Failure through Shared Services

Friday, March 6, 2009 by Tripp Babbitt

There are quite a few articles on shared services strategy and most of them are positive.  There is a better way to achieve business cost reduction and business improvement than sited in most of the articles. As an example, AT Kearney put out an report/white paper called Success through Shared Services.  The first pages of this, report that getting the advantages of shared services is like spinning "straw in to gold."  They would have been better off stopping there. 

In a survey by Harris Interactive, the report goes on to say that on average up to 6 departments are typically consolidated and these companies are "highly sophisticated" and have Service Level Agreements and charge-back systems and are also exploring outsourcing strategies.  The report sites that "70% of executives rank their shared services efforts as successful . . . and the benefits range from reduced costs and  improved productivity to superior employees."  A command and control thinkers dream!

The purpose of the paper is to "highlight why shared services is a proven method to deliver value."  Doesn’t sound like people are beating the door down to share services and need convincing.

AT Kearney site the "Fundamental Truths of Shared Services" in this article and site the need for a standardized model.  All command and control thinking.  My favorite is this section "many executives cling to the misconception that shared services will result in increased costs.  Examples of companies that tried shared services and abandoned them because of higher expenditures and increased operational complexity are easy to come by."  Yes, because shared services increase costs and complexity, I’d like to talk to these executives because they get are correct.  AT Kearney goes on that costs are only increased because of a "flawed implementation."  Of course that’s the problem it just wasn’t implemented correctly . . . it REALLY works after all it is one of the "truths."

AT Kearney then goes on to talk about "The Three Pillars" of shared services.  All three are directly targeted at the command and control thinker . . . consolidation, standardization and automation.  All three items I find to lead to worse service for the customer and increased costs.

AT Kearney has a nine step process that is used to avoid the dreaded "flawed implementation. In summary, it includes "setting targets, appropriate operating model, effective governance, take your time (2 years), managing rising technology costs, integrate outsourcing strategies, management tools (charge backs and SLAs), measure performance, and focus on internal customers."  Targets and performance will always become the de facto purposes of the organization so a better way is to focus on customer purpose and measures that matter.  I find it strange that one of the nine steps is internal customer focus, without any mention of the actual external customer.  SLAs are another form of targets and charge backs add no value to the system it is a form of waste.  Outsourcing strategies lock in waste without accounting for failure demand.  And technology costs rise because you have to have all types of technology software, hard ware and of course consulting to make all this stuff happen, that must be the reason to allow time and two years probably isn’t enough with implementation issues.  Other than that it is a command and control thinkers dream.

What should be done?
Do we need a front and back office? Or is a front office design a better way to handle demand.  Only by studying customer demand can we be sure.

Before any shared services strategy takes place we need to understand current service performance.  This can be accomplished by studying customer demand (what customers want), capability (how well it is delivered), the value work (the service customers want efficiently), waste and its causes.  We can then improve service where it is currently delivered and then have a knowledge-based discussion on shared services opportunities.


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