More Than Back Office

While shared services help in curbing costs, but there is more to it than meets the eye in the first look.


‘Shared services’ is quite explanatory a name, but to define the concept simply it is the centralized management of activities for more than one business user. Shared services is very quickly emerging as a popular mechanism (if I may call it that!) to drive scale and efficiency by stitching together support functions dispersed across departments. In other words it is sharing common infrastructure and to put things in perspective, lets see what it did for Boeing.

Considered one of the pioneers of shared services, Boeing has been able to reduce its global infrastructure costs by nearly US$1.4 billion in the last few years. With over 21,000 employees worldwide, its shared services group centrally manages functions ranging from IT and application development to human resources. This group works closely with business units to meet their unique needs and has been instrumental in bringing down the number of enterprise applications by more than a fifth since 2001. This is not a one off case study, estimates suggest that the average savings resulting from the implementation of shared services is as much as 14 per cent.

Consolidate
It was not very long ago that management consultants and business gurus were always talking about decentralization. But the wheel now seems to have come full circle. It is this very set of people who are now talking the exact opposite. The driving economic principle, they feel, that will lead to greater economic benefits is centralization. And this is the exact thinking that goes behind shared services. So rather than have different people, at different locations perform the same function why not have a common group of people take ownership of a function. In a single word: consolidate.

But consolidation alone will not lead to the desired results. Before we discuss further, lets look at a number. According to a recent AT Kearney survey conducted by Harris Interactive 76 per cent of companies expected increased productivity from shared services, but only 56 per cent achieved this goal. Similarly, 87 per cent of companies expected to cut costs, but only 67 per cent managed to save money. What this definitely means is that the idea has potential but there is some tweaking to be done.

Amongst the first few things that the company must look at while going full steam ahead for shared services is standardization. According to a study conducted by Accenture, standardization is among the top ten success factors. By standardizing processes and procedures, companies realize the benefits of scale much faster. But another thing to remember is that standardization must not come at the cost of simplicity and flexibility. The smarter companies drive simplicity and flexibility by setting architectural standards and closely scrutinizing the true costs and benefits of exceptions. These companies tackle complexity by reducing the number of processes, procedures and even technologies and platforms they deploy and then design systems that increase the flexibility and ease of implementation. Such companies also work hard at making systems more modular and the connections between systems easier and more standardized. This strategy allows these companies to ramp up (‘verticalize’ is a word I prefer instead of ramp up!) new processes and functionality more quickly. Another benefit is that it allows integration of disparate systems resulting from mergers, acquisitions, or reorganizations.

Technology: Bulwarks success
80 per cent of the executives polled by Harris Interactive for the AT Kearney survey agreed that technology is either extremely or very important for the success of shared services. AT Kearney observes, “…in large part, the fundamental success –and future competitive advantage—of shared services depends on technological improvements.”

While this is true, it is also important for business organizations to take into account commercial aspects of new technology adoption such as industry standardization and the likely future support of technologies because of the enormous costs of obsolescence. So it becomes imminent for companies to get the best out of their existing adoptions and that can be realized by building a technology-smart business organization.

Process is King
More than just a handful of companies today realize and appreciate the fact that a bare bone conversion to shared services will not lead to the promised land, i.e the desired paybacks will be hard to come by. This is largely attributed to the fact that during implementation most companies are tunnel visioned – focusing only on cost reduction, not realizing that the light at the end of the tunnel will mow you down, as the saying goes. While there may not exist a silver bullet for this but there certainly exists hope in the form of business process management or BPM as we know it for short.

“BPM is effective in integrating B2B transactions and workflow to create a single process modeling and execution environment.” While this definitely sounds like consultant-speak, what it essentially means is that a BPM implementation helps to reduce a lot of manual process inefficiencies, which are often the cause of operationally inefficient and low quality service. BPM solutions are designed to increase the productivity (and therefore the profitability!) by automating a substantial portion of manual processes while at the same time leveraging the business’ existing technology infrastructure.

While it may sound quite easy, it involves a lot of leg work (But there is no short cut to success, is there?) Businesses must thoroughly examine their existing processes to understand how are specific business processes being performed. This examination must be end-to-end, from the point the first actions are performed in a process through to the final stage of storage and retention. Its only at the end of this exercise can a better, more effective and efficient process be designed. It is very important to note that quite often the use of the available (and standardized, as they say) automation systems may not meet the unique needs of a business.

And once a BPM is in place, fine tuned and standardized shared services’ processes result in fewer employee training costs, fewer delays, reductions in the amount of misplaced or duplicated work, and smaller numbers of human errors. The benefits definitely outweigh the effort!

This is another one of my writings that never got published. And I actually don't remember why, honest!