Ravichandran (Ravi) Venkataraman, ACMA, CGMA, is accustomed to observing what he calls an “aha moment” when he works with executives who are bringing functions together in a shared-service centre.
The usual benefits of shared-services implementation – cutting costs and centralising operations – are obvious. But Ravi, senior vice president and head of the Global Services Division at Hewlett-Packard (HP), said people fully start to understand the benefits of shared services when they consider the effects that standardising processes might have.
A global company, for example, might have different processes for the same work in different regions. Shared services can provide an opportunity for standardising processes across the organisation. This allows for automation with the same tools and standardised technology platforms in every region, making it easier for executives to “connect the dots” in all the regions.
Globally, shared services are being applied to an increasing number of functions. Human resources, IT and finance were some of the first areas where shared services commonly were implemented. Now sales operations, supply-chain operations and marketing also are taking advantage of shared-services platforms.
A balancing act
Ravi advises carefully weighing the benefits and costs before making a transition to shared services. In addition to streamlining processes, Ravi said, shared services can facilitate:
- More rapid and efficient roll-out of policies. Implementation of an accounting policy that might take two years in a large, global company can take less than a month through shared services.
- Creation of value-added services. HP, for example, has created a service that allows the company to track terms and conditions of agreements with vendors across the globe to create consistency.
- Better controls. Standardisation through shared services has helped HP drive compliance with audit-based controls, and reduced the cost of managing those controls.
- Enabling co-operation. Multi-function shared services that cut across all business units can help break siloed approaches and get different business units to work together in harmony.
All of these benefits can have a significant impact on a company, but moving to shared services does have consequences that need to be considered before a move is made. Individual business units give up freedom; bureaucracy is increased as policies are centralised; and a personal touch is lost as functions are moved to locations that sometimes are halfway around the world, Ravi said.
If an organisation is not careful in how it structures the retained portion of the function that moves to shared services, critical local domain expertise also can be lost.
Compliance issues must be closely monitored when shared services are implemented, because regulations can change quickly across multiple jurisdictions. And the cost reductions created by shared services must be balanced carefully against potential negative effects.
“If it’s going to take longer to introduce a new product and impacts how you go to market … then all the cost [savings] do not make any sense,” Ravi said, “because you’re losing revenue and market share.”
Often, though, the benefits do outweigh the costs. For these cases, Ravi has ten tips for successful shared-service implementation:
- Create a road map. First, get sponsorship and buy-in from senior management. Then create a policy for shared services that maps out the stages of the transition clearly. “Otherwise, what happens is, it’s done in bits and pieces,” Ravi said. “And it becomes a problem.”
- Invest in change management. There is job uncertainty in some pockets of the organisation, while at the same time, shared-service organisation employees located overseas may be struggling to get up to speed. Companies that do not invest in change management – which includes investing in managing complex change in the divisions that are giving up roles and in countries where these roles are being added – can be hurt by finger pointing at this stage, Ravi said.
- Don’t bank all your savings. It’s wise to report part of the savings, Ravi said, but he advises investing some of the savings into technology that will need to be more sophisticated as local operations become more global.
- Fix processes. Reducing the number of broken processes that are going into shared services can save heartache later on. Some organisations have also successfully moved work to shared services, saved costs and used part of the savings to fix the process. Whatever the approach, fix the process and automate.
- Design the retained organisation. It is essential to retain staff who possess domain expertise, understanding of the business or function, and connections to key decision-makers in the business in the relevant countries and regions, and the corporate office. The retained organisation, along with the shared service, should enable better business outcomes.
- Don’t increase the number of hand-offs. As the number of people touching a transaction increases, so does its chance of failure. If the number of hand-offs rises with shared-services implementation, customer service will suffer.
- Focus on risk management. It’s important to ensure that a company’s shared-services implementation is not creating increased risk exposure.
- Move quickly. After a decision has been made, a slow transition to shared services can cause a loss of momentum.
- Be present. As a general rule, senior management should be visible, face-to-face, at least once a month at the shared-services location in the early days of the transition, Ravi suggests. In-person appearances can be scaled back to quarterly once the transition is nearly complete. A good video-conferencing facility can help decrease the frequency of face-to-face meetings, but in-person interaction is important.
- Be patient. It may take a couple of years before the full extent of the benefits is realised.
IT as the linchpin
The degree of automation involved in shared-services implementation dictates that careful attention be paid to IT during transition and beyond. First, regular investment in IT is essential in shared services, Ravi said, because it takes a strong IT work engine to carry shared-services processes across the globe while managing risks effectively.
In addition, he said, ownership of the shared-services process and the IT asset must be married. If the IT owner who is in charge of the budget has different priorities, he or she may not be motivated to devote funds and resources to the process that’s being performed in shared services. To drive a coherent policy across the organisation, Ravi said, the process owner, budget owner and IT asset owner should be the same person.
IT systems also should give warning signals if transactions get held up or don’t process, Ravi said.
“IT is supposed to make your life easier,” Ravi said. “And if that doesn’t happen, then you’re missing out on chances.”
—Ken Tysiac (email@example.com) is a CGMA Magazine senior editor.