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More Than Cost Cutting
While costs remain one of the main reasons companies create shared-services organizations, a recent study found more strategic benefits resulting from such decisions. HR, in comparison to IT and finance, still lags in leveraging the shared-services model, but is seeing some increased use.
Sharing is good. But it's getting even better for some American businesses, according to a recent study by Deloitte & Touche USA. Cost reduction is still the initial and No. 1 driver of shared services -- the strategy of moving non-essential work out of a company's business divisions or units and into a separate entity to serve the enterprise's greater good -- but such initiatives are moving beyond savings into more strategic benefits such as improved controls, process efficiencies and data visibility, according to the Deloitte study. In fact, while cost reduction and more efficient compliance efforts continue to be the top two reasons companies adopt shared services, the study found that those three added advantages, and others, are beginning to catch up. "We see an increasingly broader and more strategic role emerging for SSOs," says Susan Hogan, principal with Deloitte Consulting and co-author of the study. "Organizations are taking a more strategic approach to their service delivery models. They are thinking carefully about what processes to house in their SSO, how and in what areas to use outsource providers, and where they should locate their shared services locations around the globe." That's the way it should be, says Steven Joyce, HR Practice leader at The Hackett Group, a research firm that focuses on shared services (among other areas). "Shared services should be concerned with customer satisfaction, in addition to cost reduction," he says. "If an HR executive is only thinking of the cost-reduction piece, they are missing the real value of an SSO. "What becomes part of the impediment for HR is that it is less aware of what shared services really mean," Joyce says. "Shared services is more than just a centralized model, where the focus is only on cost containment." "An SSO model should drive customer effectiveness and service, as well as efficiency," he says. "That's not typically the case in the centralized model." For HR, that means an SSO should be run to deliver high quality customer service as much as cost savings, he says. According to Deloitte, the most common HR processes done via an SSO are payroll (56 percent), expatriate administration/payroll (29 percent), benefits administration (26 percent), pension administration (25 percent), compensation administration (24 percent), HR data quality (24 percent) and call centers (23 percent). "While we didn't break out HR in terms of cost savings versus strategic value for SSOs, from my experience, we're seeing that as companies are becoming comfortable with shared services and are getting the transactional side under control, the more strategic value SSOs deliver applies across finance, HR and IT," Hogan says. "Most of all, SSOs are starting to move to more advisory processes from strictly transactional ones," she says. For 2008, 83 percent of companies say they will increase the number of transactional processes managed via SSOs, while 47 percent are expanding their "consultative" processes. "I was surprised there is still that much focus on transactional processes," Hogan says, "but many organizations start small and get the set of processes into shared services that are transactional first, and then move into the more advisory processes. HR is the same on the front." The study also found that maintaining high levels of output quality and high-quality customer service are the biggest challenges for SSOs, with response timeliness cited as the biggest operational challenge, and internal controls and effective governance ranked second. Joyce says that HR, in comparison to IT and finance, lags behind in terms of leveraging the shared-services model, but he is seeing some increased use of shared services by HR. "To succeed, an SSO should be run like a business," he says. "For example, outsourcers are willing to move resources to low-cost geography, and a true shared-services model should be looking to relocate their resources if required." Joyce explains that HR doesn't have the volume of transactional work when compared to finance or IT, so it can be difficult for HR to make the business case to, for example, move certain operations to a lower-cost location -- which many SSOs are doing today. Among the findings in the Deloitte study, 53 percent of the 131 companies surveyed confirmed that their SSOs make compliance efforts less expensive, up from 45 percent in 2005. The companies included all major industry groups, from manufacturing to the public sector, with a median revenue per organization of $5.2 billion. Reduced headcount savings was also viewed as a major benefit of SSOs, with about six in 10 (58 percent) saying they achieved more than 20 percent headcount savings due to shared services. Most of the companies surveyed have had their SSOs in place for at least five years and, on average, had three shared-services centers per organization. Based on the study, the most commonly outsourced SSO processes are IT-related.
December 17, 2007 Copyright 2007© LRP Publications |
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