Shared services are centralized units that provide services and support functions across an organization. The goal of shared services is to streamline operations, reduce costs, and improve efficiency by consolidating redundant services into a single centralized unit.
What are the benefits of shared services?
There are several key benefits that shared services can provide:
- Reduced costs – By consolidating redundant services, organizations can achieve economies of scale and reduce overhead expenses. This leads to significant cost savings over time.
- Improved efficiency – With standardized processes and technology across the organization, shared services units can operate more efficiently than fragmented support units.
- Enhanced service quality – Shared services units develop specialized expertise in their service offerings, leading to higher service quality.
- Increased productivity – With routine tasks centralized, business units can focus more on core activities and strategic priorities.
According to a study by Deloitte, companies can reduce costs by 20% to 40% through shared services. Other sources indicate that shared services can yield cost reductions between 25% to 60% through economies of scale and eliminated redundancies.
What types of services work well in a shared services model?
Some services that are commonly centralized into shared services include:
- Finance and accounting – Accounts payable, accounts receivable, payroll, tax filings, financial reporting.
- Human resources – Benefits administration, recruitment, training, compliance.
- Procurement – Sourcing, vendor management, purchasing, inventory control.
- Information technology – Help desk, infrastructure, application development and maintenance.
- Legal services – Contract management, regulatory compliance, intellectual property.
Generally, support functions that are routine, repetitive, and transactional are good candidates for shared services. Core business functions and customized services are better left within business units.
What are some key factors for successful implementation?
There are several important factors that contribute to successful shared services implementation:
- Stakeholder buy-in – Early involvement of stakeholders ensures alignment on strategy and smooth adoption.
- Well-defined service level agreements (SLAs) – Clear SLAs help set expectations for performance and quality.
- Robust processes – Standardized processes are critical for efficiency and scalability.
- Effective change management – A structured approach to guide people through changes brought about by shared services.
- Suitable technology – The right technology platform provides integration and supports scalability.
- Experienced leadership – A strong leadership team with shared services expertise drives success.
According to Deloitte, the top challenges around shared services implementation include lack of leadership, poor service level agreements, and inadequate change management. Paying attention to these critical success factors can lead to smoother implementation and improved results.
What are the risks or disadvantages?
While shared services offer many benefits, there are also some potential drawbacks to be aware of:
- Loss of customer intimacy – Shared services units may lack connection with internal clients versus localized teams.
- Resistance to change – Pushing back from business units is common during transition to shared services.
- Hidden costs – Transition expenses for process redesign and technology updates add up.
- Service disruptions – There may be temporary service gaps as shared services ramps up.
- Coordination challenges – Communication and alignment issues arise with disparate business units.
According to a McKinsey survey, the top three challenges around shared services include loss of customer focus, hidden costs, and internal resistance. Managing these risks requires careful planning and leadership support.
How does the shared services model work?
The basic structure of a shared services model consists of three components:
- The shared services unit – This centralized entity consists of consolidated business functions and support services. It operates independently with its own staff and technology to provide services.
- Internal customers – These are the business units within the company that utilize the services and support provided by the shared services unit.
- Service level agreements (SLAs) – Formal agreements that define the relationship between the shared services unit and internal business units. This covers services provided, quality and performance metrics, pricing and cost recovery.
The shared services unit operates like an internal business, providing specialized services across the organization. It charges back business units based on consumption of services through an internal billing or chargeback process. This helps recover costs of service delivery.
What are some shared services delivery models?
Shared services can be structured using different delivery models:
- Centralized shared services – Services are concentrated into a single centralized delivery center located in one place, often a low-cost location.
- Decentralized shared services – Multiple shared services units are established across regions/business units for more localized support.
- Global business services – Integrates shared services delivery with other centralized support functions like procurement, real estate, and talent management.
- Hybrid shared services – Combines elements of multiple models, with local shared services complemented by centralized hubs.
According to PwC, leading companies utilize hybrid shared services models to balance scale/efficiency with customer intimacy and specialized support.
How do companies determine what gets centralized vs decentralized?
Deciding what services to centralize versus keep local/decentralized depends on several factors:
- Strategic alignment – Services integral to business strategy stay decentralized.
- Degree of customization – Highly customized services remain localized while standardized services are centralized.
- Impact on competitiveness – Services that differentiate the business stay decentralized.
- Cost-benefit analysis – If economies of scale outweigh localization benefits, centralization is preferred.
- Service criticality – Highly critical services stay close to business units.
- Change impact – Services requiring minimal change are easier to centralize.
According to Bain & Company, leading practices involve keeping 10-20% of services decentralized and selectively outsourcing non-critical commoditized services.
What are some examples of shared services in companies?
Here are some examples of how large companies use shared services:
Johnson & Johnson
- Houses financial services, IT, HR, procurement, and other functions under a global shared services organization called J&J Global Services.
- Leverages centers in North America, EMEA, Asia Pacific, and Latin America to balance scale and localization.
- Has achieved 30% cost reduction within its finance shared services function.
Procter & Gamble (P&G)
- Operates a global business services (GBS) organization that integrates shared services with other support functions.
- GBS focuses on finance, HR, IT, procurement, customer business development, and analytics.
- Drove $1 billion in savings within 5 years of implementing its GBS model.
Intel
- Has shared services centers in India, Costa Rica, and Malaysia covering IT, finance, HR, and procurement services.
- Achieved cost savings of $1 billion by consolidating and optimizing enterprise services.
- Focuses shared services on transactional activities to allow units to focus on value-added work.
These examples demonstrate how large companies use shared services across operations, often yielding significant cost reductions and efficiency gains.
What are the steps for setting up shared services?
The key steps for establishing shared services include:
- Planning – Define strategy, scope, timeline, costs/benefits, risks, and success metrics.
- Design – Make structural decisions regarding model, locations, governance, organization structure.
- Transition – Create implementation plan covering stakeholders, processes, technology, staffing.
- Launch – Formally establish shared services unit and initiate service delivery.
- Operate – Manage ongoing services, chargebacks, governance, continuous improvement.
The upfront planning and design phases are critical to make foundational decisions on the scope and operating model. Companies also need to plan effectively for the transition phase to migrate services smoothly into the new delivery model.
How do you measure shared services performance?
Shared services performance is measured across four key dimensions:
Cost
- Expenses for service delivery
- Savings relative to baseline costs
- Unit cost per transaction
Service quality
- Customer satisfaction scores
- First call resolution rates
- Response/resolution times
Productivity
- Transactions or outputs per FTE
- Automation rates
Compliance
- Audit results
- Regulatory adherence
- Policy compliance
By tracking metrics across these areas, shared services leaders can monitor performance and identify opportunities for continuous improvement.
Conclusion
Shared services provide an efficient operating model for consolidating common business support functions to lower costs, improve quality, and support business strategy. However, they require careful planning and change management for successful execution. When well implemented, shared services can yield significant strategic and financial benefits across large organizations.
