The shared services model is a strategic organizational framework in which common support functions and services are consolidated into a centralized unit, often referred to as a “shared service center” or “shared services organization.” This centralized hub serves multiple internal clients or business units within an organization. The goal is to standardize and optimize these support services to achieve cost savings, operational excellence, and improved service quality.
Shared services typically encompass a wide range of functions, including:
Human Resources (HR): Recruitment, payroll, benefits administration, and employee development.
Finance and Accounting: Accounts payable, accounts receivable, financial reporting, and procurement.
Information Technology (IT): Helpdesk support, software development, infrastructure management, and cybersecurity.
Customer Service: Call center operations, customer support, and issue resolution.
Supply Chain and Procurement: Inventory management, supplier relations, and procurement processes.
Marketing and Communications: Brand management, advertising, and content creation.
Facilities Management: Maintenance, security, and workspace management.
The shared services model is applicable to various types of organizations, including corporations, government agencies, educational institutions, and nonprofits. It offers a structured approach to optimizing resources, reducing redundancy, and enhancing service delivery.
What is the Shared Services Model?
The Shared Services Model involves consolidating various administrative and support functions from multiple departments into a single, centralized unit that serves the entire organization. This model is designed to streamline operations, eliminate redundancies, and achieve economies of scale.
Centralization: Centralizing administrative and support functions to serve multiple departments.
Efficiency: Enhancing operational efficiency and reducing costs.
Standardization: Implementing standardized processes and practices across the organization.
Service Orientation: Focusing on delivering high-quality, customer-centric services.
Importance of Understanding the Shared Services Model
Understanding and implementing the Shared Services Model is crucial for improving organizational efficiency, reducing costs, and enhancing service delivery.
Improving Organizational Efficiency
Streamlined Processes: Standardizes and streamlines processes across departments.
Eliminating Redundancies: Reduces duplication of efforts and resources.
Reducing Costs
Economies of Scale: Achieves cost savings through economies of scale.
Resource Optimization: Optimizes the use of resources, reducing operational expenses.
Enhancing Service Delivery
Consistency: Ensures consistent service delivery and quality across the organization.
Customer Focus: Enhances focus on customer needs and satisfaction.
Components of the Shared Services Model
The Shared Services Model involves several key components that contribute to its effectiveness in optimizing operations and improving service delivery.
1. Centralized Service Center
Hub of Services: A centralized unit that provides administrative and support services to the organization.
Specialized Teams: Teams with specialized skills and expertise to handle specific functions.
2. Standardized Processes
Consistent Procedures: Implementing standardized procedures and workflows.
Best Practices: Adopting industry best practices to enhance efficiency and quality.
3. Service Level Agreements (SLAs)
Performance Metrics: Establishing SLAs to define service expectations and performance metrics.
Accountability: Ensuring accountability and transparency in service delivery.
4. Technology and Infrastructure
IT Systems: Leveraging advanced IT systems and infrastructure to support shared services.
Automation: Implementing automation to streamline processes and reduce manual work.
5. Governance and Leadership
Strategic Oversight: Strong governance and leadership to oversee the implementation and management of shared services.
Change Management: Effective change management to facilitate the transition to a shared services model.
Implementation Methods for the Shared Services Model
Several methods can be used to implement the Shared Services Model effectively, each offering different strategies and tools.
1. Planning and Assessment
Needs Assessment: Conducting a thorough needs assessment to identify functions suitable for shared services.
Feasibility Study: Performing a feasibility study to evaluate the potential benefits and challenges.
2. Design and Development
Service Design: Designing the shared services structure, processes, and workflows.
Technology Integration: Integrating necessary technology and infrastructure to support shared services.
3. Transition and Migration
Change Management: Implementing change management strategies to facilitate a smooth transition.
Phased Rollout: Adopting a phased rollout approach to gradually implement shared services.
4. Training and Development
Skill Development: Providing training and development programs to equip staff with the necessary skills.
Continuous Learning: Promoting a culture of continuous learning and improvement.
5. Monitoring and Evaluation
Performance Monitoring: Regularly monitoring and evaluating the performance of shared services.
Feedback Mechanisms: Establishing feedback mechanisms to gather input and make improvements.
Benefits of the Shared Services Model
Implementing the Shared Services Model offers numerous benefits, enhancing organizational efficiency, reducing costs, and improving service delivery.
Enhanced Organizational Efficiency
Streamlined Operations: Streamlines operations and eliminates redundancies.
Standardization: Ensures consistency and standardization across the organization.
Significant Cost Savings
Economies of Scale: Achieves significant cost savings through economies of scale.
Resource Optimization: Optimizes the use of resources, reducing operational expenses.
Improved Service Quality
Consistent Quality: Ensures consistent service quality and delivery.
Customer Satisfaction: Enhances customer satisfaction by focusing on service excellence.
Increased Flexibility
Adaptability: Increases organizational flexibility to adapt to changes and challenges.
Scalability: Allows for scalable operations to meet growing demands.
Challenges of Implementing the Shared Services Model
Despite its benefits, implementing the Shared Services Model presents several challenges that need to be managed for successful implementation.
Resistance to Change
Cultural Barriers: Overcoming cultural resistance to change within the organization.
Behavioral Change: Encouraging behavioral changes to support the adoption of shared services.
Complexity of Implementation
Coordination Issues: Coordinating the transition and integration of multiple functions.
Resource Allocation: Ensuring adequate resources are allocated for implementation.
Technology and Infrastructure
System Integration: Integrating various IT systems and infrastructure to support shared services.
Data Management: Managing data security and privacy concerns.
Maintaining Service Quality
Consistent Delivery: Ensuring consistent service delivery during the transition period.
Performance Monitoring: Continuously monitoring and maintaining high service quality.
Best Practices for Implementing the Shared Services Model
Implementing best practices can help effectively manage and overcome challenges, maximizing the benefits of the Shared Services Model.
Foster a Collaborative Culture
Inclusive Culture: Promote an inclusive culture that values collaboration and mutual support.
Employee Engagement: Engage employees in the planning and implementation process.
Enhance Communication
Transparent Communication: Maintain transparent communication to build trust and reduce uncertainty.
Regular Updates: Provide regular updates on the progress and benefits of shared services.
Align Goals and Incentives
Unified Goals: Ensure that goals and objectives are aligned across departments.
Aligned Incentives: Align incentives and rewards with collaborative behavior and achievements.
Promote Leadership and Vision
Strategic Leadership: Encourage strategic leadership to oversee the implementation and management of shared services.
Clear Vision: Develop and communicate a clear and unified vision for the organization.
Implement Robust Governance
Governance Structure: Establish a strong governance structure to oversee shared services.
Performance Metrics: Develop and track performance metrics to measure the success of shared services.
Future Trends in the Shared Services Model
Several trends are likely to shape the future of the Shared Services Model and its applications.
Digital Transformation
Automation: Leveraging automation to enhance efficiency and reduce manual work.
Artificial Intelligence: Implementing AI to support decision-making and improve service delivery.
Data Analytics
Data-Driven Insights: Using data analytics to gain insights into service performance and areas for improvement.
Predictive Analytics: Employing predictive analytics to anticipate and address future needs.
Globalization
Global Shared Services: Developing global shared services centers to support international operations.
Cross-Border Collaboration: Enhancing cross-border collaboration and integration.
Sustainability
Green Practices: Promoting sustainable practices within shared services operations.
Resource Efficiency: Focusing on resource efficiency and environmental impact reduction.
Agile Methodologies
Agile Practices: Implementing agile methodologies to enhance flexibility and responsiveness.
Iterative Processes: Using iterative processes to continuously improve and adapt shared services.
Conclusion
The Shared Services Model is a strategic approach that involves consolidating and centralizing support functions to optimize efficiency, reduce costs, and improve service quality. By understanding the key components, implementation methods, benefits, and challenges of the Shared Services Model, organizations can develop effective strategies to enhance efficiency, reduce costs, and improve service delivery. Implementing best practices such as fostering a collaborative culture, enhancing communication, aligning goals and incentives, promoting leadership and vision, and implementing robust governance can help maximize the benefits of the Shared Services Model.
Key Highlights:
Shared Services Model:
A strategic framework where core support functions are centralized in a shared service center to optimize resources, reduce redundancy, and improve service delivery.
Applicable to various types of organizations, including corporations, government agencies, educational institutions, and nonprofits.
Key Functions of Shared Services:
Human Resources (HR)
Finance and Accounting
Information Technology (IT)
Customer Service
Supply Chain and Procurement
Marketing and Communications
Facilities Management
Key Principles of the Shared Services Model:
Centralization: Centralize support functions.
Standardization: Implement standardized processes and service levels.
Customer Focus: Tailor services to meet client needs.
Cost Efficiency: Achieve cost savings and resource optimization.
Service Level Agreements (SLAs): Define expectations and performance metrics.
Continuous Improvement: Commit to ongoing process enhancement.
Technology Integration: Leverage technology for efficiency.
Advantages of the Shared Services Model:
Cost Savings: Reduce overhead and achieve economies of scale.
Enhanced Service Quality: Standardized processes lead to consistent quality.
Focus on Core Activities: Business units concentrate on core functions.
Resource Optimization: Allocate staff and assets effectively.
Flexibility and Scalability: Adaptable to growth or changing service demands.
Knowledge Sharing: Foster innovation and efficiency.
Risk Mitigation: Enhanced security, compliance, and risk management.
Implementing the Model:
Assessment and Planning: Evaluate existing functions and develop a detailed plan.
Leadership and Governance: Appoint experienced leadership and establish governance structures.
Technology Infrastructure: Invest in necessary technology and data tools.
Service Level Agreements (SLAs): Collaboratively define SLAs.
Change Management: Communicate the transition and provide support.
Continuous Improvement: Cultivate a culture of ongoing improvement.
Metrics and KPIs: Define KPIs for performance measurement.
Successful Examples:
Multinational Corporations
Government Agencies
Higher Education
Healthcare Systems
Nonprofits
Challenges and Considerations:
Resistance to Change
Initial Costs
Data Security
Complexity
Service Quality
Customization Needs
Conclusion: The shared services model is an effective strategy for organizations to optimize resources and enhance service delivery. Careful implementation and a focus on key principles can maximize its benefits across various sectors.
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The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.
The Coca-Cola Company has a somewhat complex matrix organizational structure with geographic divisions, product divisions, business-type units, and functional groups.
Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure.
Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence. There are six divisions in the country alone to reflect its standing as the source of most company revenue.
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Dell has a functional organizational structure with some degree of decentralization. This means functional departments share information, contribute ideas to the success of the organization and have some degree of decision-making power.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
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Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
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McKinsey & Company has a decentralized organizational structure with mostly self-managing offices, committees, and employees. There are also functional groups and geographic divisions with proprietary names.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Nestlé has a geographical divisional structure with operations segmented into five key regions. For many years, Swiss multinational food and drink company Nestlé had a complex and decentralized matrix organizational structure where its numerous brands and subsidiaries were free to operate autonomously.
Nike has a matrix organizational structure incorporating geographic divisions. Nike’s matrix structure is also present at the regional and sub-regional levels. Managerial responsibility is segmented according to business unit (apparel, footwear, and equipment) and function (human resources, finance, marketing, sales, and operations).
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
