In the modern business world, there are essentially two options when it comes to enterprise operating models – the federated or distributed model of operation and the shared services model, which is, conversely, about bringing together functions across multiple business units.
In the federated model, the different divisions or areas within an enterprise are set up in such a way as to each have their own ‘in house’ supporting functions. This could mean that individual departments make use of their own Human Recourses function, for example, which is separated from other units within the business.
Shared services, meanwhile, refers to the consolidation of business operations that are used by many parts of the same organisation. By grouping multiple similar and, typically, enabling functions throughout an organisation into a dedicated centre, an enterprise is able to unify the various back-office operations that are used by various business units, thereby eliminating resource redundancy.
In the private sector, the shared services model tends to be employed for delivering services such as Finance, Human Resources and Information Technology. The goal of a shared services delivery model being to allow each business line to focus its limited resources on activities that support its core competencies.
Sharing is caring
In answer to the obvious question: 'why share?', the fact is that shared services offer significant benefits. The benefits are so clear that we are witnessing an increasingly diverse set of functions being taken on by these centres.
In fact, according to a recent survey by Deloitte on global shared services, the most common functions within such a centre include: Finance (88 per cent); HR (63 per cent); IT (53 per cent); Procurement (37 per cent); Tax (32 per cent) and Customer Service (30 per cent).
So why should an enterprise seek to implement a shared services centre?
For one thing, sharing means improved efficiencies, due simply to the use of standardised processes. Think about it: when working in a segregated environment, different areas or units of the business may make use of slightly different processes, which – when looked at on an enterprise-wide scale – will not match up properly, leading to inefficiencies. On the other hand, consolidating such processes under a single, central banner will provide the entire organisation with access to the exact same processes, boosting productivity and speed of delivery.
Economies of scale are also impacted by using a shared services model. By consolidating duplicate resources, one can reduce the amount of money spent on these, while dedicating resources to a shared service with a single broad objective can trim costs and increase delivery speed.
A good example here would be the shared services centre applying automation to a financial report for multiple areas across the business, enabling it to be produced with significantly less per-report effort than individual bespoke reports within each business unit would require.
The shared services centre can also be developed into a centre of excellence. After all, dedicating parts of an organisation to focus on the core shared service competencies ultimately increases their specialisation, while placing like-minded experts together drives improvement and innovation. Likewise, on the business side, a shared service allows your core business functions to focus time and energy on direct competencies, such as driving revenue and business growth.
Finally, cost savings are easily realised through a well-run, consolidated shared services organisation, since this approach means applying fewer resources to multiple challenges in a targeted manner, rather than having many performing the same task across different areas of the business.
Of course, there is always a flip side to things, and regardless of the many benefits offered by shared services, there are also some common challenges that any such implementation will face.
One of the biggest problems occurs when the shared services team is out of touch with those that they service. The best way to tackle this is to dedicate individuals or teams to straddle both business and shared services. In this way, they can bring an intimate knowledge of the business they support, as well as understanding the shared services that the business draws upon.
Another difficulty that can occur is a disconnect between shared services and the business, both operationally and financially, something which can easily have serious implications.
After all, a shared services centre that is not providing the required service levels can ultimately end up restraining business functioning. In fact, even a well-functioning shared services unit can be disconnected from the demanding requirements of the business it is there to support. The surge in DevOps as a means to counter this operational disconnect is evidence of the fact that dividing resources into functions is at times not the more effective way to achieve a business outcome. The solution rests in a highly collaborative cross-functional way of working.
Sometimes, the resolution is quite simple, as is the case with a potential financial disconnect. This can be solved by the simple expedient of ensuring that the business pays for its use of the shared services. Therefore, in an effective shared services environment, a commercial mindset must be created where the use of a shared service is correlated to and felt by the consuming business. Cost allocations and demand management are best practices to counter the financial disconnect. This also means that the provider of the shared service understands that they need to be seen to be providing value.
The third challenge that can easily occur is a situation when the shared services centre becomes inefficient, bloated and fails to deliver value for money to the business. Such an issue can be overcome by holding shared services executives accountable for the value they deliver – this can be as simple as illustrating budgetary control. Benchmarking both internally and externally to market is also a means to solve this.
Despite the challenges outlined above, shared services have numerous material benefits, ranging from greater corporate efficiency to leveraging economies of scale. In fact, the BPM Institute points to the following as some of the key benefits offered by this model:
- Standardisation of business processes and best business practices
- Enhanced quality and flexibility of available business services – shared services can be sourced through multiple delivery channels and/or geographic locations
- Improved accountability for agreed-upon service levels, enabling informed value decisions on what and how many services to provide
- Securing cost savings and sustainable efficiencies through economies of scale
- Releasing human capital from 'commodity' tasks to focus on customer service activities; freeing up operating units to focus on their core operations
- Ensuring the use of more state-of-the art, technology-intensive solutions
- Improving the scalability of deployed solutions, which can be readily scaled for geographic and service scope changes
- Improved cooperation and collaboration with external partner organisations to foster strategic development of cross-institution support services
- Reducing the geographic footprint of IT systems, applications and infrastructure, thus improving business continuity and the resilience of business services
- Addressing corporate needs for collaborative learning, research, and knowledge transfer; people with the skills and desire to optimise the model beyond the back-office
- Leaders free to focus on strategy, while relying on shared services for statutory and regulatory compliance
- Timely decision support, enabling analysed data to be delivered as reliable and actionable Business Intelligence
As with everything, there is a level of trade-off involved. Thankfully the risks typically posed by a shared service, once established, are easily manageable and numerous tools, frameworks and processes exist to assist with this.
Of course, in order to get the most from your shared services, it is necessary to impose rigorous organisational alignment with your strategy, along with commitment to the change and the right tools to get you there. Furthermore, to truly succeed with such an approach, it is crucial for the enterprise to completely embrace and embed these changes as rapidly as possible.
Blake Davidson, Head of Delivery, Magic Orange
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