value without introducing undue complexity requires a deep understanding of organizational needs, systems, and necessary processes. A one-size-fits-all approach is inadequate for shared services. By investing upfront in a thorough, fact-based analysis, strategy development, and deployment plan, companies can sidestep pitfalls and ensure transformative efforts yield optimal business value.
Why Opt for a Shared Service Model?
Excessive decentralization and operational redundancies within an organization can lead to heightened complexity, inefficiencies, elevated costs, and disengaged employees. A more consolidated approach to business support, characterized by higher standardization and lower costs, proves beneficial for most large companies. Understanding the challenges tied to decentralization is pivotal, especially as these challenges escalate with organizational growth.
Defining a Shared Service Center (SSC):
A shared service center is an internal organization providing services to business units within a company. Similar to an external support business, it typically operates under contractual agreements outlining cost, timeline, and quality metrics. This approach allows companies to focus on core business functions while enhancing operational strategies, leveraging labor arbitrage, and optimizing support tools through outsourcing.
Challenges of Avoiding a Shared Service Model:
- Low Levels of Standardization:
- Decentralization often leads to insufficient standardization, causing compliance issues, technical incompatibilities, ineffective IT spending, and unaddressed process inefficiencies.
- Compliance Difficulties:
- Low standardization poses challenges in ensuring compliance with strict regulations, increasing the risk of non-adherence to internal or external rules.
- Low Levels of Automation:
- Decentralized and non-standard supporting technology impedes effective automation adoption, limiting the potential for cost reduction and efficiency enhancement.
- Measuring Operational Performance:
- Lack of standardization makes it challenging to establish comparable benchmarks for measuring operational performance across the organization.
- Lack of Accountability:
- Without a formal SSC, accountability for mistakes in decentralized models becomes unclear, creating disincentives for effective duty performance.
- Process Documentation:
- SSCs often document processes effectively, providing clear guidance and effective handover tools, while tasks in non-documented processes lead to confusion.
- High Costs:
- Supporting dispersed back-office service delivery efforts is more costly and less efficient than operating an SSC, leading to higher profits and reduced inefficiency.
Implementing a Shared Service Strategy:
Despite the significant benefits, some companies hesitate to fully embrace shared services due to implementation difficulties and perceived risks. Successful implementation requires a deep understanding of company needs, capabilities, and market realities. A carefully planned strategy aligned with leadership and end-users is essential.
Strategy and Assessment:
- Build a Team:
- Form a well-defined team with key stakeholders, technical experts, and leadership support to ensure a successful transition.
- Situation Assessment and Objectives Aligned:
- Conduct a thorough situation assessment, align objectives, and secure leadership support, considering cost reduction, internal control improvement, employee engagement, and talent pipeline building.
- Develop High-Level Strategy:
- Formulate a high-level end state, outlining shared services’ benefits and steps needed, serving as an elevator pitch to build consensus.
- Define the Business Case:
- Develop a business case outlining existing model opportunities and productivity improvements shared services can bring.
Design and Build:
- Standard Processes:
- Document standard best practice processes, defining organizational roles, technology tools, and metrics for monitoring operations.
- Location Strategy:
- Evaluate potential sites based on talent availability, labor costs, legal and tax laws, technical infrastructure, language capabilities, and other factors, and incorporate recommendations into the strategy.
- Human-Resourcing Strategy:
- Develop a human-resourcing strategy specifying activities owned by employees, outsourced elements, roles for contractors, and potential automation.
- Technology Roadmap:
- Identify required technologies during process design, supporting IT funding requests and ensuring effective IT solutions for shared services.
- Risk Assessment:
- Conduct a detailed risk assessment and develop a mitigation action plan to address new risks introduced during the transition to shared services.
- Governance:
- Establish a three-tier governance model, including operational, tactical, and strategic governance, to ensure effective communication and performance management.
- Operation-Cost Strategy:
- Choose a cost accounting approach, either standalone business charging for services or centralized cost management, and manage costs effectively.
Implement and Roll-In:
- Populate Delivery Centers:
- Begin workforce deployment, whether through new hires or internal transfers, ensuring staff reorganization and training are completed before transition to prevent service interruptions.
- Launch New Processes:
- Roll out new processes, including services enhancements or improvements, once service centers are populated.
- Implement Metric Tracking:
- Roll out systems for improved metric tracking, allowing efficient service center management and alignment with business goals.
- Transition to Run Mode:
- Gradually transition to run mode, taking redundant services offline while closely monitoring for issues and addressing them promptly.
Continual Improvement:
The shared services plan extends beyond implementation, necessitating ongoing improvement efforts. Employing lean and Six Sigma strategies helps maximize customer value, minimize waste, and continually enhance processes.
- Lean Strategy:
- Maximize customer value while minimizing waste, encouraging daily process improvements.
- Six Sigma Strategy:
- Use data to eliminate defects, relying on metrics to identify obstacles, define problems, measure results, analyze data, design solutions, and verify effectiveness.
Conclusions:
Shared services are imperative for larger companies to stay competitive, reducing waste, mitigating compliance risks, and fostering technological adoption. Successful implementation requires alignment with stakeholders, constant monitoring, and a commitment to continual improvement. Seeking insights and expertise from external consultants with shared services implementation experience can further enhance success.