Shared Services refers to the provision of a service by one part of an organization or group where that service had previously been found in more than one part of the organization or group. Thus the funding and resourcing of the service is shared and the providing department effectively becomes an internal service provider. The key is the idea of 'sharing' within an organization or group.
Overview
Shared Services is similar to collaboration which might take place between different organizations such as a Hospital Trust or a Police Force. For example adjacent Trusts might decide to collaborate by merging their HR or IT functions.
Shared Services is different from the diametrically opposite model of Outsourcing, which is where an external third party is paid to provide a service that was previously internal to the buying organization, typically leading to redundancies and re-organization. There is an on-going debate about the advantages of Shared Services over outsourcing.[1][2][3] It is sometimes assumed that a joint venture between a government department and a commercial organization is an example of Shared Services but in fact they are quite different. The joint venture involves the creation of a separate legal commercial entity (jointly owned) which provides profit to its shareholders. It is difficult to see what is being shared rather than bought. Such joint ventures are really a form of outsourcing.
One purpose of Shared Services is the convergence and streamlining of an organization’s functions to ensure that they deliver to the organization the services required of them as effectively and efficiently as possible. This often involves the centralizing of back office functions such as HR and Finance but can also be applied to the middle or front offices. A key advantage of this convergence is that it enables the appreciation of economies of scale within the function and can enable multi function working (e.g. linking HR and Finance together), where there is the potential to create synergies.
A large scale cultural and process transformation can be a key component of a move to Shared Services and may include redundancies and changes of work practices. It is claimed that transformation often results in a better quality of work life for employees although there are few case studies to back this up[citation needed].
Shared Services are more than just centralization or consolidation of similar activities in one location. Shared Services can mean running these service activities like a business and delivering services to internal customers at a cost, quality and timeliness that is competitive with alternatives.
The case against shared services includes being a disruption to the service flow; moving the work to a central location, creates waste in handoffs, rework and duplication), lengthens the time it takes to deliver a service and consequesntly creates failure demand (demand caused by a failure to do something or do something right for a customer).[4]
Commercial structures
A Shared Service can take a variety of different Commercial Structures. The basic Commercial Structures include:
Unitary - A single organization consolidating and centralising a business service
Lead department - An organization consolidating and centralizing a business service that will be shared by other organizations
Joint Initiatives (Internal) – Agreement between two or more organizations to set up and operate Shared Services
Location variations
It is sometimes argued that there are three basic location variations for a Shared Service including:
On-shore – Work is carried out in the same country but at a different location
Near-shore – Work is carried out in a close location (e.g. continental Europe relative to the UK)
Off-shore – Work is carried out anywhere in the world that is not on-shore or near-shore
This is not just to take advantage of wage arbitrage but to appreciate the talents of particular economies in delivering specific service offerings.
The difficulty with this argument is that 'Near-shore' and 'Off-shore' are normally associated with the outsourcing model and are difficult to reconcile with the notion of an internally shared service as distinct from an externally purchased service. Clearly the use of off-shore facilities by a government department is not an example of shared services.
Benchmarking and measurement
In establishing and running a Shared Service, benchmarking and measurement is a necessity. Benchmarking is the comparison of the service provision usually against Best in Class. The measurement occurs using agreed Key Performance Indicators (KPIs). Although the amount of KPIs chosen differs greatly it is generally accepted that fewer than 10 carefully chosen KPIs will deliver the best results.
Organizations do attempt to define benchmarks for processes and business operations.
Benchmarking can be used to achieve different goals including:
1. To drive performance improvements using benchmarks as a means for setting performance targets that are met either through incremental performance improvements or transformational change.
- Strategic: with a focus on a long term horizon; and
- Tactical: with a focus on the short and medium term
2. To focus an organization on becoming world class with processes that deliver the highest levels of performance that are better than those of its peer group.
Shared Services in the private sector
The Private Sector has been moving towards Shared Services since the beginning of the 1980’s. Large organizations such as the BBC, BP, Bristol Myers Squibb, Ford, GE, HP, Pfizer, Rolls-Royce, and SAP are operating them with great success. [Cooke, Robert; Barbara Quinn & Andrew Kris (1999). Shared Services: mining for corporate gold. Financial Times Prentice Hall. p. 256. ISBN 0-273-64455-6. http://www.pearsoned.co.uk/Bookshop/detail.asp?item=100000000012982. ] According to the English Institute of Chartered Accountants, more than 30% of U.S. Fortune 500 companies have implemented a shared service centre, and are reporting cost savings in their general accounting functions of up to 46%.
Shared Services in the public sector
The Public Sector has taken note of the benefits derived in the Private Sector and continues to strive for Best Practice. The United States and Australia among others have had Shared Services in government since the late 1990’s.
UK
The UK government under a central drive to efficiency following from the Gershon Review are working to an overall plan for realizing the benefits of Shared Services. The Cabinet Office has established a team specifically tasked with the role of accelerating the take up and developing the strategy for all government departments to converge and consolidate. This enables not only the benefits from within the departments but also for the synergies between departments to be realized. As part of this structured meetings for all departments to communicate to each other their operations and what is Best in Class are being conducted. The UK move to Shared Services not only works with Public Sector departments but also the Private and Provider Sectors to gain the greatest input from the most diverse groups of stakeholders and experts. The savings potential of this transformation in the UK Public Sector was initially estimated by the Cabinet Office at £1.4bn per annum (20% of the estimated cost of HR and Finance functions). The National Audit Office (United Kingdom) in its November 2007 report[5] pointed out that this £1.4bn figure lacked a clear baseline of costs and contained several uncertainties, such as the initial expenditure required and the time frame for the savings.
Ireland
In the Republic of Ireland, the health service nationally has been reorganized from a set of regional Health Boards to a unified national structure, the Health Services Executive. Within this structure there will be a National Shared Services Organisation, based on the model developed at the former Eastern Health Shared Services, where Procurement, HR, Finance and ICT services were provided to Health agencies in the Eastern Region of Ireland on a business-to business basis.
New trends in Shared Services
Organizations that have centralized their IT functions have now begun to take a close look at the technology services that their IT departments provide to internal customers, evaluating where it makes sense to provide specific technology components as a shared service. E-mail and scanning operations were obvious early candidates; many organizations with document-intensive operations are deploying scanning centers as a shared service.
Many large organizations, in both the public and private sectors, are now considering deploying enterprise content management (ECM) technology as a shared service.
The exponential growth in the amount of unstructured content is making ECM a priority within many organizations. Where previously content management may have been deployed to meet departmental needs, in certain niches within the organization, it is now being recognized as an enterprise-wide need: an infrastructure investment rather than a niche application. Many CIOs have concluded that if ECM functionality is to be offered to the enterprise, it makes sense to offer that functionality as a shared service, as a way of cost-effectively meeting the content management needs of large user bases, with potentially diverse requirements for various components of ECM functionality (capture,document management, workflow, etc).
In addition to cost-effectiveness, the ECM shared-service model also allows an organization to make better use of limited IT resources – particularly when many upcoming IT projects tend to require one or more components of ECM functionality.
One of the most compelling forces driving ECM shared services is the economics of addressable seat costs versus utilized seat costs. ECM remained a niche application within many organizations because organizations purchased enterprise licenses that were then underutilized. Addressable seat costs (if IT were able to deploy ECM to everyone), are likely to be relatively low. In most companies, ECM has tended to be rolled out to only a subset of the potential user base, which means that the addressable cost per user may actually be considerably higher – resulting in prohibitively high utilized costs per seat. Under these circumstances, few organizations could cost-justify enterprise deployment of ECM.
In contrast, a shared services approach to ECM allows IT to define appropriate levels of functionality for various segments of the potential user base. IT and business units work together to define various packages or tiers of ECM functionality (for example, ranging from a package with basic store-and-retrieve capabilities, to a more advanced package offering revision-control and automated workflow capabilities). A charge-back model is then associated with the various tiers. The packages can then be rolled out to the various business units using a “factory” approach. Overall, such an approach helps an organization to cost-justify an enterprise-wide investment in the technology, thereby maximizing the economies of scale.
Like other types of shared services initiatives, rolling out ECM as a shared service is a complex undertaking, presenting a number of practical challenges. Best-in-class organizations seek to involve both IT and the business units to develop a strategy for moving to a shared-services environment and for ongoing program management, once ECM shared services have been deployed.
See also
References
