Shared services
Encyclopedia
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.
There are two arguments for sharing services . The ‘less of a common resource' argument and the ‘efficiency through industrialisation' argument. The former is ‘obvious': if you have fewer managers, IT systems, buildings etc; if you use less of some resource, it will reduce costs. The second argument is ‘efficiency through industrialisation’. This argument assumes that efficiencies follow from specialisation and standardisation – resulting in the creation of ‘front' and ‘back' offices. The typical method is to simplify, standardise and then centralise, using an IT ‘solution' as the means.
Shared services is different from the 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
. It is sometimes assumed that a joint venture
between a government department and a commercial organization is an example of shared services. The joint venture involves the creation of a separate legal commercial entity (jointly owned) which provides profit to its shareholders.
Traditionally the development of a shared-service organization (SSO) or shared-service centre (SSC) within an organization is an attempt to reduce costs (often attempted through economies of scale
), standardized processes (through centralization). A global Service Center Benchmark study carried out by the Shared Services & Outsourcing Network (SSON) and the Hackett Group, which surveyed more than 250 companies, found that only about a third of all participants were able to generate cost savings of 20% or greater from their SSO.
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.
, Professor John Seddon
claims that shared service projects based on attempts to achieve 'economies of scale
' are a mix of a) the plausibly obvious and b) a little hard data, brought together to produce two broad assertions, for which there is little hard factual evidence.. He argues that shared service projects fail (and often end up costing more than they hoped to save) because they cause a disruption to the service flow by moving the work to a central location, creating waste in handoffs, rework and duplication, lengthening the time it takes to deliver a service and consequently creating failure demand
(demand caused by a failure to do something or do something right for a customer).
Unitary: A single organization consolidating and centralising a business service
Joint initiatives: Agreement between two or more organizations to set up and operate shared services
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.
and measurement
is considered by some as 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.
has been moving towards shared services since the beginning of the 1980s. Large organizations such as the BBC
, BP
, Bristol Myers Squibb, Ford
, GE
, HP, Pfizer
, Rolls-Royce
, ArcelorMittal ArcelorMittal, and SAP
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%.
The conventional accounting practice used to generate these figures is disputed however by management thinker Professor John Seddon
who argues that the measuresment known as 'unit cost' tells you nothing about overall costs. Overall costs include 'failure demand
' which is defined as a failure to do something or do something right for the customer.
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. 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 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.
There are reports of UK government shared service centres failing to realise savings, such as the Department of Transport's project, described as 'stupendous incompetence' by the Parliament's Public Accounts Committee. .
The Northern Ireland Civil Service (NICS), has implemented shared services for a number of departments and functions. For example, IT Assist (the ICT Shared Service Centre) provides common infrastructure and desktop services to NICS staff in the office, at home or when mobile working.
, 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.
Many large organizations, in both the public and private sectors, are now considering deploying enterprise content management (ECM) technology as a shared service.
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.There are two arguments for sharing services . The ‘less of a common resource' argument and the ‘efficiency through industrialisation' argument. The former is ‘obvious': if you have fewer managers, IT systems, buildings etc; if you use less of some resource, it will reduce costs. The second argument is ‘efficiency through industrialisation’. This argument assumes that efficiencies follow from specialisation and standardisation – resulting in the creation of ‘front' and ‘back' offices. The typical method is to simplify, standardise and then centralise, using an IT ‘solution' as the means.
Shared services is different from the model of outsourcing
Outsourcing
Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
, 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
Outsourcing
Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
. It is sometimes assumed that a joint venture
Joint venture
A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...
between a government department and a commercial organization is an example of shared services. The joint venture involves the creation of a separate legal commercial entity (jointly owned) which provides profit to its shareholders.
Traditionally the development of a shared-service organization (SSO) or shared-service centre (SSC) within an organization is an attempt to reduce costs (often attempted through economies of scale
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
), standardized processes (through centralization). A global Service Center Benchmark study carried out by the Shared Services & Outsourcing Network (SSON) and the Hackett Group, which surveyed more than 250 companies, found that only about a third of all participants were able to generate cost savings of 20% or greater from their SSO.
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.
Critics of shared services
The management thinker and inventor of The Vanguard MethodThe Vanguard Method
The Vanguard Method is a method used by service organisations to change from a command and control to a systems approach to the design and management of work. The method was invented by the occupational psychologist Professor John Seddon who began his career researching the reasons for failures of...
, Professor John Seddon
John Seddon
John Seddon is a British occupational psychologist, author and "management guru", specialising in the service industry. He is lead consultant of Vanguard, a consultancy company he formed in 1985 and the inventor of 'The Vanguard Method'....
claims that shared service projects based on attempts to achieve 'economies of scale
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
' are a mix of a) the plausibly obvious and b) a little hard data, brought together to produce two broad assertions, for which there is little hard factual evidence.. He argues that shared service projects fail (and often end up costing more than they hoped to save) because they cause a disruption to the service flow by moving the work to a central location, creating waste in handoffs, rework and duplication, lengthening the time it takes to deliver a service and consequently creating failure demand
Failure demand
Failure demand is a systems concept used in service organisations first discovered and articulated by Professor John Seddon as 'demand caused by a failure to do something or do something right for the customer'...
(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: 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
Nearshoring
Nearshoring is "the transfer of business or IT processes to companies in a nearby country, often sharing a border with your own country", where both parties expect to benefit from one or more of the following dimensions of proximity: geographic, temporal , cultural, linguistic, economic, political,...
: Work is carried out in a close location (e.g. continental Europe relative to the UK)
Off-shore
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...
: 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
Outsourcing
Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
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
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost...
and measurement
Measurement
Measurement is the process or the result of determining the ratio of a physical quantity, such as a length, time, temperature etc., to a unit of measurement, such as the metre, second or degree Celsius...
is considered by some as a necessity. Benchmarking is the comparison of the service provision usually against best in class
Best in Class
Best in Class is the title given to the dog who has been judged the best representative specimen of its particular class at a conformation show held by the Kennel Club of that country.-Classes:Dogs and Bitches are separately grouped into different classes...
. 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.
In the private sector
The private sectorPrivate sector
In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
has been moving towards shared services since the beginning of the 1980s. Large organizations such as the BBC
BBC
The British Broadcasting Corporation is a British public service broadcaster. Its headquarters is at Broadcasting House in the City of Westminster, London. It is the largest broadcaster in the world, with about 23,000 staff...
, BP
BP
BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
, Bristol Myers Squibb, Ford
Ford Motor Company
Ford Motor Company is an American multinational automaker 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 and Lincoln brands, Ford also owns a small stake in Mazda in Japan and Aston Martin in the UK...
, GE
Gê
Gê are the people who spoke Ge languages of the northern South American Caribbean coast and Brazil. In Brazil the Gê were found in Rio de Janeiro, Minas Gerais, Bahia, Piaui, Mato Grosso, Goias, Tocantins, Maranhão, and as far south as Paraguay....
, HP, Pfizer
Pfizer
Pfizer, Inc. is an American multinational pharmaceutical corporation. The company is based in New York City, New York with its research headquarters in Groton, Connecticut, United States...
, Rolls-Royce
Rolls-Royce plc
Rolls-Royce Group plc is a global power systems company headquartered in the City of Westminster, London, United Kingdom. It is the world’s second-largest maker of aircraft engines , and also has major businesses in the marine propulsion and energy sectors. Through its defence-related activities...
, ArcelorMittal ArcelorMittal, and SAP
SAP AG
SAP AG is a German software corporation that makes enterprise software to manage business operations and customer relations. Headquartered in Walldorf, Baden-Württemberg, with regional offices around the world, SAP is the market leader in enterprise application software...
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%.
The conventional accounting practice used to generate these figures is disputed however by management thinker Professor John Seddon
John Seddon
John Seddon is a British occupational psychologist, author and "management guru", specialising in the service industry. He is lead consultant of Vanguard, a consultancy company he formed in 1985 and the inventor of 'The Vanguard Method'....
who argues that the measuresment known as 'unit cost' tells you nothing about overall costs. Overall costs include 'failure demand
Failure demand
Failure demand is a systems concept used in service organisations first discovered and articulated by Professor John Seddon as 'demand caused by a failure to do something or do something right for the customer'...
' which is defined as a failure to do something or do something right for the customer.
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 1990s. However, the failures of these projects are increasingly being reported by the press and exposed by opposition politicians.UK
The UK government under a central drive to efficiency following from the Gershon ReviewGershon Review
The 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 Office
Cabinet Office
The Cabinet Office is a department of the Government of the United Kingdom responsible for supporting the Prime Minister and Cabinet of the United Kingdom....
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. The savings potential of this transformation in the UK Public Sector was initially estimated by the Cabinet Office
Cabinet Office
The Cabinet Office is a department of the Government of the United Kingdom responsible for supporting the Prime Minister and Cabinet of the United Kingdom....
at £1.4bn per annum (20% of the estimated cost of HR and Finance functions). The National Audit Office (United Kingdom)
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.
There are reports of UK government shared service centres failing to realise savings, such as the Department of Transport's project, described as 'stupendous incompetence' by the Parliament's Public Accounts Committee. .
The Northern Ireland Civil Service (NICS), has implemented shared services for a number of departments and functions. For example, IT Assist (the ICT Shared Service Centre) provides common infrastructure and desktop services to NICS staff in the office, at home or when mobile working.
Ireland
In the Republic of IrelandRepublic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
, 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
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.
See also
- Integration Competency CenterIntegration Competency CenterThe 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...
- OffshoringOffshoringOffshoring 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...
- OutsourcingOutsourcingOutsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
- Offshoring Research NetworkOffshoring Research NetworkThe 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...
- Portable Employer of Record
- Shared Services CenterShared Services CenterA shared services center – a center for shared services in an organization – is the entity responsible for the execution and the handling of specific operational tasks, such as accounting, human resources, payroll, IT, legal, compliance, purchasing, security...