Shared services have been used for years by many large organisations as a way of pooling costs of services together for efficiency of scale. As such they comprise a huge component of an organisation's total costs, writes Greg Bogiages, director of Cortell Corporate Performance Management.
However, typically there exists an inability to pinpoint accountability for the costs of these services across various departments within an organisation, which can lead to shared services running up hidden costs and causing resentment when it comes to divisions having to pay for services that they do not feel they have used to the extent that the cost implies.
Accountability and responsibility for costs can be very problematic for organisations, as revenue and costs are separated and it is difficult to reconcile who is making profits and who is costing money. This often paints a vague picture to management about which departments are really performing and where opportunities for cost-cutting lie.
There is a lack of transparency within organisations that do not carefully manage shared services that could end up costing a lot of money, not to mention a distorted view of which departments or divisions are performing well and which are not. When costs are hidden, there is every possibility that charges are higher than market related costs, and can be far more expensive than using an external outsourced service provider.
Traditionally the costs of shared services are lumped together and then doled out to divisions that can 'afford' them, with the most profitable departments taking the lion's share of costs. This has caused discontent and resentment as divisions often do not feel that they are getting any value for the services they are paying for.
There is no insight into why they are paying what they are paying, and a lack of options as to what can be done to reduce costs. Behaviour of end users can not be driven towards becoming more cost effective, and there is often a feeling of being locked in to using these services and paying excessively for them.
In the past the sheer amount of administration required to accurately track and allocate the costs of shared services was far too onerous, and technology to automate this process was simply not available. This meant that the easiest and least costly way to manage shared services was the lumping together of these costs and sharing them out, something which does not create a culture of transparency within organisations.
However, with modern technology and tools it is now possible to track this data far more effectively. Creating an accurate view of how much value specific departments add to the organisation, and how much they cost, as well as being able to accurately allocate the costs of shared services where they are being used, are key aspects when it comes to cost reduction exercises.
In order to gain true value from shared services solutions, business intelligence (BI) tools can be harnessed to good effect as enablers of analysis to help understand business drivers and correctly allocate time, resources and management to them. BI delivers information from various data sources across an organisation, which provides opportunities to delve into this information and get a far more accurate view of what services are being used when and where and by whom.
This gives management a view into where costs lie, how much shared services is charging, and whether or not it would be cheaper to outsource this service rather than using the organisation's central provider. This in turn drives transparency and better business decision making, and stops shared services from having a 'captive audience' when it comes to pricing structures. Budgeting, as a result, can also be conducted more accurately, as with this type of process in place divisions can see what the cost of shared services was for their department specifically and budget accordingly for the future.
BI can help organisations to realise better return on investment from shared services, and find the right balance between using shared services and external providers for the best ratio of cost to profits. However, because this enables a far more transparent view of the organisation, and has the potential to alter the culture to one of accountability and responsibility; it is essential to have a strong focus on change management processes when implementing any BI system to address the challenges behind shared services.
That said, shared services are often the most cost effective and efficient way of offering services across an organisation. If they are well managed and costs can be accurately allocated, they have the potential to be massive cost savers. Harnessing the power of BI can enable enterprises to manage these costs effectively and as a result derive maximum ROI from shared services.