Shared Services: From Vogue to Value

Article excerpt

In the late 1980's, executives who received a fax were unique. Federal Express invested and lost millions with the "Zap Mail" application of this new technology. By the early 1990's, few pass a day without at least one fax. Many use faxes to communicate between floors. to serve as electronic mail, and even fax lunch orders; kids even fax homework to teachers and to each other. The fax has become a way of life. In 1994, fax transmissions accounted for 36% of a Fortune 500's firm's annual phone bill. The technology quietly but quickly has permeated daily life.

In a similar way, the concept of shared services has suddenly and without much fanfare become a model for the organization and delivery of staff operations, including human resources. Like the fax, the concept is not entirely new, and has been known as commercial partnerships and internal markets. But the speed and breadth of its use is so rapid that it is quickly becoming the paradigm for staff organizations.

Unfortunately, some companies are jumping into the practice of shared services without fully understanding why or how it works. As a result, what began as experiments in some leading companies (e.g., IBM's workforce solutions) has become more faddish than valuable. This paper answers a rather simple question: Given the emerging experiences with shared services, what are the insights that will help make shared services as successful an organizational paradigm as the tax has become an information paradigm?

To answer this question, we will (1) identify why shared services have become so prevalent, (2) define what shared services looks like in practical terms, (3) describe how shared services operates, (4) suggest key success factors on how to make shared services work, and (5) offer caveats about common pitfalls in the effort.

Why Shared Services?

The impetus for shared services is the intersection of five management concerns: productivity, reengineering, globalization, service, and technology. Productivity demands have required that managers do more with less through improved efficiency and reduced costs. Many costs derive from the efficient use of human resources. Shared service organizations improve productivity by being both shared and services. First, by sharing services, managers may remove redundancies, duplications, and overlapping work which increases productivity as fewer employees produce similar or more work outputs. Second, by making the "user the chooser" of the services offered, superfluous services are discontinued. Typical of shared service productivity goals, Allied Signal proposes a 6% productivity gain through shared services.

Reengineering focuses attention on streamlining and improving work processes (Hammer and Champy, 1993). In essence, process management reengineers the flow of resources to ensure added value to customers. Tools like process mapping enable managers to convert core competencies to customer value. For shared services to be effective, processes must be created and/or improved to ensure that shared services results in customer needs being met. Without reengineering tools, shared services becomes another fad that does not add value to customers.

Global alliances, acquisitions, joint ventures, and competitors have resulted in companies being simultaneously customers, vendors, competitors, and distributors. This more complex organizational arrangement has changed the role of HR which must respond faster and with more knowledge in both HR and business. To meet these dual demands, the shared service organization offers both specialization (HR knowledge) and application (business knowledge).

Service has become a given for any organization (Quinn, 1993). A driving premise of a shared service organization was stated in one of the AT&T shared service goals, "don't skip a beat in customer satisfaction." Shared services organizations should increase the quality and timeliness of service to employees who are the customers of this organization. …