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 Management Services
Shared Services

The Shared Services Marketplace
Rationale for Shared Services
Challenges Facing Shared Services Organizations
The Future of Shared Services
Results of Shared Services


The Shared Services Marketplace

Although Shared Services has been around for almost two decades in some industries, the level of implementation is still quite varied. For example, some companies in the energy industry implemented shared services in the late 80’s; while others adopted it early, but later decided to discontinue a formal shared services organization. Companies in the services industry, Federal/Local government, and smaller companies have begun exploring shared services over the past five years.

Most large commercial companies (Fortune 1000) have either a formal shared services organization or else back office processing areas that function in a manner similar to shared services. However, no two companies approach shared services the same way. Some use a single site for most functions; others have sites spread around the country or across the globe. Some shared services organizations are headed by vice presidents as separate operating units, while others are buried within various departments or headed by mid-level managers. Some shared services organizations include a full suite of functional areas, such as finance and accounting, purchasing, payroll, HR, IT, etc., while others include only the traditional finance and accounting functions.

Even with such diversity in organization, governance, and functionality, all companies share a single vision with their shared services operations: they wish to gain efficiencies and lower costs through leveraging common technology and processes.

Based on its success within industry, government organizations in the past several years have taken a greater interest in the potential for shared services. Officials have been exploring new ways of reducing their expenditures and using best practices borrowed from industry. Most of the early adopters in the government are still wrestling with how best to implement and govern these functions considering the unique challenges in the public environment.


Rationale for Shared Services

The rationale for shared services has stood the test of time, with the primary goals being to reduce costs and improve efficiencies. According to various industry studies, many companies have seen cost reductions up to 30 or 40 percent after implementing shared services. Such cost reductions have been greatly aided with the increased implementation of integrated IT systems (e.g., ERP – enterprise resource planning) and broadband Internet access. Such integrated systems and fast communication technologies make it easier to implement standard processes and allow transactions to be performed at almost any physical location.

Shared Services managers are also uniquely qualified to identify and implement additional savings across the organization because of their detailed knowledge of operating systems, processes and customer interfaces. Through their work in transactional details, shared services personnel often recognize trends that, if captured, can improve internal processes, customer interfaces, and overall corporate profitability. For example, accounts receivable personnel often understand some of the inner workings of external customers and their processes through collection efforts. Such information can provide valuable guidance in sales, marketing and pricing decisions. The difficulty in most organizations involves setting up the processes and communication channels to tap into this information and implement change.


Challenges facing Shared Services Organizations

All shared services organizations, whether they are recently established or mature, centralized or disbursed, formalized or loosely associated, or industry or government, face similar challenges. Few shared service groups remain static and most are constantly adapting to new environments, recent law changes (e.g., Sarbanes-Oxley), new corporate business models, revamped supply chains, updated IT systems, and additions or deletions to their customer base through mergers, acquisitions or divestitures.

However, what does remain constant is that all shared services functions, irregardless of their maturity and state of development, have the following needs:
  • Quantitative data on the costs and performance of their processes and service deliveries. Only with quantitative data can managers understand what they are doing, what it costs them to do it, how they can do it better and how they compare with other industry solutions (e.g., outsourcing). Best practices in developing this data usually incorporate activity based analysis approaches.
  • Effective performance management systems. Effectively managing processes and outputs requires you to measure what you’re doing, link these measures to your overall strategic goals, and then present the data in easily understandable formats. Pitfalls include ‘over-measuring’ and ‘mis-measuring,’ which force you to spend significant amounts of time collecting data that tends to drive unproductive behavior. Best practices include Balanced/ Performance Scorecard approaches or hybrid approaches incorporating activity based operational data.
  • Rapid methods of improving processes. The goal of any management or measurement technique should focus on improving processes and overall productivity. Process improvement must be continuous because of ever-changing business models and technologies. Best practices that usually focus on rapid techniques that produce results in days or weeks, thus offering higher returns on investment.
  • Simple and effective SLA’s and chargeback systems. Service Level Agreements (SLAs) and chargeback systems can be essential tools for communicating with internal clients and driving process improvements. Such systems should not become precise accounting exercises. Instead, best practices incorporate them with other cost collection and performance management systems to better understand what products and services are required in support of specific business unit activities.
  • Improved governance and organizational structures. With constant changes in technology and corporate organizational philosophies, numerous options arise on how to best organize, locate, and manage shared services functions. What made sense a few years ago may require re-evaluation depending on the current business environment. For example, five years ago companies were fine with having Pakistan as an offshore provider of data centers. However, with the growth of terrorism and its potential threats, many are now taking a harder look at the risks associated with offshore outsourcing.
The Future of Shared Services

With the fragmented approach to shared services throughout industry, it can be difficult to determine the exact future of shared services – for as Yogi Berra said, “It’s tough to make predictions, especially about the future.” However, the following trends appear to hold for the foreseeable future:
  1. Shared services will remain an essential element for gaining cost efficiencies throughout an organization. The shared services approach not only has validity in terms of documented savings from companies, it also passes the ‘common sense’ test for identifying synergies and reducing redundancies throughout the organization.
  2. Although initial Shared Services implementations focused primarily on cost savings, future value-added will come from organizations that successfully transition from pure transactional processing to focusing more on analytical and business consulting support. With the continuing implementation on integrated systems, opportunities for value-added support will multiply.
  3. Outsourcing of selected functions will be a constant consideration, particularly for transactional processes that are manually intensive. Organizations will typically face one of two options: consider outsourcing alternatives or re-engineer their processes to capture similar savings by reducing manual or non-value-added operations.
  4. Commercialization of shared services groups (i.e., operating as a separate business unit and then provide services to external organizations) is not a viable option for most companies. Shared services groups might operate similar to a commercial model in their dealings with internal clients, but numerous difficulties exist in transitioning to a profit-making mode, not the least of which is competing against current outsourcing providers.
The only constant for most shared services groups in the future is change – changes in organizational structures, changes in business processes, changes in systems and technologies, etc. Therefore the challenge for most shared services managers is to develop the management and performance processes that allow changes to be rapidly and efficiently incorporated, thus providing the greatest value to the organization.


Sample Results of Shared Services

Equiva Services / Shell Oil
  • Develop costs and chargebacks for the entire Finance Department
  • Identified $2.5 million in potential savings opportunities
  • Approximate investment of $150K
Levi Stauss and Co Shared Services Center
  • Hybrid approach of balanced scorecard and ABM for full performance management system
  • Identified $1.5 M in potential savings opportunities of $7.5M budget
  • Approximate investment of $70K
CITGO Petroleum
  • Studied entire Shared Services operation (700 FTEs, $100M)
  • Identified $20 million+ in potential savings opportunities
  • Approximate investment of $500K
Province of British Columbia, Canada
  • Used FastTrack "train-the-trainer" approaches to develop internal consulting team for Shared Services
  • Developed top level Shared Services Balanced Scorecard for entire 1000+ organization
  • Developed Activity Based Costing and Process Improvement models throughout the ministry