Shared Services: An Old Idea Breathes New Life into Cost Reduction and Risk Management
The concept of shared services was born shortly after the release of Michael Hammer’s Re-engineering the Corporation in 2001. Corporate America began a quest to re-design processes, automate, outsource, and re-engineer costs out of the business. “Shared services” was a means by which an organization with multiple locations, divisions, and companies could group like process and functions to optimize efficiency and reduce overall operating costs. Evolution of the shared services model.Initially, companies consolidated overhead functions into a common and sometimes centralized processing center. Soon after, third party service companies began to spring up, offering corporations the option of outsourcing their shared services operations. These third party centers boasted their efficiency and ability to further reduce costs per transaction by processing multiple companies from one center. The shared services concept evolved even further when third-party providers began building centers in lower-wage countries to offer even greater cost reductions. Now, the shared services landscape is beginning to change again. Current economic conditions, fuel prices, and the increasing instability of markets and geographical regions require companies to re-evaluate their cost structures. What they’re finding is that the traditional model of shared services is not a magic pill for cost reduction and that off-shore operations pose increased risks in today’s business climate. These centralized operations are susceptible to disasters—man-made or natural. Even if the provider can protect data during a disaster, who will operate the center, take calls, and keep the operations running? Multiple centers serving as hot sites may offer a better alternative; however, a company will need to be large enough or grouped with other companies to make this model cost effective. A new approach to shared services. A more appropriate solution for today’s environment applies the concepts of virtualization and remote processing, creating a new virtual shared services approach. Utilizing well designed business processes and remote data processing, a company can “virtualize” shared services to the homes of employees, in any location in the world—an approach that opens a world of opportunity for both small and large organizations. Virtual shared services distribute transaction processing into the home offices of its employees. This new operating strategy creates value for employees, reduces the company’s costs, and distributes risks across the network of virtual shared services operators. Through the use of document imaging, e-mail, and other readily available technologies, virtually any traditional shared services function—for example, accounts payable, accounts receivable, order entry, customer service, payroll, etc.—can be performed from a individual’s home office. While some employees may view the concept of “working at home” as intrusive, the benefits of greater flexibility, more family time, and lower commuting and day-care costs can offset concerns. This model also can help an employer attract a more temporary and flexible workforce, thus reducing labor costs. In addition, the company can reduce its required space, lowering occupancy costs and utilities and potentially freeing-up cash in buildings that it owns. Given the workforce is distributed across a potentially larger geographic area, the company can reduce its risks related to natural and/or man-made disasters or other forms of business disruption. If the virtual shared services environment is further spread across time zones, then the company may be able to provide better service and communication to vendors and customers while avoiding multiple working shifts. Although business is changing more rapidly than ever and current economic conditions appear daunting, a virtual shared services approach offers organizations new opportunities to reduce costs, improve employee quality of life, and mitigate increasing risks. West Monroe Partners helps organizations define and implement shared services strategies aligned with their goals. For more information, please contact Rich Sypniewski:
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