Consolidation is more and more common in organizations with numerous subsidiaries scattered across cities, countries or even continents. The goal is to raise efficiency, lower costs and to get a better grip on business processes. While outsourcing is a one way to resolve certain problems, many companies have decided to create Shared Services Centers (SSC) that handle certain part of business within their structures.
Usually, SSCs are used to improve and optimize services such as: IT, accounting and HR, which usually are being held separately by each subsidiary. After introduction of SSC, only one entity would be responsible for certain part of the business in organization. There are 3 fundamental steps on a path to create Shared Services Center:
• Reorganization – change of the way how companies function by creation of SSC and shift of responsibility in a single area, e.g. in IT
• Centralization – establishment of a parent company that would have a decisive vote regarding other companies within a holding
• Standardization – development and deployment of homogenous procedures for all companies within organization
So what is Shared Services Center? First of all, it’s an independent business entity, that provides certain services for all companies within organization’s structure. Its task is to develop new, standardized business processes which will allow to raise operational efficiency of the group. In order to do so, it has to own resources (human and material) and guarantee a quality and time of provided services. Usually, Shared Services Centers function based on Service Level Agreements (SLAs) which define scope of services, costs and legal responsibility. What’s very significant, SSCs function like any other free-market company, meaning – they have to balance costs and income, be competitive and cost-effective.
Requirements and scope
The report ‘Implementing Shared Services Centers’ (2000) prepared by the Institute of Management Accountants, defines two basic types of activities and specified conditions which positively influence their centralization within SSC:
1. Volume driven tasks:
• the affected work is performed commonly across business units;
• customer/client needs are relatively uniform across many/all business units;
• the tasks performed are repetitive or routine in nature;
• there is a significant duplication of the activity within the enterprise, providing the opportunity to leverage best practices from multiple sites;
• high automation content or the opportunity to exploit technology exists;
• high volume and transaction intensity provide economies of scale potential;
• there are few regulatory, legal, or union constraints;
• the affected activities impact a significant number of employees or subunits; financial and business risks are low.
2. Knowledge driven tasks:
• they are performed commonly across multiple business units;
• there is reasonable conformity in customer/client requirements;
• formula-driven approaches, rather than custom solutions, are more common;
• current efforts are fragmented or diffused across disciplines, which provides an opportunity to create cross-functional solutions that leverage organizational competencies; and
• the potential SSCs activities would be relevant for most teams, departments, subunits, or managers in the organization.
Existence of aforementioned circumstances makes a solid ground for foundation of Shared Services Center. Areas most commonly moved to SSC are:
Nowadays, it’s hard to imagine a well prospering enterprise without a solid support of information technology. However, decentralized companies that function within the same holding, tend to have varied IT systems, often poorly integrated on the level of whole organization, which raises potential problems and concerns, e.g. in terms of flow of data or introduction of homogenous procedures. The multiplicity of systems results in considerable redundancy of development and the maintenance activities which adversely affect the flexibility of IT environment and also raise Total Cost of Ownership (TCO) in this area. This is a natural consequence of lack of centralization in IT.
Finance and accounting
Conducting financial and accounting services separately by each subsidiary is typically not cost-effective and problematic. One of the biggest issues in this area include inefficiency with balancing resources during monthly ‘peaks’, lack of unified standards and proper communication between companies.
HR is not only about hiring new employees. It is also (or perhaps mostly) about salary settlements, changes in staff, data analysis and reporting. Major problems in Human Resources include control over total costs of wages and change management resulting from frequent modification of legal regulations.
Benefits of Shared Services Centers
Probably the most obvious benefit of implementing SSC is cost reduction. Boeing is a spectacular example in this area. Since 1998 the company has saved 1,4 billion dollars just by implementing Shared Services Centers. Usually, depending on type of services, SSCs generate 20-40% ROI within 3 years.
However, savings can be generated at various levels of organizational performance. Some of them may result directly from centralization, allowing reduction of employment, e.g. in case of managerial positions. To a large extent however, financial benefits also result from improvement of quality of work and unification of practices in the area of SSC’s expertise. Additionally, reduction of organizational inertia has significant impact on performance of whole organization as it allows to introduce best practices faster and more efficiently.
Implementation of standardized processes based on best-practices allows not only to harmonize organization’s activities, but also to optimize multiple repetitive tasks. Also communication within holding significantly improves and the time needed to process formalities is reduced. As a result, a whole group has a chance to work like a well-oiled machine with central units controlling certain circuits.
Creation of SSC allows other entities to focus on their actual line of business. It favors a narrower specialization in a particular field and higher productivity of employees in terms of their priority goals.
When it comes to IT, foundation of Shared Services Center allows to reduce costs of having, maintaining and developing IT systems. Additionally, implementation of homogenous information solutions allows to decrease long-term expenses on IT in general. It’s worth noticing that efficiency of SSC IT is higher when its actions are correlated with implementation of SSCs for other business activities in organization. For instance, it is way easier to standardize IT tools for finance and accounting SSC when the organization has SSC that specializes in IT which already developed a homogenous procedures in cases like this one.
The other advantage of Shared Services Center is better control over what’s going on within a holding. Central management of processes in standardize way allows for better transparency of conducted activities. It’s much easier to detect any anomalies and enforce certain procedures while there’s clear division of responsibilities for individual processes.
Moreover, in case of SSCs dealing with finances and accounting (realizing many task of quantitative character) it’s way easier to manage so-called ‘peaks’, which are periods of intense activity, e.g. in case of accounting invoices. Allocation of human resources can be in this case much more flexible and adjusted to certain situation, compared to dispersed companies that do it on their own.
Possible obstacles and negative effects
It’s always worth remembering that implementation of Shared Services Center is a project with high level of complexity, concerning large part of organization. Therefore, it requires careful planning and execution.
The basic problem lays in logistics. Creation of Shared Services Center usually requires separate location, equipping it with all necessary accessories including telecommunication and information systems, and on the top of that a relocation of employees to a new facility. Not to mention a matter of data migration and implementation of its standard processing.
‘If you want to make enemies, try to change something’ – Woodrow Wilson’s famous quote pretty much sums up the next problem that organizations need to face. During major internal changes, there will always be negation and voices opposing a new way of conducting business, different location, etc. Human habits are often a key factor standing in a way of finalizing a project. Chaos, lack of clear guidelines and insecurity are the worst enemies here.
The last obstacle is connected to the fact that Shared Services Center provides services for employees scattered all over the country. Tradition flow of information is restricted to minimum. Situations where one person could go to another department and ask about details (e.g. of certain invoice) is no longer an option. In case of documents that have to be approved in multiple locations separately, there are sometimes problems with logistics and keeping deadlines.
BPMS as an effective way to support SSC
One of the solutions that particularly works well not only in process of creating SSC, but also improves performance of whole organization is a flexible and comprehensive Business Process Management System (BPMS).
Its implementation allows to execute actions across all companies, accordingly to previously developed standards and best practices. It also significantly improves information flow between SSCs and other business units and enhances tasks performing. Optimization of business processes within BPMS framework allows to eliminate series of challenges resulting from relocation processes to SSC.
It is also important to note the human aspect of every business process. In order to perform duties according to rules and standards, there needs to be some instance that would control such process. Currently BPM systems offer seamless and user friendly solution to that issue. Without that employees tend to handle things on their own and according to their personal standards. Proper IT platform lets streamline all tasks and at the same time be simple enough not to cause SSC IT to be overloaded with helpdesk tickets.
In addition, use of BPMS significantly facilitates communication and exchange of information between employees, departments and companies. Proper IT solution can definitely shorten time need to process tasks and also exclude the necessity to use traditional means of information exchange (like paper mail) which is particularly burdensome in case of documents that have to travel between companies. Also, there’s a considerable increase in transparency of processes, since people with proper level of permission can always check the status of documents and tasks – who’s currently responsible for them, what changes have been made, when, by whom, etc.
At the end it’s worth to mention that unlike other solutions, BPM systems can be used by all or most employees in organization, not only by certain departments such as HR or finance. Current state of BPM advancement allows to optimize broad range of business processes and workflows that enhance both standard tasks like invoice approvals, business trips, vacations etc., but also industry, or even company-specific processes present in specific environments. Due to great level of flexibility, BPM systems can also very quickly respond to rapidly changing business procedures, maintaining ease of use for end users.
SSC and BPMS = Future
Creation of Shared Services Centers is a natural consequence of changes within large enterprises that aim to reduce costs and raise operational efficiency, especially in areas of IT, HR and finance. Well-implemented SSCs can generate multi-million dollar savings. Although, the biggest added-value lays in raise of quality of work, which is not as easy to measure.
When considering an implementation of Shared Services Center, it’s worth to remember the whole project requires to fulfill series of conditions, careful planning, and consistence in carrying out the plan. Therefore, it’s good to organize support on every level of organization. As an addition to that, such project should be handled by a single leader capable of informing and motivating others and also of overcoming obstacles on the way. Moreover, one cannot forget that implementation of SSC assumes constant improvement of business processes. Thus once developed standards have to be constantly optimized in order to ensure the highest level of service all the time.
It is worth to underline that properly implemented and adjusted Business Process Management System is capable of effectively support all premises behind Shared Services Center. It allows to handle and minimize series of negative effects of changes, especially during the first phase of the project. Additionally, BPMS can be used by the whole organization (not the SSC itself) and enforce procedures in processes that are common for most companies.
Shared Services Centers are more and more common throughout the World. Companies like Coca-Cola, Hewlett-Packard, Boeing and McDonald’s have already effectively implemented them to achieve finance and business goals. It becomes obvious that besides outsourcing, SSCs will be the most common way to handle business processes in areas such as: IT, finance or HR.