The years of ‘outsource everything’ are long gone…so are the years of ‘keep everything in-house’ – the winners today are finding the right balance.
Only 7% of companies that adopt shared services – either in-house or through outsourcing – achieve benefits that exceed their expectations. Moreover, there is a 50/50 split between organisations that are satisfied and disappointed with their shared services.
The way shared services are sourced is one of the reasons for these differing views. Organisations that use mostly outsourcing or mostly in-house teams are less likely to achieve high-performing shared services. Companies that learn to balance both sources of service delivery are the ones outperforming their peers.
These are some of the findings from recent research by PA Consulting Group. The study also reveals that this balance between outsourced and in-house services is one of four key common features of successful shared services organisations. We spoke to 135 major organisations about their biggest challenges and how they view the gains they have made. Crucially, we wanted to identify the organisations that were most satisfied and to understand what they had done to achieve this success.
Don’t follow the crowd when it comes to sourcing
The organisations that succeed in developing elite shared services use third-party outsourcing where they are confident this can produce superior services. As part of their business strategy, they also build internal capabilities where it makes strategic and economic sense.
Our research shows that organisations with a shared services ‘mixed economy’ are more likely to experience benefits that exceed expectations (10% of companies). In contrast, none of the companies that mostly used outsourcing to deliver shared services said they had been able to develop shared services that exceed their expectations. Furthermore, only 6% of organisations that predominantly use in-house teams said they have managed to develop high-performing shared services.
Organisations are getting savvier about what the external market can offer and are taking greater steps in creating ecosystems that allow multiple providers and strategic in-house capabilities to work together towards delivering the business agenda.
Forget about silos and start integrating
Our research reveals that business services organised under a common service delivery model, with at least some degree of integration across functional boundaries such as finance and HR, are more likely to meet or exceed expectations. Nearly 70% of business services that are organised under a common service delivery model, with at least some integration, meet expectations – and 12% exceed them. Where functions only share components of the service delivery model, that figure falls to 5%.
These findings are not surprising. The more integrated a shared services operating model is, the greater the opportunity is to reduce the overhead that sits within functional silos. There is also more of a chance to introduce more business-centric end-to-end processes – delivering what employees and businesses need.
Add services and geographies for greater returns
Our study shows that organisations delivering shared services with greater functional scope and across a wider geographical reach achieve superior returns. In particular, there has been a marked increase in the adoption of data analytics, customer services and procurement over the last five years. This shows that shared services organisations are moving from a purely transactional delivery model to a more front-end, solutions-based service organisation – a step towards becoming a strategic partner to the business. According to the survey, more than half (56%) of respondents’ organisations are reporting directly to the Chief Financial Officer or Chief Operating Officer, suggesting a greater executive involvement in defining the role, scope and strategy of shared services.
Invest in execution
Winning hearts and minds remains one of the most challenging and important activities to tackle; 47% of respondents say ‘change management’ is the most demanding activity to deliver in a shared services programme. The top three areas of focus that significantly contribute to elite organisations meeting and exceeding expectations are: employing a dedicated and focussed change management team; putting strong emphasis on managing and communicating with stakeholders from the outset; and establishing a customer service and performance-driven culture.
Whether you are just starting to think about shared services, or whether you have already got some form of shared services arrangement in place, these strategies can help you achieve better returns. A clear view on the sourcing mix, a bold ambition on scope and integration and a relentless focus on execution will improve your chances of making shared services more rewarding.
Victor Torres is a shared services expert at PA Consulting Group
To download a copy of the report click here.
This article first appeared on Outsource.