While the benefits of moving to a shared services operating model have been widely accepted in theory, organizations often fail to realize these advantages in practice. Much of this failure results from poor implementation planning. There may be an eagerness to establish a comprehensive shared services model over time, but organizations should initially transition a restricted scope of processes.
It’s not always clear which business process is suited for a shared services model versus another. Additionally, any form of business process outsourcing necessitates new guidelines for change management, process management, and service level agreements.
As with any business transformation, a thoughtful and controlled implementation approach is essential to its success.
Here we outline the key process characteristics that should be considered when determining which are best suited for centralization:
1. Location-Agnostic Processes
The first critical characteristic to consider is whether a process is location-specific or location-agnostic. For example, financial reporting requirements vary on a country-by-country basis. While the process itself may be repetitive and low in complexity, the level of effort to complete multiple variations of reporting is unlikely to decrease substantially through centralization, which may not provide cost savings or additional benefits to the organization.
On the other hand, a process such as Procure-to-Pay (P2P) that is more easily standardized is a good candidate, as we will discuss below. Other processes involved with information technology, data analytics, or human resources may likewise be potential candidates for a shared services arrangement.
2. Standardization & Automated Processes
Typically, the more standardized and automated a process, the more suitable it is for centralization. Within a shared services center, departments are traditionally organized based on process area – such as P2P, Hire-to-Retire (H2R), and Order-to-Cash (OTC). Ideally, the P2P process would be the same regardless of business unit or geographical location. Where there are exceptions to the standard process, these should be challenged, and a culture of standardization should be fostered within the shared services organization.
While cost reduction and operational efficiency can be found in outsourcing, that’s only true if the existing processes and their scope are designed in a way that maximizes the upside of shared services model.
3. Repeatable and High-Volume Processes
Services that demonstrate either economies of scale or scope in expertise across business units are often obvious candidates for centralization. These processes tend to be low in complexity and add less value, and as a result, there is little advantage to retaining them close to the local business. As a guiding principle, services that provide a strategic or competitive advantage should remain within the business units. Knowledge management, service delivery, or other keys to the org’s operational excellence that are closer to the customer might be more suitable in-house.
Alternatively, organizations may consider moving the less complex processes to offshore shared services centers, while maintaining a local center for the higher-value functions. The business case for shared services processes must be made articulately and with great distinction.
These factors are all key considerations when planning for and transitioning to a shared services environment. Once your organization determines the scope to transition to shared services, the next step is to develop the overall transition strategy. This can include redesigning and standardizing the processes before they transition, re-engineering the processes in parallel to the transition, or moving the processes in their current state (“lift and shift”).
For shared services support and implementation, contact CrossCountry Consulting today.
Editor’s note: Updated September 2022