Implementing Shared Service Centers

Statements on Management Accounting

P R A C T I C E O F M A N A G E M E N T A C C O U N T I N G

C R E D I T S

T I T L E

This statement was approved for issuance as aStatement on Management Accounting by theManagement Accounting Committee (MAC) of theInstitute of Management Accountants (IMA®). IMAappreciates the collaborative efforts of the FinanceBusiness Solutions Center at Arthur Andersen LLP andthe work of Dr. C.J. McNair, CMA, of Babson College,who drafted the manuscript.

Special thanks go to Randolf Holst, CMA (Canada),Manager of Knowledge Creation at Arthur Andersen, forhis continuing oversight during the development of theStatement. IMA is also grateful to the members of theManagement Accounting Committee for their contribu-tions to this effort.

Implementing SharedServices Centers

Published byInstitute of Management Accountants10 Paragon DriveMontvale, NJ 07645www.imanet.org

IMA Publication Number 00349

Copyright © 2000 in the United States of America by Institute of ManagementAccountants and Arthur Andersen LLP

All rights reserved

ISBN 0-86641-285-9

Statements on Management Accounting

T A B L E O F C O N T E N T S

Implementing Shared Services Centers


I. Rationale . . . . . . . . . . . . . . . . . . . . . . . 1

II. Scope . . . . . . . . . . . . . . . . . . . . . . . . . 1

III. Shared Services Defined . . . . . . . . . . . .2

IV. Why Implement a Shared Services Center? . . . . . . . . . . . . . . . . . . .6

V. The Role of Management Accounting . . . .8

VI. Implementation Phases . . . . . . . . . . . . . .9Opportunity Assessment . . . . . . . . . . .10Design Shared Services Center . . . . . .18Implement Shared Services Organization . . . . . . . . . . . . . . . . . . . .28Optimize Shared Services . . . . . . . . . .33

VII. Implementation Pitfalls . . . . . . . . . . . . .33

VIII. Conclusion . . . . . . . . . . . . . . . . . . . . . .35

Appendix: Questions Most Often Asked During Shared Services Projects

Bibliography

ExhibitsExhibit 1: Common Shared Services

Candidates . . . . . . . . . . . . . . . . . .2

Exhibit 2: Conceptual Shared ServicesFramework—CIBA GEIGY Model . . .5

Exhibit 3: Shared Services Benefits . . . . . . .7

Exhibit 4: Criteria for SSC Treatment . . . . . .11

Exhibit 5: Project Team Structure—Roles . . .13

Exhibit 6: The Information/Cost Analysis . . .14

Exhibit 7: Project/Cost Benefit Analysis . . . .17

Exhibit 8: Service-Level Agreement . . . . . . .24

Exhibit 9: A Performance ManagementStructure . . . . . . . . . . . . . . . . . .26

Exhibit 10: SSC Staffing Processes in BestPractice Organizations . . . . . . . . .30

Exhibit 11: Critical Success Factors for SharedServices . . . . . . . . . . . . . . . . . . .34

I . RATIONALEContinuous improvement is an essential elementin any effective business strategy. Whether theseimprovements are large or small in scale,achieved on the factory floor or in the back office,the goal is the same—to better leverage theresources of the organization to create optimalvalue for customers and other key stakeholders.Enabled by rapid advances in technology, the driveto achieve worldclass performance standards isresulting in innovative structures, strategies, andsolutions to complex business problems.

Staff services activities are not exempt from theongoing pressure to become more efficient and mar-ket driven. In fact, the increasingly complex, costlysupport services within organizations are prime can-didates for cost reduction and simplification.

Shared services centers (SSCs) are being createdin organization after organization as the optimalsolution to the need to both reduce the cost andimprove the performance of core staff services,such as finance, human resources, legal, and facil-ities support. Organizations such as AlliedSignal,Monsanto, Amoco, Baxter International, Tenneco,Johnson & Johnson, General Electric, IBM, HewlettPackard, American Express, BFI, New York Times,Case Corporation, and Lockheed Martin are turn-ing to SSCs as a viable alternative to outsourcing,reengineering, organizational restructuring, orother related “solutions” to the staff servicescost/performance challenge.

As companies seek out new ways to refocus theirresources into value-creating activities and reducenonvalue-added costs and efforts, the drive forinnovative SSC-based solutions will grow. Whetherinitiated as part of an organization-wide initiativeto reduce unessential costs or as the result of afocused, benchmark-driven improvement effort,the SSC concept can lead to superior perfor-

mance. Offering optimal benefits with minimalrisk, a well-designed SSC can transform “over-head” efforts to profitable business endeavors.SSC is a concept whose time has come.

I I . SCOPEThis Statement on Management Accounting(SMA) provides practical operating principles andrecommended approaches for implementingshared services centers. This SMA supplementsthe Institute of Management Accountants’SMAs, Redesigning the Finance Function, pub-lished in 1997, and Tools and Techniques forRedesigning the Finance Function, 1999.

This SMA is intended for organizations that havealready decided to implement SSCs. The con-cepts to be discussed apply to:l businesses that produce a product or a service;l enterprises in all business sectors;l public and private sectors; andl small and large organizations.

The information in this SMA will help financialpractitioners and others:l define shared services centers;l understand the benefits of implementing

shared services centers;l comprehend the basic issues in designing and

implementing effective, customer-drivenshared services centers;

l discern the pitfalls and key success factors inimplementation;

l appreciate their roles and responsibilities inthe implementation process; and

l broaden employee awareness and obtain employ-ees’ buy-in for the shared services concept.

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I I I . SHARED SERVICESDEFINEDThe essential element of the SSC is the provi-sion of a commonly used service, such asaccounts payable processing by a single organi-zational entity for two or more business units.The providing entity often is called a shared ser-vices center.

The following characteristics define the modernshared services approach. SSCs are independ-ent organizational entities that:l operate as a business;l provide well-defined process or knowledge-

based services for more than one unit of acompany (e.g., division, business unit);

l have their own dedicated resources;l utilize contractual arrangements (known as

service-level agreements) with their internalcustomers to define the type, scope, and priceof the provided services; and

l are fully responsible for managing their costs,quality, and timeliness of services.

The underlying philosophy supporting the move-ment toward shared internal services is thatbest practice management concepts and leading-edge technologies can be combined todeliver the highest value services at the lowestcost to internal customers. A second major ele-ment of the SSC approach is that these units arebusiness oriented in structure, objectives, andevaluation. This business-oriented structure cre-ates accountability within the staff service areasof the organization. It has been found to be moreeffective than having multiple points of responsi-bility and varied management practices (the tra-ditional approach).

In a shared services environment, a unique ser-vice provider/recipient relationship is estab-lished that proxies those existing between exter-nal, independent suppliers and the service user.The same best practices used to gain a compet-itive advantage with external customers by otherparts of the organization are applied internally tocreate a partnership that meets the needs ofboth sides of the internal relationship—customer and supplier.

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EXHIBIT 1. COMMON SHARED SERVICES CANDIDATES

Internal customers gain influence, ultimately beingable to specify what services, and how much ofthem, they need. In addition, internal customerscan expect service providers within the shared ser-vices business unit to be responsible for andresponsive to meeting their service requirements.Service providers, on the other hand, can expect tohave their performance evaluated objectively as aresult of having measurable criteria in place. Thisshift makes it easier for staff service managers tounderstand what service is expected, when, where,and how. Eliminating ambiguity has the desirableeffects of reducing conflict and improving commu-nication, lowering costs, and improving satisfactionand delivery of internal services.

A broad number of support areas have been effec-tively restructured around the SSC model, as illus-trated in Exhibit 1. Many of these applications aretransaction-oriented, volume-sensitive services thatrequire specialized, functional expertise. Clearly,exceptions exist to these characteristics, but theoptimal benefits of SSCs are obtained when technol-ogy can be leveraged to achieve economies ofscale. Corporate functions such as those related tobusiness-wide strategies and policies, resource allo-cation functions, the development and maintenanceof technical expertise for strategic advantage, andperformance management, are not normally candi-dates for SSC-based solutions.

Transaction-based activities may be consolidated intoa SSC designed to process paperwork efficiently andprovide consulting advice related to administrativetransactions. When National Semiconductor (NSC) cre-ated a shared services unit,most activities were trans-actions such as retirement updates, records (addresschange, forms), payroll (vacation transactions), basicpolicy questions, training registration, and job posting.The mission of the NSC Service Center is “to providehighly accessible and flexible worldclass humanresource services to all NSC employees.”

Northern Telecom has a service center for 22,000U.S.-based employees with 15 customer service rep-resentatives and 8 benefits specialists. They esti-mate a reduction from about 70 employees handlingthese transactions before to about 38 (including dataprocess support and management). Eli Lilly hasmerged into their “administrative/HR services” arange of administrative services beyond employeetransaction services, including employee health ser-vices, employee benefits administration, aviationdepartment, security, and food service.

There is often confusion about the difference betweenshared services and centralized support service (i.e.,finance) functions. Shared services is not the rebirthof centralization. Although the move to a shared ser-vices structure geographically may look very similar toa move towards centralization, these two concepts dif-fer in a few very important ways. Specifically:

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Shared Services l Focus is on needs of internal “clients”such as business

units or divisionsl The type and scope of services are negotiated and

defined upon client needs.

l Locations of SSCs are chosen to best serve key clients.l The SSC has full responsibility for both costs and

quality of service delivered.l Performance is assessed against service-level agree-

ments and regular reviews.

Centralizationl Head office/corporation concerns dominate.l Services tend to be standardized regardless of the

needs of the units being supported.l Centralized services are usually located at corporate

headquarters.l Support managers have little accountability for ser-

vice cost and quality.l Performance is judged solely on budget and against

corporate objectives

In a centralized organization, corporate controlsthe resources and dictates policies, programs,and procedures to the field. In a shared servicesorganization, resources from the field are shared(which may look like centralization), but the con-trol over the use of these resources resides inthe field. Centralized services control the field;the field controls shared services. Centralizedresources determine policy for the field to follow;shared services facilitate learning as requestedby the field. Centralized resources retain powerat the top of the hierarchy; in shared resources,power and influence are dispersed to the field.Centralized resources push activities to the field;in shared services, the field pulls resources fromcorporate. One manager of shared servicessummed up the argument of shared services notbeing centralized with the quip: “the user is thechooser.” The field (user) controls activities(chooser).

SSC is entrepreneurial in nature, providing theprofit/performance incentives of a freestandingbusiness for internal services. Volume-drivenservices are thereby transformed into centers ofscale, while knowledge-based tasks are recreat-ed as centers of expertise. What defines a likelycandidate for SSC treatment? For volume-drivenfunctions, the following features increase thedesirability of SSC solutions:l the affected work is performed commonly

across business units;l customer/client needs are relatively uniform

across many/all business units;l the tasks performed are repetitive or routine in

nature;l there is significant duplication of the activity

within the enterprise, providing the opportunityto leverage best practices from multiple sites;

l high automation content or the opportunity toexploit technology exists;

l high volume and transaction intensity provide

economies of scale potential;l there are few regulatory, legal, or union constraints;l the affected activities impact a significant

number of employees or subunits; andl financial and business risks are low.

Relatedly, knowledge-driven tasks also can lendthemselves to shared services approaches if theymeet all or most of the following characteristics:l they are performed commonly across multiple

business units;l there is reasonable conformity in

customer/client requirements;l formula-driven approaches, rather than custom

solutions, are more common;l current efforts are fragmented or diffused

across disciplines, which provides an opportu-nity to create cross-functional solutions thatleverage organizational competencies; and

l the potential SSCs activities would be relevantfor most teams, departments, subunits, ormanagers in the organization.

The more uniform, common, and generic thedemand on a service, the more likely it is to bea good candidate for an SSC implementation. Onthe other hand, focused, unique, or specificapplications are shared services candidates inonly a few, specific cases. Relationship-drivenservices, for instance, are not good candidatesfor shared services because they are eitherunique to one unit or tied to discrete or strategicimperatives—the requisite potential for leverag-ing resources to improve performance of a com-mon transaction- or knowledge-based task doesnot exist. Exhibit 2 illustrates a hypothetical, con-ceptual shared service framework.

In the past, shared services efforts typicallyinvolved discrete functions, such as informationsystems, human resources, or finance, and theyfocused on transactional areas, such as payroll

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processing, data systems entry, or benefitsclaims processing. Amoco was the first largecompany to bypass this piecemeal approach infavor of an organization-wide emphasis on allstaff services and internal support groups.Senior management reasoned that since thesefunctions were addressing the same set of inter-nal customers in the same business units, whyperform them individually for each businessunit?

Soon, other companies began taking more of anumbrella approach to how they delivered internalservices. Often, these changes were launchedas part of, or concurrent with, some sort of reor-ganization or reengineering process. For exam-ple, Monsanto, like Amoco, evaluated its sharedservices and service delivery mechanisms at thesame time it was considering a reorganization ofits business units. The company converted to 15business units, eliminating its group structure,

and formed Monsanto Business Services as the16th business unit.

AlliedSignal (AS), another shared services pioneer,wanted to create a unified corporate culture afteracquiring businesses with a variety of operatingstyles. AS was also exploring how to centralizetransaction-processing operations. As part of aunit-by-unit, function-by-function reorganization, ASdecided to take the process to a higher level bycombining all shared services and operations—finance, IS, administration, travel, and others—into a single internal business services operatingunit (AlliedSignal Business Services), further lever-aging the shared services initiative. Subsequently,the company formed a global shared servicesoperation.

The ultimate goal of an SSC solution is toincrease both the efficiency and effectiveness ofthe support services activities. Achieving this

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EXHIBIT 2. CONCEPTUAL SHARED SERVICES FRAMEWORK—CIBA GEIGY MODEL

goal depends on the ability to leverage existingor potential knowledge, technology, or specializa-tion within the organization. A well-designed, imple-mented, and managed SSC can provide a widerange of benefits for the adopting organization.

IV. WHY IMPLEMENT ASHARED SERVICES CENTER?Implementing a shared services center is nosmall undertaking. The physical logistics mustbe considered, along with the impact on employ-ee morale and headcount. There are some dis-tinct advantages and disadvantages to adoptingan SSC approach, and several tradeoffs comeinto play.

On the downside, a large capital outlay is oftenneeded to establish a physical location, installtelecommunications and data systems, and relo-cate employees to staff the center. There is alsothe cost of consolidating disparate data sourcesand converting the data to a common format forthe central system.

Another disadvantage is the loss of face-to-faceservice. Particularly as it relates to the humanresources function, employees may feel that HRhas become depersonalized. This may especiallybecome true as employees assume more respon-sibility for their own HR information and as compa-nies implement automated workflow and othernonhuman methods of accomplishing processesthat once involved personal interaction.

On the upside, however, proponents of sharedservices centers believe that the organizationalefficiencies, cost reductions, and consolidatedaccountability that come with the centralizationfar outweigh the disadvantages. By consolidatingservices and data, organizations have the oppor-tunity to achieve economies of scale and virtual-

ly eliminate redundancies. Customer service lev-els can improve, 24-hour or extended-hour ser-vice can be provided, and the quality of commu-nications can be improved as dedicated, knowl-edgeable representatives disseminate consis-tent information.

An additional benefit is the synergy and knowl-edge transfer that occur when experts cometogether in the SSC with a common goal. Theexperience gained by individuals at differentsites can now be combined to create best-practice solutions to corporate problems.Organizations are also realizing that training canbe made more efficient and consistent in ashared services environment. The effects ofstaff turnover and absences are minimized, asthere are always similarly trained individualsavailable to fill in. This reduction in vulnerabilityis significant, especially when, in a decentralizedsituation, there could be an impact on service ifeven one individual is absent. The effects ofcross-training service center employees alsomake jobs more interesting, rewarding, and chal-lenging. Other benefits of implementing an SSCinclude:l running an SSC as a business of its own cre-

ates strong incentives to focus on customersand quality;

l standardizing processes and integrating tech-nology help ensure reliable, efficiently main-tained data;

l integrating technology and standardizingprocesses allow more efficient access to dataand the implementation of data warehousingconcepts;

l a high degree of customer orientation and theadvantage of integrated technology ensurecustomized reports that meet the needs ofmanagement;

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l consolidating resources allows efficient workload planning and an overall optimization ofcapacities;

l implementing a shared services solution willsignificantly reduce the tension between thesupport and front line personnel;

l business units can focus on improving perfor-mance in their core business areas; and

l redundancies in data entry and other non-value-added processes are eliminated.

Shared services centers are not simply anothercost reduction scheme that results in reducedservice levels, however. Cost reduction programstend to look at costs without any real regard forcustomer needs or service requirements. Theyalso generally rely on some arbitrary cost orheadcount reduction to achieve targets ratherthan on eliminating or streamlining work. Finally,cost reduction drives do not necessarily lead toorganizational redesign except through changesin span of control or the total layers of manage-ment in an organization.

A shared services approach differs markedlyfrom its cost reduction counterpart. First, SSCstarts with customer needs and requirements,with the goal to improve the service level provid-ed. SSCs balance effort and costs with customersatisfaction and external benchmarks of perfor-mance to ensure that cost/quality tradeoffs aremade without jeopardizing the meeting of cus-tomers’ needs. Finally, an SSC solution relies onthe radical redesign of how work is delivered aswell as where staff is located and used to ensurethat waste and nonessential activities areremoved to make way for an increase in theamount of value created for customers (internaland external).

The benefits from SSC implementation relateback to the underlying business drivers. First,costs are reduced because redundant servicesand their related systems and people costs areeliminated and redundant data entry and non-value-added work are reduced.

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EXHIBIT 3. SHARED SERVICES BENEFITS

Relatedly, operational excellence and improvedinformation needs are met as data entry duplica-tion and errors are minimized, resulting inincreased consistency and reliability of the con-solidated database. Best-practice organizations,in fact, have found that consistent service deliv-ery and improved value focus within businessunits freed up from responsibility for support ser-vices easily offset the cost and effort of SSCimplementation. Overall a shared servicesapproach represents a potential source ofadvantage to multi-business organizations, asillustrated in Exhibit 3.

In 1995, Amoco embarked on a radical restruc-turing at the staff level. Benchmarking hadshown that Amoco was far from where it wantedto be in delivering staff support. Managementconsidered attacking the problem by reengineer-ing the core business processes but insteaddecided to combine 14 different supportfunctions—including corporate and businessunit accounting, information systems, humanresources, engineering and construction, safety,environmental, and purchasing—into oneumbrella organization. Moving from a position ofextreme decentralization, Amoco enjoyed suc-cess by achieving economies of scale, eliminat-ing redundancies, and selectively outsourcingsome functions. As a result, Amoco achieved$400 million in savings annually beginning in1997.

V. THE ROLE OF MANAGEMENT ACCOUNTINGAs with many initiatives within a corporation, SSCis built on existing knowledge and informationwithin the organization. Management accountingis one of the core providers of information to SSCdesign, implementation, and managementteams. Some of the ways that managementaccounting supports the SSC effort include:

l provide current estimates of average cost pertransaction for targeted areas;

l create and support the development of a busi-ness case for SSC candidates;

l identify high potential areas in finance thatwould provide savings if SSC concepts areapplied;

l work with the design team to analyze thepotential costs and benefits of various SSCapproaches;

l assess alternative solutions to SSCs, includ-ing outsourcing, to ensure that the optimalapproach is chosen;

l support implementation teams by providingongoing cost and performance estimates andtracking progress against deadlines;

l work on benchmarking initiatives to gather best-practice data for establishing SSC standards;

l develop realistic pre- and post-implementationmeasurements and assessments to supportimprovement efforts;

l work with new SSC managers to help themdevelop required business knowledge abouttheir “business” and its underlying economics;and

l support the implementation team in assessinglong-term information systems strategies andto prepare a high-level migration plan with esti-mated resource requirements.

As these points suggest, management account-ing plays a key role in all implementation phasesin any SSC undertaking. Ensuring that currentperformance is understood, that the best prac-tice-based potential for improvement is docu-mented, and that stated goals are attained arejust a few of the activities requiring financialexpertise. When the SSC implementation targetsa finance area, such as accounts payable oraccounts receivable, the financial professional isasked to fill the dual roles of informationprovider and implementation team member.

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It is important to recognized blind spots commonto many finance professionals that may be in theway. By training they are biased toward tools andtechniques, by functional role they are focusedon the “answer,” and by experience they areused to getting things done in projects. Thesecharacteristics emphasize content over process.Yet the transition to shared services manage-ment concepts is process intensive. After all, theattention is directed toward better managementworkflow processes, not different functional con-tent. The mental reorientation is from techniquesto results, from the answer to awareness, andfrom project to process thinking.

VI. IMPLEMENTATION PHASESNo matter what type of change is being consid-ered, there is no one implementation approachthat is right for every organization. Everyapproach has its own unique risks and benefitsthat make it better for one company or applica-tion than another. While the two basic underlyingprinciples—increased efficiency and enhancedeffectiveness—apply to all settings, how thesegoals are attained can differ significantly.

Without a sound implementation strategy, anSSC can actually increase inefficiency, cost, anderrors. The key is to eliminate the bureaucracyand structure that gets in the way of creating aresponsive customer-driven process. In otherwords, the creation of an SSC should be treatedas carefully and conscientiously as the launch ofa new product or business. Four key phasesshould be followed to successfully drive theimplementation of a shared services approach:l assess opportunities;l design shared services center;l implement shared services organization; andl optimize shared services.

Each of these phases has a unique emphasis.For instance, opportunity assessment requires abroad review of all potential SSC applicationsand the potential for cost and performanceimprovements they offer. Included in theseassessments are a broad range of strategic, tac-tical, operational, and economic issues, includ-ing the impact of the SSC on the responsivenessof a business unit to its unique customer needs,industry trends, and technological and economicconstraints, just to name a few.

Once a sound candidate for the SSC project hasbeen identified, attention turns to detaileddesign of the proposed center. Issues addressedat this point include determining how the sharedservices concept should be deployed, developingsystem specifications, and creating proceduresand measures for its evaluation. At the point ofimplementation, attention turns to creating theSSC infrastructure and developing a migrationplan for achieving stated goals. Finally, the imple-mented SSC becomes an ongoing candidate forimprovement efforts as performance optimiza-tion is pursued.

Throughout, two basic principles drive an SSCimplementation. First, staff support functionsshould be expected to act as any businesswould, tailoring their activities and services tothe needs of their customers. And, as with anyexternal service provider, these services mustdeliver the required level of value to customersat a price they are willing and able to pay. Therule of shared services is simple: If the internalprovider cannot meet customer requirements aswell as an outsource vendor, internal customersmust be allowed to buy needed services from anoutside organization.

A related principle is that an SSC is truly ashared enterprise—no one operating unit,

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regardless of its relative size, “owns” the center.Each SSC is a freestanding business unit, oper-ating independently of other business units.Objective economic and qualitative performanceexpectations and judgments are substituted forpower and control within an SSC structure.

Opportunity AssessmentThe essential ingredient in any successful imple-mentation of a new business model is determin-ing the proper scope for the effort. Within ashared services setting, a scoping exerciseincludes the choice of services to be shared, theidentification of performance gaps based onbenchmark and related data, and the prepara-tion of a high-level migration path to achieve theSSC’s stated goals and objectives. The opportu-nity assessment phase focuses on developingthis high-level future model for the services to beprovided; it includes a description of the affect-ed processes, people, and technology. While thedecision as to what services should be sharedwill differ from organization to organization, theassessment and choice of the best candidatesfor an SSC follows a similar path in all settings.

While the range of objectives driving the opportu-nity assessment phase is quite extensive, theactual work completed during this phase of theSSC implementation can be broken down into afew specific steps:l determine the scope of the effort;l organize and build the project team;l develop a vision and direction;l build an understanding of the current process-

es and costs; andl develop the business case for change.

These steps provide the framework for assessingand choosing an optimal candidate for initial anddownstream SSC implementation. Whether theSSC is the first such effort being made by the

organization or the most recent in a long string ofshared services initiatives, the same stepsshould be followed and the same care taken toensure that the benefits of the effort exceed theirrelated costs. Gaining this knowledge begins withdefining the scope of the SSC effort.

Determine the Scope of the EffortThe scope of the SSC effort should be defined asearly as possible. Three specific dimensions typi-cally are included in the scoping analysis: geogra-phy, business units, and functions/processes.The first of these dimensions, geography, is con-cerned with the reach of the SSC initiative. Is theshared services concept going to be applied glob-ally or be limited to a specific geographic area? Ifthe geographic areas that could benefit from theSSC implementation are quite broad, what is thebest migration path for their inclusion in the finalsystem? These questions all have the samefocus, to define the geographic limits of the SSCinitiative and to ensure that any and all neededresources are identified and available.

The choice of which business units to include inthe effort and which to exempt from the initiativeis equally important to determine early in theeffort. It is also important to determine whichfunctions (i.e., finance, human resources) orprocesses (i.e., accounts payable, credit) are tobe moved to the shared services model. In total,these decisions define the size and complexityof the SSC initiative. If the effort is the first of itskind in a company, it is important to place limitson the initial SSC implementation to optimize theprobability of a smooth, successful completion.

Deciding which processes or functions to includein the SSC effort requires the organization toassess the degree to which the process is criti-cal to business strategy success as well as howcommon the requirements for the service are

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across the organization, as shown in Exhibit 4.As the exhibit suggests, if the process is strate-gic in nature, it is not a likely candidate for SSCimplementation. In other words, SSC initiativesare best applied to any function or process thatis not critical to the business unit’s core busi-ness (i.e., accounts payable) or is performed in asimilar way across multiple sites within the busi-ness at present. Transaction-intensive areas areoften the best candidates for early SSC treat-ments, as they offer the potential for significantcost reductions as redundancy is removed andefficiency gained.

Not only should administrative units be consid-ered during the scoping effort. For instance,claims processing within an insurance companycan be the focus of a highly successful SSCeffort. In this case, the increases in both effi-ciency and consistency lead to direct benefits forthe organization’s external customers. The useof a SSC for this core function of the insuranceindustry provides the means to increase theresponsiveness of the organization to customerservice needs while removing waste and costfrom the internal systems. Whenever a SSC can

benefit both internal and external customers, itsuse should be aggressively pursued.

Amoco Oil approached the scope decision byclassifying its functions and processes along twodimensions: “needed to win” and “needed toplay.” The former group included those process-es that were critical to the success of the busi-ness unit, while the latter defined processes thatwere essential but not critical in nature. SSCswere confined to those areas not deemed criticalto business unit survival. The optimal candi-dates proved to be the transaction-intensiveareas, as is often the case, but the businessunits asked to retain their own decision supportcapability in the affected areas. To address thisconcern, each business unit retained a smallfinancial staff to provide decision support. In thiscase, the SSC scope was “flexed” to allow forthe unique needs of the business units.

No matter what function, process, businessunits, and geographic boundaries are chosen forthe SSC project, it is critical that once defined,the scope not be allowed to expand. If during thecourse of the implementation it becomes obvi-

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EXHIBIT 4. CRITERIA FOR SSC TREATMENT

ous that other geographic regions, businessunits, processes, or functions would benefit fromthe SSC effort, they should be placed on the listfor downstream treatment. If the scope is notclearly defined up front or is applied inconsis-tently over the implementation, it will be difficultto achieve clear, definitive results. Scope prob-lems, such as a poor focus or scope creep, canresult in the abandonment or failure of the SSCinitiative. Keeping the effort on track is anessential part of the mandate given to the proj-ect team.

Organize and Build the Project TeamThe opportunity assessment phase emphasizesplanning and fact finding. Defining the scope ofthe initiative is a key first step in this assess-ment, but once it is done, attention has to turnto the increasingly concrete steps of team devel-opment, visioning, developing an understandingof current processes and costs, and finally, build-ing the business case for the effort.

The first of these steps, the organization of theproject itself, includes finalizing the work plan forthe effort, choosing and training the projectteam, and defining data collection requirements.Clearly, the choice of the project team is of firstconcern, as it is the team that should be makingmost, if not all, of these project recommenda-tions and decisions.

The project team should consist of two key com-ponents, the steering committee and the projectteam itself. The steering committee, which over-sees the effort, ensures organizational support,provides resources where required, and resolveshigh-level territorial or business unit disputes,should include both members of the corporatestaff and representatives of the affected busi-ness units. The steering committee does notneed to meet every day or be involved in all

aspects of the implementation. Instead, thisgroup serves in a support and oversight role forthe SSC initiative, which includes ensuring thatcore project team members are not drawn awayfrom the SSC effort to return to prior workassignments.

The core SSC project team, then, should bemade up of full-time members who are drawnequally from corporate, functional, and businessunit staffs. The team should be small enough tobe flexible and fast, yet large enough to includerepresentatives of critical functions and cus-tomer groups. An ideal size for the core projectteam ranges from six to 10 full-time individualsfor a moderately sized initiative. As illustrated inExhibit 5, the SSC project team must complete asignificant number of tasks.

As this list suggests, the choice of the team andits subsequent building into a cohesive group ofindividuals with a shared vision and required, yetcomplementary, skills and competencies is not aminor task. It is, in fact, the most critical decisionmade during the initial phases of the SSC project.It is the core project team that will ultimatelymake the initiative a success or a failure, by theirinsight, knowledge, people skills, and dedicationto the effort—their vision for the SSC effort.

Develop a Vision and DirectionThe vision established for the SSC will guide itsimplementation and long-term operation. Theobjectives of the vision include finalization of thescope definition, including the processes, func-tions, and systems to be included in the assess-ment. A second goal is to document the expec-tations for the project outcomes, including initialestimates of the potential target cost reductionsand quality/service enhancements. Finally, thevision statement serves as a key medium forgaining top management buy-in and support. The

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more clearly the vision for the SSC and its strate-gic and tactical impacts can be defined and com-municated, the more likely the project is to gainacceptance and ultimately meet its goals.

The tasks that make up the vision and directionsetting effort include:l conduct executive surveys/interviews to identi-

fy preferences and expectations for the project;l assess the degree of correlation between the

corporate strategy and the SSC initiative; and

l hold the executive visioning session, whichincludes the following items: identify and prior-itize the desired outcomes of the project;detail the scope and definition of shared ser-vices; identify and assess key problems andopportunities; surface and challenge projectassumptions; develop targets to be achievedby the project; determine what processes,functions, and systems are to be included in ashared services analysis; and establish a highdegree of ownership by senior management.

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EXHIBIT 5. PROJECT TEAM STRUCTURE—ROLES

As this list of tasks suggests, the opportunity forimprovement versus the critical nature of theprocess must be compared to determine whatareas, if any, should be excluded from the sharedservices analysis and which should definitely beincluded. When completed, the visioning sessionresults in a change strategy that shapes thedesign, implementation, and utilization of theSSC.

Shared services are the means used to gain spe-cific ends: cost reduction and improved informa-tion content/availability, as shown in Exhibit 6. Ifcurrent costs are high, a shared services solu-tion will always be the preferred answer for anynoncore support service. Current costs includesuch items as the total cost of providing a ser-vice across the entire company, including itsinformation technology (IT) infrastructure costsand any caused administrative support or facili-ties expense.

There are times, though, when cost is not the keydriver of the SSC effort. In this case, the focusbecomes potential improvements in informationsystem functioning or the increased availabilityof information on key issues. While driving anSSC effort on the information dimension is moredifficult to defend and quantify, it can ultimatelyresult in the achievement of a strategic or tacti-cal advantage that improves the top line of theorganization—revenue growth has a greaterimpact on profits than cost reduction.

The risks and potential rewards of the SSC initia-tive depend on the scope of the project, its clar-ity, and the support it receives from top manage-ment. During the visioning effort, these issuesmust be tightly defined and managed. If the cul-ture of the organization is such that businessunits will resist the SSC concept, significant timewill need to be spent in defining benefits interms the business unit accepts. This willinclude building a communication plan thatensures that the progress of the SSC efforttoward its goals is well known and understood.

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EXHIBIT 6. THE INFORMATION/COST ANALYSIS

The vision must make clear the structure, func-tion, and benefits of the shared services centerapproach and its relationship to individual busi-ness unit objectives and the overall strategy ofthe organization.

In 1984, General Electric (GE) established theFinancial Services Operation (FSO), reporting totheir comptroller. Its mission was to consolidateaccounting work into four larger centers toachieve economies of scale and facilitate theinstallation of common systems. The FSO devel-oped a vision that articulated a long-range goalof “providing accounting services to GE busi-nesses, which are of superior quality and setindustry standards.” The strategy that was totake them to their destination focused on threeobjectives: 1. customer satisfaction through exemplary

service and cost-effective processes (madetangible through benchmark comparisons);

2. employee involvement through empower-ment (even though the leadership publiclyacknowledged that there were going to befewer jobs); and

3. corporate responsibility through functionalleadership and controllership (in otherwords, lead the drive for improvements inaccounting processes).

One way to ensure that the SSC provides optimalvalue to the organization is to do a comprehen-sive analysis of the current process and itscosts, identifying where service or cost problemsexist today. This information helps focus the SSCinitiative on the issues and areas vital for its suc-cessful implementation.

Build an Understanding of CurrentProcesses and CostsDeveloping a basic understanding of the current“as-is” processes that are to be the target of the

SSC implementation, as well as the supportingtechnologies, is essential in identifying theimprovement targets. Several objectives need tobe met during this stage of the opportunityassessment, including the development of base-line activity or transaction cost estimates alongwith their key drivers. A second goal is to map outthe existing processes, providing a visual descrip-tion of the current state that can aid in identifyingcommon paths, common problems, and thepotential for performance improvements.

A third concern of the SSC implementation is toassess the current applications and systemsarchitecture to identify their capacity and capabil-ity to function adequately in the SSC environ-ment. A shared service is only as good as itsresponsiveness and service quality, both ofwhich are directly tied to the IT infrastructure. Afourth goal is to gain a better understanding ofinternal customer requirements and expecta-tions for the service center. The final objective ofidentifying “quick wins” completes the list ofgoals to be achieved.

A key challenge during the fact-finding activity isto define the right level of detail for the processmaps, measures, and methods to be used dur-ing the SSC implementation. If excessive detailis used, the project can bog down during theassessment phase, losing management interestand valuable time. If inadequate detail isobtained, it becomes difficult to conduct sensitiv-ity analysis and to develop a successful, convinc-ing business case.

As with each of the prior steps, a series of tasksneeds to be completed during the fact-findingphase of the opportunity assessment, including:l conducting interviews/surveys of core process

members, field/business units and customers;l facilitating focus groups to identify key issues,

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activities, and drivers;l analyzing data obtained from all sources to

develop process maps and all relatedcost/noncost metrics;

l documenting business process flows;l assessing customer needs and organization

performance against customer/market strate-gies, customer operations, and customer-defined performance measures;

l performing organizational analysis;l performing transaction/activity volume analy-

sis using information collected during the datacollection activity;

l identifying key business drivers and key perfor-mance indicators; and

l assessing current information systems environ-ment and impact on shared services performance.

In exploring the “as-is” processes and businessflows and comparing current performanceagainst defined customer requirements, the SSCproject team develops a sound understanding ofmajor weaknesses and opportunities forimprovement. Any major roadblocks to the SSCimplementation can also be identified, includingany resistance to the concept at the customer orbusiness unit level. Finally, the identification andanalysis of activities, cost, and drivers providesthe baseline measures for driving performanceimprovements and assessing their downstreameffectiveness.

At the heart of the fact-finding effort is the iden-tification of key metrics and benchmark stan-dards to assess current process performanceand to create a viable migration and implementa-tion path with objectives for the SSC initiative. Forthe internal provider of a service to be viable asa freestanding entity, it must be able to competewith external sources on key benchmark meas-ures. In fact, internal providers need to be able toshow that they provide more value per dollar of

cost than external sources if they are to garnersufficient loyalty and support to remain a viableorganization. The combination of awareness ofcustomer requirements and knowledge of currentperformance provides the basis for developingthe business case for the SSC initiative.

Develop the Business Case for ChangeThe culmination of the first phase of SSC imple-mentation is the development of a businesscase that details the objectives, benefits, costs,and overall structure and nature of the SSCimplementation and downstream operation. Theobjectives of the business case step are to com-pare the “as-is” performance to internal andexternal “best practices” in order to identify andprioritize improvement opportunities. The busi-ness case should also include a high-level “to-be” analysis of the people, process, and technol-ogy recommendations of the SSC effort and therelated cost/benefit analysis embedded in thisshift. Finally, the business case is the tool usedto obtain the support and commitment from topmanagement to proceed to the design phase ofthe SSC project.

The key deliverables within the business caseincludes a list of the preliminary service offer-ings of the proposed SSC, including their costsand benefits for the organization. Exhibit 7 illus-trates such a hypothetical business case. Theimpact of technology solutions or improvementsshould be noted in the document. Senior man-agement will also be interested in seeing a snap-shot of the potential organizational structure forthe SSC so that they can assess the potential toachieve stated goals.

A number of tasks must be completed if a soundbusiness case is to be developed:l identify opportunities and prioritize using brain-

storming and analytic support to detail optimal

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candidates for consolidation, potential quickwins, and long-term opportunities;

l make “best practices” comparisons;l compare internal and external benchmarks;l perform high-level gap analysis;l design high-level reengineered processes;l develop cost/benefit analysis;l assess long-term information systems strategies;l develop technology alternatives;l review barriers and enablers to change;l prepare high-level migration plan with resource

requirements; andl report to management.

A good business case should go beyond arguingfor the change with promised benefits. It shouldprovide detailed information on the baseline

“as-is” costs. This is often new information forthe organization and may take some discussionand interpretation to gain acceptance. Theimplicit goal of the SSC approach is to chargethe internal customer with the actual cost of pro-viding the service on a per-use basis. Market-based in nature, these charges provide the inter-nal customer with a use-based fee for servicesconsumed that provides these managers withgreater control over their costs. Since these pre-liminary cost estimates are often quite startlingon first glance, they can serve to push internalcustomers to become more careful about howand to what extent they use internal support ser-vices. This incentive helps to contain supportstaff costs over the long term.

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EXHIBIT 7. PROJECT/COST BENEFIT ANALYSIS

The business case should also include both thepreliminary change management plan and theproposed communication plan for the SSC effort.The change management plan should includenot only key project milestones but also trainingand education plans for ensuring that affectedindividuals within the customer and providerunits can operate effectively within the SSC envi-ronment. The communications plan plays amajor role in gaining organizational commitmentto the change and in reducing misunderstandingand stress due to the change in support servicestructures. A wide variety of mediums should beused to provide ongoing information about theSSC initiative to any concerned individual.Regular information-providing meetings shouldbe held. A weekly memo or newsletter shouldtrack progress and revisit the scope, mission,vision, and opportunities for improvementembedded within the SSC. The goal is to providethe maximum amount of information to affectedindividuals to ensure that they both understandand support the change effort.

Moving to the SSC environment is, in the end,creating a new structure and incentive systemfor the organization. It requires careful planningand a design that reflects the current organiza-tion, its culture and expectations, and the con-straints and demands that shape the daily livesof all participants. Creating a good design beginswith knowing what is to be accomplished, whatalready exists, and how best to leverage scarceresources for maximum benefit.

Design Shared Services CenterThe focus of the second major phase of SSCimplementation is on developing a design for theshared services organization that standardizesprocesses and technology in order to ensurethat the initiative achieves the expected bene-fits. An SSC implementation is no different than

any other business endeavor—over 80 to 90 per-cent of the SSC’s total performance and costconstraints are set during the design phase.

During the design phase, key decisions are madeabout where to place the SSC, what skills andcompetencies will be needed for the SSC initia-tive to succeed and where to obtain thesehuman resources, and how to negotiate andstructure service-level agreements.

Given the broad focus and critical nature of thedesign phase, a number of key objectives mustbe met if the SSC initiative is to deliver on itspromised benefits, including:l perform location analysis;l design standard processes;l assess business risk and control environment;l develop service-level agreements;l develop the SSC governance structure; andl develop process performance measures.

Design and implementation of an SSC are itera-tive processes that are tied to an overall migra-tion strategy for the management of support ser-vices activities and costs. Prior experience hasshown that 50 percent of the total savingsachievable in the shared services area comesfrom consolidation, 25 percent from standardiza-tion, and 25 percent through reengineering. Thissuggests that achieving the total benefits of anSSC initiative requires continuous improvementin all phases, from original scoping of the projectthrough the development and application of opti-mization strategies. Determining the location ofthe SSC is the first of the steps taken in thedesign phase.

Perform Location AnalysisWhen developing an SSC, a key question thatmust be addressed is whether to use a “green-field” approach or to locate the SSC in an exist-

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ing location. A greenfield approach has many ben-efits, including the minimization of politics andperceived business unit ownership of the SSC.These benefits, though, are offset by potentiallyhigher costs for the implementation, a fact thatcan seem at odds with the initial mandate for theproject. For many organizations, a hybrid solutionto the location decision appears to be optimal,one that reflects a combination of economic driv-ers, the strength of business unit autonomy, andthe strength of corporate leadership.

Best practices SSC organizations typically oper-ate regional shared services centers. A regionalapproach serves to reinforce the customer con-nections that underlie the SSC concept. Otherbest practice organizations place some sharedservice support in regional locations, while cen-tralizing other, less customer-visible activities.

Monsanto has taken this approach, allowingeach SSC manager to decide whether beingclose to the customer or having SSC team mem-bers close to each other is more important tothe success of the initiative. One fact is clear—the more hands-on the service being provided,the more important it is to locate the SSC nearthe customer. The tasks that make up the loca-tion decision include:l determine location analysis criteria, including

access to airports, trains, highways, or otherforms of mass transportation; work force avail-ability and education; cost of land, real estate,taxes, and other factors; building availability;and financial incentives offered by one locationor another;

l review and finalize SSC requirements for theamount and type of space needed;

l identify the potential set of locations and ana-lyze in terms of the defined location analysiscriteria;

l develop cost models for the various alternatives;

l narrow the initial set to two to three sites forin-depth analysis and identification of potentialfit and costs;

l conduct in-depth analysis of potential buildingsin each location, using both the location analy-sis criteria and cost estimates to evaluateeach option; and

l make a choice and arrange for securing thesite.

The cost and availability of all key resources,including space, people, and infrastructure, arethe key concerns during the location analysis.The location analysis should delve into the coststo retrofit existing space versus the costs to cre-ate new space for the center.

Often a greenfield site will make it more difficultto get existing staff performing the target SSCfunctions to join the effort. Relocation is oftennot an option for many of the existing employeesaffected by the SSC initiative. Tax implicationscan be a major consideration, as state, national,and international locations each bring unique taxrequirements and compliance costs.

Politics can play a role in the overall assess-ment, as each choice brings with it unique impli-cations for customers, business units, and topmanagement. Choice of the optimal location isnot always a purely a rational, economic deci-sion—it also can be a political process thatrequires compromise and flexibility. This is espe-cially true when the SSC is to span nationalboundaries.

For example, European SSCs face significant cul-tural and political hurdles in their efforts to com-bine local, regional, and corporate staffing solu-tions. If the key criterion is a low-cost, flexiblelabor market, Britain may be the best choice forthe SSC. If multilingual capabilities and percep-

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tions of neutrality are key, Belgium or Hollandmay be good sites for a European SSC. Finally, ifoverall low costs and tax incentives are critical,Ireland can be a good site for an SSC for a glob-al organization. As these European examplessuggest, each potential location brings itsunique benefits and costs. Understanding whatthese costs and benefits are and how they corre-late to the overarching SSC objectives is the keyto prioritizing and choosing an optimal locationfor the SSC. Having chosen a location, attentioncan turn to designing standard processes.

Design Standard ProcessesStandardizing the core SSC processes is a majorelement in the attainment of cost and perfor-mance improvements. Several issues need to beaddressed during this step in the implementa-tion, including the design of the processes forthe SSC down through the specific people andtechnology implications of the alternativeprocess solutions. A number of process designsuccess factors that can be used to guide thiseffort include:l the need for new processes to meet business

criteria;l the need to be as simple, fast, and paper-free

as possible;l the need to implement process management and

promote that concept for the entire company;l integration of good performance measure-

ments across individuals, teams, and depart-ments to focus every individual on the missionand goal;

l automation of good metrics;l careful definition of skill requirements;l development of career paths; andl sponsorship and recognition of teamwork.

As these critical factors suggest, the successfuldesign of standardized processes begins withunderstanding what goals the process is to

attain. Making sure the revised processes aresimple, paper-free, and well designed to makethe optimal use of existing people and physicalresources will help the SSC obtain optimal per-formance improvements. Finally, the process andSSC design have to recognize and reward individ-ual and team performance, including the creationof a new evaluation and promotion structure thatreflects key SSC criteria.

Standardization of processes is not done all atonce. Since the implementation of an SSC is amigratory effort, the consolidation of theprocesses leads to some level of standardiza-tion, but it is reinforced and improved down-stream through ongoing reengineering andprocess improvements efforts. The SSC projectteam cannot possibly foresee all of the detailsand processes that will need to be standardized,nor should they try. As the SSC goes into opera-tion, both customers and the SSC employees willidentify areas where standardization wouldimprove reliability and performance. Building onthis ongoing dialogue and commitment tochange is an essential part of the standardiza-tion strategy.

Defining a standard process moves beyond theidentification phase to the documentation of thespecifications, requirements, and technical infra-structure needed to implement the SSC. Theapplication software that interfaces with othersystems, security, report format and frequency,and communications strategies must be definedin significant detail. The use of common systemsis optimal, as it improves the efficiency of theprocess and reduces the total cost of design andimplementation.

Several major tasks must be completed duringthe detailed definition of the standardizedprocesses, including:

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l determining functional requirements forprocesses to be migrated to the SSC, includingsystem specifications and relationships aswell as estimated transaction volumes;

l evaluating the capability of current functionalapplications to be the basis for the standard-ized solution;

l performing software selection analysis whererequired;

l designing technical infrastructure/networkdesign;

l defining hardware including LAN, WAN, and networks;

l developing/identifying new or enhanced coresystems;

l developing system interfaces;l defining security requirements;l designing reports;l developing conversion programs; andl performing conference room pilot.

While a complete standardization of the processis not the goal, several key tasks remain thatmust be attended to at this stage of the imple-mentation. One of the most important is theidentification and evaluation of the best function-ing processes in each of the business units forinclusion into the SSC structure. This task isaccomplished by performing process analysis,benchmarking, and flowcharting, as well as bycreating a workflow design and routing for thestandardized process.

Using internal best practices can improve thespeed of the implementation and its level ofacceptance by the organization. In fact, it hasoften been found that a compilation of internalbest practices into one combined “straw man”SSC structure is optimal. This combined struc-ture should incorporate one or more of the fea-tures of each existing service area. The resultinghybrid model can radically improve the accept-

ance of the project and its support by the affect-ed individuals and business units as it increasesthe level of ownership and understanding of theSSC structure and function. The degree andeffectiveness of the final standardization strate-gy affects the business and control risks of theSSC project.

Assess Business Risk and ControlEnvironmentA business risk is defined as any factor that canaffect the delivery of the SSC project objectives.The management of project risk should play anintegral role in the design and implementation ofthe SSC, shaping the analysis and data collec-tion efforts as well as the design choices made.

Four key activities make up the risk managementprocesses for an SSC initiative: risk identifica-tion, risk quantification, risk response develop-ment (mitigation strategy), and risk monitoringand control. The first of these, risk identification,involves noting each potential source of risk orcomplication for the proposed design and itsimplementation and documenting the character-istics of each risk. Repeated throughout the SSCeffort, risk identification requires ongoing analy-sis, assessment, and scanning of the internaland external environment to ensure thatchanges to the organization or business eventsand their implications are not overlooked.

Risk quantification involves the evaluation of therisks identified to determine the range of possi-ble impacts on the SSC initiative’s outcomes.The goal is to determine which of the risks war-rants further investigation and to formulate aresponse to the risk should it move from apotential to a reality for the project. For instance,it may be determined that there is a high proba-bility that competitive outsourcing companieswill begin to actively target some or all of the

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affected business units’ service needs. If thiswill result in a major loss of volume for the SSC,which will likely increase the cost to remainingbusiness units, its impact on the costs, efficien-cies, and performance of the SSC must be eval-uated. The response made might include areduction in costs, increase in service, or anynumber of other options that would increase thevalue delivered by the SSC and hence the likeli-hood of retaining the loyalty of the affected busi-ness units.

Developing a response to the identified risksmay take one of three potential paths: avoid-ance, mitigation, or acceptance. An avoidancestrategy would eliminate the risk by removing thecause for the underlying problem. Mitigation, onthe other hand, would seek to reduce the proba-bility that the risk occurs or, if it happens, theimpact it would have on the implementation. Forexample, Platinum Technologies selected the fol-lowing mitigation strategy in response to theSSC implementation risks it identified:l extensive coordination and well-executed proj-

ect management are critical;l at the risk of productivity loss, communica-

tions must be complete, planned and timedappropriately;

l initial announcements should come from anexecutive sponsor outside the management ofthe SSC;

l affected management must be properlyinformed as follows:3 management should be informed at one

time to avoid third-hand communication andperceived favoritism;

3 expect affected managers to communicatethe message to their respective reports;material must be accompanied by specificinstructions on how to communicate themessage;

3 information communicated by management

must be concrete (regarding timing, compen-sation, expectations, future communication);

l backup transition plans are clearly articulatedfor:3 processes that directly interface with

customers;3 sensitive areas such as payroll and

accounts payable;l smoothness of the transition to shared servic-

es will greatly affect the ongoing credibility ofthe SSC; and

l key management must be retained in “specialproject” roles to avoid a lack of qualified per-sonnel to perform key work.

Finally, acceptance would indicate that the con-sequences of the risk are noted but that noactive change to the process or the SSC initia-tive is made. Acceptance can be active or pas-sive in nature. An active response will involve thecreation of contingency plans, while a passiveresponse will entail the acceptance of a highercost or reduction in potential benefits. In thiscase, the project team is recognizing the riskexists but choosing to accept the problems thatmay come to pass as unavoidable or noncriticalevents.

The output of the risk response developmenteffort will be the creation of a risk managementplan detailing:l the response to each of the risks;l the event, or events, that will trigger the

response; andl the individual(s) responsible for the implemen-

tation of the response.

Having identified the risks and created aresponse for them, attention turns to monitoringthe risks and executing the risk managementplan to respond to any risks that become a real-ity. Normally, the response will involve the imple-

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mentation of contingency plans or some changeto the design or project that will work around theproblem.

In performing the risk assessment, it is oftenuseful to use some form of scoring device todetermine which risks merit the most attentionby the project team. While any number ofapproaches could be used, a simple rating ofhigh, medium, or low can provide significantinsights. A high risk would be one that is deemedto be capable of either stopping, substantiallydelaying, radically increasing the costs, or signif-icantly reducing the delivery of potential benefitsof the SSC. A medium risk level would beassigned to events that would cause somedelay, cost increase, or performance shortfall butthat would not threaten the ongoing viability ofthe project. Finally, low risk events are those thatcould impact the project to a limited extent,causing minor delays or cost increases.

Next, attention should be placed on the high-riskitems, with the development of contingencyplans or adjustments to avoid the problembecoming a priority for the SSC project team.Acceptance may be the best approach for low-risk events, while mitigation may be preferred formedium-risk issues. Whatever approach istaken, it remains critical that the SSC designeffort ensures that the SSC will be able to deliv-er on its stated objectives, including thosedetailed in the service-level agreements.

Develop Service-Level AgreementsA service-level agreement is a formal contract oragreement between the shared services providerand its customers. Their use facilitates thedevelopment of an unambiguous, well-definedunderstanding by both provider and user of theSSC regarding the services to be provided andthe costs that will be charged for them. An effec-

tive service-level agreement goes beyond a merebilling agreement to include other key areas ofthe relationship including anticipated volumes,billing rates, quality and/or service expectationsand guidelines, and methods for dispute resolu-tion. Customer-defined performance measure-ments, such as timeliness and accuracy of theservice provided, are often included as part ofthe service-level agreement.

The design of the service-level agreement is bestdone in a face-to-face meeting between theshared services provider and each potential cus-tomer/business unit. These meetings normallyspeed consensus building as well as pinpointingpotential areas of dispute before any problemsoccur.

Aetna Life & Casualty includes the interests ofmultiple customers when crafting its service-level agreements. Since different business unitsoften have different needs, the SSC managersask the business units to negotiate and makerequired tradeoffs to optimize everyone’s satis-faction with the standardized process and ser-vice level. Meetings between multiple users areoften used to resolve potential conflicts andreach compromise solutions that are acceptableto all affected customer groups.

A successful SSC is market-driven. This trans-lates to ongoing pressure on the SSC to performits services within the price and quality limits setby competitors. Service quality dimensions thatare often included as parts of the service-levelagreement include: frequency of service delivery,response time, and dedicated customer contact.Exhibit 8 represents the framework used byHouston Industries to craft its various service-level agreements.

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Actual pricing for the services may be fixed, vari-able, usage based, or value based. The ultimatechoice of pricing schemes is a combinedresponse to existing market practice, manage-ment requirements, and ease of use for cus-tomers. The basis for charging can include feesfor use of specific services by customers, actualcosts incurred for a business unit’s support, orallocations based on head count, square feet, orsome other logical proxy for the driver of cost inthe SSC. Deere Credit Services’ method of pric-ing has several objectives:l to make sure users understand cost;l to help determine levels of resources needed;

andl to ensure that the price represents a full

absorption of cost and is comparable to mar-ketplace rates.

In addition, Deere recognized that price adjust-ments could be used to drive behavior, so it is

important to set and adjust prices according towhat an organization wants to encourage.Regardless of the approach taken, an SSC mustunderstand and meet the competition to remaina viable entity.

Develop the SSC Governance StructureThe development of a well-defined governancestructure is an important element in the SSCdesign. Responsible for establishing SSC policy,resolving billing and service-level disputes,adding or removing services from the operation,setting performance goals, and establishing thereward structure are just of a few of the key func-tions performed by the governance body.

Any number of approaches can be used to struc-ture the SSC management and policy solution.One model would be to use a steering committeecomprising business unit representatives andkey senior management of the corporation. An

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EXHIBIT 8. SERVICE-LEVEL AGREEMENT

Source: Houston Industries Incorporated

alternative steering committee compositionmight include one or more of the senior execu-tives responsible for the affected function withthe corporation (i.e., the CFO, vice president oflegal services, or the vice president of humanresources).

At Amoco, a shared services council has beencreated. The heads of the 14 shared servicecenters as well as the senior vice president ofshared services sit on the council. The councildoes not oversee day-to-day operations of theSSCs but instead provides a forum for dis-cussing service agreement contract form andsubstance, policies and procedures for SSCoperation, standardization, potential for integrat-ed solutions across multiple business units orSSCs, and visioning. The council does not getinvolved in dispute resolution, leaving theseissues to the discretion of affected SSCs andbusiness unit managers for resolution at thepoint of service delivery. If a negotiated solutioncannot be reached, the problem moves up theexisting chain of command until the problem isresolved.

Deere Credit Services IS shared services hasdivisional steering committees made up of man-agers of the various departments in the division.These committees focus on budget and resourceallocation decisions within the divisions.

The IS senior-level steering committee keeps sen-ior managers involved so they understand what isgoing on, why there is a need for more staff mem-bers, why there are problems, etc. This commit-tee exists for information sharing, not controlling.

The creation of effective process measurementsthat incorporate customer requirements and reflectthe strategy and objectives of the corporation is thefinal step in the design phase of the SSC initiative.

Develop Process Performance MeasuresMeasurement is the most critical aspect of anysystem that targets behavioral and performanceimprovements as its reason for existence. AnSSC cannot be designed or operated effectivelyunless the criteria for evaluating its success andprogress are clearly delineated. Two primaryobjectives underlie the creation of performancemeasurements within the shared services envi-ronment; they are:l serving as the basis for developing service-

level agreements and pricing arrangementswith customers; and

l defining and measuring the success of theSSC and its employees.

Measurement is a key element, but that doesnot mean that every aspect of the processshould be measured—focused measurement ofkey performance indicators is the goal.

An effective performance management program,as illustrated in Exhibit 9, is made up of threecritical components: the performance manage-ment process, infrastructure, and culture. Theunderlying process must be integrated and con-tinuous in nature, representing a systematic linkbetween the company strategy, resources,processes, and actions. The measurements cho-sen must not result in conflicting messagesabout performance, and must seamlessly inte-grate and evaluate outcomes from the individualthrough the entity levels.

The following steps can be used to define anddesign the performance management processfor the SSC.l Effectively articulate the SSC strategy, concise-

ly identifying what the SSC should achieve andhow these objectives link to the overall compa-ny strategy.

l Link the SSC strategy to the key drivers of

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value in the business and support service toensure that the measures and targets that aredeveloped are consistent with the creation ofshareholder and customer (internal and exter-nal) value.

l Set measures and targets that will signalwhether value is being created and strategiesare being achieved. The resulting KPIs (keyperformance indicators) should serve as theprimary means for communicating businessresults using a common language. Both short-and long-term targets should be set for eachKPI to encourage both continuous improve-ment and breakthrough improvement.

l Develop performance plans that will enablethe organization to reach the KPI targets.These plans will help prioritize existing andfuture initiatives in the SSC, including theimplementation of new technologies, optimiza-tion of resources, and alignment of businessprocesses.

l Continuously monitor and evaluate perfor-mance results. Ongoing monitoring institution-alizes the performance management system

as the common language for discussing busi-ness results and creating requisite focus onimportant strategic and operational issues.

l Encourage the desired behavior needed toachieve performance results. Aligning individ-ual actions and motivations with those of theSSC and the entity is the key enabler in creat-ing a performance-centered culture.

The performance management culture serves tosupport the performance management process.It encompasses the existing responsibility,authority, and accountability structures of theorganization. Within an SSC design effort, manyof these existing relationships are changed.Even so, the final measures and their integrationmust be compatible with the control objectivesand climate of the organization. Noting who isresponsible for what outcomes and where theauthority lies to address problems or providesolutions is part of any effective measurementprocess. A major issue in the “culture” arena isthe definition and execution of human resourcestrategies that will ensure that individuals will be

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EXHIBIT 9. A PERFORMANCE MANAGEMENT STRUCTURE

fairly and effectively evaluated and motivatedwithin the SSC structure.

The final component, the performance manage-ment infrastructure, includes the people, proce-dures, and technologies used to plan, execute,monitor, and evaluate the performance of theSSC. The detailed list of reports to be made, thepersons who will provide data or receive results,and the underlying hardware and software choic-es all affect the nature of the measurementprocess and its level of responsiveness. Forinformation to have value, it must be timely,objective, accurate, and relevant. These rulesapply equally to any form of information, whetherdetailing market trends or tracking the perfor-mance of an SSC. The infrastructure of themeasurement system can have significantimpact on the user’s perceptions of its usability,value, and informativeness.

Any number of potential measurements can beused to reward, monitor, and evaluate the SSC’sperformance. Using a variety of data sources,including customer satisfaction surveys, finan-cial data, and operational results, the SSC meas-urements can focus on the overall satisfaction ofcustomers with the service, the value deliveredversus the cost charged, and how well the SSCis meeting service unit requirements (e.g., on-time delivery). Activity-based costing can provideinformation on current average costs for a ser-vice, which can be compared to overall objec-tives or benchmark targets.

For example, American Express has reengi-neered its finance function to consolidate over40 transaction centers around the world intothree centers of excellence. These financialresource centers (FRCs) have integrated perfor-mance measurement concepts at the organiza-tion, people, and process levels. Performance

measurement is activity-based and tied to keyindicators. The performance measurement pro-gram provides a platform for benchmarkingacross the FRC system and maintains a focus onbest practices.

A balanced scorecard model is preferable in allmeasurement systems as it makes clear thetradeoffs between quality, cost, responsiveness,delivery, and innovation. The depiction of thesubsequent results can be done through com-parative scorecards, alert or exception reportingtrend graphs for the KPIs, explanations andaction planning, or component level analysis.Regardless of how the performance is depicted,it is important that the measurements be seenas fair and objective if they are to be accepted bycustomers and providers of the shared service.

Creating individual performance measures is amajor part of the measurements design processfor an SSC. This effort should include the devel-opment of job descriptions and reporting rela-tionships, evaluation of current competencies,identification of training and hiring needs, anddevelopment of a migration strategy includingseverance and retention packages. It is an unfor-tunate fact that often the most talented employ-ees are lost in the migration to a shared servic-es structure. An effective SSC design must usemeasurement strategies and competency model-ing to reduce the ambiguity and discomfort ofaffected employees, thereby mitigating or avoid-ing a major business risk—loss of core knowl-edge from the organization.

A series of efforts can be used to ensure thatthe migration to the shared services model hasminimal negative impact on the humanresources needed for effective functioning of theSSC, including the following:l in the design of the SSC organization struc-

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ture, consider the use of process teams, mini-mize the hierarchy and levels, define clearaccountabilities for customer service, anddetermine staffing requirements for each coreactivity;

l develop job descriptions and reporting relation-ships, evaluate the capacity of each employeeto perform multiple tasks/jobs to create team-work and eliminate workload peaks, coordi-nate all efforts with human resources, anddefine position titles;

l develop team-based and individual perfor-mance measures;

l assess employee competencies;l determine hiring and training needs, including

the design of objective hiring criteria;l identify key employees to transfer into the

SSC;l develop and co-organization severance and

retention packages;l conduct preliminary discussions with affected

employees;l redesign policies and procedures to account

for standardized processes, systems, and neworganizations; and

l ensure that the individual and team metrics areconsistent with the defined SSC measurements.

In the end, the SSC will be only as effective asthe measurements used to define, monitor, andadjust the efforts of its individuals, teams, andmanagers to optimize the delivery of high-qualityservices to customers within defined cost con-straints. If balanced, effective measurementsare created, the SSC will have a much higherprobability of achieving its stated objectives andproviding performance and profit improvementsfor the organization. Once these design goalshave been achieved, the SSC project team canturn its attention to the actual implementation ofthe SSC structure.

Implement Shared Services OrganizationThe focus of the implementation phase of anSSC initiative is on change management andprocess improvement, all done with minimumrisk to the organization. Newly defined supportservice process methods and flows are put inplace. The SSC project team, in conjunction withthe steering committee, also has to determinewhether to roll out the move to shared servicesincrementally or all at once. Creating a customer-focused organization and staffing it with compe-tent employees are core aspects of the imple-mentation. Two key objectives are embedded inthe implementation phase, including:l developing the change management plan; andl promoting a cost-conscious, customer-focused

mind set.

Developing the Change Management PlanThe implementation of the SSC is done withinthe framework of a change management processthat focuses on minimizing the overall businessrisk to the organization, the disruption in serviceto customers, and the overall impact on affectedemployees. The key is to deal with these issuesup front, ensuring that the amount of ambiguity,misunderstanding, and miscommunication isreduced or eliminated. A failure to adequatelyprepare employees or customers for the changefrom traditional support services to the sharedservice structure can result in low employeemorale and a feeling of loss of power from thevarious business units.

The change management plan should compriseelements such as:l project rollout;l recruitment and training; andl change management strategy.

Project RolloutThe rollout plan, staffing decisions, and effective-

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ness of the overall change management processdefine the success of initial SSC implementationand its ultimate ability to meet its stated objec-tives. On the rollout dimension, the decisionmust be made by the SSC project team as towhether to implement the changes incrementallyor all at once.

The choice of a pilot versus comprehensive roll-out will be driven by many factors, including theavailability of funds for the project, the organiza-tion’s need for immediate results, and thedegree of risk the project represents for theorganization. The pros of covering all functionsaffiliated with the SSC are that the change cangenerate strong results and impressive cost sav-ings in a short period of time.

The cons associated with the comprehensiverollout include higher cost, higher visibility, andhigher risk than the incremental approach. Itrequires far more dedicated resources to convertall of the functions to the SSC model than itwould to move just a few key functions to thenew structure. Aetna, Monsanto, and Amoco con-verted all selected functions to shared servicessimultaneously and were satisfied with theprocess and the results achieved.

The use of a conference room pilot can be quiteuseful in making the decision about the degreeand intensity of the rollout. This form of pilotproject involves a minimal setup of new hardwareand software at a central site, along with the tiein of several remote locations to test the entiredesign and its functionality. The conference pilotcan be used to identify unique requirements forthe full-scale SSC implementation and assessthe overall risks of the project. Detailed require-ments, co-organization of workflows, and thefinal design of the SSC can all be completedwithin the conference pilot process. Technical

support and systems are implemented duringthe pilot, and selected business scenarios canbe tested to determine how well the process willfunction once fully implemented.

As the implementation moves out of the confer-ence room and into the organization, attentionshifts to change management and processimprovement initiatives. The newly defined pro-cessing methods will be implemented, and alluntested business scenarios will be queried.Data conversion and testing begins, as the SSCmigrates toward online processing. Specificactivities that need to take place during thephased rollout of the SSC include:l converting systems;l implementing staffing approach;l migrating functions to the SSC;l finalizing service-level agreements, including

pricing options;l implementing performance measures;l redesigning processes;l conducting training sessions; andl developing a continuous improvement plan.

Of these efforts, the recruitment and training ofSSC staff is critical to the short- and long-termsuccess of the initiative.

Recruitment and TrainingThe staffing levels and required competenciesfor the SSC are key issues that must beaddressed during implementation. If there are noconstraints on reductions or composition of thefinal SSC staff, appropriate staffing levels can bedriven by either internal or external benchmarkdata. An activity-based cost analysis can alsoprovide insight into allowable cost levels giventhe competitive price for comparable outsourcedservices.

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Monsanto’s Staff Alliance Study helped identifytarget recommendations regarding the numberof people required to perform various functions,relative to the size of the company and the typeof work to be done. These targets were present-ed to the design teams as initial recommenda-tions. In addition, some best practices work wasdone to set the targets.

The processes that have been used by best prac-tice SSC organizations to fill key center positionsare summarized in Exhibit 10. Usually, it is as dif-ficult to ensure that vital employees are retainedin the new structure as it is to find the optimalstaffing level and deal with the unavoidable sev-erance issues that come on the heels of an SSCsuccess. Once the SSC is staffed, attention hasto turn to training of line personnel on the rela-tionship between service costs, efficiency, andtrue customer needs as well as how to operateand use the new technologies and systems.

Defining key skills and competencies for the SSCemployees, assessing their current level of capa-

bility, and creating a training and education pro-gram to help individuals address specific short-comings are all part of the recruitment and train-ing of SSC staff. Making the transition from acorporate staff mentality to the customer-focused organization, which is the essence of aneffective SSC, does not take place overnight. Forsome employees, the change can never be com-pletely made. In choosing staff and implement-ing the change process, then, adaptability andresponsiveness to customers have to play adominant role in the final choice of SSC staff. Allthese issues come together in the application ofa sound change management strategy.

Change Management StrategyChange management issues play a key role in thesuccess of any SSC implementation.Communication plays a key role in these efforts,as people seek to be informed about what isgoing on and how it affects them. Senior manage-ment has to be kept focused on the goals of theproject, which requires active, frequent communi-cation with the core project management group.

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EXHIBIT 10. SSC STAFFING PROCESSES IN BEST PRACTICE ORGANIZATIONS

Source: APQC Best Practice guideline: 21

The transition to the new structure needs toemphasize both sides of the human equationunderlying SSC initiatives: business unit andemployee resistance and involvement. Easingthe transition on the business unit side meanspaying attention to the concerns over loss ofpower by the business unit management andappeasing worries over the potential risk ofreduced service quality and support responsive-ness that may have been experienced in priorcorporate centralization efforts.

The key to overcoming business unit resistanceis to make the value of the SSC to the businessunit clear and to involve business unit manage-ment with the change process, including definingthe SSC design and implementing it within theorganization.

In addressing the needs of the business unit, itis imperative that the SSC project team remem-ber that there is a distinct difference betweencontrol and influence. While the business unitsare giving up some control by moving to the SSCstructure, they should retain approximately thesame level of influence over its service criteria,costs, and service options. In a customer-focused setting, this is ensured.

To ease the transition for employees, several keysteps need to be taken. First, a solid communica-tions plan must be designed and executed.Second, support programs for both displaced and“surviving” employees need to be developed.Third, attention has to be paid to adequately moti-vating employees during the transition. Fourth,teams should be used to increase employeeinvolvement in the change, including designteam and implementation team participation.Finally, education and training have to be craftedto help employees make the transition to thenew structure and new job demands.

One of the most successful aspects ofMonsanto’s change management process wasits use of programs to help employees cope withthe changes associated with moving to sharedservices. In 1994 alone, Monsanto underwentfive rounds of downsizing. Obviously, thisprocess had a continuing impact on the moraleof employees. Specific training for the servicegroup leaders was implemented. The trainingfocused on how to recognize when an employeeneeds outside assistance, how to be proactive inrecognizing resistance to change, and otherrelated topics.

Communication serves two primary functions: tocreate a sense of awareness and understandingof the SSC concept and to gain commitment tothe change. Open communication at key pointsin the SSC implementation will reduce anxietyand increase comfort with the new system.Support programs serve a similar role, helpingindividuals understand the dynamics of changeand its impact on their position as well as iden-tifying which employees need help in makingneeded transitions. Survivors often feel guiltyabout retaining their positions at the apparentcost of fellow employees. Helping affected indi-viduals adjust to the SSC implementation is not“feel good” management, it is an essential ele-ment of effective change management.

To motivate employees during the transition,incentives, stay-on bonuses, and related rewardscan be used to keep key staff motivated duringthe change. Team membership can heighten theimpact of these motivational tools, increasingcommitment and knowledge of the staff whileimproving the implementation through the activecollaboration of subject matter experts.

Education and training can be used to upgradetechnical skills and enhance customer service

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and consultative skills among SSC employees.These latter skills are often new to the employ-ees, and can be the source of significant con-cern if employees are not properly trained andcoached to function effectively in the new envi-ronment. Taken in total, the stress and problemsentailed in the transition to the SSC concept caneach be managed through careful planning,ongoing communication, education, and employ-ee involvement. Taking the threat out of thechange is essential if a customer-focused cul-ture is to be developed.

Promoting a Cost-Conscious,Customer-Focused MindsetChanging the attitudes of the employees andoverall culture of the shared service center toone that emphasizes cost consciousness and acustomer focus requires constant attention andreinforcement before, during, and after the SSCimplementation. The SSC is a freestanding busi-ness that will succeed or not based on how wellit meets its customer’s needs. Business unitsmust feel they are getting the desired services atreasonable costs and quality levels if they are toremain supportive of the SSC. If the businessunit—the customer—becomes disenchantedwith the SSC, it will likely turn to other solutionsto its support service problems. Outsourcing isalways an option for the business unit and a riskfor the SSC—one that must be actively guardedagainst through the provision of superior service.

Several different approaches can be used tobuild a customer-focused organization: providingfeedback to customers, receiving feedback fromcustomers, tying compensation to performance,and assigning staff to customers.

Communicating with the business unit customersis an ongoing part of effective SSC management.Providing business unit managers with sum-

maries of their service use and costs is one wayto help them better plan their needs and controltheir costs. The shared services staff can alsoprovide internal consulting support to the busi-ness units as part of the service package gearedtoward improving business unit performance.

Performance evaluation is a two-way street. Forthe SSC to become truly customer-driven, it mustturn to customers not only for a definition of itsobjectives and mission but for an evaluation ofits achievements against stated goals. Whetherthe customer feedback is gained through cus-tomer satisfaction surveys, monitoring of cus-tomer usage, focus groups, analysis of customerresponse to pricing, or negotiations to set service-level agreements, the goal is the same—to utilize customer feedback to direct improve-ment efforts.

Over 80 percent of “best practice” SSC organiza-tions also leverage incentives in the quest to cre-ate a customer-driven culture. Between 10 and50 percent of each SSC employee’s compensa-tion is tied to performance against the service-level agreement metrics and requirements, withsenior management facing higher percentages of“pay at risk” than individual staff members. It ismuch easier to create a customer focus when anindividual’s pay level is affected. It is one of themost effective ways to communicate how impor-tant the customer focus is within an SSC context.

A final way to build a customer-focused SSC cul-ture is to close the gap between customers andindividual employees by direct assignment of staffto business units or customers. Communicationand understanding are improved through thedirect, consistent contact and interaction of cus-tomers and suppliers of the SSC effort. Whetherthe connection is made by physically moving anemployee to the customer’s site or simply by creat-

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ing electronic linkages that proxy for on-site acces-sibility, the goal is the same: to improve under-standing of requirements and capabilities on bothsides of the SSC equation in order to better lever-age resources and direct improvement efforts.

Once the implementation is completed, attentionturns to optimizing the SSC’s performance overthe long-term.

Optimize Shared ServicesThe key objective of the final SSC implementa-tion phase is to optimize the process through theapplication of continuous improvement tech-niques and ongoing changes to the processes tocreate further gains in efficiency and servicequality. Steps organizations can take to achievethis objective include:l develop continuous improvement plans;l evaluate organization roles and responsibili-

ties and adjust as necessary; andl upgrade systems as appropriate in order to

support the redesigned process.

Continuous improvement plans should be part ofthe original SSC charter, as well as an ongoingcriterion for evaluation. Benchmark studies canprovide one source of improvement data, detail-ing current performance against best practiceorganizations and identifying key performancegaps. Improvement plans should include themeasurements that will be used to trackimprovement, the total improvement goal and itstime phases, benefits or incentives tied to goalachievement, and resource availability for reengi-neering and related activities to gain newimprovements.

The performance of the SSC organization shouldbe continuously monitored to ensure that it ismeeting goals and increasing the value deliveredto customers. This feedback should come from

both direct measurements and from contact withSSC customers. As the SSC organizationmatures, it may be possible to further reducestaffing due to learning curve benefits or toenhance the skills and refocus responsibilitiesto increase performance and motivation. Many ofthe ideas for these changes will emanate fromthe SSC staff, who will be among the first to rec-ognize that improvements can be made. If theirsuggestions are listened to, acted on, andrewarded, a culture of innovation can be createdin the SSC.

Finally, the need to upgrade systems as changesare made to the SSC process or as new tech-nologies emerge that can provide serviceenhancements or cost improvements is a con-stant. For the internal service provider to trulycompete with external sources for the services,it must be able to keep at the forefront of criticaltechnologies and use these advances to improvethe quality and value of the services it providesto customers. With the “market” serving to con-strain unnecessary spending, the SSC structurecan provide an effective screening mechanismfor technology spending. Unless the entire entitybenefits from the investment, it is unlikely totake place in a cost-conscious, customer-focused SSC.

Even if all of these steps are followed carefullyand management attention and support is con-sistent and adequate, the SSC team will need tobe aware of and respond to a variety of imple-mentation pitfalls.

V I I . IMPLEMENTAT ION P ITFALLSThe implementation of a shared services struc-ture is as prone to problems as any other majorchange effort. Some reasons why the implemen-tation of shared services fail include:l lacking a strong executive champion;

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l centralizing functions without creating anentrepreneurial spirit and without operatinglike a business;

l inadequately defining base-line costs, poorlytracking benefits achieved, and misdirectingresources;

l inadequately engaging or failing to engage andmotivate experienced personnel to use theirown demonstrated best practices;

l failing to overcome paradigms such as gettingstuck in old structures, processes, and benefits;

l failing to create a team environment that nur-tures a sense of ownership in implementingthe SSC;

l missing focus on continuous improvement incycle time, unit costs, defect rates, and ser-vice opportunities, and thereby failing toachieve the full range of benefits and cus-tomer services from the SSC;

l failing to establish and/or define performancemeasures and service-level agreements,resulting in the inability to achieve full valuefrom the SSC structure; and

l failing to consider moving to the SSC structure

as critical and failing to establish and maintaina sense of urgency for the transition.

To avoid these pitfalls, SSC management has toengage as many of the available successenablers as is feasible. These enablers includea culture supportive of change, strong executivesupport, and information technology support.Effective communication also plays a dominantrole in removing the obstacles and pitfalls in anSSC implementation.

What are the critical success factors in an SSCimplementation that make optimal use of suc-cess enablers and minimize the potential forexposure to fatal pitfalls? These success factorsare illustrated in Exhibit 11.

Sound planning, effective leadership and com-munication, a constant attention to customerneeds, and creation of a viable performancemanagement process combine to create a cul-ture and context where an SSC implementationcan thrive. Creating this environment is a possi-bility for any organization in any industry.

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EXHIBIT 11. CRITICAL SUCCESS FACTORS FOR SHARED SERVICES

VI I I . CONCLUSIONWhether the SSC initiative takes place infinance, human resources, facilities, legal servic-es, or some other part of the support area, thegoal is the same: to better leverage resources tocreate value, reduce costs, and increase thequality of support work. The liberated resourcesare not simply added to profits. In many organi-zations, the SSC-based savings are being rein-vested in increasing the value-added content ofthe organization’s products and services, result-ing in competitive gains and revenue/marketshare growth. SSCs are not a panacea or fad—they are a practical solution to the long-standing need to control nonessential costs in acompetitive environment.

APPENDIXQuestions Most Often Asked During Shared Services ProjectsThe following potential questions may be posedto the organization’s executive in relation to theshared services project:

General Aspectsl Why is the organization moving to the shared

services concept?l Is not shared services just a move toward

centralization?l Where are the shared services centers going

to be located?l How will the success/failure of shared servic-

es be determined?l How will the pilot sites be selected for initially

implementing shared services?l Must each operating unit join the shared ser-

vices initiative, i.e., is it mandatory? If it is notvoluntary, what will determine the order inwhich our organization joins?

l How will the shared services center complywith local legal and tax regulations?

l How will the organization address the legal, tax,

cultural, and other national barriers of operat-ing shared services in a global community?

l How will the shared services project be priori-tized and/or coordinated with other projectsalready in progress?

l What are likely site(s) for a shared servicescenter?

l What can be done to accelerate and ease thetransition to shared services?

l Is this project a first step in moving toward out-sourcing the finance and accounting functions?

Financial Aspectsl Are organizations obliged to join the shared

services center if they are able to achieve thesame level of savings on their own?

l When will proposed savings be able to be realized?l What is the cost or budget for this project?l Will local units have to pay for implementing

shared services or will the project be fundedcentrally?

l What return on investment is expected fromthe shared services project?

l Will local organizations be billed by the sharedservices centers?

Corporate Environmentl How will the organization ensure that local

organizations are not dependent on the sharedservices center? For example, what will hap-pen at the group level in the event of a signifi-cant interruption in business (e.g., disaster,labor dispute, interruption in electrical supply)in the shared services center? How will localunits continue to operate?

l What do the organization’s competitors do interms of shared services?

Human Resourcesl Which people will be affected by shared servic-

es and what will happen?l Will there be a loss of jobs due the shared ser-

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vices initiative?l If there are going to be job losses due to

shared services, when will they occur?l How will the people be selected for working in

the shared services center?l If I choose to or am allowed to relocate to the

shared services center, will pay and benefitsbe the same as they are now? Will the organi-zation pay for moving costs or subsidize it inany way?

l What will happen to employees not transfer-ring to the shared services center? Will they beretrained and redeployed, severed, or other-wise affected?

l How will the organization’s employees’ laborunions react to this project?

Customer Service Level and Pricingl How will the operating units be charged for the

shared services output, both in the start-upphase where costs may be higher than current-ly incurred and in the post start-up period?

l Will the prices charged for services renderedbe uniform, with perhaps price reductions forlower cost services, or will prices be deter-mined by how well the operating units can bar-gain for their needs?

B IBL IOGRAPHYAmerican Productivity and Quality Center,

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Cranberry, David P., Robert Frigo, and RobertGunn. “Shared Services are ReengineeringTheir Accounting Functions.” ManagementAccounting, November 1993.

Davis, Tim R.V. “Internal Service Operations:Strategies for Increasing Their Effectivenessand Controlling Their Costs.” OrganizationalDynamics. American ManagementAssociation, Autumn 1998.

Driscoll, Mary. “Giant Steps.” CFO Magazine,February 1993.

Early, Pat. “Reconstructing for Profitability andGrowth.” AMOCO Corporation Annual Report.Chicago, IL: 1994, AMOCO.

Forst, Leland I. “Running Shared Services Like aBusiness.” Shared Services Insights.Connecticut: The Amherst Group, 1997.

Forst, Leland I. “Fulfilling the Strategic Promiseof Shared Services.” Strategy & Leadership,January 1997.

Galloway, Charles. “Shared Services: Solving theCentralized/Decentralized Puzzle.” Moran,Stahl, & Boyer, Internet, 1997.

Gunn, Robert W. “What is Shared Services?”Management Accounting, November 1997.

Gunn, Robert W. “Shared Services: MajorCompanies are Reengineering TheirAccounting Functions.” ManagementAccounting, November 1993.

Hays, Richard D. “The Strategic Power of InternalService Excellence.” Business Horizons,July/August 1996.

Hirschfield, Rebbecca. “Shared Services SaveBig Money.” Datamation, September 1996.

Johnson, Michelle L. “Has Decentralization GivenWay to Recentralizing?” Investor’s BusinessDaily, March 1992.

King, Julia. “Cost Cutters Turning to SharedServices.” Computer World, March 1995.

McWilliams, Brian S. “Shared Services, SharedPain.” Computer World, August 1996.

McWilliams, Brian S. “Have You ConsideredInsourcing?” Across the Board, November1996.

Scheumann, Jon. “Shared Services withEmphasis on Accounts Payable.”

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Proceedings, IMA’s CIC Multi CompanyBenchmarking Study, Workshop #7.Montvale, NJ: Institute of ManagementAccountants, 1996.

Schmidt, Jeffrey. “Breaking Down the Fiefdoms:Corporations are Sharing Services to LowerCosts.” Management Review, January 1997.

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Documents

Implementing Shared Service Centers