FSN White Paper
Managing the move to an extended Shared Service Centre (SSC)
11th December 2006 |
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What factors are driving the growth in shared service centres?
The concept of shared service centres is a well embedded corporate theme. Popularised throughout the nineties and continuing with considerable momentum right through to the new millennium, the idea of unifying processes to deliver higher quality services to internal ‘customers' is well established.
In large measure, shared service centres (SSC's) have enjoyed considerable success and for the most part have not attracted the adverse comment of their ‘close cousin', the outsourced shared service centre. The reasons that SSC's have gained such broad acceptance are easy to visualise and it is the same factors that are driving the changes today.
SSC's occupy that curious ground between corporate centralisation and the fully devolved organisation. They are neither a management ‘command and control' centre nor a fully antonymous business unit. Ideally, they represent a corporate shared resource that exhibits best practice and provides customer service that, when benchmarked against external providers, competes favourably in terms of both cost and performance.
In effect, shared service centres combine the advantages of centralisation and decentralisation without their disadvantages. They allow varied processes and practice from across the organisation to be standardised and excess staffing levels to be removed. But they also provide the opportunity to re-engineer processes, eliminating tasks that do not add value. As a result organisations moving to a shared services model can save considerable sums of money whilst improving service levels.
Business units can no longer take support services for granted. With service level agreements ( SLA ) and ‘menu pricing' in place, the cost of service provision is transparent and business units are compelled to select more carefully the services they buy. At the same time, such transparency keeps service centre managers on their toes as they seek to compete with external providers. Fine tuning supply and demand in this way forces the organisation to resource to the optimum level rather than budget in a more arbitrary way - which was commonplace in the past.
Perhaps the most beneficial aspect of SSC's is that by compartmentalising support services and managing them like a well oiled machine, the wider organisation is liberated from the drudgery of routine transaction processing and can focus its efforts on matters that are core to growing and developing the business. In turn, when business growth eventually materialises, the organisation is well placed to take advantage of its expansion without a commensurate increase in overhead, finance and business administration.
What are the organisational and HR implications for the extended shared service centre?
To date, the majority of shared services initiatives have focussed on finance processes, with payables, expense processing and general ledger accounting being most common. These high transaction and non-strategic environments, that are common to all operating companies, make good candidates for a shared services environment, often returning sizeable cost saving as well.
Understandably, with many successes under their belts, companies are casting their net wider to see if they can repeat their achievements with other processes. But having picked all of the ‘low hanging fruit', implementing the extended shared services environment is a more challenging undertaking. In this next wave of shared services the processes under consideration are more complicated - a position that is magnified by the prospect of transitioning to an outsourcing arrangement as well. Appreciating the breadth of the issues that can arise is fundamental to the organisational and HR implications.
Securing a common vision of what services should be included in an SSC is a vital first step, for example, confirming the boundaries of the project, the processes in scope and how the success of the project will be measured. Most commentators agree that transaction oriented services make good candidates for SSC's and that processes with a high strategic content, such as corporate planning do not. This leaves many business processes in between these positions. Human Resources and payroll is a good example. At a national level, HR administrative processes can be shared, but policy matters requiring specialised technical or legal capability may not work so easily in a shared services environment, remote from operating companies. Furthermore, differences in law, culture, custom and practice may make it unviable to deploy HR on, say a pan-European basis.
Developments in information technology are also key. They have not only enabled the gradual migration of many traditional services to a SSC but have also created a number of technology led initiatives such as e-commerce, customer relationship management and call centres. Although earlier implementations of SSC's relied heavily on IT enablement, and hence IT professionals, it is clear that the move to financial shared services for, say, insurance claims processing and mortgage applications requires a more rounded implementation approach and more broadly based skills. The migration to extended shared service centre should not be regarded merely as an elaborate IT project.
Just deciding where to site a shared service centre illustrates the breadth of issues that can arise and hence the skills required to successfully implement. Labour factors, such as the availability of foreign language skills, education levels, recruitment costs, labour costs, absenteeism rates and work permits for foreign employees are just some of the matters that have to be considered. Tax and subsidy factors for job creation, capital investment and contributions towards operational and employee training costs can markedly affect the business case. Similarly, management will need to give attention to the quality of the infrastructure, such as transport, as well as socio-economic factors, for example, currency stability, housing costs, medical services and attitudes towards foreign residents.
Given the range and scale of HR issues it is clear that ‘change management' in the broadest sense is absolutely critical to success. Unfortunately, experience suggests that all too often, management can become too easily focussed on the management of the operational shared service centre rather than the transitional period. But the migration is full of pitfalls for the unwary.
Resistance to change is a common challenge. Local management fear a return to centralisation accompanied by a loss of autonomy and perhaps a reduction in customer service that could affect their performance. Other staff may be wary of a re-organisation, re-location and redundancies. Experienced change managers will be aware of the importance of establishing a communications strategy early on and garnering the support and commitment of senior executives to the plan. Deciding how much of the plan to disclose and when, is vital, but senior sponsorship makes the communications task that much easier across the organisation.
Identifying barriers to the implementation, countering unrealistic expectations and building competent multi-disciplinary teams are essential ingredients during the transitional period. Clearly, the move to a SSC is more than an incremental step. It needs a very significant full-time team equipped with a wide range of functional skills, technology skills, heavy weight programme management and change management experience.
Whilst an SSC project has much in common with large scale IT implementations and outsourcing projects the skill sets required to deliver successfully a project go far beyond traditional programme management skills. The intensity of people issues plays more to man-management and communication skills than technical competencies. It also requires 100 percent focus from the project team. In practice, this means taking the very best people out of the line and making sure that their roles are ‘backfilled' so that they are not sucked back into their operational roles.
An experienced programme manager is a central requirement and they will need a great deal of determination as well as finely honed communication skills. Traditional skills such as the ability to motivate and manage as well as possessing effective negotiation skills are all part of the requirement. They also need to be politically astute with sufficient ‘gravitas' and experience to carry the respect of the organisation. Evaluating and managing conflict and the ability to manage the ‘big picture' or the detail, as required, are also highly desirable attributes.
What resourcing model will satisfy these needs?
Attracting and retaining the right combination of skills on a project of this scale is a constant challenge. It is naturally difficult to release the best resources from the business yet their presence underlines the strategic importance of the project. Furthermore, they require a sound knowledge of the business and its culture in order to have credibility with management outside of the immediate project team and to act as effective change agents.
Given the varied background of the team members, particularly their functional skills and experience, it would be unrealistic to expect that they will operate as a team from day one. They will require project induction as well as a significant amount of training around methodology. Team building exercises may prove valuable. For these reasons it is important to give early consideration to the level of external resourcing.
One role that needs to be filled early on in the migration process is the SSC Director but finding the skills in-house could be a challenge. A consummate change manager, the director needs to have strategic capability, and the ability to handle an environment of constant change. But he or she should also have an obsession with customer service and total quality management – the cornerstones of a shared services centre.
However the role should not be confused with the eventual role of managing the SSC when it is operational. Executives who generally prove most effective at running a market oriented shared services operation are senior, entrepreneurial managers, that can interact effectively with their ‘customers' , have an eye on the bottom line and manage their centre to meet customer objectives and budgets.
The SSC Director manages the transition and it is important that if they are externally recruited that they remain ‘client side' and have no conflicts of interest. Some argue that this rules out the big consultancies that may have their own agendas. An external contractor can be ideal since many have outstanding experience of similar engagements, are purely motivated by the challenge of the job and are more inclined to encourage skills transfer.
In recent years, the quality of the sub-contract market has risen considerably as highly qualified individuals, often with large consultancy backgrounds, make life-style choices and seek more control over their compensation. “Success breeds success” so that the availability of good people has attracted even more individuals into the sector. This means that a wide range of relevant skills, previously limited to the consultancy domain are available in the open market at more attractive rates. Process consultants, change managers, functional experts and IT specialists are all available enabling companies migrating to a SSC to adopt a much more flexible approach to resourcing.
In reality, companies cannot release all of the resources that they need from the line. Inevitably, this leads to a hybrid solution, combing the best available resources from within the company with carefully selected sub-contractors and consultants.
Summary
The popularity of shared service centres continues unabated. The factors that that made them popular in the early days, such as standardisations of processes, improvements in quality of service and cost reduction are still the driving force behind their growth.
Initially, companies tacked high transaction volume processes in finance and administration, but following this success attention has focussed on a wide range of more complex processes combined with the possibility of outsourcing.
Managing the transition to a SSC is extremely challenging, not only because of the scale but also because of the diverse range of skills required to make such a venture successful – particularly if sited abroad. Traditional programme management skills are not sufficient and a multi-disciplinary team based approach is required. In addition early attention should be given to the roles of programme manager and SSC Director which are pivotal to success.
It is unlikely that any company will find all of the resources it needs in-house, but fortunately there is a flourishing sub-contractor industry in addition to more traditional sources such as consultancy. Nevertheless, early planning is advisable, since bringing the resources together to create a team takes longer than many people imagine. Planning for the transition to a SSC is just as important as planning for the ‘end game'. |
| About FSN Publishing Limited |
FSN Publishing Limited is an independent research, news and publishing Organisation catering for the needs of the finance function. The report is written by Gary Simon, Group Publisher of FSN and Managing Editor of FSN Newswire. He is a graduate of London University , a Chartered Accountant and a Fellow of the British Computer Society with more than 23 years experience of implementing management and financial reporting systems. Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector.
Gary.simon@fsn.co.uk
www.fsn.co.uk
Whilst every attempt has been made to ensure that the information in this document is accurate and complete some typographical errors or technical inaccuracies may exist. This report is of a general nature and not intended to be specific to a particular set of circumstances. FSN Publishing Limited and the author do not accept responsibility for any kind of loss resulting from the use of information contained in this document. |
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