Next Generation Shared Services
Three rules to deliver game-changing performance from your shared services organization
Shared services organizations (SSOs) will have to change if they want to continue delivering real value. In some cases it will require a complete reengineering of the shared services concept. To keep up with rapidly shifting business dynamics, the next generation of SSOs will have to be more flexible, collaborative and technologically astute. They will be adaptive business systems—using technology to bring together the best people, processes and perspectives as needed to deliver game-changing performance.
As shared services organizations lost much of their luster in recent years, the remedy, according to prevailing wisdom, requires incremental change to the SSO operating model. The evolving SSO will capture new labor pools, compel providers to do more with less and streamline processes. The SSO, some say, should be positioned as a standalone profit center where labor arbitrage and cost reductions are the primary products.
What will tomorrow's shared services organization look like? Less business structure and more business system as collaborative coalitions join forces to focus on the same goal
We disagree. Chasing low-cost labor and outsourcing around the globe does little to contribute to new thinking or deliver long-term value. Instead, the SSO becomes a self-fulfilling structure with higher fixed costs and more overhead. It drives neither business objectives nor strategic alignment—which we believe are the primary roles of forward-thinking SSOs.
For those who argue that the SSO is well positioned to improve organizational efficiency, we agree. We simply suggest that the solutions—seeking new labor pools, reengineering end-to-end processes and eliminating non-value work—must be understood within the context of a larger business system; one that is dynamic, self-sustaining, flexible, and balances supply and demand. Each function within this adaptive business system, on its own and in concert with others, can adjust quickly to change in order to maintain competitive advantage and sustain the system's value.
In this paper, we outline three simple but powerful rules to achieve game-changing performance from your SSO:
- Rule 1: Focus on system, not structure
- Rule 2: Build collaborative coalitions of people, processes and perspectives
- Rule 3: Allow form to follow function
Rule 1: Focus on system, not structure
As organizations expand across the globe, whether in search of suppliers and labor on the make side or customers and channels on the sell side, they encounter various geographies, demographics and sociologies of people in the workforce. Markets become more complex and less consistent. Yet companies are rarely flexible enough to adapt to these changing business environments; most continue to work within their rigid legacy business structures.
Flexibility is important given today's social and geopolitical realities—war, terror, environmental calamities, and rapid changes in customer demographics and preferences. As the U.S. military has learned, building a monolithic structure may be advantageous in terms of scale but, in rapidly shifting circumstances, these fixed-cost entities increase risk, lead to unexpected costs and quickly become liabilities.
Our advice to companies: Forget the fixed business structure approach to shared services, and instead create an adaptive business system.
The film industry has been doing this for years, with evident success. At the operational level, each film production, or movie, has a system in place to accomplish an objective—in this case to produce a movie. At the organizational level, a collection of front-office functions work together to match market demand for the movie with the right kind of content (supply). The right amount and types of resources—financial backers, production companies, writers, directors, technicians and actors—are brought in as needed and managed through a shared services organization. These resources, in turn, bring their own people, processes and perspectives into the production, balancing their individual styles and goals with those of the larger system.
By coalescing all contributors through an adaptive business system, the shared services organization can invest in current supply and production while also deploying working capital to future initiatives.
Rule 2: Build collaborative coalitions of people, process and perspectives
Governing an adaptive business system is more complex than governing a fixed structure. In a shared services organization, the executive team sponsors a collaborative coalition of people, processes and perspectives (the three Ps). Accountability belongs to the executive team, but authority and responsibility belong to SSO leadership.
People. Collaborative coalitions provide a vehicle to manage talent—allocating people to their highest and best use. Within these coalitions, it is crucial to reward people who focus on the problems to be solved rather than on their place in the solutions. (Success cannot be achieved when individuals have a vested interest in the structure independent of the system.) A good first step is to offer incentives or create reward systems to encourage cooperation toward meeting the organization's business needs. Vendor and supply partners should create similar reward systems to align their people with the coalition's objectives.
Some of today's best shared services organizations are successful collaborative coalitions. Filippo Passerini, CIO and head of P&G's Global Business Services Group (BSG), meets quarterly with the leaders of his coalition partners to monitor existing systems, adjust contributions based on changing needs and set future objectives, strategies and service level agreements. Importantly, everyone in the group shares in the rewards.
Process. Traditional SSO strategies—standardizing and improving back-office processes and seeking labor arbitrage—are still necessary, but not sufficient, to sustain competitive advantage. Consider the mobile phone business. Motorola owned the market in the early years. To maintain its position, the company built up its business structure, establishing bricks-and-mortar factories to produce similar products to exacting quality standards. Its low-cost, consistent output was a well-oiled process. But there was little room to adapt to changing conditions. Eventually, Motorola lost its marketshare.
By contrast, RIM and Apple take a business-system approach, forming collaborative coalitions capable of rapid design and deployment that capture new technologies and materials from resources throughout the world. Their executive sponsors and SSO leaders draw on in-house core capabilities and bring in companies and people with the required skills and experiences as needed. Both companies created new products (BlackBerry, iPad) that ultimately became the market standards.
Perspective. A collaborative coalition encourages different perspectives, skills and methodologies. Again, the film industry is illustrative. Computer-generated imagery is used in nearly every movie, but in most cases, this technology is outside the studio's expertise. So the big studios bring in the smaller, more cutting-edge creative companies to develop imagery and other innovative technologies. Essentially, they combine two unique cultures to develop breakthrough products.
Rule 3: Let form follow function
In the 19th century, a building's function was constrained by the load-bearing capacity of its walls. Using a steady supply of low-cost steel to create a new approach to design, Chicago architect Louis H. Sullivan revolutionized an industry with his now-famous axiom, "Form must follow function."
Like steel of the last century, distributive technology and computing "in the cloud" are changing the shape of business. Rather than being constrained by the physical location of hardware, and investments in customized technologies and partner connectivity, business can now be performed anywhere, at any time, and by anyone with the right capabilities. SSO leaders are released from managing hard assets and free to focus on business objectives and market needs independent of the embedded technology. In short, today, function drives form. With technology, companies can design a strategy to meet business goals using any combination of resources—internal, captive or outsourced—in any number of locations worldwide.
Next Generation SSO
What will tomorrow's shared services organization look like? As the focus turns to systems rather than structures, new approaches to shared services will emerge (see figure).
Activities will no longer be owned by the functional group or controlled by a single offshore BPO provider; instead, coalitions of people and services will work across global business units.1
Talented shared-services professionals will become internal consultants—best-of-breed thinkers—capable of challenging the status quo by drawing on a wide range of experiences.
Questions of onshore, offshore and nearshore will become irrelevant. Similarly, process-level decisions such as BPO and KPO will be less important.2 More emphasis will be placed on the effectiveness of the participants, rather than the efficiency of delivery. This is because advances in technology and the maturity of outsource partners will make process improvements more the rule than the exception. Finding and connecting talented people worldwide will be key to a shared service leader's role.
Incorporating cultural context into traditional make-versus-buy analyses will encourage new perspectives from coalition partners, leading to successful partnerships and game-changing performance. Leaders who harness the strengths and experiences of contributors, rather than dictating a particular path to follow, will be the single biggest difference between today's shared services and tomorrow's.
As discussed in our third rule, technology will free executives from day-to-day tasks, allowing them to focus on value-added activities such as developing products and markets, sales strategies and improving customer service and satisfaction.
As the system becomes self-sustaining, it will begin to take on adaptive strategies. For example, the SSO could manage business continuity and disaster recovery, using its ability to source and manage disparate activities around the globe to maintain up-time requirements. It may also develop a recruiting and training function that rotates talent, including external partners, throughout the system.
SSO Leader or Laggard?
Less business structure and more business system will be the standard for shared services organizations of the future. SSOs will have collaborative coalitions of employees, business managers, technology professionals, suppliers, vendors, government officials and customers—all focused on the same goals. In the new world order, the ability to adapt quickly to changing industry dynamics will be the difference between business leaders and laggards.
Authors
Chris Ahn is a partner and head of the firm's organization and transformation practice. She is based in the San Francisco office.
Beth Bovis is a partner in the organization and transformation practice. She is based in the Chicago office.
Ken Lee is a partner in the organization and transformation practice. He is based in the Cambridge office.
Jeffrey Postma is a principal in the organization and transformation practice. He is based in the Chicago office.
The authors wish to thank Ryan Fisher, Kevin Dundek and Neeti Bhardwaj for their valuable insights and help in writing this paper.
1 BPO is business process outsourcing.
2 KPO is knowledge process outsourcing.
Copyright 2011, A.T. Kearney, Inc. All rights reserved.
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