In the last of three posts, Ian Herbert and Andrew Rothwell of Loughborough University identify five common misconceptions about shared service centres (SSCs), gleaned from 10 years of research in the UK and across the world.
1. SSCs are not just another management fad. The 1990s in particular were an era of big corporate reorganisations and new management techniques. Some proved their worth and persisted e.g. the Balanced Scorecard, some started as wonder techniques but gradually morphed into everyday thinking, while others were no more enduring than the eight-track stereo. In contrast the SSC phenomena started slowly as a poor relation to outsourcing, but has since been quietly building both its popularity and reputation. Whilst there will always be critics and isolated reversals of activity back to divisions, the direction of travel is towards more activities being ‘externalised’ within the SSC framework.
2. SSCs are not just about low level activities. Whilst, most SSCs start with relatively standalone activities such as payroll that are relatively easy to standardise across operating divisions, many SSCs now incorporate higher level activities such as the production of management information and business partnering in, say, finance and HR. The defence mechanism that business partners needing to be physically close to executive teams is being challenged by new ways of working. As one senior executive put it to us “We run oil rigs all over the world. Video conferencing with on-site teams is now in our DNA. We now look at many other situations and ask ourselves whether everyone needs to actually be in the same room? Because, if not they could be sitting anywhere in the world, and probably at a fraction of their present cost!’.
3. SSCs are not just about wage arbitrage and offshoring. Whilst SSCs wish to benchmark themselves against the best in the world, there are now many examples of SSCs in developed countries now performing at ‘lowest-cost’ levels because they have not only managed to achieve significant efficiency savings but are also delivering greater service effectiveness to the business. Perhaps because SSCs can operate as semi-independent entities they have generally avoided being trapped in fixed delivery models. Many operate a mixed sourcing strategy for instance, outsourcing activities that are highly routine once they have been stabilised and benchmarked with the SSC and/or using low-cost areas for other routinised on a best case basis.
4. SSCs are not ‘outsourcing for wimps’. A common criticism of SSCs is that they are merely a halfway house to outsourcing for management teams that don’t have the conviction to just outsource whole functions. Whilst it is indeed the case that the SSC represents a lower risk strategy, the typical phased migration pattern allows teams who are experts in business process re-engineering to move, change, stabilise and then benchmark activities within the SSC whilst still keeping open the option to outsource once performance is known.
5. SSCs are not only for big organisations. The SSC model is attractive for those growing organisations that don’t want to set up functional support services which become either inefficient bureaucracies or alternatively, duplicating similar activities across multiple operating units.
For more information, see the shared services section on the Efficiency Exchange.
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.