The functions

Organisations have long sought a better way to run functions like human resources, IT or customer service. In the past, the temptation was to outsource and the really brave sent the function offshore.

But now shared services centres have grabbed the attention as a less risky alternative and one that can be applied to many business functions.

Shared services have usually been the preserve of back office functions such as IT or financial operations. But some companies have gone further and extend the shared services idea to embrace front-office functions and even activities like R&D – usually seen as strategic and of high added value.

But let’s start at the back. In most organisations, this is an area that only gets noticed when something goes wrong – never when the business is running smoothly. This neglect leads to archaic processes and inefficiencies, with the result that costs go up and productivity comes down.

The classic solution is to unload back office processes to a third party provider who promises to do them more cheaply. But according to Kam Soon Siew, managing consultant with Frost & Sullivan, many organisations now prefer the shared services approach because it offers greater control, particularly in areas like staff selection and service quality. And once an internal shared service centre is created, it is relatively easy to move to a full-blown outsourcing agreement later.

Some companies, however, go in the opposite direction, bringing an outsourced function in-house. Others opt for a hybrid approach setting up joint ventures or collaborative partnerships with third parties.

Whatever form of shared services or outsourcing (SSO) is chosen, the big challenge is knowing where to start. “It depends where the greatest pain is felt,” says Ian Batey, executive consultant at Capgemini.

For many organisations, the big pain point is their IT department. The cost of keeping systems up to date and the challenge of ensuring IT services are aligned with business goals create huge headaches. “IT is the most popular business process for SSO and it is also the most mature,” says Mr Siew. However, he says the “Big Bang” approach to IT outsourcing that was popular in the past is now falling out of favour. Too many ambitious IT outsourcing initiatives still go wrong, and so more organisations now prefer to take a phased approach to IT SSO to reduce the risks.

Another favourite back office target is finance and accounting, particularly tasks that involve a lot of manual data entry, such as credit card or stock trade processing. To reduce the costs of these labour-intensive operations, banking groups such as HSBC and Citigroup locate their finance and accounting operations in low-cost countries such as India, China and Malaysia.

Almost half of large organisations believe their in-house finance and accounting services are burning too much cash, according to research carried out by outsourcing analyst NelsonHall.

But it is not just big multinationals that can save money through a shared services F&A model. Nichols, for example, a mid-sized UK food manufacturer famous for its Vimto and Sunkist brands, claims it saves more than £100,000 a year using a shared services centre for its financial operations. Previously, the company’s six operating companies each had their own dedicated financial department and their processes were paper-based.

Now, staff in the shared services centre use electronic archiving to instantly retrieve invoices, purchase orders and contracts for the whole group. The time they had spent photocopying and filing is now devoted to more productive activities.

Human resources is another function that lends itself well to the shared services approach, although less so to full-blown outsourcing as no vendor has a “completely mature” HR outsourcing capability, argues NelsonHall.

BT, the telecoms company, adopted a hybrid approach, partnering with Accenture to centralise its global HR operations. From having more than 40 systems and 14,500 staff, BT managed to shrink its HR operation to just 600 people supporting 103,000 employees worldwide.

According to Frost & Sullivan’s Mr Siew, HR is an area that attracts a lot of SSO interest because it allows organisations to “re-engineer” the HR function.

“HR tends to be viewed as a low-risk area,” he says, “but it now goes beyond payroll processing and the trend is to use SSO for tasks such as personnel development or corporate learning.”

Call centres and customer support have traditionally been treated as low-value back office functions. But today, they are increasingly in the the front line as many businesses recognise that customer service is one of the few differentiators that can help them stand out in a crowded marketplace.

Customer service operations are nevertheless notoriously difficult to run efficiently, particularly when fragmented by product and country. For this reason, the multinational consumer products company Kimberly-Clark, recently established a shared services centre in Brighton. This was seen as a way to improve the handling of orders and queries from customers across the whole of Europe.

Underpinning the centre is SAP’s customer relationship management (CRM) software. Kimberly-Clark claims the CRM software has eliminated the need for re-keying information and made it easier for service centre staff to access customer queries – a weakness in its previous system.

Increasingly, some organisations are applying the shared services model to more strategic functions, such as research and development. One example is Roche, the pharmaceutical giant. Its R&D centre in Shanghai employs about 40 scientists who work in co-operation with the company’s other four global R&D facilities to select new clinical drugs for Roche’s global R&D strategy.

Besides scientific research, Mr Siew says white-collar jobs in financial services, such as equity research, financial modelling and analysis, also lend themselves well to SSO and, more controversially, to offshoring.