Shared services represent an organizational strategy aimed at reorganizing and delivering internal support functions across a large enterprise. This approach involves consolidating activities duplicated across various business units into a single, specialized operational entity. This structural redesign allows organizations to treat internal support like a professional service, transforming administrative processes into streamlined, predictable functions. The shared services model is widely adopted among corporations seeking greater efficiency and consistency in their global operations.
Defining Shared Services
A shared service center (SSC) is formally structured as an internal provider, operating much like a separate business within the parent organization. Its primary role is to deliver a defined set of administrative support activities to multiple internal business units, which are viewed and managed as customers. The design centers on consolidating scattered resources, expertise, and technology into one location or virtual hub. This consolidation drives the standardization of processes, ensuring tasks like expense reporting or invoice processing are performed identically across the entire enterprise. The goal is to leverage scale and specialized competence to improve the quality and predictability of internal support delivery.
Distinguishing Shared Services from Related Models
The shared services model is often confused with basic centralization, but a defining difference lies in the operating philosophy. Centralization simply moves similar functions to a single location, often maintaining a traditional cost center mentality without formal service agreements. Shared services, conversely, introduces a formal customer-provider relationship. Business units often have a choice, and the SSC uses chargeback mechanisms to fund its operations. This focus on service-level negotiation separates the SSC from a mere centralized department.
A distinction also exists between shared services and outsourcing, which involves transferring the execution of a business function entirely to an external, third-party vendor. The shared services model maintains the function within the corporate boundaries, keeping core knowledge and control inside the organization. While outsourcing transfers risk and execution outside, an SSC retains internal accountability while focusing on operational excellence.
Common Functions Included in Shared Services
Shared service centers are established to manage high-volume, repeatable, and transactional tasks that benefit most from standardization and scale. The selection of these functions is based on their potential for process harmonization and their ability to be efficiently delivered centrally.
Common functions consolidated into an SSC include:
- Finance and Accounting, such as accounts payable processing, general ledger maintenance, fixed asset accounting, and employee expense report management.
- Human Resources administrative tasks, covering global payroll processing, benefits administration, and managing employee data changes.
- Information Technology support, specifically handling user help desks, desktop support, and managing core infrastructure maintenance.
- Procurement and Supply Chain functions, often utilized to consolidate vendor management, process purchase requisitions, and handle contract administration.
Strategic Benefits of Shared Services
Adopting a shared services model provides several measurable advantages. The most immediate benefit is cost reduction achieved through economies of scale by eliminating redundant systems, staff, and processes scattered across multiple business units. Consolidating work into fewer locations allows the organization to optimize technology investments and reduce the number of employees required to perform the same volume of work.
The move to an SSC also drives improved service quality because the staff becomes specialized in a narrow set of tasks. Standardization of processes reduces errors and introduces predictable delivery metrics. This specialization fosters a deeper level of expertise than decentralized departments often achieve.
Finally, the model allows core business units to redirect their attention toward market-facing, revenue-generating activities. By offloading transactional support functions, business leaders can focus on strategic initiatives rather than managing back-office administration.
Key Components of the Operating Model
The effective functioning of a shared service center requires an operating model built on formalized mechanisms that govern the internal customer-provider relationship.
Service Level Agreements (SLAs)
A foundational element is the establishment of SLAs, which are formal contracts defining the scope, quality, and timeliness of services the SSC will provide. These agreements set measurable standards, such as response times for help desk tickets or accuracy rates for payroll processing, ensuring accountability on both sides.
Governance Structure
A strong governance structure is necessary to define decision-making authority regarding service scope, budget allocation, and process changes. This structure typically involves a steering committee composed of SSC leadership and representatives from the internal customer base to ensure alignment on strategic direction and performance.
Chargeback Model
The financial sustainability of the SSC is managed through a formalized funding or chargeback model. The SSC charges its internal customers for services based on their actual usage or a pre-agreed allocation formula. This mechanism encourages efficiency within the SSC and promotes prudent consumption of services by the business units.
Potential Challenges and Risks
While the shared services model offers rewards, its implementation and operation involve challenges that require proactive management. The initial setup phase is often complex and expensive, requiring upfront investment in new technology platforms, process redesign, and organizational change management.
One common hurdle is resistance from business units accustomed to controlling their own support staff, leading to change management difficulties and reluctance to fully adopt the new service model. If not properly managed, the SSC can evolve into a centralized, bureaucratic structure focused solely on cost cutting rather than service quality. Furthermore, if the governance model is weak, disputes over service quality, pricing, and scope creep can undermine the intended benefits and create friction between the SSC and the operating units it serves.