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Exploring Shared Services

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♪ Music Playing in Background ♪ So the way that I'd approach that is let's take first the shared services model. Pick shared services' typically most helpful or most relevant when you have a company that has a certain scale right? Because a lot of benefits from shared services come from physical consolidation of multiple operations and standardization. So shared services is typically helpful when you have that kind of scale, when you want to standardize, when the pressure to drive cost savings isn't necessarily short term because it does take some time to consolidate your various functions and bring them under one roof. Outsourcing, on the other hand, is a bit more helpful when the emphasis is more biased towards cost savings. When your in-house operations isn't so complex that handing it over to someone else doesn't become a separate project unto itself and you're looking for savings for a, in a slightly shorter time horizon because the time it takes to transition services over to an outsourcer isn't quite as long as it is when you're establishing an internal shared service. ♪ Music Playing in Background ♪ Shared services drives value for fiance executives from two standpoints. So the first one is with respect to the finance function. Savings and efficiencies are clearly part of the gain for shared service. But also what you get, what you get by building a consolidated operation for finance is a certain amount of standardization in your processes, you get better capacity utilization of your staff, you drive standardization in your systems as well, so your capabilities in terms of reporting, having one way of doing business across the company go up dramatically when you have a shared service go up dramatically when you have a shared service. The second way in which it adds value is really increasingly CFOs are on the hook to manage efficiencies, not only in respect to finance but also other back office functions: such as HR and IT. And by driving a shared service in a cross functional way, across these different areas you're able to get the same kinds of benefits as you would get for finance and in the process lower your G&A costs and your G&A effectiveness as well throughout the company. ♪ Music Playing in Background ♪ So the move towards a shared service or an outsourcing strategy depends on multiple parts of a company playing well together. Because the whole point of doing this is to get those economies of scale, the economies of scope and the form of standardization and so forth. So what you need is some kind of consensus with the business that this is feasible and that once the path forward has been agreed on, that the company is willing to move ahead. So what we've seen when shared services and outsourcing methods get undermined is when individual business units have a change of heart or decide to pull out, or decide that the business case for them isn't attractive enough that they want to continue. So really for shared services and outsourcing initiatives to be successful you need to drive it in one of two ways: you either need to have a top down mandate that's driven from the C suite from the very beginning that says 'we shall do this because it's good for the company'. Or, if your company culture is a bit more oriented towards a democratic approach, you need to make sure that you have a business case that has a sort of 'what's in it for me' argument for each business unit. In the absence of either one of those two things you could end up with trouble. ♪ Music Playing in Background ♪ So you know the decision to whether, whether to move forward or not with the pilot is very much dependent on what the company's starting point is with respect to these large transformational initiatives. So if, for example, you're a prototypical midsize company with a moderate level of complexity and you don't have really much experience in, in driving these cross-functional exercises, or in outsourcing, then typically it does make sense to do a pilot because you don't have the in-house expertise to take on this large transformational effort or to engage with a major outsourcing deal. Now in these cases what we recommend is that you pick a couple of processes that are relatively low risk and that on the company side of things the systems and processes aren't very scattered or complex. But also on the supply side of things, you've got let's say a service provider base that is capable of providing these services at low risk. So examples would be accounts payable, payroll, things of that sort. Those would be logical candidates for establishing a pilot. Now in terms of who should be involved in the pilot typically we recommend that it's three groups of people. It clearly needs to be the effective function which in this case would be finance but IT also needs to have a strong seat at the table because systems are a key enabler of both the efficiencies and the effectiveness benefits. And finally you need to have the business at the table as well. because ultimately they are the end customers of what you're going to be doing. And without having any one of those three at the table you run the risk of developing a strategy that once you begin execution you will find that it doesn't have legs or it starts falling apart. ♪ Music Playing in Background ♪ So I think you can look at the best agreed approach in two ways; one of them is when you get a hybrid shared services and outsourcing model where you have a shared service that is ultimately the one-stop-shop of the custodian of all your transaction processes. And in some cases, the shared service may choose to outsource some of those processes. So you, for example, could run your credit and collections in house through a shared service, but the shared service administers let's say the more transactional side of things through an outsourcer. The second best-of-breed approach is when it's a pure outsourcing approach; and you've got multiple vendors performing multiple processes. So in the first case, of where you've got a hybrid shared services and outsourcing approach, there it typically makes sense once you have a shared service up and running for a certain amount of time because you need to build in the change in mind set, the change in culture, or the fact that the shared service now needs to view itself as a quasi-business that's serving a set of customers before you can layer in the added complexity of now having to deal with an outsourcer. And if you are looking at the second scenario, which is a pure outsourcing approach, then again we recommend that the company does make sure that it has a few years of experience under it's belt managing outsourcers because otherwise the complexity of taking on multiple vendors at the same time, dealing with multiple service level agreement mechanisms, doing different kinds of monitoring, making sure that hand offs between vendors work well, could basically put the operation at risk. ♪ Music Playing in Background ♪

Video Details

Duration: 7 minutes and 4 seconds
Year: 2008
Country: United States
Language: English
License: Dotsub - Standard License
Genre: None
Producer: Business Finance
Views: 88
Posted by: christineward on Nov 12, 2015

Exploring Shared Services. December 3, 2008. Retrieved from: ----- No changes have been made to the video except the addition of accurate close captioning. ----- Ashok Divakaran, Principal, Booz & Company, discusses best practices for determining the shared services/outsourcing models best suited for your business. See related article from Business Finance.

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