Making the most of a shared-services model depends on a number of variables. Read on to find out more.
In our last article, we explored whether organizations are increasingly using shared services to deliver enhanced shareholder value. Successful organizations realize value by focusing on five key areas, which we will be discussing over the course of our next several columns: setting a strategy, optimizing the sourcing decision, matching and managing multiple expectations, implementing the right structure, and developing true partnerships across the process value lines.
In this article, we will start by exploring the first of these key areas - setting a strategy. The strategic drivers for shared services are widely known: cutting costs, allowing the organization to flexibly manage investments and divestments, and delivering high levels of effectiveness across the business. A properly structured strategy should drive an increase in the long-term value of the business. If the strategy is incomplete or improperly implemented, then it is likely to have a negative impact on business value.
Several research articles, including our own “Shared Service Centers: Delivering the Promise,” highlight that many initiatives struggle to fully realize the expected level of benefits. Many companies are now modifying their expectations accordingly. The PA report shows that cost reduction targets have fallen from 21 percent in 2001 to 13 percent in 2006, with the actual results achieved dropping from 21 percent to 11 percent. These figures are reinforced by several other studies, including Harris interactive, which found that 22 percent of companies failed to meet productivity targets set (Source: 2003 Harris Interactive).
What are the reasons behind these results? Our experience indicates that to deliver sustainable shareholder value, a shared services and wider sourcing strategy must consider five key components:
• The business drivers and required business outcomes;
• The right governance;
• The existing business landscape;
• A comprehensive evaluation of the sourcing options and locations; and
•Whether the leadership is committed to change and sponsorship.
Each organization is unique, so the business drivers and expected outcomes will vary, but a clear understanding of both factors is the key to a successful shared services and sourcing decision. The best approach is to align the strategy with the business vision and risk profile, ensuring that an organization quickly builds consensus among the senior management who will be sponsoring and delivering the strategy.
At this stage, the strategy should rapidly develop into an ongoing governance framework that is flexible enough to change, but robust enough to handle the many challenges that will arise. Organizations should then be able to constantly measure the effectiveness of their governance structure at each stage of their shared services journey.
Any shared service strategy must make allowance for the existing business landscape, including the culture, process maturity, systems in use, and supporting operating model. A baseline of the current landscape provides insight into the value, risk and sensitivity of improvement opportunities. Only when this is complete are organizations in a position to evaluate properly whether processes are efficient, what extra value can be gained, and what the best options are.
An appreciation of the business landscape, together with the business outcomes required, will provide input to the sourcing and location decision, which will be heavily influenced by any emerging trends, value opportunities, location maturity, and level of business risk.
Underpinning any successful sourcing strategy is a clear leadership structure. Senior executives must be held accountable for the delivery of the strategy from inception to completion and then on to renewal. Without strong leadership, the risk of value erosion is substantially increased.
So, do we think that setting a strategy is absolutely necessary? Who among us would want to stand in front of the board members and shareholders to explain that a shared-service initiative failed to deliver its expected value because they did not spend adequate time and effort considering and thinking about strategies?
In the next issue, we will consider the sourcing decision, the differences between captive and outsourced, and the increase in sourcing and shared-services cooperation and collaboration across industries.
