A phased model to learn how to work with shared service centers

If you are transitioning from a business group organization with self-contained business units, you will face a learning curve in how to work effectively with a shared services organization (SSO). To be successful, the concept needs to be understood by all stakeholders, namely corporate, the shared services organization and their customers.

An evolutionary path of Shared Services

As with the start-up of any divisional organization form or business unit, never without any struggles, so too in the case of shared services deployment must you overcome many principal, practical and above all mental obstacles. It is a learning process, which can be split into many smaller phases. As you hit different maturity levels, you can apply the lessons learned to help move you towards the next maturity level.

Many shared services leaders have gone through a journey, where in the beginning everyone was very enthusiastic, followed by a moment of doubt, even a downturn. As a result, some organizations have formed islands to protect themselves; some have chosen to outsource; and some have moved to a higher maturity level by developing a global business services structure.

The maturity of a Shared Services Organization

Under closer scrutiny, these moments had less to do with the SSO itself, than with the context in which it was operating in. Since the deployment of an SSO is not always recognized as a change for the total organization, it appears that this context lags behind the development of an SSO. The maturity evolution of a shared services center is generally split into five core phases, from embryonic to experienced or mature. These phases are generally characterized by cost calculation methods, service portfolio and the level of available information management data.

Key objectives of a SSO

One of the key objectives of a SSO is to allocate, as efficiently as possible, available resources and therefore influence the behavior (decisions) of managers. There is a direct correlation, whereas the charge-back method is based on the availability of management information. Traditionally, many SSOs struggle, due to fragmented systems, with how to calculate the cost per differentiated service. This is mostly associated with high manual labor which leads to high and unacceptable administrative costs. In some industries, like retail or telecommunications, where transactions are automated, there is a more multi-dimensional approach to allocate costs, which lead to better management decisions.

The maturity of a customer

SSOs do not operate in isolation (though some leaders think so) nor in anonymity, in a market where supply and demand are based on the basis of a price mechanism. The development of an SSO is highly dependent on the positioning vis-a-vis who the SSO works for.

In many deployments, little or no attention is given to the competences of a BU manager to act as a good client towards to the SSO. Most BU managers devote fringe attention to the SSO because they don't see the SSO as a provider of core business services.

With regards to those services, BU managers tend to perform on autopilot where they are not fully aware what the exact cost/value of that services is. In cases where they work with SSOs, BU Managers are asked, expressed in SLAs, to be able to explain which services, both quantitatively and qualitatively, they require.

The concept of working with SSOs, however, has a deeper economic driver, namely to come to a better allocation of resources where in general BU managers are presumed to know exactly what the value is of spending one dollar more or less on IT / Finance functions. There are managers who know their business case and are able to answer that question, but often they do not get beyond "it should be cheaper." It is obvious that a company cannot only improve on cost efficiency. There will have to be innovation, as well. It is for this reason that many outsourcing contracts fail, because they are mostly won by offering very low prices. This behavior gives suppliers almost no room for innovation. As a result, future innovations of back office operations become disproportionately more expensive then thought in the beginning.

As is the case for shared services, there are also maturity levels in the development of a BU Manager as a client of the SSO. 

When BU managers differ in maturity, tensions develop between both parties with the result that the BU manager finds himself more powerful in discussions than the SSO manager. A solution to this is to develop a demand supply organizational model. In this model, the SSO account manager can control the business need, translate it back to the SSO, and support it by linking the BU Strategies with the SSO proposed innovative/improvement actions.

The maturity of corporate senior management

The position a BU Manager takes in his / her relationship with the SSO depends on how the BU Manager is controlled by senior management, e.g., the board of directors (BoD), and which role the SSO plays in impacting tasks that connect the BoD to the BUs.

Where the BoD sees the SSO as an instrument to reduce cost, it is obvious that the BU Manager will translate this into a cost reduction program for the SSO. In one case the BoD started to impose cost reductions on the SSO, to increase the profit goals of the BUs. Those BUs that wanted to increase the profit goals via innovation stumbled on prohibitive restrictions in their realization iof this initiative because of the cost reduction program imposed by the BoD.

In other cases, the BoD saw the SSO as an instrument to unburden the BUs so that they could focus on their markets and customers. In other words, for senior management (BoD), there are also maturity levels regarding how they see and act towards the SSO.

The Three Axes of the Shared Services Concept

When it comes to learning with shared services, it is important that the SSO, the BoD, as well as the customer (BU), are aligned with each other. If one of the other goes astray that ultimately will result in an inflection point. A lot of organizations are currently at that inflection point, where they ask: 'what is the next step'? Should they outsource/insource their functions or should theymove to a GBS?

Whatever choice is made make sure you understand the maturity level of all the stakeholders.

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