The market in which organisations today operate in, many of which are multinational, is characterised by globalisation, mergers, acquisitions and consolidation. This corporate environment requires companies to standardise operations to stay competitive. One effective way of keeping costs down and improving efficiency is by moving certain functions to one central location.
In this week’s blog post we explore the concept of Shared Services and its relationship with BPO.
What are Shared Services?
Shared services entered the corporate scene in the early 1990s as large decentralised companies looked to combine basic transactional processes such as payroll, purchasing and accounts payable, and sell back those services at cost to the individual business units. As companies extend their presence across borders, it becomes increasingly uneconomical to maintain a duplicate accounting infrastructure within each country of operation (Report no.79 published by ACCA, 2002).
A Shared Service centre (or SSC) refers to a dedicated unit (including people, processes and technologies) that is structured as a centralised point of service and is focused on defined business functions. These functions are supported by IT and IT services for multiple business units within the enterprise. Shared services may come from several different physical locations, and may involve numerous business functions and IT processes. The definition, structure and scope of an SSC start within the enterprise. Enterprises sometimes engage external providers to consult with various elements of the design, structure, location options and execution options. Execution and long-term delivery may be by internal enterprise personnel or by service providers, or some combination thereof. Consequently, the definition of shared services is independent from the sourcing option for delivery (Gartner, 2015).
Similar to BPOs, SSCs refer to services required by more than one institution, which have been managed into one entity or extended to serve multiple institutions from one host in order to improve service quality and/or efficiency (Grant Thornton, 2011)
The BPO take on Shared Services
There are multiple models that can be adopted when going into the concept of Shared Services. In this post, we focus on the outsourcing approach.
A well-developed and industry-leading BPO approach and organisation can deliver faster and more effective integration of new acquisitions. This can dramatically speed up the time it takes to realise the targeted synergies, and helping the CFO meet external stakeholders’ demand for financial information (Accenture, 2014).
The Outsourcing Model allows organisations to develop a shared services contract with an expert supplier. There are a variety of contracts that can be used with this model including fee‐for‐service, retainers, retainers with specific project opportunities, etc. The outsourcing organisation governs its own operations but the shared service organisations can choose what services they wish to purchase. They are potentially able to secure a better fee‐for‐service or retainer rate because they have pooled their needs and represent a larger customer for the service provider (Beachy, Hanna, Ho, Nanton, Penney & Renaerts, 2010).
There are potentially a number of areas in which organisations could develop shared service agreements. In considering the development of a specific shared service it is important to understand all of the components of that service so that the shared needs of the organisations can be carefully assessed.
Some general areas of opportunity for collaboration in the BPO-SSO model include the following:
- Human Resources
- Information Technologies (IT)
- Resource Development
- Advocacy and Government Relations
- Property Management
- Policy Development and Accreditation
This week’s managers’ tips when navigating the BPO-SSC relationship:
Gaining alignment up-front in a few key areas can help smooth the path forward. Starting out questions should include:
- Which functions/activities fit in scope (not all activities are a good fit)?
- What Shared Service Center (SSC) structure fits the organisation?
- Is the long term goal to in-source or out-source (most organisations figure this out in the first couple of years and a growing option is the hybrid model with a local component)?
Long term considerations for success:
- Sharing services will take time. It is not about trying to retrofit current and disparate technology environments. Rather, it is about looking forward, making collective decisions today that will position our organisations for further collaboration tomorrow.
- Measure success across the end-to-end process and include internal customers
- Draw the lines of responsibility to include everyone involved, making the end-to-end process success part of everyone’s responsibility
- Focus on your people – culture change is often the hardest part; process and tools are table stakes for success
- Seek collaboration where there is a clear and present need for two or more institutions.
What do you think about Shared Services? Do you think it’s something your organisation could benefit from?