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
OutsourcingOutsourcing is subcontracting a service, such as product design or manufacturing, to a third-party company. The decision whether to outsource or to do inhouse is often based upon achieving a lower production cost, making better use of available resources, focussing energy on the core competencies...
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
outsourcingOutsourcing is subcontracting a service, such as product design or manufacturing, to a third-party company. The decision whether to outsource or to do inhouse is often based upon achieving a lower production cost, making better use of available resources, focussing energy on the core competencies...
. It is sometimes assumed that a
joint ventureA joint venture is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise...
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 officeA back office is a part of most corporations where tasks dedicated to running the company itself take place. The term comes from the building layout of early companies where the front office would contain the sales and other customer-facing staff and the back office would be those manufacturing or...
functions such as HR and Finance but can also be applied to the middle or
front officeThe term, front office is used in business settings and may refer to the Sales and Marketing divisions of a company. It may also refer to any other divisions in a company that interact with their customers...
s. A key advantage of this convergence is that it enables the appreciation of
economies of scaleEconomies of scale, in microeconomics, are the cost advantages that a business obtains due to expansion. They are factors that cause a producer’s average cost per unit to fall as scale is increased. Economies of scale is a long run concept and refers to reductions in unit cost as the size of a...
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 .
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).
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-shoreNearshoring means sourcing service activities to a foreign, lower-wage country that is relatively close in distance. Nearshoring is becoming competitive with outsourcing to farther areas since the recent rise of fuel costs...
– Work is carried out in a close location (e.g. continental Europe relative to the UK)
Off-shoreOffshoring describes the relocation by a company of a business process from one country to another -- typically an operational process, such as manufacturing, or supporting processes, such as accounting. Even state governments employ offshoring....
– 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
outsourcingOutsourcing is subcontracting a service, such as product design or manufacturing, to a third-party company. The decision whether to outsource or to do inhouse is often based upon achieving a lower production cost, making better use of available resources, focussing energy on the core competencies...
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,
benchmarkingBenchmarking is the process of comparing the business processes and performance metrics including cost, cycle time, productivity, or quality to another that is widely considered to be an industry standard benchmark or best practice...
and
measurementIn science, measurement is the process of obtaining the magnitude of a quantity, such as length or mass, relative to a unit of measurement, such as a meter or a kilogram...
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 SectorIn economics, the private sector is that part of the economy which is both run for private profit and is not controlled by the state. By contrast, enterprises that are part of the state are part of the public sector; private, non-profit organizations are regarded as part of the voluntary...
has been moving towards Shared Services since the beginning of the 1980’s. Large organizations such as the
BBCThe British Broadcasting Corporation, usually referred to by its abbreviation as the "BBC", is the longest established and largest broadcaster in the world...
,
BPBP plc is the third largest global energy company, the 5th largest company in the world, the UK's largest company, a multinational oil company with headquarters in St James's, City of Westminster, London...
, Bristol Myers Squibb,
FordThe Ford Motor Company is an American multinational corporation based in Dearborn, Michigan, a suburb of Detroit. The automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford, Lincoln, and Mercury brands, Ford also owns Volvo Cars of Sweden, and a small stake...
,
GEGê are the people who spoke Ge languages of the northern South American Caribbean coast and Brazil, their society is or was highly egalitarian and anti-authoritarian, because of which they resisted the Incas as well as the Spaniards...
, HP,
PfizerPfizer Incorporated is a pharmaceutical company, ranking number one in sales in the world. The company is based in New York City, with its research headquarters in Groton, Connecticut...
,
Rolls-RoyceRolls-Royce plc is a British aircraft engine maker, and the second-largest in the world, behind GE Aviation. The company has related businesses in the defence aerospace, marine and energy markets....
, and
SAPSAP AG is a multinational software development and consulting corporation, which provides enterprise software applications and support to businesses of all sizes globally...
are operating them with great success. [] 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 ReviewThe Gershon Efficiency Review was a review of efficiency in the UK public sector conducted in 2004-5 by Sir Peter Gershon.Gordon Brown and Tony Blair, then Chancellor of the Exchequer and Prime Minister respectively, appointed Peter Gershon, at that time the head of the Office of Government...
are working to an overall plan for realizing the benefits of Shared Services. The
Cabinet OfficeThe Cabinet Office is a department of the Government of the United Kingdom responsible for supporting the Prime Minister and Cabinet of the United Kingdom. The department was formed in December 1916 from the secretariat of the Committee of Imperial Defence under Sir Maurice Hankey, the first...
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 OfficeThe Cabinet Office is a department of the Government of the United Kingdom responsible for supporting the Prime Minister and Cabinet of the United Kingdom. The department was formed in December 1916 from the secretariat of the Committee of Imperial Defence under Sir Maurice Hankey, the first...
at £1.4bn per annum (20% of the estimated cost of HR and Finance functions). The
National Audit Office (United Kingdom)The National Audit Office is an independent Parliamentary body in the United Kingdom which is responsible for auditing central government departments, government agencies and non-departmental public bodies...
in its November 2007 report 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 (
captureCapture may refer to:*Capture , to remove the opponent's piece or pawn from the board by taking it with one's own piece or pawn*Capture , situations in which a government agency created to act in the public interest instead acts in favor of other interests*Capture , a geomorphological phenomenon...
,document management,
workflowA workflow consists of a sequence of connected steps. It is a depiction of a sequence of operations, declared as work of a person, a group of persons, an organization of staff, or one or more simple or complex mechanisms. Workflow may be seen as any abstraction of real work, segregated in...
, 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 chargeback 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
- Integration Competency Center
The Integration Competency Center , sometimes referred to as an Integration Center of Expertise , is a shared service function within an organization, particularly large corporate enterprises as well as public sector institutions, for performing methodical Data Integration , System Integration or...
- Offshoring
Offshoring describes the relocation by a company of a business process from one country to another -- typically an operational process, such as manufacturing, or supporting processes, such as accounting. Even state governments employ offshoring....
- Outsourcing
Outsourcing is subcontracting a service, such as product design or manufacturing, to a third-party company. The decision whether to outsource or to do inhouse is often based upon achieving a lower production cost, making better use of available resources, focussing energy on the core competencies...
- Offshoring Research Network
The Offshoring Research Network is an international network of researchers and practitioners studying organizations in their transition to globalizing their business functions, processes and administrative services. The ORN conducts annual surveys tracking global sourcing strategies, drivers,...
- Portable Employer of Record