management fad or real value? - strategy& - the global ... is the global leader of the...

Shared services

Management fador real value?

1 Strategy&

About the authorsContacts

Chicago

Vinay CoutoSenior [email protected]

Gary NeilsonSenior [email protected]

Dr. Deniz [email protected]

Dubai

Per-Ola KarlssonSenior [email protected]

Andrew HorncastlePartner+971-4-390-0260andrew.horncastle@strategyand.pwc.com

Olaf SchirmerPrincipal+971-4-390-0260olaf.schirmer@strategyand.pwc.com

Munich

Stefan [email protected]

Frederic [email protected]

Rio de Janeiro

Paolo PigoriniSenior [email protected]

San Francisco

DeAnne AguirreSenior [email protected]

Sydney

Varya [email protected]

DeAnne Aguirre is a senior partner with Strategy& in San Francisco. She is the global leader of the Katzenbach Center and an expert in culture, talent effectiveness, leadership, and change management. She advises senior executives globally on organizational topics.

Vinay Couto is a senior partner with Strategy& in Chicago. He leads the firm’s global organization strategy business and has deep expertise in selling, general, and administrative (SG&A) transformation including shared services and outsourcing.

Gary Neilson is a senior partner with Strategy& in Chicago. He focuses on organizational transformation to increase effectiveness and efficiency for companies across industries.

THE LATE 1980S were the heyday of corporate decentralization.Anxious to dismantle top-heavy headquarters operations, manycompanies rushed to farm out support functions. Vital services,such as sales and marketing, human resources, information technol-ogy, finance, purchasing, and logistics, were to be paid for by profitcenters. In the name of increased accountability, the autonomousdivision replaced the all-powerful corporate headquarters.

But decentralization had its own downside. Managers createdfiefdoms. The corporation lost economies of scale, resulting inredundant resources, operating facilities, information systems, andsupplier contracts.

In the mid-1990s, companies set out to redress the excesses ofdecentralization. Returning to command-and-control centralizationwas neither attractive nor feasible. The challenge was to combinecorporate scale with the superior service, customization, and focusassociated with decentralization, at a price and quality standardcompetitive with the best that the marketplace had to offer. A newapproach known as shared services was born.

What Is Shared Services?Shared services is a model for delivering corporate support, combin-ing and consolidating services from headquarters and business units

Shared Services: Management Fad or Real Value?by DeAnne Aguirre, Vinay Couto, and Gary Neilson

102 strategy+business Reader

into a distinct entity based onmarket-like principles. (SeeExhibit 1.)

The shared-services entitymust be able to compete vigor-ously with outside vendors.Business units are under mar-ketplace discipline in all otherrespects — they must be freeto seek support services thatmeet the same test. Proprietarystandards and corporate cul-ture are out. Best practices arein, if the business units are togain competitive advantage.

Internal customers can specify their service needs. Providersmust meet those requirements, and they can expect to have theirperformance evaluated using measurable criteria. So structured, theshared-services unit becomes another business unit, perceived andmanaged as an outside vendor, with no choice but to be competitiveon price and service level.

Why the Shared-Services Model Is So AppealingWhen executed properly, the shared-services approach combines theadvantages of centralization and decentralization. (See Exhibit 2.)

As service organizations are consolidated, work is standardizedand redundancies are minimized without the reinflation of corpo-rate head count. Service levels are tailored to the actual needs ofbusiness units, and services that don’t add value are eliminated,while supply and demand for support-service activities are balanced.Because shared-services providers are answering to business unit cus-tomers, their operating budgets are often determined on the basis of

Shared Services 103

PriceTransparency

BusinessManagement

Provide the servi ce levels the business units want, not the levels st a� think th ey need.

Identify and dep loy best practices quick ly and g lobally .

Develop st reamlined p roce ss standards that can be main tained and improv ed quick ly.

MarketResponsiveness

Best PracticesProliferation

ProcessStandardization

Treat business units (BUs) li ke custome rs, offering servi ces theBUs value and charging for each.

Service Culture

Exhibit 1: Shared-Services Principles

Source: Strategy&

E ach s ervi ce sh ould have itspri ce. The business uni ts candeter mine how muc h se rviceit wants at that pri ce.

Manage the se rvice lik e abusiness unit , not a fixed cos t. Serve in ter nal and potentiallyexternal cust omers.

104 strategy+busines s Reader

Exhibit 2: Example Benefits of Shared Services

Source: Strategy&

Cos

t per

Uni

tShared

Supply

Q2Q1

C2

C1

Volume

Time

Time

Time

Demand

Uti

lizat

ion

Rat

esQ

uant

ity

SG&

A

Acquir ing Company

Acquired Company

Improvement Levers

Capture Economicsof Scale

Example Benefits

• Share scale-sens itive se rvices acro ss organ izational boundar ies• E liminate redundancies

Be fore Shared Services

Be fore Shared Serv ices

Be fore Shared Services

After Shared Services

After Acquis itionB efore Acquis ition

After Shared Services

After Shared Serv ices

Leverage Expertise across Business

• Capture economies of scope • Trans fer bes t prac tices to provide higher-qual ity se rvices

Establish Customer/ Market-Based Relationships

• Focus sta� on service to line • Tailor level of service to meet cl ient needs• Crea te strong incentives for improvemen t through direct or indirect competition with external mar ket providers After Shared Services

• Lower demand due to user cost accountability• P lanned demand and supply

Enhance Adaptive Capabilities

• Allow flexible adaptation to changing cus tomer needs• Lever age merge rs and acquis itions

Shared

Shared Services 105

customer demand — a major change from traditional staff organi-zations. Not surprisingly, corporations that have implementedshared services have reaped huge cost savings. (See Exhibit 3.)

But the benefits go well beyond cost savings. A shared-servicesapproach frees business units to focus on inventing, making, andselling products or services. As one business unit executive puts it,“We don’t have to worry about tasks like payroll or bill payments.We can now focus on new products, customers, acquisitions, andother market issues, not on administrative issues.”

By bringing together scarce, highly specialized, expertise-basedservices such as law, risk management, and communications in cen-ters of expertise, shared services also helps build critical capabilities.It gives corporations new incentives for undertaking large infrastruc-ture projects, and an agency for managing them.

The Best of Both WorldsAs does any significant concept, shared services has its detractors.Some call it “centralization with a smile.” Some business unit man-agers, threatened with loss of control, worry publicly about account-ability of service providers, and argue that cost reductions areachieved at the expense of quality.

We feel, however, that a shared-services model is not a rebirth ofcentralization but a blend of centralization and decentralization.(See Exhibit 4.)

In a centralized organization, headquarters controls the staffresources and dictates standard policies, programs, and proceduresto the business units. In a shared-services environment, businessunits are customers, as they would be with external providers, andboth parties must agree on cost, quality, and service levels.

Furthermore, the services unit can draw from both internal andexternal resources, including joint ventures and outsourcing. Unlikeusers of centralized services, shared-services customers have the


power to shop and buy elsewhere, although they must do so withincertain parameters. Most companies declare a moratorium on out-sourcing for a year or two to allow their internal service units tocome up to speed. At the end of that time, business units thatbelieve their needs could be better served by outsourcing generallyundergo a high-level review by a management board. The decisionto permit outsourcing is complex because it can dilute economies ofscale. However, many companies have selectively outsourced servic-es to benefit overall corporate economics beyond the specializedneeds of the business units.

Where to Locate Services: A Case ExampleWhere should the shared-services organization be situated? Itdepends on the type of service being provided.

Most companies bring transactional services together in a cen-tral location or in a few geographical centers, using information

Exhibit 3: Shared-Services Savings by Function

50403020100

Public Affairs

Treasury/Risk Management

Planning/Financial Analysis

Procurement

Tax

Legal

Environment, Health, and Safety

Information Systems

Accounts Payable/Receivable

Facilities and Services

Human Resources

Source: Strategy&

%15–5

5–%15

1%20–0

5–%20

%20–5

%20–5

%25–10

%30–20

%35–25

%40–20

%50–20

Sample Functions

Range of Savings (Percent)

Expe

rtis

e-B

ased

Ser

vice

sTr

ansa

ctio

n-B

ased

Se

rvic

es

Shared Services 107

technology to leverage costs. Proximity eases documentation, costcontrol, and maintenance of consistent standards. Consolidationencourages business unit managers to view service professionals as“shared” resources rather than “owned.” It also reinforces servicestaff identification with the company as a whole. However,providers of expertise-based services often benefit from being locat-ed close to the business units. This dual location approach helps theexchange of information and joint problem solving.

For example, to reduce operating costs and streamline its infor-mation technology function, Mobil built a shared-services organiza-tion to manage its IT worldwide. To complete the task, Mobil firstidentified which services to provide, then reengineered the appropri-ate IT processes, and finally designed the organizational supportstructure to meet its business strategy. The global organization has

Typical Shared Services Dimensio tneCn ralization

Exhibit 4: Shared Services versus Centralized Support

Shared-se rvices board se ts policy and direction

Sen ior functional managers se t policy and direction

Source: Strategy&

Governance

Accountability to bus iness units

Accountability to corpora te core

Accountability

B us iness units se t priorities on quantity and qual ity of se rvices re quired

Corpora te functions decide on service offer ings and deliveryCustomer Focus

Serv ices are tailored to address bus iness unit re quiremen ts

Serv ices are standardizedService Orientation

B us iness units are charged based on actual usage of se rvice

B us iness units are charged based on allocations

Chargebacks

Located wherever it makes sense from a cus tomer interac tion standpoint

Often physically located at corpora te headquar tersLocation

Flexibility to source from external providers is often perm itted

Use of internal se rvices is manda tedFlexibility

Performance is monitored against internal targets and external bes t prac tices

Per formance is monitored against internal targe ts

PerformanceMonitoring


overall responsibility for supplying IT services, including technicalinfrastructure, applications development and maintenance, andglobal architecture and standards. Individual business units are sup-ported at the global, regional, or local level, depending on the natureof service and the level of interaction needed with the services organ-ization.

For instance, mature transaction-based services — such as datacenters and networks that have standard service definitions and lev-els, are highly automated, are scale sensitive, and can easily be pro-visioned remotely — are centralized and managed globally. Servicesthat require regional expertise, such as applications that have uniqueregional requirements and may have area-specific labor issues, aremanaged and deployed at the regional level. Services that requirepersonal interaction, such as end-user support, are deployed locally.Finally, IT strategy and planning activities that require intimateknowledge of the business strategy are dedicated to the businessunits. As service level requirements change and new services emerge,Mobil shifts the deployment of the staff based on the most effectivecost- and service-level relationship that can be achieved.

The Pitfalls of Not Differentiating between Types of Services Many companies mistakenly create shared-services entities withoutdistinguishing between types of services. For example, one companypulled all financial, human resources, IT, customer service, and pur-chasing functions from its business units, consolidated them, stan-dardized their activities, and initially reduced costs by 30 percent.But dissatisfaction quickly set in as the resulting services proved tobe excessively standardized. Training programs were too generic,financial reports failed to capture the drivers of business unit eco-nomics, labor relations experts missed the nuances of individual sit-uations, and customer service representatives couldn’t master theissues for multiple product ranges. Even worse, activities were con-

Shar ed Servic es 109

solidated at locations far from the businesses, which slowed bothservice provision and problem resolution.

Business units began to re-create “shadow” units to providethemselves with the tailored services that they required. Costs creptup to levels higher than before, and the shared-services unit had tobe dismantled.

Service segmentation is a critical component of implementingshared services. Each staff function, wherever it exists, needs to bepulled apart into the discrete services it provides. Once identified,these services must pass a rigorous burden-of-proof test. We find

Exhibit 5: Decision Tree for Delivery of Staff Services

Source: Strategy&

Organizational Implication

No

Yes

Yes

Yes

Yes

Yes

No

No

No

No

Differen tiate between roles and service

Global core

E liminate

E mbed in bus iness unit(s) or co-l ocated shar ing

Outsourc e/par tner

Shared services

E mbed in bus iness unit(s)

Is it needed for governance, consistency, or fiduciary responsibility?

Do business unit customers need this service?

Does it provide a strategic competitive advantage?

Can someone else provide the same service cheaper or better?

Does this service demonstrate economies of scale or scope in expertise across operating units?

E liminate low value

Differen tiate between stra tegy-based, expertise- based, and trans action- based services

Deploy in most cost-effec tive manner


that an objective, systematic “decision tree” approach typically helpsto determine the right location for each service. (See Exhibit 5.)

Six Principles for ImplementationOur experience with hundreds of organizations has helped us delin-eate six principles for the establishment of a shared-services structurein any company.

Principle 1: Determine which services to share. Not all services arealike. They differ according to which customers are served, whichinteractions are required, and which competencies are needed.

In general, organizational capabilities can be segmented intothree categories: transaction based, expertise based, and strategybased. (See Exhibit 6.) Transaction-based capabilities require limit-ed contact with providers. The shared-services organization’s pri-mary objective for these activities is to achieve the lowest cost whilemaintaining high quality standards.

Expertise-based services are technically specialized, requiringconsiderable contact with internal customers for projects such ashiring a diverse workforce, resolving legal issues, or completing newmanufacturing facilities on time and on budget. These servicesrequire a combination of broad expertise and customization, whichcan be delivered through a “center of expertise” concept.Professionals must learn best practices in their technical area andapply their knowledge to specific business problems.

Strategy-based capabilities are critical to either the competitive-ness of a business unit or the policy-setting and governance roles ofthe corporation. These services are best left with either the corporatecore or the business unit senior management.

Principle 2: Develop a service-level agreement. The objective ofshared services is to create a market-based partnership between lineand staff services. This represents a fundamental change in estab-lished roles.

Shared Services 111

Business units and service providers should negotiate a kind ofprenuptial agreement, called a service-level agreement, specifyingthe services to be delivered, specific requirements and parameters,unit and total costs, method of charging costs, and time frame forservice delivery. Service-level agreements help because they get cus-tomers and providers to jointly develop and understand expecta-tions, requirements, and the provider’s capabilities. They also helpservice providers focus on what is important to the customer.

Additionally, these agreements should spell out the customer’sbusiness objectives, how the services are expected to support theseobjectives, and how achievement will be measured. They do notneed to be overly formal or legalistic — in fact, rigid specificationscan be an obstacle to success.

Under the line and staff partnership arrangement, the goal fortransaction-based services must be: “No one does it as well, for less.”Shared-services units must consistently match or beat benchmarksfor routine administrative services.

In the expertise-based arena, the paradigm must be: “I can help

Source: Strategy&

Expertise Based

• Activities requi ring specialized or technical kn owledge• Some deg ree of cust omization required by businesses

• Routine, repetitive activities, often transactional in natu re• S cale in tensive

• Activities requi ring business- specific kn owledge or en terprise- wide perspective• St rong upside for effecti ve decisions• P olicy orien ted

Transact tSdesaB noi rategy Based

• Stra tegic planning• Mar ket resea rch• Sa les• Su ccession planning

• Law• Tax• Compensation design• Benefits policy d evelopment

• P ayroll• Acc ounts recei vable• Benefits administ ration• Data- center pro cessing

• Managed t o maximize value provided to the business• Small t eams or individual contributors• Staffed with c reative, inn ovative thinkers• Rewa rded for value creation

• Managed to maximize value provided to the business• Team-based o rganization• Staffed with c reative, inn ovative thinkers• Rewa rded for time-to-mar ket, bus iness impact, and value creation

• Managed li ke a “utility” for cost and s cale• Flat o rganization with b road control spans• Pro cesses designed to be executed wth minimum expertise• Rewa rds for efficiency and productivity

Exhibit 6: Types of Services

Des

crip

tion

Exam

ples

Ope

rati

ng P

hilo

soph

y


you find the best way.” This means having a clear understanding ofthe customer’s needs coupled with an ability to leverage the internalknowledge network. One of the most difficult challenges in devel-oping the service agreement is establishing the pricing structure.The Texas Utilities Corporation (TXU), which implemented an ITshared service, began this process by defining fundamental charge-out principles. For example, the team agreed to charge by type ofservice and reflect full costs. Predictable or fixed costs were allocat-ed annually on the basis of simple drivers, and discretionary costswere billed on usage. Once the charge-out mechanisms were devel-oped for each IT service, a major effort was launched to educate thebusinesses about the new cost structure. This was an important stepin demonstrating commitment to serving the businesses. Instead ofviewing the charge-out mechanism as merely an accounting tool,the IT staff viewed it as a communication tool that the businessescould use to make sound decisions. Once the business unit man-agers understood which IT investments were discretionary andwhich were necessary, which resources were shared and which dedi-cated, and which costs were fixed and which variable, decision mak-ing became much easier. Now the business units are able to makeinformed decisions about their IT spending and how to regulate it.

Principle 3: Choose leaders and staff carefully. The executives whogenerally prove most effective at implementing a market-orientedshared-services organization are senior, entrepreneurial line man-agers. Ideally, services that are characterized as expertise-based arestaffed with some of the organization’s best and brightest. These arethe people who will be interacting with business units and internalcustomers. They have a bottom-line orientation, a customer focus,and consummate selling skills. They manage their service units likebusinesses to meet customers’ objectives and budgets. Because oftheir success at running a business, they command respect amongbusiness unit managers. They are decisive and act on feedback.

Shared Services 113

Their compensation is tied both to hitting budgets and to maintain-ing high levels of internal customer satisfaction.

Leaders of transaction-based services have a proven track recordof managing large numbers of staff. They have demonstrated anability to motivate personnel, and their focus is on cost reductionand quality improvement. Their compensation is tied to reachingcost reduction targets and maintaining high levels of customer satis-faction.

Both leaders and staff in a shared-services organization will berequired to learn new behaviors. They must be focused on cus-tomers and attentive to market standards of costs, service levels, andbest practices. (See Exhibit 7.) They must be accountable for meet-ing their service agreements with the business units. As one shared-services president puts it, “We motivate our shared-services employ-ees to be aggressive about moving from ‘order takers’ to value-addedpartners. We teach employees how to build key relationships withtheir business unit partners. We sensitize our shared-servicesemployees on how a change in service level and cost affects the busi-

Exhibit 7: Centralized Staff Mind-Set vs. Shared-Services Mind-Set

Source: Strategy&

Typical Staff Mind-Set

• W e will de fer to the central hie ra rch y (i.e., co rpor ate); th ey will m anage us and make a ll criti cal decisi ons• Th e hiera rchy w ill produce the best solut ion• We w ill rel y on our plannin g and control systems• We w ill tell the b usine ss units the solution• We w ill change h ow we do things and when we do things• We m ust ma ke sure the bus inesses do it right• Co rporate edicts r equire that the businesse s use our ser vices• We w ill all ocate our co sts to th e busine sses• We w ill set o ur bud get and m anage to it• We w ill tell them w hat we th ink th ey need to know

Shared-Services Mind-Set

• We will mana ge our sel ves by sati sfyi ng our clients wit h supe rior servi ce for the price s charged• W e will emp hasiz e team work and c ollaborati on• We w ill advise t he busin ess uni ts of be st practices and will l et them d etermine what is r ight for t hem• Cl ients come to us be cause the y want to. If we cannot perform the service competitively, we will work w ith cli ents to �nd t he best pr ovider• Cl ients wi ll de �ne their needs in advance• Cl ients wi ll ge t what they pay for an d won’t pay for what they don’t want or d on’t get• We w ill continuous ly improv e our cost s, ser vice levels, and capabil ities• We w ill m eas ure o ur succ ess on cust omer satis faction and busine ss unit s uccess• We w ill comm unica te regul arly and openl y with all our clie nts


ness unit’s bottom line. We organize meetings between providersand users several times a year to measure customer satisfaction. Weknow more about outsourcing and other benchmark alternativesthan anyone else in the corporation and can shape our customers’perception about the kind of value we are delivering.”

For their part, the business units must be aware of the trade-offbetween cost and value. They must learn to be rigorously selectivein shopping for services. They must accept flexible sharing arrange-ments and be responsible for outperforming the marketplace oncethese services have been provided.

Principle 4: Benchmark the shared-services organization against outside

vendors. Beyond these behavioral and paradigm shifts, performancecriteria are required to cement the market relationship betweenshared services and the line.

In the old model, service performance was unmeasured exceptwhen performed by outside vendors. With shared services, key per-formance indicators are identified, tracked, and communicated.External and internal benchmarks and best practices are monitoredroutinely.

The old model employed standard cost accounting systems,with business unit costs allocated according to traditional drivers.The mentality was: “It all goes to the bottom line anyway.” In thenew model, activity-based costing allows customer billing based onusage. Business lines compete for internal resources, ensuring thatresources go where they generate the most value.

In the old model, outsourcing was virtually nonexistent. In thenew model, periodic outsourcing reviews and vendor managementassurance are built into the responsibility of shared services.

Principle 5: Establish a governance board composed of business unit

executives. Companies have chosen a variety of structures for imple-menting shared services. They are ultimately distinguished by twocritical features: (1) the extent to which the leadership is consolidat-

Shared Services 115

ed under one executive or distributed among several, and (2) theextent to which the roles of setting policy and managing operationsare combined or separated.

Some organizations have elected to consolidate staff servicefunctions into a new entity overseen by a single senior executive.(See Exhibit 8.) Corporate policy–related decisions associated withstaff services are managed at headquarters by a small core of man-agers familiar with the function, and day-to-day decisions are movedinto the shared-services entity. This separation avoids the problemsof traditional centralization and the disconnect between staff andbusiness unit requirements. The stand-alone shared-services organi-zation maintains its distinction from corporate staff. The executiverunning this organization has single-point accountability for provid-ing services to business units and managing those services for maxi-mum efficiency.

Other companies have adopted a distributed shared-servicesmodel in which corporate-level oversight is distributed among sev-eral senior executives. These tend to be the most senior functionalexecutives, such as the chief financial officer for finance, chief infor-mation officer for information technology, and chief humanresources officer for HR. The functional heads of the various shared-services units report to these senior executives.

In both models, functional heads focus solely on managing theoperations of their respective areas. They build relationships withservice buyers, determine demand, develop client service agree-ments, deploy staff to execute against these agreements, and manageperformance.

In either case, governance is performed by a board composed ofsenior business unit executives, shared-services executives, seniorcorporate function executives, and sometimes even the CEO. Theshared-services board gives the business units — which ultimatelyfund staff services — a voice. Populating the advisory board with


business unit presidents as well as staff functional leaders helps bal-ance the line–staff relationship and minimizes the risk of an internaland staff-centric orientation.

The board provides strategic leadership and direction andensures that shared services are being consistently managed in accor-dance with internal customer requirements. In addition, the boardsets policy, decides whether and how to permit outsourcing,approves expenses and capital budgets, and resolves significant con-flicts over such issues as complying with agreements and determin-ing degrees of standardization.

Principle 6: Select an implementation approach. The burning ques-

Exhibit 8: Shared-Services Organization Models

Advisory Boa rd Advisory Bo ard Advisory Boa rd Advisory Boa rd

CEO

SVP CustomerService

Shared Service

SVP FinanceSharedService

SVP ITSharedService

SVP HRSharedService

Source: Strategy&

Integrated Model

EVP SharedServices

Shared Services 117

tion that confronts most companies once they decide to movetoward shared services is, Should we organize for shared services andthen redesign, or redesign first and then reorganize? Some compa-nies have created a top-level shared services organization first,migrated services at headquarters and in the business units into thisorganization, and then redesigned these services based on internalcustomer needs. Senior management can send a powerful signal ofits commitment by appointing a shared-services leader. The seniorleader and functional leaders can then “own” the design and drivequickly toward the implementation.

But leader-driven change is not the only road to transformation.

Exhibit 8: Shared-Services Organization Models

Redefine How It Is Done

Advisory Board Advisory Board Advisory Board Advisory Board

CEO CEO

SVP CustomerService

Shared Service


SVP ITSharedService

SVP HRSharedService

Advisory Board Advisory Board Advisory Board Advisory Board

SVP CustomerService

Shared Service


SVP ITSharedService

SVP HRSharedService

Line-of-BusinessEVPs

SVPCorporate

Finance

SVPCorporate

IT

SVPCorporate

HR

Source: Booz Allen Hamilton

Integrated Model Distributed Model

CFO CIO

EVP SharedServices

COO CHRO


Many companies whose senior management was initially skepticalabout anything that smacked of recentralizing have effectivelyredesigned the services themselves before opting for a shared-services model. Without a clear understanding of the benefits ofservice consolidation, they want to know which services are beingperformed and by whom, who the customers are, and how much theservices cost. Once this business case is built, senior commitment tothe new model can be obtained. This approach has led some com-panies to change both process and organization concurrently. Thisapproach typically takes longer and entails complex change manage-ment issues. However, it also ensures that the design is optimized.

Managing the transition to shared services along any of thesepaths is complicated and demanding, requiring comprehensivechanges in management processes. It requires fact-based decisionmaking and customized solutions. It demands internal buy-in, own-ership, and understanding from line managers and service providersthemselves. They must know who their customers really are and beable to demonstrate superior service improvement, cost reduction,and quality enhancement.

However, for all its complexity, the road to shared services isbecoming increasingly familiar.

Lessons from the Trenches Whichever route you choose, successful implementation demandsconsiderable front-end investment and cultural transformation. Toclear these initial hurdles, the company, especially senior manage-ment, must be fully committed to significant change.

Even with leadership from senior management, though, resist-ance to change can be tenacious. Business unit managers may notwant to give up direct control, sometimes out of fear of losingauthority, but more often out of a concern about sacrificing servicequality and responsiveness.

Shared Services 119

In the early 1990s, Germany-basedDeutsche Bank (DB) appointed HansFischer as head of its global HumanResources division. His task: to trans-form what had been a regionally organ-ized function with a strong corporatecenter into a world-class organizationaligned tightly with individual businessunits. In 1999, when David Ulrich wasappointed advisor to the bank’s HR com-mittee, he identified four roles HR hadto fulfill in order for the function tobecome a true business partner of DB’sbusinesses — while cutting costs anddelivering services more efficiently:strategic partner, change agent, adminis-trative expert, and employee champion.

To that end, the bank established an“HR firm” to deliver shared services anddevelop new delivery channels foremployees, built up business partner sup-port aligned to its two primary business-es (private client banking and asset man-agement, and corporate and investmentbanking), each with its own functions forcompensation, recruitment, and the like,and began reducing the size of the HRcorporate center. The highest-level strate-gic functions, which included developinga human capital strategy for the bank as awhole and overseeing delivery of admin-istrative services, remained centralized.Each unit, meanwhile, developed its ownHR function responsible for supportingthe unit’s business strategy by aligningpractice teams with client needs, and byoverseeing the necessary change manage-ment.

The HR firm set up a shared-servicesunit dedicated to generating significantyear-over-year cost reductions while pro-viding a full range of state-of-the-art andstandardized HR activities like payroll,administration, performance manage-ment, benefits, and international servic-es. The transition was guided by globalpractice teams, each responsible for thevarious products and services beingdeveloped for use by the business units,and for the channels to be used to deliv-er those products and services. The teamsalso worked directly with their businesspartners to determine when and how tomake the firm’s offerings available to itsinternal clients.

Out of that effort, the firm developedtwo primary delivery channels: HROnline was set up as a Web-based portalthat employees could use to gain access tosuch services as electronic pay stubs,transfers, performance tracking, vacationdata, and support targeted to new hiresand departing employees; managerscould use HR Online for resource plan-ning and approval, among other services.HRdirect is a phone-based system offer-ing first-line support for employeeinquiries about online HR products aswell as general HR questions.

By 2003, the newly restructured HRfunction had reduced head count by 15percent and costs by 20 percent. Thenumber of registered HR Online usershad grown to 50,000, and more than58,000 employees had used the perform-ance management system.

Case StudyDeutsche Bank: Sharing Human Resources


Exhibit 9: Shared-Services Lessons Learned

Description

Source: Strategy&

DOs

• S et the ba r hi gh: Th e CE O should arti culate t he mission and set aggre ssi ve targets• Bui ld the case fo r change up front with accura te base line s, external benchmarks, and intern al s urveys• Think big: th e bigger the scope, the better• Enga ge the lin e manage rs from the start• Redesi gn, don’ t just reco nsolidate• Cr eate ea rly win s by sta rting with transact ional activiti es wh ere e conomies of scale are un shakab le• Keep s ervi ce-level cont racts simp le• Co mmunicate, communi cate, comm unicate

DON’Ts

• View s hared ser vices as simp ly a c ost-cu tting exerci se• Fo rget to change the compensation, re wards, and re cognition sy ste ms• Le t the bus iness units buy out side imm ediately; establish a g race per iod• Lo se f ocus (main tain st rong le adersh ip; trans formation ta kes ti me)

At Strategy&, our experience with leading companies to pushtoward a shared-services approach has allowed us to assemble anumber of best, and worst, practices. (See Exhibit 9.)

Shared Services — What Next? Staff services have evolved from corporate services to business unitservices to shared services. The continuing evolution will lead us fur-ther into management of the extended enterprise. (See Exhibit 10.)

As the market for both transaction- and expertise-based servicescontinues to develop, it is likely that many more services being per-formed internally will be outsourced. The new challenge: outsidevendor management. Shared-services leaders will manage outsourc-ing opportunities. Over time, they will manage service capabilitiesrather than service production. In the extended enterprise, theshared-services unit is responsible for outsourcing strategy, perform-ance standards, and results. Thus, it is critical to strengthen out-sourcing management skills and solidify the structures that overseethese relationships. Service staff must acquire skills that hold intrin-sic value. Compensation must be linked to business performancethat is compared with that of external service providers. And bene-fit plans must apply across companies.

Shared Services 121

The further we get from the old notion of command-and-con-trol management, the closer we get to a world in which the marketis the test of every aspect of corporate life. The winners will be thosethat mobilize capabilities in support of market objectives. Supportservices are one more capability, even if the customers are internal.Shared services is a significant evolutionary step in this process. +

Exhibit 10: The Evolution of Corporate Services

Problem Faced Comma nd and control

Ineffic ient process es

Duplication and bus iness unit s ilos

Dema nd managemen t;mar ket pricing;differen tiated service requiremen ts

Source: Strategy&

1970s CorporateServices

1980s Business Unit Services

1990s SharedServices

2000s ExtendedEnterprise

Solution Decentral ize service

R edes ign bus iness process es with bus iness units

R eorganize process es into internal shared services

Network of internal and externalservice providers

Scope Corpora te Individual bus iness units

E nterpr ise - wide Industry-wide

Results Greater al ignment throughbus iness unit service

Improved efficiency within bus iness units

30% cost reduction through el imination of redundancy andshar ing of bes t prac tices

20% cost reduction via captur ingindustry-wide scale efficiencies

details. Disclaimer: This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

www.strategyand.pwc.com

Strategy& is a global team of practical strategists committed to helping you seize essential advantage.

We do that by working alongside you to solve your toughest problems and helping you capture your greatest opportunities.

These are complex and high-stakes undertakings — often game-changing transformations. We bring 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the task. Whether you’re

charting your corporate strategy, transforming a function or business unit, or building critical capabilities, we’ll help you create the value you’re looking for

and impact.

We are a member of the

157 countries with more than 195,000 people committed to delivering quality in assurance, tax, and advisory services. Tell us

out more by visiting us at strategyand.pwc.com.

This viewpoint was first published in 2007, prior to the separation of Booz & Company from Booz Allen Hamilton in 2008, and the merger of Booz & Company (now Strategy&) with PwC in 2014.

management fad or real value? - strategy& - the global ... is the global leader of the...

Documents