Shared Services are now an established way of consolidating support services to a centralized location in order to provide lower costs, higher reliability, standardization and a also leverage a flexible, scalable delivery platform. In fact, over the last few years, both the public and private sectors have seen a rise in the use of shared service centers.
But even with the compelling business case and successful examples that abound, constraints have limited the expansion of shared services to their fullest extent. Phil Searle, Founder and CEO, Chazey Partners, a global management advisory business, specializing in shared services and outsourcing, shared some data, “According to some reports, two-thirds of total transactional work remains stuck in the business units instead of having been transferred to shared services, despite the significant potential rewards. In fact, relatively few organizations have actually shifted higher value (the more professional and technical services such as planning and reporting, credit management, recruiting, strategic buying etc.) into shared services”. Shared services impact many people and teams across an organization. Transitioning to shared services and managing them over a period can be quite complex and challenging. Global Delivery Report looks into the most important causes contributing to failure of shared services.
Turf wars and Ineffective Change Management
Shared Services & Outsourcing Network (SSON) is a large community of shared services and outsourcing professionals. Barbara Hodge, responsible for all online content for the community, stated “It’s an unspoken truth that most shared services initiatives fail because of lack of political support.” Elaborating further, she continued, “Consider that Shared Services requires the business units to cede control of certain support functions, HR or finance and accounting, or procurement, to a centralized operation. The loss of headcount, control and power associated with this transfer can be threatening for a business unit. The instinctive reaction is generally to resist. This is even stronger in the case of globalized services, where regional or country managers can put up a strong fight. Companies that preempt it by investing in strong and robust change management strategies stand a much better chance.”
Anupam Govil is Partner at Avasant, a management consulting firm servicing global blue chip clients in the public and private sectors. He confirmed, “Lack of strong governance model is one of the primary causes of failure. This results from under-estimating various factors like change management requirements, miscalculating organizational readiness and value leakage.”
Mismanaged Customer Expectations
Customers often expect flawless delivery and a seamless transition to shared services. This holds for both internal and external customers. Hodge emphasized the importance of setting the right expectations with customers from the beginning, “There is a certain transition period during which new technology may cause a few setbacks, new SSO staff are not yet used to the process and lack the historic expertise and knowledge that the in-business staff had, and despite the service-level agreements [SLA] there will be a disconnect between what the shared services Center believes it needs to deliver, and what a customer expects. From the point of view of a shared services leader, it’s important to get the customer to the table at the pre-planning stage and to be very clear not just on what the customer wants, but what the customer really needs to reach their objectives. These are two quite different things.” Shared services that are aligned with customer needs stand a greater chance of success.
The company’s culture goes a long way towards implementing changes successfully.
The culture can adaptive and open to change, neutral or closed and obstructive. Searle shared some insights drawing from his experience, “In many failing shared services implementations people on the ground felt that it was simply too hard to overcome the barriers to change. An obstructive company culture can result in a failing shared services or, at the very least, an operation that does not achieve all it could.”
Implementing shared services involves scrutinizing the impact across the enterprise and on individuals throughout the organization. Lack of complete, transparent communication and support from senior management levels can jeopardize it. “In situations where shared services are delegated as a “project implementation”, a bit like an IT implementation, the necessary enterprise wide support will simply be lacking. Shared services reaches across so many groups and potentially can cause disruption to the process, that a unified front and strong leadership is required to carry the naysayers along,” said Hodge.
Lack of Enabling Technology
Govil highlighted the importance of technology in global shared service implementations, “The Inability to leverage technology undermines economies of scale and a hybrid delivery model.” Explaining in further detail, Hodge said, “Shared services experts tend to speak of the “people, process, and technology” trilogy that drives a successful implementation. Without a robust ERP system it will be difficult to drive the standardization, audit trails, and quality that shared services are based on. Many implementations struggle in dealing with multiple ERP systems, and different business units or countries operating on their own legacy systems, or different systems not interacting with each other. No matter how good the strategy, without the practical foundation of a technology platform, it will be hard to deliver against expectations.”
Understanding the key causes of failure is crucial to prevent and reduce shared service failures. Hodge shared some additional advice on mitigating the risk of failure, “The most important aspect of a shared services implementation is the planning stage. This is where the business case is built, stakeholders are identified, and sponsorship sought, and project teams from a variety of stakeholder groups are put together. If the communication and problem solving at this stage works well–that’s a big if and it will depend on excellent change management skills–the shared services statistically stands a much better chance of delivering successfully.”
Rounding it off, Searle added, “Things will go wrong and there will be always be some people who don’t want to take this path under any circumstance. Be prepared for that, respond to it when it happens, but don’t give up when things do go wrong or at the first sign of opposition.”