Making the Most of Shared Services Centers

Early shared services centers (SSCs) were set up with a clear objective: efficiency and centralization in pursuit of cost reduction. Many firms successfully trimmed costs in this way, and the ability of SSCs to generate impressive one-time savings was indisputable. Consequently, the majority of the Fortune 500 now operates shared services in one or more functions.

But limiting the role of shared services to merely reducing costs ignores the other benefits that SSCs can provide. When done right, shared services can increase efficiency, drive productivity, enhance controls, and, ultimately, help companies make smarter decisions.

How can companies take advantage of the untapped potential of shared services? To answer that, organizations need to take a close look at their SSC and assess the maturity of their operations. There are three maturity levels—what we call "generations"—of shared services. Each provides a framework from which to better understand available opportunities and where they can be found.

Generation One: Rapid Cost Reduction

First-generation shared services typically focus on initiating and stabilizing operations with sights firmly set on savings. Unsurprisingly, they are tasked with transactional processes within a single function, and frequently within a single region too. Based upon firsthand experience with clients, Generation One SSCs can be expected to deliver savings upward of 15 percent. This financial return is largely the result of labor arbitrage and related centralization and consolidation of staff.

Generation Two: Robust Controls and Process Efficiency

As first-generation savings ebb, many companies press for further gains. Enter the second-generation SSC, characterized by a focus on increasing efficiency, productivity, and stronger controls alongside cost reduction. In some cases, multiple functions are leveraging shared services, albeit in silos. SSCs may also expand their geographic footprint as location-specific costs are wrung out of the system. Again, based on experience, an additional 5 percent to 15 percent cost reduction is achievable by setting up a systematically process-focused organization, rather than aligning on a country-by-country basis.

Generation Three: Strategic Business Partner

As valuable as cost reduction and process efficiency are, farsighted companies know that SSCs can deliver even greater value. Leading SSCs are fully optimized for effectiveness and business impact. They go beyond operational excellence, allowing senior management to focus on strategic decision-making. To make this jump, companies need to be able to embed the SSC deep within the organization. Specifically, high-performance Generation Three SSCs possess five shared attributes:

They take an end-to-end view of processes, including analytical and customer-facing facets.

They are cross-functional in nature to maximize the benefits of the shared services model.

They are focused on business outcomes rather than intermediate performance indicators. They seek to support business outcomes such as working capital improvement and deliver innovative capabilities to help the company outperform its competitors.

They leverage availability of enterprise-wide data in standardized formats for effective risk management and compliance monitoring.

They are "future ready," with the flexibility, agility, and scalability to support growth.

Having the right people and support

All of the preceding points are built on a strong foundation with robust risk management and control mechanisms in place. Moreover, having high-performance shared services platforms has radically changed how some enterprises are able to conduct business.

Across the board, however, few SSCs have delivered their full potential of being a strategic business partner. In large part, that may be due to the challenges associated with moving beyond their primary goal of reducing costs. As companies look to make their SSC a true partner, there's little doubt that issues like risk management, retention of control, and talent management will present obstacles.

To overcome such challenges and see their SSCs to full maturity, companies will need either the proper capabilities in-house, or the right partners—not to mention a requisite leadership commitment. As with all things in the business world, having the best people and support can make all the difference.

Ajay Kapoor is a senior vice president for Genpact,a global business process management company spun off from GE in 2007. He spearheads re-engineering efforts for the company's Global Business Services clientele. KP Santosh is a senior leader on the Genpact consulting team, leading the European re-engineering practice. He has worked with several Fortune 500 corporations designing and implementing large global transformation programs.

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