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Feature Shared Services Shared Services Portfolio AN UPDATED APPROACH HELPS TAKE SHARED SERVICES TO THE NEXT LEVEL, COMBINING OUTSOURCED SERVICE PROVIDERS AND INTERNAL SERVICE CENTERS. BY MARK KLENDER AND APRAJITA RATHORE The challenges and opportunities presented by an increasingly global economy are pushing companies to seek significantly greater performance from their shared services organizations (SSOs). To take shared services to the next level, forward-thinking companies are adopting a portfolio approach in which they strategically and proactively balance flexible options with respect to: • What the SSO does: Operating multiple functions and processes and servicing a number of business units; • How the SSO sources services: Flexing between outsourced and in-house service delivery; and • Where the SSO operates: Leveraging the labor pools, costs, and risks of geographies across the globe. When applied to all three dimensions of what, how, and where, a portfolio approach can reduce the cost of shared services by 25 percent to 60 percent—a function of process standardization, operating efficiencies and flexibility, labor cost arbitrage, and tax efficiency. A portfolio approach can also provide other substantial benefits, including reduced risk, greater scalability, workforce flexibility, and access to deeper and broader infrastructure, talent pools, and capabilities. 80 70 60 50 40 30 20 10 0 57% Figure 1: Percent in Shared Operations, by Area 65% 65% 49% 48% 48% 38% 29% 27% 46% 33% Many “early adopters” of a portfolio shared services approach reached that state through a slow evolutionary process, starting cautiously with a limited number of functions, considering only in-house service delivery, and slowly expanding geographies. Thanks to these trailblazers, however, the body of experience and knowledge exists today to enable more rapid deployment and transformation to a portfolio approach. For organizations in the relatively early stages of shared services, the lessons learned represent an opportunity to leapfrog to a state that might otherwise take years to attain. For companies with more mature SSOs, this body of knowledge can be leveraged to get greater value out of their existing shared services. This article presents the results of a 2008 Deloitte survey of 35 shared services leaders that explored the ways companies are using a portfolio approach in their shared services operations. FUNCTIONS, PROCESSES, BUSINESSES Moving multiple functions, processes, and business-unit customers to shared services can reduce cost by consolidating and standardizing larger numbers of business-specific support processes. It can also help reduce risk by using a single set of Today Within Three Years IT Finance Procurement HR R&D Real Estate Legal Customer Engineering Sales Service Marketing 43% 27% 43% 28% 39% 25% 38% 24% 33% work processes, centralizing decision-making, and applying central governance and controls. For companies moving toward a more integrated operating model in their larger business, multifunctional shared services is a natural step to pursue greater integration in their shared services operating model. Survey respondents were eager to take advantage of the potential benefits of extending their SSOs’ service scope and customer base. Eightynine percent reported that they planned to add more processes, functions, businesses, or geographies to their SSOs. Of special note, many respondents plan to expand shared services’ scope to knowledge-oriented areas that have traditionally been closer to the businesses, including research and development, engineering, and sales and marketing. (See Figure 1, left. What percentage, on average, does your organization have in shared services for the following areas?) As a group, survey respondents also anticipated moving away from functional segregation 54 FAO Today March/April 2009 www.faotoday.com
Feature and increasing cross-functionality of their shared services operations. (See Figure 2, below right: Are your shared services predominantly operated for each function, cross-functionally, or an equal mix?) This trend will continue, as crossfunctional SSO management offers many benefits over a functionally siloed management approach, among them: • Improved Efficiency and Accuracy. Support functions often need to interact with each other to deliver an end-to-end process. Placing those functions under single management in a multi-functional SSO can enhance seamless process design and execution. • Improved Data Integrity. Putting multiple functions in the same SSO can facilitate the integration of multiple technology platforms and databases, allowing data to more seamlessly flow through a multi-functional process and reducing the risk of inconsistencies among redundant “active” databases used by different functions. • Economies of Scale. Physically locating a multi-functional SSO at one site can drive greater synergies and economies of scale on core shared functions and supporting facilities, site support and IT infrastructure requirements, and costs. Typical scale economy benefits are in the 5 percent to 10 percent range. • Easier Cross-Functional Improvement. The functional diversity and change culture of multi-functional shared services can serve as a laboratory for innovation, facilitating the sharing and implementation of effective practices across functions. • Better Talent Management. A multi-functional SSO can give its employees a greater variety of work opportunities, allowing them to cross-train and rotate jobs among different functions. Cross-staffing can also give the SSO more flexibility to scale up and down in a particular function by allowing people to be redeployed to different functions if needed. Expanding the portfolio of shared services functions, processes, and business-unit customers can pose a number of challenges: • Resistance from Business Units. Many companies encounter considerable businessunit resistance when trying to expand an SSO’s service and customer footprint. One way to overcome this is to make focused efforts to “sell” the SSO to the company’s internal customers. At one technology company, for example, the leader of the SSO’s internal business development group meets personally with business-unit leaders to discuss ways to expand the benefit of shared services by increasing the number of inscope processes or geographic regions. • Governance and Accountability. It is not always clear to whom a multi-functional SSO should report or who should have overall responsibility for its performance. Previous research by Deloitte suggests that the predominant model is to place multi-functional SSOs under the CFO, although we also see a growing trend of creating a vice president of shared services role. A multi-functional SSO can also face challenges in balancing the demands of multiple 100 80 60 40 20 0 functional stakeholders, and the delivery of end-to-end processes with multi-functional involvement can complicate the service chargeback model. For all these reasons, strong governance, control, and service delivery and chargeback management are a must for an effective multi-functional SSO. OUTSOURCING AND IN-HOUSE The survey confirms the emergence of a portfolio approach with respect to service delivery. Many of our respondents used a mix of outsourced service providers and internal service centers, outsourcing a fair percentage of their shared processes today and planning to outsource even more in the future. (See Figure 3, page 52: Please indicate the percentage of your outsourced shared operations for the following functions.) In a portfolio of service delivery options, it is important to coordinate the service delivery strategy to leverage strategic sourcing cost savings, drive effective processes and service delivery, and maintain effective governance of both external and retained services. In practical terms, this involves having the SSO, in close collaboration with functional leaders, manage Figure 2: Shared Services Utilization 24% 24% 1% 75% Today Separately for each function An equal mix 40% 59% 1% In Three Years Cross-functionally both the strategy and the day-to-day vendor relationship management for outsourced shared processes. Under a coordinated approach, the advantages of combining in-house with outsourced service delivery can include: • Lower Start-Up Costs. Outsourcing can reduce the initial cost of moving services out of local offices, including significant IT, facilities infrastructure, and one-time human resources costs. • Better Geographical Coverage. Outsourcing providers’ diverse global footprints can allow companies to place services in a preferred geography without the effort and in- www.faotoday.com March/April 2009 FAO Today 55
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March/April 2009 www.FAOToday.com
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