The Shared Services Model
The purpose of the shared services model is to consolidate redundant operations within the global enterprise. As the enterprise grows through organic growth or acquisition, so does the supporting infrastructure. Consolidation of those redundancies into a shared services model drives cost out of the organization (frequently as head count) and improves the delivery of specific services to the organization.
The term “internal sourcing” best describes the objectives of shared services. However, some elements of shared services may also include outsourcing. For example, while an enterprise maintains control of over Human Resources (HR) operations as a whole, it may outsource recruitment to take advantage of specific technology available in the marketplace. Candidates are presented to HR when they have been vetted and tested. The standard interview and hiring processes begin at that point but the cycle time for the selection is significantly streamlined.
The most familiar shared service is Information Technology (IT). Every division and individual within the enterprise is touched by IT. Sustainable growth is dependent upon the consistent delivery of data and the implementation of next generation technology. For the high-technology enterprise, IT is its lifeblood.
Beginning in the early 1980’s and accelerating through today, IT operations have proven the viability of the shared services model.
IT operations have and are continuing to move back into the traditional Data Center paradigm, although what was once a “raised floor”, “heavy iron” (mainframe) environment is now populated by racks of servers and storage “farms” set in a secured and (frequently) hardened facility. Although there are technical teams in the field providing localized support, they do so through shared services.
Beyond IT, all of the following are candidates for shared services:
Shared Services - The Ideal
The objective of shared services is to improve the financial performance of the corporation.
Shared services drive internal providers to leverage economies of scale and improve efficiencies through common, standardized processes and methodologies.
Frequently, the enterprise will reevaluate and refocus its core business operational methodology to include shared services. Also, more than one shared services entity may exist within the enterprise.
Shared services enable affected business units to shift focus from non revenue- producing activities to core revenue- producing activities. Affected business units focus on core-support areas while shared services accepts responsibility and accountability for the non-core areas. This is not to say that “non-core” equates to non-essential. The reverse is true. For example, “incorporating” accounting functionality into shared services enables greater control over those mission critical activities. But it does so without the oversight necessary to bring multiple divisions into compliance.
Shared services improve the overall responsiveness of the organization to change. It frequently acts as a change agent (for example, IT driving new technology throughout the organization) or it can act as a cost center for a specific functionality (for example Procurement and Purchasing).
Shared Services - The Reality
There is frequently resistance to the conception, inception and acceptance of a shared services entity within the enterprise. Perhaps the best example is the Program Management Office (PMO) that was accountable for the planning and execution of major IT initiatives within the enterprise. PMOs proliferated through the 1990s with varying degrees of success. However, many encountered heavy resistance from the internal constituencies because of inadequate preparation on the part of the planners and a lack of a clearly defined pathway for acceptance (and use) by those constituencies.
Resistance to change is common in every organization – because change requires stepping or leaping into the unknown. Even though non-core services can be clearly identified, there is still resistance to moving those services and consolidating them into a single new entity. If real or perceived head count reduction is involved, the resistance will be even stronger and more apparent. The best way to overcome this resistance is to plan for it and to drive acceptance from the executive level downwards.
Shared Services - Operations
Shared services are designed to function as a separate business unit within the enterprise. They “own” certain functionality of the organization and bill back to the constituencies utilizing their services.
Shared services are designed to break even – to bill for products delivered or services rendered and to collect payment from the budgets of constituent divisions. For example, a global organization provides logistics support to the manufacturing divisions within the organization. That support is based upon a reverse auction process and tracking and billing technology owned and maintained by the shared services office (or division, etc.). Every manufacturing and support division that ships products or supplies to corporate customers is required by executive mandate to utilize shared services. With centralized control, the enterprise realizes a transportation cost savings of over $240,000 per week.
Operationally the commitment to shared services includes a commitment from the executive leadership to:
In the above example, the CEO of the enterprise personally mentored the shared services project and expended his personal (“rock-star-type”) political capital to drive acceptance throughout the enterprise.
Shared services maintained a visual dashboard that tracked the success of the reverse auction process and the resulting cost savings for each internal customer. Post implementation surveys of both internal (the shipper) customers indicated greater acceptance of shared services as the reverse auction took hold and costs were brought under greater control. A similar survey of external customers (the receiver) indicated improved adherence to delivery terms and timetable by the enterprise and a corresponding reduction in the penalties levied for shipment delays. Both internal and external customers appreciate saving money.
The successful implementation of a shared services initiative requires clearly defined objectives, goals and the processes necessary to control the initiative from start to “Go Live”. Without following an orderly pathway for success:
Shared Services - Critical Factors
An enterprise focused on the following critical factors will have a greater opportunity for success when implementing a shared services model:
Shared Services - Migration
The shared services business model requires rethinking of the typical business paradigm. Instead of divisions that “do everything”, the enterprise transforms itself into a business that is more mission and core-revenue-producing focused.
Shared services provide support to those divisions while improving cost containment and quality improvement for the specific mission-critical functionality owned by shared services.
For enterprises with multiple business units or frequent acquisitions, the shared services model provides improved financial oversight and cost reduction for the enterprise. In fact, shared services can actually drive the acquisition process.
Summary
The executive vision for shared services is clearly defined and communicated throughout the enterprise. That is by far the most critical “first step.”
Alteration or creation of processes and procedures for shared services is the second step.
Realignment of hard-core functionality from outliers to shared services (i.e., plant, equipment, tools, existing SLAs, etc.) follows once the physical entity known as shared services comes into existence.
Finally, action plans must be communicated from shared services to the constituent divisions. This is both an informational exercise and also a degree of “hand holding” until high acceptance levels are measured. It is important to differentiate between mandated and accepted. Mandates frequently generate resistance. Acceptance planning overcomes that resistance.
Below are the key steps necessary in building shared services within the enterprise. This is by no means a comprehensive or exhaustive list and both strategic and tactical planning will enable the enterprise to clearly define shared services functionality:
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© 2008 321Transform LLC. Transform Healthcare LLC. All rights reserved.
