March 1998 Hot Topic
Shared Services ... Facts, Fiction and Solutions

If you could find an effective way to help meet global competition, enhance customer service with lower cost and higher quality, would you pursue it? Of course you would, and you are not alone. So we think that's enough to make the following discussion this month's Hot Topic ...

It is obvious from reading the business literature and scanning the myriad workshop and conference flyers that cross our desks, that companies need to find better ways of doing business in order to stay in the game. After the reengineering, downsizing and restructuring of the early 90's, many companies are looking for alternative means to reduce overhead, be more responsive to customers and become more market-driven. And the outsourcing trend of Shared Services seems to be fitting the bill. But while we may be hearing a lot about Shared Services, there still may be some confusion as to what exactly people are referring to. These definitions might help ...

• Shared Services: An independent organization or business unit created to provide non-core, non-strategic, but essential, services to client groups within a company. The services are usually based on common processes or operations that are shared by more than a single business unit. Examples might be services from Human Resources, Accounting, Legal, Information Technology, Finance and Tax. Some Shared Service Centers even provide services to other companies as well.
• Greenfield vs. Brownfield: Greenfield defines the Shared Services group moving out of the corporate building and/or hiring an entirely new staff. Brownfield refers to a group that either stays within the corporate location or retains the existing staff.
• Service Level Agreement (SLA): The Shared Services Group defines a scope of work they will provide each of their client groups, and the cost that will "charged" for those services. The Group negotiates these SLAs with each client. When the client changes the scope, or requests additional service, the negotiations are reopened.
• Center of Excellence: A variation that brings all the talent in a particular area (e.g. Accounts Payable) together to service the entire company, rather than have individuals embedded within the departments or divisions.

When our clients begin to discuss moving to a shared services structure, we usually start the discussions by figuring out how far they really want to go and what means will best help them to reach the growth, service and savings goals of the organization. Because no two businesses are alike, the same solutions will not produce the same results at every company so it is important to understand the facts (and the fiction) associated with the outsourcing options of Shared Services. Some challenges and solutions to consider include:

Governance & Leadership
Fact:	Employees who are part of a new shared service approach will resist the changes for a variety of reasons.
Fiction:	The perception in some quarters may be that Shared Services is just another management initiative that will go away if it is ignored long enough.
Solution:	Strong leadership is essential to overcome employees' resistance to change. Keeping a clear leadership role and completing the transition as quickly as possible will be important if you are to keep these critical areas from grinding to a halt as you set up the new group. Quick wins, especially any outside business opportunities related to shared services, will quickly reduce the resistance.
Have a clear financial strategy in mind when you start, and stick to it as you transition from the "old" approach to the new Shared Services model.

Technical Skills vs. Business Skills
Fact:	These non-core groups usually targeted in shared services often do not have the business skills necessary to develop business units with real P&L responsibilities.
Fiction:	The first inclination within these groups is to request money for the latest in technology or other enhanced equipment.
Solution:	The real solution is to help them acquire the skills and knowledge they need to build a true customer base; and then to aggressively market to those customers. They must be able to answer questions like: "Why should I use your services? Why shouldn't I just go to a recognized outside company who specializes in your area?" And so leadership must make sure the shared services group has the resources, skills and knowledge to provide appropriate answers and superior services. Otherwise, the group will set up to fail.

 

Service to Internal Customers
Fact:	Some operations groups have a long memory of poor service from some of the old elements of this newly formed Group. Getting the internal customers to buy into the new arrangement may be difficult as a result.
Fiction:	You can't teach an old dog new tricks. The attitude will be, "If these groups could not provide the proper service under the old system, how could things get any better by moving to a shared services model?"
Solution:	The new group should be enabled and incentivized to win. Using a "pay for performance" structure, geared to the requirements/expectations of the customer, will help to ensure that the new Shared Services Team will keep customer service at the top of their agenda at all times. They (and leadership) should also recognize that it will take time and effort to develop a trusting relationship with their new "customers".

 

Measuring Success
Fact:	Measuring and rewarding the right things will be a key to the success of any Shared Services Group.
Fiction:	All we need to track is costs to our internal customers.
Solution:	Using a balanced scorecard -- where areas such as customer service and costs are measured and rewarded -- will be critical. People will respond to those things that are measured and for which they are accountable. However, pick the correct elements to measure. Take the time to build a focused, balanced scorecard that reflects the results you are trying to achieve. Then train all members of the team on what each of the measures means, how they were derived and how they will be calculated. Then reward success both financially and psychologically.

 

Employee Fear
Fact:	The employees included in the shared services group may be threatened when labeled "non-core".
Fiction:	Since they are not providing "core" services within the corporate structure, what they provide is not important.
Solution:	Good communications and developing the right message to employees will be critical to the success of implementing a Shared Services strategy. A Shared Services strategy should be part of an organization's strategic and business plan, just like the revenue-producing strategies. The Shared Service strategy must help them see where they are going and how they fit into the big picture. In reality, they are very clearly positioned to become another business unit, with P&L responsibilities and accountability to their customers. When they begin to see this new view of their role, they can actually become energized and focused as never before.

 

Outsourcing
Fact:	Once you clearly articulate your core vs. non-core functions, the question of outsourcing will immediately follow.
Fiction:	Our company and the services required by our people are very unique. It would take another company years to duplicate all our internal experience.
Solution:	The management of your company will need to establish which of these non-core areas are better served by outside companies who specialize in running those functions. A good example might be the mailroom. It is certainly an essential service for the company, but an outside firm that knows how to run a mailroom might be a better option for the company. It will also be important to decide which of the potential services should be folded into the group, and which services, for strategic reasons, need to continue to stand alone.

The Future of Shared Services
The future of Shared Services looks very bright because it combines People, Process and Technology to provide service and accountability in these essential areas. Those leading edge companies who have already started realize that it will take three to four years to gain all the benefits, but as Ken Hood of Mobil Oil Company said, "I would never go back to the old way of doing business."

The need for change is compelling. Line managers have long known that they can only achieve high levels of external customer satisfaction if they receive the right kind of support from these groups within the company. Management theorist Peter Drucker has noted, "Forty years ago, service and support costs accounted for no more than 10 percent or 15 percent of total costs. Now that they are more likely to take forty cents out of every dollar, they can no longer be brushed aside." As companies grow in complexity, the marketplace becomes more competitive and customers demand more, the need for excellent internal services has become a truly critical issue. One that every company must address.

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