Cliff Struhar, VP Advisory of Gartner, says that organizations should invest in digital solutions, build new capabilities, and enter new markets. Therefore, they need a service delivery model that can provide timely and localized support for businesses while controlling costs. A shared services model differs from centralized services in customer service, performance management, and continuous improvement areas.
A rapid shift in the business environment is forcing finance and shared services leaders to reevaluate service delivery and structures to identify the ones delivering the most business impact. Both shared and centralized services can reduce costs and increase scale and standardization. However, shared services do offer some key advantages. The shared services model is designed to provide services to ‘customers’ — internal stakeholders, business-unit leaders and functional heads. Typically, shared services operate on par with a business with a defined set of services and pricing structures.
Cause and Effect
According to a Bureau of Labor Statistics report published on June 2, 2022, the productivity of US businesses dropped 7.5% from January to March 2022 due to untracked work activities. Meanwhile, a report by IBM Consulting concluded that only 40% of change projects met their schedule, budget, and quality goals. These findings have profound real-world implications, considering that organizations, companies, and even governmental agencies have trimmed costs wherever possible over the past few years due to a sluggish global economy.
It didn't take very long for progressive organizations to critically analyze their internal processes and discover areas where they could streamline, cut back, or consolidate. The elimination of redundancies and inefficiencies resulted in the growth of shared services. Organizations consolidated business operations that were being shared by several units, and each business unit, in effect, became an internal client. Consequently, organizations have become leaner and are saving considerable sums by streamlining processes.
Doing More With Less
Typically, shared services have involved operations such as HR, IT, Finance, Procurement, Legal Services, Marketing, and Sales. Organizations benefit from higher efficiencies and reduced costs when multiple business units within an organization utilize services provided by shared service centers. The services provided by each operational center are then charged back to the business units that use them. Charges could be levied at a flat rate (e.g., the share of revenue or headcount), budgeted rate (e.g., based on revenue), activity-based (per unit pricing of services), transactional rates (depending on pricing at specific times), or even market-based rates (based on time and volume of services).
Keeping Tabs on All
Companies that have adopted the shared services model must track which business unit consumes services from which operational center and account for internal chargebacks for the services rendered. Unfortunately, many companies struggle with poor visibility into resources used and costs incurred through shared service centers. Disparate transaction systems, outdated manual systems for tracking timesheets, and project costs add to the confusion. These challenges hinder accounting for chargebacks and planning for future projects and staffing levels. Additionally, estimating project requirements becomes challenging without clear insight into the resources utilized for various projects.
Increasing organizational complexity also enhances the need for a unified solution that provides clear visibility into the time and cost spent on services, along with itemized breakdowns for internal clients. Moreover, introducing a unified solution can help identify bottlenecks and inefficiencies, as well as measures to mitigate them.
The Benefits of Using Shared Services
A shared services delivery model offers several advantages for businesses, as listed below:
1. Reduces Service Delivery Costs
In the shared services model, customers can either hire an external service provider or perform the work themselves; therefore, these services must be priced competitively. By utilizing these services, organizations foster a culture of continuous improvement, ensuring that both existing and new services are delivered efficiently.
2. Improved Communication and Collaboration
Shared services can enhance communication and collaboration among departments and employees by breaking down silos and promoting the sharing of information.
3. Centralizes Service Data and Eliminates Silos
Shared services facilitate data centralization, which improves reporting and analytics. Moreover, it enhances compliance and facilitates better decision-making.
4. Increased Flexibility
Shared services enable organizations to scale up or down as needed without requiring significant changes to their organizational structure. Additionally, combining operations and achieving synergies during mergers and acquisitions can help simplify the integration process between two organizations.
5. Standardize Processes
It is easier to monitor and manage performance when certain functions are centralized. On the contrary, siloed or distributed services within business units make it difficult to track progress and identify areas for improvement. Thus, standard processes and service management tools can help improve customer service.
6. Maximize Productivity
Shared platforms or services can simplify information sharing and project collaboration, making the process quicker and easier. In the long run, shared services can improve the effectiveness and efficiency of businesses.
Recommendations
The complexities of shared services in mid-sized to large organizations require a solution like Deltek Replicon. It provides managers with full visibility into service delivery costs and their associated requirements. Plus, it optimizes resource and service delivery while enhancing forecasting capabilities with easy access to vital information across the board. Service centers can then provide cost summaries for internal clients, facilitate easy chargeback calculations, and improve budgeting and planning. Additionally, internal business units can benefit from detailed drill-down views into services consumed and their associated costs, as well as gain the ability to submit service requests and track their status.
With the increased adoption of shared services, organizations will have to decide wisely on the solutions that they employ to keep everything in sync between their business units and shared service centers.
