Shared Services Transformation: Success Levers for Building Expertise Services
Given a natural progression for shared services of, first, expanding the portfolio of services offered, then moving "upstream" via leveraging knowledge-based expertise; and finally moving out of scale transactions altogether—why are we still seeing so little success?
Corporations typically implement shared services following a feasibility study, a business case, or some other compelling corporate edict. At a given point in time, there is a clear benefit from attaining new levels of leverage from corporate services. Once those initial objectives are successfully met, however, shared services providers are left with a curious question: What can shared services do beyond providing a fixed portfolio of scale services to select customers? If shared services remains static, it risks becoming just another function and is subject to the same problems that originally caused companies to seek a new means of organizing (inertia, cost-creep, inefficiency, etc.).
At this juncture, many shared services providers look for ways to expand their scope by extending their initial successes. They seek out additional clients for their services and/or propose additional services for existing clients.
Increasingly, providers are finding that there is a limited universe of like-work available. So, where can shared services go next?
All too often, shared services becomes a solution in search of a problem. Providers who are unable to adapt and manage new forms of leverage are at best leaving opportunity unfulfilled, at worst being left behind. Those who successfully transition their shared services enterprises demonstrate four key attributes:
- proof of results
- business assessment of next steps
- preparedness to manage new forms of leverage
- willingness to be unconventional
Proof of Results
CEOs were mainly introduced to shared services as a means to reduce the costs of transactional services. CEOs welcomed the idea; they tended to identify "back-office" services with negative ROI. A CEO is unlikely to accept higher aspirations or allow a change in scope until an SSO can prove its worth. Providers must first prove their value by demonstrating their impact to the bottom line. This step is often forgotten (or omitted) as providers are unable or unwilling to prove results. How many of us can say we have fully assessed outcomes against our original business case? How many have long-term economic plans that are renewed annually? Compare this to corporate business units, who plan routinely and assess their results continually.
Concepts like business planning, service pricing, revenue management, billing and chargebacks, and service agreements are not esoteric exercises. They create a necessary mindset change and insure that shared services and its "business" can be understood in the same way any strategic business unit understands its operations. Those providers who can demonstrate they have fulfilled their original charters enjoy the support of their sponsors and clients, who will drive a case for further transformation.
Business Assessment of Next Steps
Just like in for-profit entities, this places responsibility on shared services to educate its customers on the services it performs, the results delivered, and the opportunities for improvement. To understand this, shared services units have to know what customers do with their products, and how well these products meet the customers’ needs.
With the right practices for gauging customer requirements and estimating impact on business performance, a shared services provider can reliably identify the next form of leverage to pursue. Further, with a solid business assessment, the provider can predict whether a transformation will meet with success or failure by evaluating potential wins for key stakeholders: the corporation as a whole, each of the business units, and the provider itself. Any transformation path that doesn’t benefit all of these parties is likely to encounter resistance or opposition.
The degree of discipline applied in evaluating current performance and future opportunity is a key differentiator between successful evolutions of shared services, and failures. Here, providers too often substitute the experiences of other companies for a robust evaluation and planning process. If other corporations are moving to multifunctional models, it doesn’t necessarily follow that this is the right path for everyone. The transformation proposition will be unique to each corporation.
Preparedness to Manage New Forms of Leverage
If a case for transformation is substantiated, a service provider then faces the challenge of actually gaining this leverage. Those providers who recognize and embrace a different means of managing service delivery enjoy greater success and longevity.
Take, for example, the trend toward offering "expertise" services. Expertise services are those services that benefit from the know-how of the service provider. Here, specialized knowledge can be shared across the organization without building costly, duplicate infrastructure wherever the service is needed.
Contrast this with "scale" services—those that benefit from their volume of transactions. These types of services are routine, standardized and often automated.
By dividing service delivery into these two main categories, the nature of the leverage opportunity becomes clear, and an approach can be developed to capitalize on the savings potential. To achieve leverage for scale services, for example, a provider might consolidate transactional practices into a group with the aptitude and tools for executing transactions with ruthless efficiency.
Successfully entering into expertise services is, in one important way, like the initial entry into scale services: it has to offer something different. So, what can a shared services provider offer that is significantly better than corporate functions could do themselves?
To manage expertise services well requires a different approach to managing scale services. Knowledge-based services won’t benefit in the same way from centralization or automation, for instance. Rather, organizations are recognizing the need for management groups, supervisors and teams. They are nurturing and delivering technical problem-solving capabilities, specialized knowledge, consultative offerings, planning aptitude and even brokering and negotiation prowess. The shared services units that have recognized the power of this expertise are finding ways to describe, organize, and deliver expertise when the customer needs it, at the level the customer expects.
Just like any other service, expertise services can be documented, improved upon, rewarded, efficiently organized, priced and made available to users that need expert help in the face of expert competition. The means to gaining leverage, though, are unique. Some providers are finding that expertise services that are similar to one another can be aggregated in different ways. Work can be organized by required skill, by type of customer, or by the nature of the distribution channel. The point is that providers are seeing that work as something that can be characterized, segmented and broken apart, leading to new ways to reassemble it in a more efficient fashion.
Today’s shared services leaders are recognizing that expertise services require a different management approach. Said differently: Managing processing differs from managing professional services. So why not find specialized managers and management practices that recognize and exploit those differences?
Willingness to Be Unconventional
Conventionally, the portfolio of expertise services brought into shared services differs little from what the corporate functions previously offered. Typically, most implementations simply shift knowledge-based work from a function to a shared services provider. Substituting one management structure for another is not a step change that drives significant benefit. Certainly there are minor advantages to hosting those services within the SSO, but it’s difficult for a shared services provider to find substantial value in adding expertise services to its portfolio. Often, this leads to stagnation—the corporation and business units don’t view expertise services as inherently more appropriate for shared services to manage.
However, there are examples of companies moving expertise into shared services and making step changes that impact the corporations’ bottom-line. Rather than simply shifting an existing portfolio, these providers are either more ingeniously exploiting leverage or are even offering entirely new expertise services. Either way, they are capitalizing on what shared services does well, differentiating their products from those that corporate functions previously offered.
In the first case, companies are more precisely maximizing leverage opportunities within expertise services. While the service itself is still powered by someone’s knowledge or experience, there are normally activities within a service that benefit from shared services practices. As an example, consider LASIK eye surgery. This is very much an expertise service. As a patient, you would certainly want the most competent, best educated and most experienced surgeon operating on you. Perhaps a company offering this product might find leverage in extending that surgeon to multiple locations, or in providing more effective training and education to their surgeons.
The differentiator that brought success to some LASIK providers, though, wasn’t based on the expertise of their staff. Rather, they found ways to cull many of the scale activities that go into producing an expertise service: making appointments, conducting initial examinations, providing patient education–all of these activities could be optimized using the principles that drove scale service improvement. Even the surgical process itself benefited from automation–today, computers do much of the diagnostic work and even guide the surgery. In the end, what appears to be an expertise service can, in fact, be broken down to components that a shared services provider is best positioned to manage and improve.
There are also a set of expertise services that are owned by no single function, yet are core competencies that influence the corporation’s success. That is, these activities are taking place throughout the corporation, but are not managed in a consolidated fashion. How many disparate parts of a large corporation perform these types of work?
- sourcing labor
- integrating or disaggregating businesses
- assessing quality
- transforming processes
- managing vendors
- building customer relationships
- monitoring compliance
- mining data and reporting information
- managing change
- incubating and rolling out new processes
- managing people
- managing distribution channel
Leading SSOs are recognizing that there are expertise services they might provide from their own pool of know-how (like sourcing labor), or that they might consolidate from around the corporation (like negotiating). These services are differentiated from what corporate functions can do for themselves and are strong candidates for gains in leverage. Top providers are finding the key: It comes down to matching the leverage inherent in a given service to the entity best positioned to exploit that leverage.
This critical look at services may also lead to addition by subtraction. Some shared services providers have removed services from their portfolio; they found no better leverage basis than the businesses could achieve themselves. This may sound like the death knoll for shared services. On the contrary, this presents, instead, an opportunity for the service provider, and a benefit for the corporation. The businesses receive services in working order; the service goes on to provide higher order service, and the corporation leverages competencies around the company, realizing more than just cost savings.
What has become an important tenet for those who manage transformation well is that their objective is not to create an increasingly longer list of services owned, but to find those points of leverage in their corporation that they are uniquely qualified to act upon. To do this, they prove their results, apply rigor when assessing next steps, prepare themselves to manage new forms of work, and identify unconventional opportunities that drive their company’s competitive advantage.
Shared services must look beyond what it does today, linking its plan to overall company goals and assessing how it can optimize its contributions on behalf of all parties. A static shared services unit will satisfy the needs of the customer and the organization only briefly. A shared services unit that develops competence in finding and exploiting leverage opportunities will be continuously of value to its corporation. Today’s shared services leaders are recognizing that expertise services require a different management approach.
First published on SSON.