Shared Services - Overview

Overview

Shared services is similar to collaboration which 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 industrialisation' 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 industrialisation’. This argument assumes that efficiencies follow from specialisation and standardisation – resulting in the creation of ‘front' and ‘back' offices. The typical method is to simplify, standardise and then centralise, 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 on-going 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 SSO.

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.