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.
These 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. Most companies use a shared services model for finance, human resources management and information technology. The business may decide to pay for the cost of shared services 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.
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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.
The main things to action prior to setting up shared services are:
• Measure costs and service levels before a move to shared services.
• Document processes and work streams before implementation.
• Appoint a full time GM early on to direct and coordinate the team.
• Focus sufficiently on the transition period – to make sure it’s all smooth.
• Have a good, well planned out project plan.
• Produce a full risk assessment and management plan.
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.
Finance shared services is usually the most popular function within a shared service centre, improving efficiencies and reducing costs.
Finance shared services is one of the driving functions behind shared service centres and it’s estimated more than half of global companies have moved their finance and accounting department into a finance shared services function – or are planning to do so.
HR Shared Services are set up to streamline HR activities, which reduces costs, increases the efficiency of business processes and frees up time to concentrate on strategy.
HR Shared Services functions can add a lot of value if you do it right. If you get it wrong, it can have a negative effect on employee experience and relationships throughout the business with HR can be damaged.
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:
• HR administration (including recruitment services, management information, records management)
• Learning and development
• Employee benefits and support service
• Occupational health and counselling
• Payroll – now outsourced but centrally overseen.
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:
• A more ‘committed relationship’ between HR and the organisation
• Increased internal benchmarking and an associated questioning approach to service delivery.
• A more commercial and cost aware attitude to service provision among HR staff
• Better career opportunities and access to training.
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.