Any large global company depends on hundreds and often thousands of employees to provide services that keep the organization running.
These include anything from accounts payable – making sure suppliers are paid correctly and on time – to managing the payroll, to the analysis of sales figures. And many firms have pooled the teams providing those services into “shared service centers,” which can cut a lot of cost from the system by locating employees, and all the attendant knowledge, training, technology, and IT infrastructure, in one place.
In the past decade, shared service centers have become big functions in their own right and, as you’d expect from any team presided over by a senior manager, they have their own strategies, visions, and mission statements. While the prime motivation for shared services has been cost, they can definitely confer other advantages as well. Much like any other central function, heads of shared services tend to sum-up this advantage as providing “value”.
The Value of Shared Services
Most of these vision and mission statements – including dozens seen by CEB’s shared services specialists over the past decade – include a statement aspiring to be “value-added business partners” to the internal customers and operating units they support. Very few, however, include a definition of what it means to add value, or a description of how they would accomplish that goal.
CEB’s work shows that there are three different ways in which shared services organizations provide value to their internal customers (see chart 1).
Chart 1: Three types of value for shared services Source: CEB analysis
Reliability: Shared Services primarily adds value by delivering reliable services at a competitive price. Reliable, in this context, means being trusted, predictable, and dependable. Internal customers must know, without question, that the books will be closed, vendors will be paid, receivables will be collected, and employees will be paid, accurately and on schedule.
Delivering reliable services adds value in two ways: first, it allows internal customers to focus on their own jobs; second, the productivity improvements realized through standardization, consolidation, and reengineering the processes are passed along to the business units as reduced transaction processing costs.
But this value normally reaches a ceiling after the first three or four years of shared services operations. In the early years, productivity improvements over 30% are possible, and internal customers greatly appreciate the corresponding cost savings. In later years, cost reductions of less than 5% are not as likely to be celebrated by the business units.
Simplification: The best way to make customers happy – internal or external – is to make any interaction they have as effortless as possible. This is just as applicable to shared services as anywhere else. For example, when integrating a newly-acquired business unit or expanding into a new country, shared services teams will help or hinder by how complex they make the processes and policies that need to be followed.
Or when a hiring manager onboards new employees, Shared Services can make life much easier by taking control of the process: coordinating with IT, with the office facilities team, with HR, with Finance to make sure the new recruit is payed, and so on.
Insight: The clearest and most direct way to provide value to internal customers is to enhance their financial performance by increasing revenue or decreasing cost.
Although shared services teams won’t be in the R&D labs or on sales calls any time soon, they do have access to a wealth of data that can be mined and shared or acted on to improve financial performance. Consider these examples:
Accounts Receivable provides the history of late payments from a particular customer, allowing the sales organization to justify a price increase for the next contract term.
An analysis of employee expense reports reveals that a large percentage of travel is from one company location to another company location. Informing business unit leaders can encourage the use of video conferencing, reduce travel cost, and increase profits.
The sales analysis team identifies an underserved market segment that is too small to warrant visits from the sales team. Shared Services suggests the creation of an inside sales team to call on this group of prospects.
Finally, as shared services teams work on becoming a “value-added partner” they should document all the work they do to: 1) improve the reliability of their services; 2) simplify the effort required to do business with Shared Services; and 3) improve internal customers’ financial performance.
It’s nigh-on impossible for customers to recognize Shared Services as a value-added partner if they’re not aware of all that’s being done for them.
For more on CEB’s work with shared services teams, see these pages.