Shared services is the provision of a service by one part of an organization or group where that service had previously been found in more than one part of the organization or group. Thus the funding and resourcing of the service is shared and the providing department effectively becomes an internal service provider. The key here is the idea of 'sharing' within an organization or group. This sharing needs to fundamentally include shared accountability of results by the unit from where the work is migrated to the provider. The provider, on the other hand, needs to ensure that the agreed results are delivered based on defined measures (KPIs, cost, quality etc.).
Overview Shared services is similar to collaboration that might take place between different organizations such as a Hospital Trust or a Police Force. For example, adjacent Trusts might decide to collaborate by merging their HR or IT functions. There are two arguments for sharing services: The ‘less of a common resource' argument and the ‘efficiency through industrialization' argument. The former is ‘obvious': if you have fewer managers, IT systems, buildings etc; if you use less of some resource, it will reduce costs. The second argument is ‘efficiency through industrialization’. This argument assumes that efficiencies follow from specialization and standardization – resulting in the creation of ‘front' and ‘back' offices. The typical method is to simplify, standardize and then centralize, using an IT 'solution' as the means. Shared services is different from the model of outsourcing, which is where an external third party is paid to provide a service that was previously internal to the buying organization, typically leading to redundancies and re-organization. There is an ongoing debate about the advantages of shared services over outsourcing. It is sometimes assumed that a joint venture between a government department and a commercial organization is an example of shared services. The joint venture involves the creation of a separate legal commercial entity (jointly owned), which provides profit to its shareholders. Traditionally the development of a shared-service organization (SSO) or shared-service centre (SSC) within an organization is an attempt to reduce costs (often attempted through economies of scale), standardized processes (through centralization). A global Service Center Benchmark study carried out by the Shared Services & Outsourcing Network (SSON) and the Hackett Group, which surveyed more than 250 companies, found that only about a third of all participants were able to generate cost savings of 20% or greater from their SSOs. At NASA, the 2006 switch to a shared services model is realizing nearly $20 million of savings annually. Further, by the end of 2015, the NASA Shared Services Center is expected to save the organization a total of over $200 million, according to NASA's Director of Service Delivery. A large-scale cultural and process transformation can be a key component of a move to shared services and may include redundancies and changes of work practices. It is claimed that transformation often results in a better quality of work life for employees although there are few case studies to back this up . Shared services are more than just centralization or consolidation of similar activities in one location. Shared services can mean running these service activities like a business and delivering services to internal customers at a cost, quality, and timeliness that is competitive with alternatives.
Commercial structures A shared service can take a variety of different commercial structures. The basic commercial structures include:
Unitary A single organization consolidating and centralizing a business service Lead department: An organization consolidating and centralizing a business service that will be shared by other organizations Joint initiatives Agreement between two or more organizations to set up and operate shared services
Location variations It is sometimes argued that there are three basic location variations for a shared service including:
On-shore Work is carried out in the same country but at a different location Near-shore Work is carried out in a close location (e.g. continental Europe relative to the UK) Off-shore Work is carried out anywhere in the world that is not on-shore or near-shore This is not to take advantage of both wage arbitrage and the available talents of particular economies in delivering specific service offerings. The difficulty with this argument is that near-shore and off-shore are normally associated with the outsourcing model and are difficult to reconcile with the notion of an internally shared service as distinct from an externally purchased service. Clearly, the use of off-shore facilities by a government department is not an example of shared services.
Benchmarking and measurement In establishing and running a shared service, benchmarking and measurement is considered by some as a necessity. Benchmarking is the comparison of the service provision usually against best in class. The measurement occurs by using agreed key performance indicators (KPIs). Although the amount of KPIs chosen differs greatly it is generally accepted that fewer than 10 carefully chosen KPIs will deliver the best results. Organizations do attempt to define benchmarks for processes and business operations. Benchmarking can be used to achieve different goals including: 1. To drive performance improvements using benchmarks as a means for setting performance targets that are met either through incremental performance improvements or transformational change. - Strategic: with a focus on a long-term horizon; and - Tactical: with a focus on the short and medium term 2. To focus an organization on becoming world class with processes that deliver the highest levels of performance that are better than those of its peer group.
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