The shared services model has been a success story in both the private sector and many parts of the public sector and is being actively considered in higher education. In the first of three posts, Ian Herbert and Andrew Rothwell of Loughborough University explain how shared services are more than just about headline cost savings, based on 10 years of research. You can learn more about this area in a shared services forum at the University of Northampton on 14 May.
It is tempting for hard pressed senior managers in higher education to grab something from the management toolkit that seems to have been proven to make worthwhile savings in private and public sector organisations. The shared service model is one such tool. However, there are number of more nuanced issues that need careful consideration if benefits are to be realised.
Let’s kick off with five things you might not expect to read.
1. Think beyond immediate cost savings.
Whilst no Financial Director can be expected to sign off on a business case in which benefits do not exceed cost, many of the real advantages of shared services are both qualitative and serendipitous. It is always very difficult to quantify savings because the services that are being rationalised had previously been embedded in discrete business units where the cost base was often opaque and subject to political posturing.
When we’ve asked the question “How much have you saved with the shared service centre (SSC)?”, we’ve heard a variety of answers. While there have been some big claims, we suspect the most honest answers are something like, “We can’t be sure but after two years we have around half the previous headcount doing more than they did before but there was also a big implementation cost, some of which might arguably have had to be spent anyway”.
2. Think big, but don’t try and do the ‘big plan’.
This is counter intuitive in an era of methodical corporate planning systems. However, many successful SSCs start in small, sometimes even happenchance ways, which establish the basis of mutual understanding and longer term working relationships. Go for the low-hanging fruit such as payroll (critical but relatively standard) and then add further activities as appropriate.
3. Don’t assume a new computer will solve all the other problems.
It is tempting to start shared services with a big investment that will galvanise action and enforce common working. After all, ‘technology is the future’ and a new ERP system comes with all sorts of ‘guaranteed’ benefits. However, there are some notoriously bad examples where social change has failed because the technological platform has failed or there have not been the appropriate working relationships and procedures established on the ground to make things happen in a sustainable way.
4. Contracts are bad partnerships are good.
Again, at the sign-off stage, senior managers want to see a nice ‘watertight’ contract that absolves them from accusations of sloppy governance, even if they cannot sue for satisfactory legal redress. But such thinking misses the big picture about shared services, which is about continual mutual adjustment between the SSC and its customers in the operating units.
All levels of management need to talk about ‘partnerships’ and not ‘contracts’.
One of the most insightful quotes in our study came from a divisional manager: “We spend a lot of time up-front negotiating service level agreements. This helps to guide a discussion about what we need, what the SSC can reasonably deliver and how much it will cost. But when the new financial year starts the SLAs go into my drawer. If I have to take them out and refer to the letter of the agreement then it means the service has failed and we cannot allow that to happen. If we have got things wrong we have to quickly adapt, not start threatening to ‘sue’ each other internally.”
That’s the big difference compared with outsourcing. One large company with 5,000 plus SSC workers has abandoned even SLAs, seeing them as ‘anti-trust’ systems.
5. Shared Service Centres are not just a ‘quick fix’, they need to be sustainable.
Many of the big prizes in adopting the SSC model can only be realised over time. For example, standardisation of processes and protocols across a range of operating units, is likely to save money. But, the real rewards do not arise until the last 20% of activity actually becomes standardised. In a study of an SSC implementation in the Swedish justice system, Janssen and Joha (2006) found that many of the planned benefits did not arise but other largely unforeseen benefits did emerge, such as dissemination of best practice, better information security, capturing learning from experiences, predictability of costs and a reduction of overcapacity.
Ian Herbert and Andrew Rothwell are based at The School of Business and Economics, Loughborough University. Their longitudinal research on shared services has been supported by the Charitable and General Trust of the Chartered Institute of Management Accountants.
Janssen, M. and Joha, A. (2006) Motives for establishing shared service centres in public administrations, International Journal of Information Management, 26, 102-115.