The Shared Services (SS) model is an organizational strategy designed to consolidate similar support functions across a business into a dedicated, unified delivery structure. This approach moves away from the traditional structure where every business unit maintains its own administrative staff. The goal is to reorganize administrative and transactional activities to be managed with a corporate-wide perspective rather than a siloed one. By creating an internal provider of services, the organization can better manage and control the quality and efficiency of its back-office operations. This model standardizes how administrative tasks are performed throughout the enterprise.
Defining Shared Services
Shared Services refers to a dedicated organizational entity, often called a Shared Services Center (SSC), established to provide support functions to multiple internal operating units. This unit operates much like an internal business, serving its corporate divisions as customers rather than simply acting as a centralized mandate. The model involves a purposeful shift of administrative and transactional work—such as processing invoices or running payroll—from decentralized, local teams to this single, consolidated entity.
The SSC is typically structured to achieve economies of scale and expertise by focusing solely on executing standardized processes in high volume. Unlike traditional corporate overhead departments, the shared services entity is expected to deliver measurable value and operate with a strong service orientation. This structure allows the support functions to be managed with a focus on efficiency and performance metrics, creating an internal market dynamic.
Key Characteristics of a Shared Services Model
A defining characteristic of the Shared Services model is the establishment of a formal customer-supplier relationship between the SSC and the business units it serves. The internal business units are treated as clients who consume services, which fundamentally changes the mindset of the support staff from administrative compliance to service delivery. This relationship is formalized through the use of Service Level Agreements (SLAs), which clearly define the scope, quality, responsiveness, and performance metrics for the services provided.
Governance structure is another distinguishing feature, detailing how decisions are made regarding service scope, quality standards, and funding. This framework ensures that the needs of the business units are heard while maintaining the standardization required by the central entity. A charging mechanism, such as a chargeback system, is often implemented to formalize the financial relationship and hold the SSC accountable for its costs. Chargebacks ensure that business units pay for the services they consume, promoting transparency in service costs.
Distinguishing Shared Services from Related Organizational Models
The Shared Services model is frequently confused with pure centralization, but a defining difference lies in their operational philosophy. Centralization is a command-and-control structure where headquarters dictates standard policies and processes. Shared services, conversely, blends the benefits of scale with the focus and responsiveness of a decentralized model by operating under market-like principles. The SSC is expected to earn the business of its internal customers by delivering services that meet agreed-upon quality and price standards.
The SS model also differs significantly from decentralization, which often leads to fragmentation and redundant resources across multiple business units. While decentralization gives local units full control, it sacrifices efficiency; SS aims to recapture economies of scale and process standardization. Unlike outsourcing, where a third-party external vendor performs the services, an SSC remains an internal, captive entity owned by the corporation. The SS model maintains strategic control and organizational culture, whereas outsourcing involves transferring assets and control to an outside firm.
Common Functions Suitable for Shared Services
The functions most often transitioned into a Shared Services model are those characterized by high-volume, repetitive, and transactional tasks that benefit significantly from standardization. These functions are typically not core to the company’s competitive advantage but are necessary for its daily operation. By consolidating these activities, the organization can apply technology and specialized expertise to streamline the workflows.
- Human Resources: Includes transactional and administrative tasks like payroll processing, benefits administration, and management of employee records. Consolidation frees up local HR staff to focus on strategic activities such as talent management and employee development.
- Information Technology: Frequently applied to infrastructure management, desktop support, and help desk services. Centralizing these services helps avoid costly duplication of hardware, software licenses, and specialized technical staff, improving security and standardizing platforms.
- Finance and Accounting: Focuses on activities such as accounts payable, accounts receivable, general ledger maintenance, and expense report processing. The unified structure allows for greater control and better data management for analytics and ensures accurate, timely financial reporting.
- Procurement: Focuses on standardized purchasing, vendor management, and contract administration. Consolidating purchasing power allows the organization to negotiate more favorable terms and pricing with suppliers due to economies of scale.
Primary Advantages of Adopting Shared Services
The adoption of a Shared Services model provides substantial cost reduction opportunities, primarily through economies of scale. Consolidating functions eliminates redundant staff, processes, and systems that existed when business units managed their own support activities. This reduction in duplication, coupled with the ability to locate the SSC in lower-cost geographies, leads to significant savings.
Standardization and process efficiency are additional benefits derived from the SS structure. When transactional tasks are moved to a single center, they are typically redesigned using best practices and advanced technology, resulting in more consistent service quality and fewer errors. This consistency improves compliance and provides a more reliable foundation for business operations.
Furthermore, the model allows individual business units to improve their focus on core activities. By offloading administrative burdens like payroll and invoice processing to the SSC, local managers and staff can dedicate more time and resources to strategic initiatives that directly drive revenue and customer value. The enhanced controls and centralized data management also support better strategic decision-making across the entire organization.
Potential Challenges and Risks
Implementing a Shared Services model presents several organizational and operational challenges. A significant hurdle is the resistance from local business units and their leadership, who often view the transition as a loss of control over their resources and staff. Managers who previously directed their own administrative teams may perceive a decrease in their authority and flexibility.
Change management difficulties are substantial, as the transition involves moving staff, harmonizing disparate processes, and introducing new technologies. Employees who are transferred to the SSC must adapt to a new service-oriented culture and standardized way of working, which requires extensive communication and training. Failure to manage this change effectively can lead to service disruptions and reduced productivity during the transition phase.
Another common risk is the “one-size-fits-all” syndrome, where the SSC imposes standardization that fails to meet the unique requirements of a specific business unit. If the service offering is too rigid, internal customers may feel underserved, leading to dissatisfaction. Organizations must also account for the substantial initial setup costs and complexity associated with establishing the center, including technology investments and process redesign.
Steps for Successful Implementation
Establishing a successful Shared Services Center begins with a thorough feasibility study and a comprehensive business case. This initial phase assesses current service costs and models the anticipated economic benefits to justify the required investments. A clear vision of the future state, including defined objectives and guiding design principles, must be established by leadership.
The next action involves meticulously defining the scope and service catalog, detailing exactly which tasks and functions will be transitioned to the SSC. Once the services are defined, the governance framework and funding model must be established, including the creation of formal Service Level Agreements and the structure for the chargeback system. This ensures accountability and transparency from the outset.
Technology selection and process harmonization run concurrently, as the success of the SSC depends on using common platforms and standardized workflows. This requires migrating entities onto a common IT system and standardizing processes to eliminate unnecessary variations. The final step is executing a robust transition and change management plan. This plan addresses employee concerns, provides necessary training, and details the phased rollout to ensure smooth adoption of the new service model.