Change Implementation Techniques for Creating a Sense of Urgency

Technique 2.70 Shared Services

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. Some definitions of shared services are

"...captures the best of both centralized and decentralized models to create a cost effective platform for delivering business services. Shared services also provides a foundation which can scale for organic or acquisition growth..."

Denis Taylor, Director, CSA, Qld Government, 2003 as quoted by Aurora, 2003

"...the sharing of a range of common services across business lines or geographical locations in a cost-effective manner under a purchaser/provider arrangement..."

Michael Monaghan, ATO, 2003 as quoted by Aurora, 2003

. The overriding objective of creating shared services is to add value for improving performance, viability and sustainability by

- reducing costs (more cost competitive)

- enhancing effectiveness (doing the right thing)

- enhancing efficiencies (doing things right)

- enhancing intangibles (more flexibility and agility)

. Ideally, activities should be performed where they are done most effectively and efficiently

. Need to differentiate between shared service centres and shared service organizations

. Remember:

"...The aim of the game is to be the short-term catalyst, a medium-term processing house and long-term seamless service provider..."

Denis Taylor, Director, CSA, Queensland Government, 2003 as quoted by Aurora, 2003

. One of the critical links in a shared services model is to go beyond managing internal costs to managing the customer interface

. The ideal shared services model has 3 parts (managing own internal costs, value adding and reshaping customer demand)

. Some organisations have gone from single (transactional processing) to multi-functional (value added) shared services via transitional stages or along a continuum, such as

- transactional

- customer focus

- expertise-based services

- knowledge-based services

- business contribution

. Furthermore, some organisations have expanded shared services to include commercial opportunities such as co-sourcing, equity partnerships, strategic alliances, etc

. Continuous training is an important part of the shared services. This training should concentrate on 3 areas (leadership, business acumen and customer intimacy or management)

. Performance measurement is important, with regular monitoring and evaluating of performance by using such techniques as bench-marking against similar services elsewhere, customer surveys and ensuring that employees' behaviours reflect what the customer wants and appreciates, etc

. Some lessons learned (not necessarily in order of importance)

- need an executive Champion, preferably the CEO

- ownership of the shared services concept by those who are going to be impacted by the changes to occur under the shared services

- business units must learn to handle the "perceived and real"

i) loss of power in the business units

ii) increased visibility/control of head office

iii) reduced flexibility within business units

iv) increase in uncertainty

v) differences between direct authority vs. shared responsibility

vi) loss of uniqueness, ie "will not work here"

vii) fear of redundancies

- need to educate business units on "how" and "when" rather than selling to them

- need service-orientated people

- need good people managers

- need to handle diversity

- be careful of "prescriptive" shared services concepts (need to realize that shared services concepts are very situational and contextual, ie just because it would work somewhere else or on an earlier occasion is no guarantee for its successful implementation now)

- develop a customer service strategy (ignore customer service at your peril), ie work with customers to identify their specific needs

- be wary if you have multi-systems

- be prepared to challenge the status quo and complacency (don't accept on face value statements such as "we need it done differently, because we are different...", etc

- be careful with too many variations, as variations cost money

- need to relate your successes to Business Unit activity, ie savings, increased business opportunities, etc

Remember: the transition to shared services is part of the journey of improving business processes and is not an end in itself

General Comments

. Owing to its invisibility, the shared services sector of an organisation has been described as the "hidden engine" or 'black hole" of organisations

. The overriding objective of creating shared services is to add value by improving performance, viability and sustainability via

- reducing costs by eliminating duplication; increasing the use of technology, such as E commerce; gaining from economies of scale; achieving improvements by integrating services, innovation, etc

- enhancing effectiveness by optimizing leverage from existing IT infrastructure and investments; implementing technological improvements; reducing risks; where appropriate centralising (such as storage of data/information) and decentralising (such as access to data and information), innovating, improving governance, etc

- enhancing efficiencies by improving technology; making fewer errors and mistakes; eliminating cumbersome tasks; increasing skills and capabilities; reducing duplication of services; improving productivity; enhancing cross-functional synergies; improving infrastructure such as IT; improving timeliness with faster delivery of and access to information; reducing "silo mentality"; improving governance; providing better service levels; standardizing processes and procedures; focusing management attention on "real issues"; using bench-marking to measure performance, innovation, etc

- enhancing intangibles by improving morale; improving job satisfaction via empowerment; allowing greater transparency; improving self-esteem; improving relationship management, especially with customers (internal and external); better handling of management problems caused by diseconomies of scale; improving flexibility and agility to handle the unpredictable future, etc

1.Shared Services Concepts

organisational development change management

2.Shared Services Model

Scale Services
Business Direct Services
Expertise Services
Governance Services

3.Shared Services Concept

Shared Services captures the best of both centralized and decentralized models to create a cost-effective platform for delivering business services. Shared Services also provides a foundation, which can scale for organic or acquisitive growth.

organisational development change management

Difference between a shared service center and organisation

A shared service center involves

- economies of scale and skill

- process focus

- automating and standardizing capacity

- consideration of what can be commercialised

- balancing lowest unit cost and service levels

The shared services organisation includes customer-facing teams and involves

- understanding and managing customer demand

- value-adding and outcome-focused

- leveraging specialist skills

- being strategic

- being commercialised

- balancing customer requirements and costs

It is Important To Recognise The Difference Between A Shared Services Organisation And A Shared Services Centre

organisational development change management


Training should be concentrated into 3 areas (leadership, business acumen and customer management)

i) Leadership involves coaching and feedback, visioning, encouraging staff ownership, communications, managing performance, succession planning, strategic planning, strategy implementation, managing change, etc.

ii) Business acumen involves invoicing; understanding financials such as profit and loss, balance sheet and cash flow; account management; products/services and the margins; how to run a business; how to run a cost center; monitoring and evaluating performance using activities such as benchmarking; activity-based accountancy (ABC); service level agreements (SLA); quality focus, etc

iii) Customer intimacy involves communications; managing customer relationships, such as account management; feedback mechanisms such as customer surveys; behavioural aspects such as learning to listen by asking questions such as

- What do they know about us?

- What do they think of us?

- What issues are they facing themselves?

- How could we help them?

Some topics for customer surveys include the following measures of behaviours:

- intangibles (appearance of facilities and staff)

- reliability (dependable, timely and accurate information delivery)

- responsiveness (promptness and willingness)

- assurance (trust, politeness and support)

- empathy (treat customers as individuals)

Furthermore, with customers there is a need to develop relationships and manage these relationships

4. Customer Partnership Model

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The ideal shared services model has 3 parts

1 Managing internal costs, ie what shared services can do to reduce their own costs by

- reducing service cost by consolidation, process automation and standardization

- selective commercialisation

2 Value adding, ie what shared services can do to reduce customers' costs or increase customer revenue by identifying value-adding opportunities and strategic sourcing

3 Reshaping customer demand, ie what customers can do to reduce their shared service costs by adjusting and reshaping custom demand via awareness of step out costs, required adherence to corporate policies and compliance to process and discipline

Some Models

1 The Value In Shared Services Is To Go Beyond Managing Internal Costs

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2 This requires the transformation of Finance Services from a Cost Centre to a ‘commercially orientated’ Business Unit

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3 Comprehensive Support of Enterprise Business Processes

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4 Corporate Purchaser Model

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Single to multi-functional shared services

Some organisations have gone from single (transactional processing) to multi-functional (value added) shared services via transitional stages or a continuum, such as

- transactional, such as processing tasks, standardization, automation and focus on critical mass and economies of scale in such activities as accounts payable, accounts receivable, fixed assets, corporate reporting and IT help desk activities

- customer focus such as focus on performance measurement (including KPIs, SLAs and customer surveys), customer-driven service delivery and segmented delivery

- expertise-based services, such as accounting (compliance, audit, etc), taxation/legal (advice and expertise), treasury (cash forecasting, cash management, etc) and IT (system development, programming, etc)

- knowledge-based services (development of a learning organisation, leadership values, etc

- business contribution (partnership with customer for organisational objectives)

organisational development change management

Performance management

"...Performance management is a system that provides shared services with a method of measuring and aligning the organisation's strategy with business performance, the capability to capture performance measures from making decisions to achieve the strategy, and a framework for targeting and monitoring the improvement initiatives taken from those decisions..."

Michael Lurie, Director, MIVAN, 2003

. The underlying principles of performance measurement are

- impact of ROI

- a profit and loss responsibility

- customer-focused mind-set

- independent business mentality

- accurate data (data used for performance measurement to improve processes)

Service Level Agreement

"...A service level agreement is a contract that defines the technical support for business parameters that a shared services center will provide its clients. The agreement typically spells out measures for performance and consequences for failure..."

Michael Lurie, Director, MIVAN, 2003

Some examples of pricing

. Cost-based pricing (greater fixed price component with the price being insensitive to volume and reflecting little recognition of unit costing). The advantages of the system are

- easy to establish and administer

- there is a need for sophisticated costing in methodologies such as ABC

- all costs are allocated

- The disadvantages are

- encourages a "use it or lose it" mentality

- it is difficult to benchmark

- it does not support profit-sharing arrangements

- there is little encouragement to continually reduce costs

- an over- or under - allocation of costs to customers

. Services are priced at a cost-per-transaction (suits a more mature, well-established center). The advantages are

- it facilitates benchmarking

- allows visibility in managing volume

- provides customers with ability to manage their own costs

- supports profit-sharing arrangements and continuous improvement initiatives

However, the disadvantages are

- the system is more difficult to establish and administer

- it requires a more sophisticated costing framework, such as ABC

- it requires a written negotiated contract, such as a SLA

. Market-based pricing requires

- a win/win strategy for both buyer and seller

- a pricing framework in which the seller is paid according to the actual performance of its product or services

- that both buyer and seller clearly understand each party's strengths and weaknesses and to share information

- the broadening of the negotiation perspectives

- exploration of a wide range of outcomes

- an understanding of what is controllable and what is not

- the development of clear measures of achievement

- agreement about how to measure output

- a formal/written agreement to be in place

(source: International Quality & Productivity Centre, 2003)


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