Ask the mother of any five-year-old, and she’ll tell you that sharing doesn’t always come naturally. The art of sharing must be learned and, often, the learning takes a while.
This holds true even when you’re talking about shared services, the act of centralizing an organizational function, such as human resources or IT, and providing it through a company-owned service entity that sells its know-how to other business units. Like learning to portion out toys and treats, the transition to shared services requires willingness to change and education. What’s more, mastering certain lessons is crucial to shared-services success, according to Tim Olsen, clinical assistant professor of information systems at the W. P. Carey School of Business.
The case for sharing
Olsen spent two years studying the IT department of a major U.S. university as it went through the growing pains involved in launching a shared-services operating model. Although it had more than 200 employees serving all the colleges and departmental units throughout the university, the IT department wasn’t the only game in town that school entities could select.
Each college was free to contract for IT services from the inside group or opt to use an outside vendor. When the school team realized it was starting to lose business to off-campus IT service providers, department leaders knew they had to compete. They chose to do so with a shared-services model, largely for the same reason most organizations choose to adopt share services: The model helps rein in waste and costs.
“The shared-services model allows you to know costs on a very minute level,” says Olsen. This is because in order to sell a service, you have to know what it costs to produce.
Discovering true costs can be an eye-opener, particularly when a company is transitioning away from a decentralized operating model, as was the case of the university Olsen studied. “In a decentralized IT shop, you have several small IT units working for the divisions they support. Each IT unit does whatever its customer wants it to do, which creates expensive outcomes for the organization as a whole.”
That was certainly the case for the university Olsen studied. “Several different sub-units provided identical services at different price structures to the university,” he wrote in a paper covering his research. “For example, six different sub-units provided server-hosting solutions, while five provided video recording and distribution services. Furthermore, due to lack of coordination, the department was maintaining 70 different video surveillance systems across the university.”
Olsen adds: “Those video systems weren’t linked together into a centrally managed solution. Each of those 70 different surveillance systems had a separate server, separate management, and they were all housed in different locations.”
Shared-services models eliminate such wasteful duplication of effort, which is one way they save organizations money. The model also allows organizations to benefit from economies of scale and experience more cost-effective asset utilization. Plus, there’s naturally more focus on cost. According to Olsen, that focus is one of the biggest areas in which organizations must learn and grow.
It’ll cost you
“If the plumber comes to your house and does repairs, he’ll give you an itemized bill showing parts, labor, a trip fee and maybe he’ll even break down the labor into various tasks,” says Olsen. “IT departments typically don’t have breakdowns like these, and there’s quite a learning curve to adopt that approach.” According to Olsen, companies making the shift to shared services could expect this transition to take time and effort.
Along the way, people and processes evolve. First, the good news: Cost transparency allows for benchmarking, which generally leads to lower costs as managers strive to bring their own prices in line. Also, knowing the cost of services is empowering for employees who might not have thought of such things before moving to the shared-services model.
But, as Olsen points out in his paper, there’s a flip side: Newly enlightened managers tend to overdo it, focusing so squarely on costs that service orientation and customer satisfaction suffer.
That was what happened at the university. Soon, internal customers were complaining that project discussions were dominated by cost consciousness. Rumors flew; people assumed that since costs were under the spotlight, costs also were likely to rise. As Olsen notes in his paper, “presenting costs requires finesse.” He advises those starting shared services to avoid communications pitfalls by not putting cost above service on the list of priorities.
The crux of the matter
According to Olsen, service orientation is really the keystone on which successful shared services are built.
“You have these managers who’ve been coming to work for years, and if you ask them about their jobs, they say ‘I do this’ or ‘I do that,’” he explains. “When you have them start to think of services they offer their internal customers, the phrasing changes to ‘I sell’ or ‘I deliver’ or ‘I provide this or that service.’ That slight difference creates a shift in thinking. People start operating with a service orientation, with the customer in mind.”
Olsen notes that the paradigm shift necessary to transform people from task doers to service providers has not previously been mentioned in shared-services literature, but it’s crucial to many other lessons that must be learned. Among them are the lessons related to responsibility.
For one thing, responsibility is a natural outcome of service orientation and cost consciousness. “Once you identify a cost for the services you’re going to provide, you’re on the line for getting the project done in the amount of time allotted,” Olsen says.
This becomes especially important in light of another feature of shared-services organizations. They divide tasks and put employees into specialized roles. That is, software people do only software-related work. The same is true for server people, network people and so on. Everyone is a specialist.
This eliminates duplication of work – like 70 different video surveillance systems – because there are experts who know what technology is already available to provide the services customers need. However, it also makes everyone interdependent. “The successful delivery of a service at the promised cost is contingent upon all the individuals completing their parts of the job on time and on budget,” Olsen says.
He adds that this is a blessing and a curse. “The blessing is that everyone knows what they’re doing and they get very good at doing it. The curse is that it means most people are working on several projects simultaneously, so several projects are threatened if one person fails.”
This potential hazard could be diminished by another lesson Olsen recommends organizations learn. “New roles need to be practiced before they are assumed,” he maintains, and he recommends organizations do a “walkthrough” of roles and responsibilities to ensure that each player knows their part. By uncovering and rehearsing key business processes via walkthroughs, the university Olsen studied had a smoother transition from task- to service-oriented delivery.
That transition, he adds, takes about a year to complete, but results can be quite positive. In a survey conducted by Deloitte Consulting, 62 percent of respondents said shared services delivered cost reductions at their organizations, and 65 percent cited process efficiency as a positive impact.
Such findings wouldn’t surprise Olsen. “Research suggests that managing IT with a shared-services approach reduces costs while increasing customer responsiveness,” he says.
- When organizational departments adopt a shared-services operating model, employees will undergo a lengthy learning process.
- First, employees must transition from being task-oriented to being service-oriented.
- Next, cost identification becomes a focal point, but it shouldn’t outweigh service orientation.
- Individual responsibility is crucial, as well, because one person’s failure could sink several projects.
- Organizations also should perform process simulations so that all the players know who does what.