The Journey Toward Shared Services

By Michael Fillios  |  Posted 2008-06-06

If you have implemented a shared-services organization or contemplated doing so, you are not alone. Most companies have. If you’ve been less than ecstatic with the results, you are not alone, either.

Enough benefits have flowed from centralizing the provision of human resources, finance and accounting, property management, business technology and many other services, however, that using shared services has become standard operating procedure almost everywhere. The trend today is toward multiple services from a single internal organization.

A shared-services organization offers an ideal way to reduce costs through consolidation and standardization, but outsourcing might well be the answer if that is your only goal. Leading companies see shared services as a key player at the strategic level of the enterprise.

These firms survive the tumult of ever-shifting, global, technology-driven knowledge economies by continuously transforming themselves through three broad behaviors that I call the “transformation triangle.” These companies constantly reassess themselves and 1) eliminate activities that are no longer working to advance the strategy, 2) refine activities they choose to keep to optimize their efficiency, and 3) use the resulting savings to fund new products, business processes and business models.

This is how they become adaptive, i.e., ready to seize opportunities and respond to threats. This is the petri dish of innovation. The place of shared services in the triangle becomes obvious. Eighty-eight percent of respondents in an Accenture survey reported moderate or major costs savings, but 96 percent described moderate or major acceleration in transformation and response to change.

At the heart of the three transformation activities is the customer; all three must be carried out in the customer’s interest, and presenting a consistent service delivery face to the customer is indeed one benefit companies experience with shared services. When a shared-services unit produces standardized technologies and processes, external connections to suppliers and customers are obviously more productive.

This has become quite real for the grocery customers of Tesco, the third-largest retailer in the world. What’s worse than waiting in line at a grocery store?

A few years ago, U.K.-based Tesco created its HSC (Hindustan Service Centre), a shared-services group in Bangalore, India. Among other things, the HSC explores new technologies, such as “I Don’t Q” software. The technology, which uses a thermal sensor, counts the number of people lined up at the checkouts and suggests to store personnel that additional checkouts be opened when lines get too long. The information is also displayed on electronic panels so shoppers can find the shortest line.

Tesco set up the HSC, which now employs more than 2,000, as a fully owned subsidiary because it handles critical business processes and software. But Tesco also outsources less critical services to other Indian companies.

The HSC has played a pivotal role in developing, implementing and supporting the business model of Tesco, which operates in 12 countries. This includes a common set of business processes and IT systems that can meet the needs of various countries where Tesco sets up shop. The payoff: standardized core processes and systems that drastically reduce the time and cost of rolling out operations in new regions─most recently the United States.

A 32-member team developed an application that provides continuous replenishment of the shelves at more than 2,000 Tesco stores across the United Kingdom and the rest of the world. The team pulls sales data on 48‚000 different product lines every hour. This enables Tesco to adjust delivery quantities as little as five or six hours before the goods arrive at the store.

These accomplishments underscore the critical necessity for any shared-services endeavor: the need to be managed as one with the business. It is this need for intimacy between what can become opposing camps–business and technology–in any organization that distinguishes shared services from routine outsourcing. A disconnect between business and technology will easily negate any expected benefits from shared services.

The more integrated these units are with the company’s strategic goals, the more useful they can be in a constantly changing environment. They must distinguish between commodity and strategic services, align and package services around business processes, and orient service designs and service levels toward the customer experience. In doing so, they improve their overall value/cost contribution to the business and enable their customers in the business to optimize their own value in turn.

The journey to shared services isn’t easy. In fact, it is more than just a new internal unit. It is a mindset. Let’s use the term SOE (service-oriented enterprise) to recognize that the entire organization must now think of its activities as providing a service to a customer, whether internal or external. This will force a rethinking of demand on the part of internal customers; paying for a service means rationalizing a supposed need in terms of the organization’s overall strategy and its external customers’ needs.

The SOE’s purpose is more than simply moving people together into one location and giving them one system. Successful implementations integrate processes, people, information and automation to deliver a totally new set of capabilities. It is, as are all important endeavors, a political act.

An SOE realizes value far beyond the original goal of reducing operating costs. Organizations that find ways to make shared services work─overcoming the many people, process and technology challenges that shared services can entail─are well-placed to seize competitive advantage.

Michael Fillios has been at the intersection of business and technology for 20 years. He has led executives around the world in advancing their maturity in managing business and technology together. He is the chief solutions officer of BTM Corporation, a provider of solutions that help organizations improve the business value of technology. © BTMCorporation