Efficiency, saving money, improving quality and service is necessary for businesses remain healthy and viable. It should be no surprise that many mid-size to large multi-location companies are looking at the Shared Service model as way of achieving those objectives.
The shared services concept has been around since the early 1980’s. It is sometimes confused with Business Process Outsourcing (BPO). BPO is the sourcing of services to a third party vendor. The purpose of the shared service model is to achieve optimal operational effectiveness through shifting internal services to another location within the same organization. This business model is a popular consideration for mid to large sized organizations that have multiple geographic locations. Deliotte Consulting’s 2011 Global Shared Services Survey Results show an 11% increase in shared service centers since 2009.
The benefits of a shared service model may go beyond just cost savings. If done right, outcomes may also include improved controls, better data visibility, or creating a platform for growth.
Traditional internal processes belonging to finance, information technology, legal, HR and purchasing are considered hot potentials for a shared service model. Common HR tasks used in the shared service center may include payroll changes, benefit administration and open enrollment, compensation administration, relocation services, recruitment administration, pension administration, absence monitoring, training, or employee records management. However while in the design phase, arbitrarily picking tasks out of these functions could be a mistake without careful analysis.
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Here are 10 keys for success when transitioning to a shared service model:
1) Ask Key Questions. What are the objectives to be reached? What is the upfront and ongoing investment to manage a shared service center? Does your unit leadership support the share service model? If not, what are the concerns? What reductions and/or transfers in staff are expected? Will you need to recruit replacements? How will you know objectives are being achieved in the share service model?
2) Determine Criteria. A few wrong decisions in the design phase could derail anticipated cost savings down the road. I was recently asked the question what HR tasks should go to a shared service and which should stay local? Effective employee engagement requires sincere touch points between leadership and employees. HR facilitates those key touch points through various key actions. If you ship off 100% of those HR actions off to another location, be mindful of what kind of unintended message would be sent to your employees about their value. My recommendation is to look at all touch points and determine which associated actions are critical and should be customizable in order to ensure your location’s success. Is it employee relations? Is it conflict management, and investigations? Is it strategic communication planning and execution? What about just in time, specialized training? Is it a focused recruitment effort on your location’s hot vacancies and need to retain those new hires after all the time and money spent on recruiting them? How about internal consulting between leaders and employees that can only be effective at the local level? The key question to ask is, what is most important to your organization’s success and what really shouldn’t and couldn't be just boxed up and put on a shelf?
The University of Michigan provides a sample criteria used to determine poor and strong task candidates for shared service in the table below:
University of Michigan Administrative Services Transformation Presentation (2011)
3) Chunk implementation. Carefully weigh the pros and cons of the sequence of what and when changes will take place. Design an effective phased approach to implementation. Communicate widely and seek buy-in from stakeholders.
4) Simplify complexity up front where you can. To ensure optimal cost saving in the shared service center it is best to simplify existing complex processes before implementation. Some companies have found it difficult to implement quickly because of the various independent databases and processes that exist.
5) Establish Strong Governance. Establish a good governance system to ensure processes are standardized from end to end and remain so. Avoid deviations or exceptions from standard that might erode effectiveness of the shared service center. This is meant to preserve the integrity of the process and prevent “complexity creep.”
6) Clarify Chargeback Expectations. It will be important maintain a good relationship between the shared service center and business facilities or units being very clear and transparent about what services will be charged back and how it is calculated.
7) Do not underestimate change management needs. Heavy focus on change management elements such as communication, executive alignment and training are required for success. Remember those who currently perform these services locally will feel insecure about the change and perhaps fearful of potentially losing a job. The fear can manifest itself into low morale, increased turnover, and potentially workplace disruptions. Having a change management plan will help mitigate low morale and retain top performers throughout this transition.
8) Ensure organizational effectiveness over time. It is easy to implement a project and walk away without follow up measures. Resist that temptation and put into place measures that will indicate organizational effectiveness over time. It is not easy to measure and demonstrate value over time. Collecting performance measures before and after implementation is key. Measures can include but are not limited to:
- Performance: Revenue per Full Time Equivalent (FTE), Sustainable cost savings, Improvements and efficient in end-to-end processes,
- Quality: Employee Satisfaction, Customer Satisfaction,
- Overall: Return on Investment (ROI)
9) Smart Technology. Many may assume that the technology platform will solve all issues to a shared service model. Consideration should be made about any past work-around, patches or complex processes built around existing technological platforms. Time needs to be devoted to determining how a facility works from end-to-end on various processes.
10) Utilize Service Level Agreements (SLA) as a communication and relationship-building tool. While the SLA is often used for outsourcing it is found to be an effective communication tool between the Shared Service Center and Facilities or Business Units. Describing up front who is responsible for what will build credibility for the Shared Service Center and minimize boundary disputes down the road.
Lessons learned from many years past boil down to this: Don’t just jump into shared service models because everyone else is doing it. Do it if it will help to achieve overall objectives and mission both today and over time. What are your experiences with shared service implementation?
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