Wednesday, July 28, 2010

What Are You Waiting For?

By Bill Frech, Co-Founder, CandidAdvisors

Are you under pressure from management and the board to cut costs but not cut service, you may even have to increase service or support new offerings. What can you do?

Have you thought about implementing shared services, or if you already have shared services, should you expand the scope and remit?

The Shared Services concept has been around as a business solution for reducing costs, improving performance and providing better information to businesses since the mid-80’s (For a definition of Shared Services see the blog post entitled Defining Shared Services, Enabling a Capability to do More With Less). However, there are a number of companies who have not implemented shared services or taken full advantage of their shared service operation. They are either agonizing over the wisdom of doing so and/or are still battling the politics that encumber any change.

If you stop and think about what is entailed in undertaking the implementation of a shared services strategy it is much less costly, faster and less contentious than an ERP implementation… AND the benefits are achieved faster and the cost savings can be truly significant, often quoted at greater than a 30% cost reduction. As a matter of fact, it is often the move to Shared Services and not the ERP implementation that drives the majority of the savings.

Politics aside for the moment, how do you know determine if shared services is a viable solution for your company? Let us start by asking; does you company have any of the following indicators?
  • Redundant staff or functions in the business units/divisions/etc.
  • Multiple ERP systems or instances of ERP systems
  • No data standards
  • Difficulty in answering questions like:
- How many employees do we have?
- How much do I spend on travel?
- What does Finance, HR, or IT cost me?
- Are my outsourcing contracts delivering the value promised?
- Can I get a business case to see how this new acquisition might fit into with my other businesses?
Outsourcing contracts are managed by various groups, business units, etc. with no standards and minimal leverage between arrangements

If these indicators ring a bell or you are under pressure to reduce cost while keeping up performance, you should consider implementing shared services as part of your business optimization strategy.

An easy way to get started and verify if this is the right strategy for your organization is to perform an assessment. An assessment involves gathering the costs associated with the operation of the area(s) you are considering for shared services. Envision how the shared service will operate and what your staffing needs would be and then compare current to future state costs. You should also consider what the costs would be to move to your new operating model and what some of the non-financial benefits will be. This should give you an indication as to whether you should consider implementing shared services.

Defining Shared Services, Enabling a Capability to do More With Less

Shared Services refers to the organizational construct and operational allocation of responsibility that bundles certain business processes and activities into a separate organization, which in turn treats those processes and activities as the core of its own business offering them as a product or service to its customers. The concept behind Shared Services is the sharing common business processes, improving service and access to information while reducing cost through leveraging economies of scale.

Shared services is generally considered tactical solutions, in that they are not typically core areas of the business and do not provide a significant competitive advantage to the business they serve. By collecting nonstrategic processes and activities into a common organization, under its own management, the potential exists for individual business units to focus on their core business. Freeing up business unit management to focus on solving business problems by enhancing the business unit’s core processes can result in enhancement of the value chain, which in turn can lead to company growth.

But why stop at non-core activities? A few companies are implementing Shared Services for Marketing, Sales, Customer support, Product development, Product support, etc. This expansion of the Shared Services concept is critical in today’s climate of having to achieve more with less (people, budget, access to enabling technologies, etc.) CandidAdvisors believes this is an essential trend and that Shared Services are more than simply aggregating work into a group, organization or center.

Some of the characteristics of effective Shared Service operations:

  • They operate as a stand-alone organization with a mission to serve the business regardless of function, business unit or location.
  • They treat their internal customers with a powerful customer service ethic.
  • They are function agnostic.
  • Their goals are reduced cost, improved service and better information.
  • They can offer value-added services such as analysis and project support.
  • They can serve as an innovation center for the business support functions.
  • They operate as a business, with a demand planning and product/price orientation towards their customers.
  • They are an excellent structure to perform governance over outsourcing contracts and services.
Overall Shared Services is a well-accepted and proven way of providing business services to corporations. They are especially effective in helping corporations reduce costs while improving service, information accuracy and accessibility. However, it is now time to expand their role into enabling corporations to do more with less and to expand their remit into new areas.