The potential of shared services explained
Shared service centres (SSCs) are created by organisations that want to consolidate administrative or support functions (such as finance, human resources, information technology and procurement) from several departments or agencies into a single, standalone entity. This is often to provide services as efficiently and effectively as possible. The administrative and finance functions involved could be discrete processes such as accounts payable or benefits administration or end-to-end functions such as finance or human resources.
A shared services centre doesn’t simply centralise these things. It typically operates as a standalone business, treating other individual business units as customers. Some organisations approach this by setting up their own SSC, manned by their own staff, a process referred to as ‘in-sourcing’. However, the process can also be handled by an external supplier providing business process outsourcing or managed services.
As is often the case with widely-used terms of reference, ‘shared services’ mean different things to different people – and no two shared services centres are the same. But there are common factors. SSCs aim to streamline routine procedures and high frequency, paper-based functions to eliminate redundancies, standardise processes, and exploit economies of scale.
Take the finance function. Having operations in 5, 10 or 100 countries all running their own systems is inefficient. According to research, a company can slash a massive 40% off its costs by taking traditional support functions and turning them into process-based, customer-driven centres.
To begin with, SSCs were most popular with large organisations. Governments and multinationals such as American Express, Microsoft and Shell have been using shared services for years, with apparent success. More recently, the growing burden of financial compliance, coupled with the potential of new technology, and the managed services option (which makes it easier for smaller corporates to exploit the benefits of shared services) have all helped to increase the appeal of the approach. For example, by centralising and streamlining finance, many organisations have made it easier to comply with requirements such as Basel II and SOX today, and anything that follows them tomorrow.
The potential of shared services does not end there, however. Some trend setters are starting to treat their SSCs as profit centres rather than cost centres. Organisations including GE Capital and Hong Kong Telecom, are among those who have started to market their back-office operations to external corporate customers as well as internal business units, taking on the BPO specialists and managed service providers, in an attempt to use shared services to generate revenue as well as cut or control costs.