Shared services is the consolidation of business operations within an organisation. It is cost-efficient – back office operations which would be included in multiple different areas of the company are merged into one, saving the company money and making all activity more effective. The process usually involves migrating numerous different entities onto a common IT system and operating platform. The key for shared services is the idea of sharing everything within an organisation, so it benefits and grows as a result.
The concept of shared services began in the 1980s. Large organisations, with multiple business units, began finding alternative ways to reduce or eliminate business administration costs.
A shared service centre is usually a centralised function of an organisation, where all back-office responsibilities are managed for different business divisions or subsidiaries. It provides support services typically with ‘none-core’ activities and resources. By consolidating multiple business operations, it allows each division or business unit, to focus its time and resource on the business’ vision or goals.
The most popular functions are Finance, followed by HR, but also can include Payroll, Procurement, Engineering, Master data, Compliance, IT and Legal. Other areas such as Customer Service, Fleet and Master data are becoming more and more popular in shared service functions too.
A shared service is usually an internal function of a business, ran by company employees. An outsourced provider is usually an external business that manages these tasks on your behalf. There is also a term known as the ‘hybrid model’ which, as you can probably expect by the name, incorporates both. Outsourcing tends to have an agreement or contract in place, where the external provider will agree defined SLA’s and performance metrics. However, outsourcing isn’t to be confused with offshoring.
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An offshore shared service is still an internal function of an organisation. Offshoring simply is setting up a shared service in a remote location abroad. Organisations choose this model as there tend to be larger talent pools, cheaper labour costs and the ability to create centres of excellence. Popular offshore locations include The Philippines, India, Eastern Europe and Costa Rica.
The main functions in shared services are often corporate functions, such as accounting, human resources, payroll, IT, legal, compliance, purchasing, security. They can service businesses operations across the UK or further afield and offer the ability to develop centres of excellence where efficiencies of process can develop.
HR shared services are becoming more prominent, due to the value it can add to a company – providing it’s done well. Finance shared services and information technology shared services are also becoming more common in organisations.
The business may decide to pay for the cost of a shared service centre as part of business outgoings or they may use a system whereby each division within the company which uses the shared services, pays for the service.
There appear to be 3 main principle drivers for shared services – cost, quality and organisational change. Reducing costs are done by cutting the number of staff in the company, exiting offices and being more efficient – streamlining and simplifying processes. The quality is improved through shared services by an increase if professionalism, consistency and accuracy, better processes and delivering on time and to budget.
Technology has also been important for shared services within a company, because of the cost associated with purchasing it, maintaining it and training staff to use it. By having shared services to centralise all aspects of technology, it allows each individual division in the business to focus its resource on activities which will support its own growth – and not waste precious resource on other areas. Technology facilitates the activity within shared services, including organisation intranet and management and workflow systems.
There are 2 main reasons to set up shared services, which incorporates all the principle drivers above – the first is the need for less of a common resource – i.e. you need less managers, IT systems, office space etc. Using less of these common resources, can significantly reduce costs for the business. The second is the ‘efficiently through industrialisation’ which assumes that there will be lots of efficiencies created though the centralisation of business operations.
Setting up shared services is not the same as outsourcing – where an external third party is paid to provide a service which was previously done in house. This keeps everything central and saves jobs and often money. It’s not a new idea and has been used since the 90s, it is however becoming more popular in the UK and the US. Deloitte estimates that 80% of US-based ‘Fortune 500’ companies use shared services in some form in their operations. The concept of using shared services is growing as organisations recognise the value of implementing shared service centres – reducing their cost base, improving controls and enhancing service levels.
It helps to enhance service levels, because each area is focusing solely on the most important aspect of their function – e.g. – customer focus, leading to better outcomes, results and growth.
The application of shared services is a popular business strategy which a lot of companies are implementing. “Centralising company functions—in a manner now known as the ‘shared services’ model—is one of the hottest trends in business today,” Mark Henricks wrote in Entrepreneur. “Those who practice it say they can cut costs while improving the quality of the services shared.”
The concept of shared services was introduced when a number of large companies with multiple business units began looking for ways to reduce their administrative costs. Since then, Henricks noted, “shared services has evolved into a more comprehensive and flexible tool for improving processes, enabling technology investment, generating profits, and reducing costs.”
Price transparency – each service should have its price. The business units can determine how much service it wants at that price.
Business management – manage the service like a business unit, not a fixed cost. Serve internal and potentially external customers.
Market responsiveness – provide the service levels the business units want, not the levels staff think they need.
Best practise proliferation – Identify and deploy best practises quickly and globally.
Process standardisation – develop streamlined process standards that can be maintained and improved quickly.
Service culture – treat business units (Bus) like customers, offering service the Bus value and charging for each.
There are many ways you’ll benefit from a shared services function:
Cost – as mentioned previously, the business can save money by not having to employ multiple people to do the same jobs in different areas. By consolidating certain functions into one shared service team could mean reduced office space, which costs less and by generally improving all processes means there is less time and resource waste, which also saves cash.
Increased efficiencies for processes – centralised functions and data consolidated. Good for managers to look at performance data, compliance monitoring and reporting – easier when in one place. Consistency and accuracy in activities and flexibility – meaning easier to keep changing and developing as business grows.
Improvements to knowledge – shared services relieves HR and payroll professionals of time-consuming admin functions – allowing them to be more strategic and look at better ways to recruit, engage employees, make the workforce efficient and other things that add value to the company’s growth and success.
There are, of course, some obstacles that can be faced, as with anything. Some of them include increased complexity, initial investments and sometimes dramatic changes to day-to-day operations. There needs to be a plan, documented processes and coordinated efforts from everyone involved, to ensure everything comes together, otherwise it might fail.
The main things to action prior to setting up shared services are:
The role leadership plays in shared services organizations that are the most successful. Effective leadership is what sets apart those organisations that have advanced most successfully from others that have spent years hampered by limited operational improvements and little growth. Scott Madden lays out the “4 Ps” of successful shared service leadership in his article, derived from many years of helping build and develop shared service centres. The “4 Ps” he addresses are: planning, persistence, performance, and patience, his points summarised below:
Planning – clearly a key part to play in effective leadership – to develop a clear and shared vision for the organisation. “Planning in this fashion ensures that there is always a pipeline of activity—next step—that has received proper consideration, prioritization, and executive support well in advance of the implementation opportunity. Less effective organizations tend to have uncertainty in direction and experience time lapses or lost opportunity while they ponder, “What next?”
Persistence – it’s not easy to get buy in from all areas of the business and requires a lot of creativity and resilience in defining and promoting the value of the shared services proposition. “An effective leader listens to stakeholders during the exploratory stages of a shared services initiative to determine the causes of concern—cost, control, compliance, or ownership—and takes actions to address them.”
Performance – shared service centres often start small and in order to grow the shared service function performance management is essential. “Sound management and effective delivery are what give shared services leaders legitimacy in their efforts to pursue growth.”
Patience – whilst you want to push for growth, you also need to control performance and stability. “Going after the next opportunity is always tempting, but the shared services organization must be ready to take on the next challenge. This means ensuring that existing services are running smoothly, and that the management team has sufficient depth and bandwidth to accomplish these goals.”
He summarises: “Both management and leadership are elements critical to shared services success, and most successful shared services executives embody both capabilities. It is the leadership skills, however, that guide a shared services organization to do the right things. The deft execution of planning, persistence, performance, and patience by an effective leader is what enables shared services to grow from single-function transaction processing centres to a mature, multi-functioning organization that adds consistent value and is seen as a strategic asset by corporate executives and business-unit customers alike.”
You can read Steve Madden’s full article here.
Personnel Today: Sally Campbell, director of HR and workforce, Cheshire HR Service
Cheshire HR Service (NHS) is a rare example of successful cross-organisational service provision. It was formed in the first half of 2007 by combining elements of the HR activities of three sovereign NHS trusts (East Cheshire NHS Trust, Central and Eastern Cheshire PCT and Western Cheshire PCT).
Described as a service level agreement (SLA) partnership arrangement, the service is provided by East Cheshire NHS Trust and provides Cheshire HR services to the three trusts through clear SLA arrangements.
Its activities are overseen by a complex governance structure and each trust has its own monitoring arrangements to consider the partnership’s performance against objectives, key performance indicators and budget. An HR strategy committee with CEOs, Directors of Finance and HR provides overall direction.
Cheshire HR Service provides the following shared services:
In addition, there is a small business management team that oversees the partnership’s business arrangements and facilitates the infrastructure of meetings, performance, finance and technology.
There are also business partner teams for each of the trusts that cover strategic development, employee relations, policy development, workforce planning, diversity and employee engagement.
A review of its first year of operation revealed:
There is still room for improvement, however. Areas to be developed in the next year include improving IT synergy between the trusts, avoiding a steady increase in demand from some customers, while making others more aware of the service delivery model and developing an induction programme for new entrants to HR, so that they understand the model’s features.
The key thing to learn from Cheshire HR service is that there is no ‘one size fits all’ model for successful shared services implementation.
Shared services across finance usually include Purchase/Procure to Pay (P2P), Order to Cash (O2C), and Record to Report (R2R).
R2R can usually include FP&A, compliance, regulatory reporting, and general ledger. Essentially, an R2R function provides strategic, financial and operational feedback, to show how a business is performing.
P2P is the process in which goods are purchased and paid for by the business, and the whole supply chain is managed from the order through to payment.
O2C is the opposite of P2P, whereby a company manages it’s end to end sales order process, right through to collecting the payment from the customer.
A HR shared service function is usually responsible for processing administrative tasks such as HR Support Desk, Learning & Development, Recruitment, Talent Management, Payroll (sometimes sits under finance) Reward, HR Data and Analytics and more.
Global business services are where one organisation provides all support services to business worldwide and integrates all processes and practices of shared service and outsourcing activities into one function. This is also known as a GBS model.
A GBS model is typically a more mature model than shared services, and a GBS tends to deliver higher value-adding functions. GBS models are typically multifunctional and provide transactional, consulting and analytical services to an organisation globally.
As shared service functions evolve and become a bigger part of organisations, the role recruitment plays is huge. Having the right people is fundamental in the success of your shared service function, so ensure you allow enough time for shared service recruitment.
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