In the second of three posts, Ian Herbert and Andrew Rothwell of Loughborough University offer five more observations gleaned from 10 years of research into shared service centres in the UK and across the world. You can learn more about this area in a shared services forum they are running at the University of Northampton on 14 May.
The shared service model has been a success story in both the private sector and many parts of the public sector. It is tempting for hard pressed VCs to grab something of the management toolkit that now seems proven to make worthwhile savings. However, the shared service success belies a number of more nuanced issues that need to be carefully thought through if implementation is to work. Here are five more for your consideration.
1. Visibility can create temptations. A key advantage of the Shared Service Centre (SSC) model is that formerly ‘hidden’ activities are aggregated and made visible. Their costs can then be managed to achieve control and reduction. The problem is that it is tempting to over manage what can be measured and controlled, and possibly shunt costs back into front-line operations where the cost disappears but overall effectiveness reduces.
2. Don’t call in the management consultants straight away. A key feature of SSCs is continuous improvement from within. The people who do the job are often best placed to know where the wheels are squeaking. Whilst most SSC work spaces have the physical structure reminiscent of Frederick Winslow Taylor, there is usually a strong emphasis on empowerment and the teamworking, based around visual performance boards. It is difficult to impose such bottom-up thinking from a grand plan. Identifying and solving myriad operational problems in real-time needs real people who believe that THEY can make a difference.
3. Your core business may not be what you think it is! Many companies have found to their surprise that their core activities have become commodities; to be brought and sold freely in the marketplace. Paradoxically, it is the business support processes that now form the core competencies of customer service and administration. New challenger companies are tipping business paradigms on their head. Think of the new energy companies that simply buy their fuel at the meter. Customers tend to only care about the cost and remember only their last interaction with the customer service centre (the SSC) as the differentiator in a field of competitors.
4. SSCs are not for the faint hearted. Whilst a key advantage of the SSC model is that migration can be gradual and even reversed if necessary, there comes a point at which 70-80% implementation makes little sense. For example, consolidating, say, half a dozen ERP systems into three makes some cost savings but the real prize is a ‘single source of the truth’ across the organisation. Anything less than that makes little sense.
5. SSCs are about identifying and servicing customers. This sounds obvious. But, it also sounds expensive when business units clamour to secure the best service levels for themselves. By comparison centralised bureaucracies reduce demand by limiting the service and ignoring complaints. What could be cheaper? Strong management is required to ensure that the SSC enforces sensible standardisation and service at an appropriate cost. This requires the right culture to be fostered and supported by senior management across the corporation. Perhaps the greatest advantage of the SSC model is that it avoids the pitfalls of signing up to a lopsided long term contract because the service supplier is an expert at negotiating such long term contracts. SLAs provide the space for mutual flexibility around changing business needs, but the foundation of that flexibility needs ‘corporate’ nurturing.
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.