With so many businesses looking to cut costs, shared services have become a popular option. Stuart Roberts offers advice on making them deliver.
I think everyone agrees that since mid-2008 the economic situation has been somewhat difficult, with all the cutting of costs and jobs.
At the same time, the need for central co-ordination and transparency within businesses has rarely been greater. These two needs - efficiency and transparency - have brought new life to a relatively old idea, shared services.
Many companies that had mulled over the idea for years suddenly took the plunge in the last 12 months. Others, who until now happily maintained a small shared central group, suddenly rushed to include new services and new regions.
In a recent survey of audit directors and board of directors' audit committees, the dangers posed by poorly designed or badly managed shared services featured in the top 10 business risks for 2010.
Why is this? The CIO Executive Board - part of the Corporate Executive Board - research shows that few IT groups, only about 40 per cent, are able to capture the full benefits of shared services. As IT shops rush to set up a shared service, they often do it wrongly, and that's because there are a number of challenges involved.
Balanced against potential savings of 30 per cent or more are two often-overlooked costs: the cost of managing a complex central group, and the cost of becoming divorced from business needs.
At its worst, this means that the shared service group builds up a lot of wasteful overhead and still delivers the wrong services, to the wrong people, at the wrong time. Together, as the model below demonstrates, these two problems can actually lead to costs that are 30 per cent higher than if the services were delivered locally.
To capture cost-efficiencies and strategic gains, progressive shared service organisations focus on three tasks: letting business partners help shape shared services initiatives, training shared services staff in customer service, and expanding shared services into less obvious areas of the business.
To illustrate what this means in practice, here are three examples:
- Company A: Help business partners choose service levels
Many IT shared service groups base service design decisions on cost, underemphasising performance and business partner preferences. To restore the balance, Company A helps business unit partners optimise their own service design and service levels based on performance, not just overall cost. They achieve this by building services from clearly defined, market-comparable service options.
- Company B: Instil service focus within your shared service staff
Shared service organisations often struggle to professionalise their IT organisations and staff and fail to establish a relationship model with clients. To instil service orientation in its shared service staff, Company B creates an on-the-job development programme around stakeholder-selected service competencies, and consequently improves customer satisfaction by 70 per cent within a three-year period.
- Company C: Identify and provide 'next generation' shared services
Established IT shared service organisations often struggle to identify new opportunities for shared provision once commoditised services are provided centrally. They may even find their role in decline as their original slate of services is outsourced. To resolve this challenge, Company C isolates common process components for shared provision from otherwise differentiated operational processes.
For many organisations, given the benefit in cost and process efficiencies, as well as transparency, a shared service is a good idea. Nonetheless, like with any other major effort - to reap benefits and avoid potential loss when you implement it, you need to do it right.
In short, successful shared service organisations adopt three approaches that their less successful peers do not: they actively involve business partners when shaping the shared service programme, they create a customer service culture, and they take a long-term view to ensure continued savings and strategic relevance.
By following these best practices, you can have the best of both worlds: the strategic benefits of an internal, central IT organisation and the cost benefits of an external partner - and that's shared service done right.
A comprehensive framework for implementing and developing shared service initiatives is available at the CIO Executive Board website.
Stuart Roberts is managing director of the IT practice at the Corporate Executive Board.
The Corporate Executive Board offers research and insights along with an integrated suite of members-only tools and resources that enable the world's most successful organisations to deliver superior business outcomes.
The CIO Executive Board, part of the Corporate Executive Board, provides research, tools and resources to help executives and their teams solve complex organisational, process and management issues that commonly derail IT organisations.