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If there is a single watchword for the implementation of shared services, clarity would be a good candidate. In shared services, there can never be enough clarity in terms of what is wanted from a customer, what is offered by a supplier, and how closely these two wish-lists match. Moreover, such clarity is an a priori requirement. If it comes after implementation it is already too late.
“Shared services has been proven to be a business model that works for many organisations in many industries, of many sizes and for several different functions,” says Peter Moller, shared services specialist at Deloitte, the consultancy. “But you still need to carefully assess the feasibility of any shared services project and make sure before you start detailed design and implementation that you have a clear plan and business case.” This takes time, typically measured in months.
A feasibility study will include some obvious elements, such as an implementation and resourcing plan, details of the cost benefit and return on investment. Also, senior management must be behind the project. This means more than the endorsement of the board. Rather, it is critical to understand and agree where the business is now, so that a compelling business case guides the project. “A strong business case explicitly endorsed by senior management is the first corner stone for success,” says Phil Sawrey, client service director at Resources Global Professionals.
Second, the feasibility study should analyse the functional scope of the shared services. If it is the finance function that is moving to the shared services model, how does that impact upon finance-related functions such as HR, procurement and planning? This requires detailed scoping of, say, process splits. “For example, in the ‘purchase-to-pay process’, where should the purchase invoice be received and where should it be input and then matched?” asks Mr Moller.
The Scottish Executive, an organisation that recently completed a feasibility phase, provides an example of how detailed the scoping of shared services should be. At a headline level, the appeal of shared services is clear: to drive efficiency savings by consolidating the activities of the 32 councils in Scotland that are common to all. However, as Peter Russell, head of the Efficient Government Group, explains, the executive decided not to look at existing processes and identify candidates for shared services centrally. Rather, they asked each council and potential suppliers to ask themselves what was common in the delivery of services to all of Scotland’s 5m citizens, and then to ask what needed to be localised. “We encouraged them to look outside their own walls and find savings by sharing,” Mr Russell says. “This required more diagnostic work up front. But although it takes more time, the end result will be much better.”
Another question is the location of the services. An existing site may appeal since it will cost less initially and appear less risky. But lower labour rates and opportunities for implementing a service oriented culture without having to overcome entrenched ways of working make greenfield sites attractive, too. On the other hand, careful advice is then required on where. The shared services industry is prone to fashions. “For example, Prague and Budapest were the hot new sites just a couple of years ago,” continues Mr Moller. “Now they are probably overheated for most shared services start-ups.”
Other issues to weigh up include the implications of an unfavourable tax regime, which can wipe out the benefits of labour arbitrage in an instant. More complex are the “people issues” around change management. Top of the risks to shared services listed by IBM are changing the ways of working for large numbers of people. According to the IBM Shared Services Workbook, the key is “the ability or willingness of vested interests in an organisation to accommodate, accept or endorse the level of change being proposed.”
Even the rumour of shared services can be reinterpreted by many as pending job cuts. Winning the hearts and minds of managers from the earliest stages is essential to limiting potentially damaging battles over office politics. Concerns can be offset by involving these people at the feasibility stage.
“If key function or business unit heads do not support the shared services concept, then delivering the promised cost reductions and class leading performance will be an uphill struggle,” says Mr Sawrey. “The place to win this struggle is at the beginning, with a business case generated and supported by the business.”
Last but not least is the question of technology. IT is not just the plumbing that makes shared services possible because shared services require standardisation: a technology platform that is not able to integrate possibly heterogeneous legacy systems will become a burden.
Many companies will want outside help when establishing a shared services model. This is not only because consultants have the expertise of real experience on which to draw. “Benchmarking is key to this phase,” says Tom Bangemann, from business advisory, the Hackett Group. “It provides baseline data which is critical to determining and validating whether the business case is correct or not.”
Another important benefit that independent third party advice can bring is the question of the “one-stop shop” approach. What is meant by this is that it is tempting to go with a single provider for shared services, though that single provider may not itself have all the expertise for running a variety of business processes. “Astute buyers will be well advised to seek shared services centres with a core expertise but who perform key support functions by linking to a specialist third party,” says Simon Stammers, head of sales at Anacomp, a provider of outsourced document services.
The most important point to remember is that in spite of seeing the shared services concept applied elsewhere in their sector, organisations should not regard it as an automatic solution. As Mr Moller concludes: “‘We know it’s feasible,’ they say. That is a big mistake. As the carpenter knows – measure twice, cut once.