Advanced Operating Models
Dec 24, 2014

Eight ways why centralization is not shared services

There is an all too common misconception that consolidation of services to a central location is akin to establishing a shared services platform yet the differences between the former and latter bear noting. For the record, the benefits of basic geographic centralization are, admittedly, considerable. To assume, however, that those benefits are all the return one can expect is to leave considerable value unrealized. True shared services leverage best practices and benchmarks in a manner that does a great deal more than simply realize the economies of consolidation. Here are eight ways that put in sharp contrast the difference between just centralizing and truly synergizing...

  1. Governance: A true Share Service Center (SSC) setup requires creation of a strong and structured performance reporting and visualization. Its governance is one where senior function managers must work together to view and measure the efficiency and effectiveness of their function's performance in a more holistic context. In contrast, Centralization of operations cannot guarantee their efficient and effective governance. Physical consolidation of such operations leaves the senior managers for each function in a position where they each set their own policies and procedures for managing the people, processes and technology under their purview.
  2. Accountability: Where senior function leaders working in a centralized way are each directly accountable to corporate for their performance, a shared services platform makes leaders directly answerable to company business units. This kind of accountability makes evaluation of functional effectiveness more sensitive to a company's market-facing needs. It makes the enterprise more sensitive to its need for centralized functions that actively support the success of units. And it makes function managers less inclined to manage in a way that seems efficient to corporate, but actually compromises operational effectiveness and growth potential for units.
  3. Customer Focus: Again, where functions are merely centralized, decision-making about service offerings and their delivery is corporate-oriented. Meanwhile, in a shared-service model, the line of accountability ensures business units have a strong say in setting priorities on the quantity and quality of services required from functions.
  4. Service Orientation: With centralization of functions, all services become standardized without regard for the differing needs of business units. The shared services model, on the other hand, is tailored to address business unit requirements in a single structure.
  5. Flexibility: Whereas a basic centralized structure mandates usage of internal service providers, shared service models allow flexible sourcing from external providers. In short, you are welcome to "share" with whatever partners best "serve" a function's obligation to units, and to customers the units are obliged to satisfy.
  6. Performance Monitoring: When the time comes to measure performance, functions that have been centralized evaluate only against internal targets. Performance of functions operating in a shared-service model must clear a higher bar. It is not enough be measured against internal targets, which they are. They must also be benchmarked according to the external best practices of functional peers across all businesses sectors, and those in their industry, in particular.
  7. Chargebacks: With centralization, business units are charged based on prescribed allocations whereas shared-service models typically require business units be charged based on actual usage of service from structured service catalogs.
  8. Location: Centralized functions are often physically located at corporate headquarters — a.k.a., the home office. Shared services can be located wherever it makes sense from a customer interaction standpoint. Most global companies for example, are developing hub and spoke landscapes that allow for small, language dependent hubs in the regions that are semi-captive, and a heavier reliance on a strong hub of operations that also relies more heavily on external providers who bring expertise, depth, and rigor to standardized operations.

These eight differences elevate the performance and value of a true share-service model compared to mere the centralization of functions. Shared services thus drive value by creating an organization that is worth more to the company that just the sum of each of its functional parts.

Author: Kalyan Raman - Vice President and Global Business Services