The establishment of Shared Service Centre's (SSC's) by large multinational organisations is a major trend in business restructuring and has grown steadily in the private sector since the early 1980's where it has become standard practice. It is now becoming increasingly adopted in the Public Sector as the cost benefits achieved by private sector organisations have been recognised and the model adapted to meet their needs.  

A SSC is a centralised commercial unit which performs internal (usually heavily transactional) business functions such as Finance, IT, Administration and Human Resources which would normally be carried out by local teams in regional offices or subsidiaries. The Shared Services model is the opposite of the ‘outsourced' business model (another structural trend which has emerged in recent years) where internal functions or services within the business are transferred to a third party organisation. Organisations set-up SSC's in various ways, smaller ones may have a single SSC to cover their entire operation whilst larger ones may deploy multiple units handling separate regions or even countries. SSC site location may also vary, sometimes ‘on-shore' where operations are carried out in the same locality but a separate unit, ‘near shore' and therefore close to other operations or ‘off shore' in a separate country often selected for lower operating costs. Off shore shared services are often compared with the ‘outsourced' business model, however they are still a centralised and consolidated internal business function rather than a service purchased from an external provider although they face similar challenges. The trend for SSC's was initially ‘on shore' but in recent years this has changed with the ‘off shore' model becoming increasingly popular although it often presents additional challenges for organisations setting up a Shared Services structure.

The main reasons cited for adopting a SSC model are cost reduction and consolidation/rationalisation of processes and the provision of a more unified and efficient service to ‘internal customers'. Much of the cost reduction derives from lower staff numbers required in a centralised unit rather than separate local operations and the elimination of

Cost reduction, consolidation and rationalisation of processes

duplicated processes occurring simultaneously in different offices. One of the principal benefits of the SSC model is the standardisation of disparate and often legacy processes into a single centralised ‘best practice' solution across the organisation. The creation of a SSC model provides the opportunity to review and re-engineer processes to be centralised to increase efficiency and eliminate activities which do not add value. This cross business streamlining also provides the opportunity to upgrade or change IT systems, particularly those relating to the finance function, the most common element of a shared services set-up. Individual business units may be using a number of finance systems or outdated IT and network infrastructure and therefore an entirely new system may be selected or alternatively chosen from a business unit operating a successful system. Alternatively, there may be a cross organisational upgrade to migrate the whole business onto a consistent technology and systems platform. A business-wide technology overhaul is a large task especially when taken in conjunction with the practical issues associated with setting up a SSC and it requires significant local buy-in and user training on the new or upgraded system. However it is important for the long term success of the SSC that technology is standardised across the organisation. Consolidation of functions into a centralised unit is also expected to increase support and service levels within an organisation and these are frequently benchmarked against external providers as in the outsourced business model and expected to perform favourably in comparison.

SSC set-up is expected to lead to economies of scale

The relocation of standard functions from regional business units should also free-up these offices from routine daily tasks and allow them to concentrate on business development or their own area of specialism. When an organisation does expand, the existing SSC set-up is expected to increase economies of scale, as a centralised unit is well-placed to deal with the growth without the substantial additional cost of multiple regional offices. Bringing standard functions close together in a compartmentalised environment should also lead to greater synergy between functions such as finance and IT resulting in greater efficiencies and the elimination of duplicated functions with a resulting cost reduction.

There are numerous key considerations regarding the operational set-up of a SSC and careful, lengthy planning is essential. Centralisation of multiple functions is a substantial undertaking requiring determined change management skills and numerous factors requiring careful consideration and analysis as they will determine the success or failure of the overall operation. Deciding on which functions to be applied to the Shared Services model is the first key decision, identifying the processes which will be in scope and which will ultimately be selected to move in the first instance or perhaps introduced at a later date. The most common area chosen for centralisation is the accounting function as high transaction finance processes are a good candidate for shared services as they are duplicated in every unit across the organisation and usually result in substantial cost savings. The SSC model is typically applied to ‘back office' functions frequently including IT, administration and HR, however once successfully operating in these areas businesses often look to increase scope and may add middle or certain front office functions to the model. Generally it is considered that high transaction functions are appropriate for centralisation whereas those that are heavily strategic are not. However issues may arise in transaction functions where there are specific or specialised local requirements that need to be addressed and cannot be included in a single model or process. New finance systems implemented in conjunction with the SSC model may also not be able to take into consideration local requirements such as VAT, income tax or audit regulations and extensive customisation may be required in certain areas which may increase resistance from local staff who may believe the previous system more closely met their needs.    

The second major factor to consider prior to the creation of a SSC model is location. The decision must be made to base it either on or off shore and if off shore then a region and specific country must be chosen. Off-shoring is typically associated with greater cost reductions mainly due to lower labour costs but also in respect of other resources associated with the daily running of a large centralised office.

Local staff buy-in is essential

Gaining buy-in from local staff who are likely to lose colleagues, certain responsibilities and perhaps experience a change in their job function and who will have to work with the new SSC and its staff on a regular basis is an essential and frequently overlooked part of preparing for a new SSC. Staff present in local offices are also essential for the (often lengthy) transition period where functions are moved to the SSC, co-operation in the relocation of operations, streamlining and even training new staff for the SSC are all required from local employees. However if internal staff are involved with the creation and transition to the new SSC model then their roles should be ‘back-filled' so that they do not return to their previous operational duties either by necessity or through resistance to the new set-up. Considerable sensitivity is required as frequently those involved in the transition or training within the new SSC are those that will lose their positions once the centre becomes fully operational. For much of the complex and intricate model development and transition stage companies are unlikely to find suitable staff internally to carry out the tasks and planning required, a traditional Project or Programme Manager will not be familiar enough with what is required to successfully develop an SSC and this is a much larger undertaking than a traditional business transformation project. Appearing alongside the rise in popularity of SSC's are a significant cohort of contract migration consultants specialising in all aspects of SSC development who are now available on the market mainly through specialist consultancies, and will be better placed to aid the transition on an interim basis rather than staff deployed from within the business.

The rise in popularity of the Shared Service Centre as a typical business model has been accelerated in recent years by better global communications technology, 24hr mobile connectivity, cheaper international travel and the development of a highly educated labour-force and modern infrastructure in developing countries. The SSC is an attractive proposition promising significant cost savings and a more streamlined efficient centre for non-strategic business processes on a consolidated platform. However careful planning needs to be undertaken before the set-up of an SSC, with sufficient focus on staff buy-in, especially if locating offshore. Organisations are often unable to achieve all possible cost-reductions and long term benefits of their SSC as the functions to be brought on board and the effective costs of current processes have been insufficiently analysed, or the full implications of the location chosen had not been considered in terms of both staffing and infrastructure. Sometimes companies can run into much more serious problems during transition to a SSC set-up highlighting the need for comprehensive and often lengthy planning. Some processes, particularly financial operations from multiple countries may not be easily consolidated and if the requirement gathering process is insufficient in the early stages then the new system chosen may be inappropriate, or local office resistance to the change may be insurmountable if not managed properly.

Overall the SSC model is more popular than the outsourced model, mainly because it allows the company to keep functions within the business and maintain control, it can (to a certain extent) control its own costs and location without having rival supplier firms bidding for the business at regular intervals which can lead to frequent changes in supplier. As the SSC grows in popularity firms are moving more and more functions into the model including some strategic ones in an attempt to replicate the benefits gained by the initial centralisation of common transactional processes such as order to cash. The development of countries in Eastern Europe, Asia and the Far East with large, skilled labour forces have made them attractive locations for SSC's often running at considerably lower cost than Western Europe. Quality of life, and lower living costs in these regions has also greatly increased their attraction for more senior personnel willing to relocate in order to join a new SSC. However overseas location strategy has its drawbacks and organisations frequently overlook the human aspect of the move in favour of the practical elements of migrating operational activities. Despite the problems companies have faced, the model continues to grow in popularity and has even found a significant gathering in the public sector.

Public sector organisations have also adopted Shared Service strategies 

Outsourcing is more reversible as a model than the SSC which once created tends to remain active and companies will persevere to ‘iron-out' any issues, whereas outsourced functions that are not performing efficiently may be returned back in-house or transferred to another provider causing disruption. The SSC model has proven in many organisations to reduce costs and increase service levels and will therefore continue to grow in popularity and become an ever more holistic part of businesses encompassing strategic as well as simple transactional processes. Organisations have recognised that relinquishing control of a function to an outsourced third party will not guarantee appropriate service levels and that bringing it in-house into a centralised consolidated SSC unit can have significant cost and service benefits that are attractive when compared with external suppliers.