The shared services model is a business framework in which common support services are consolidated into a centralized unit and shared by multiple divisions, departments, or business units within an organization. By centralizing back-office functions such as human resources, finance, information technology, and procurement, the shared services model aims to streamline operations, reduce costs, and improve efficiency and effectiveness. Shared services units operate as internal service providers, delivering standardized services and processes to internal clients across the organization.
In the shared services model, support functions that are non-core to the organization’s primary business activities are centralized into a single unit.
These functions typically include administrative tasks such as payroll processing, accounts payable, IT helpdesk support, and employee benefits administration.
Standardization and Process Efficiency:
Shared services units standardize processes, procedures, and service levels to ensure consistency and efficiency across the organization.
Standardization enables economies of scale, reduces duplication of efforts, and facilitates automation and optimization of back-office operations.
Service Level Agreements (SLAs):
Shared services units operate under service level agreements (SLAs) that define the scope, quality, and performance metrics for the services they provide.
SLAs establish clear expectations and accountability between the shared services unit and its internal clients, ensuring transparency and alignment of objectives.
Internal Client-Service Provider Relationship:
Shared services units function as internal service providers, serving multiple internal clients or business units within the organization.
They maintain a client-service provider relationship with their internal clients, prioritizing their needs, providing responsive support, and continuously improving service delivery based on feedback and performance metrics.
Technology Enablement:
Technology plays a crucial role in enabling shared services operations, facilitating process automation, data analytics, and self-service capabilities.
Shared services units leverage enterprise resource planning (ERP) systems, customer relationship management (CRM) software, and other digital tools to streamline workflows, enhance collaboration, and drive innovation in service delivery.
Implications of the Shared Services Model:
Cost Reduction and Efficiency Gains:
The shared services model enables organizations to achieve cost savings through economies of scale, process standardization, and resource consolidation.
By centralizing support functions and eliminating redundancies, organizations can reduce overhead costs, improve productivity, and reinvest savings into core business activities or strategic initiatives.
Focus on Core Competencies:
Centralizing non-core support functions allows organizations to focus their resources, talent, and energy on core competencies and strategic priorities.
By outsourcing routine administrative tasks to shared services units, business units can allocate more time and resources to value-added activities such as innovation, product development, and customer service.
Improved Service Quality and Consistency:
Standardization and process optimization within shared services units result in improved service quality, consistency, and reliability.
Internal clients benefit from faster response times, higher accuracy, and enhanced compliance with regulatory requirements, contributing to overall organizational effectiveness and reputation.
Challenges and Considerations:
Change Management and Cultural Shift:
Implementing a shared services model requires significant change management efforts to overcome resistance to change and cultural barriers within the organization.
Stakeholder engagement, communication, and training are essential to ensure buy-in and adoption of the new operating model across the organization.
Balancing Centralization and Local Needs:
Organizations must strike a balance between centralizing support functions for efficiency and meeting the unique needs and preferences of local business units or regions.
Flexibility, adaptability, and customization may be necessary to accommodate local regulations, market dynamics, and cultural differences.
Service Level Alignment and Performance Measurement:
Establishing clear service level agreements (SLAs) and performance metrics is critical to managing expectations, ensuring accountability, and measuring the effectiveness of shared services operations.
Regular performance reviews, feedback mechanisms, and continuous improvement initiatives are essential to maintain service quality and meet evolving business needs.
Conclusion:
The shared services model offers organizations a strategic approach to optimizing back-office operations, reducing costs, and enhancing service delivery. By centralizing support functions and standardizing processes, shared services units can achieve economies of scale, improve efficiency, and focus on delivering value to internal clients across the organization. While challenges such as change management and balancing centralization with local needs exist, the shared services model provides organizations with an opportunity to transform their internal service delivery capabilities, drive operational excellence, and achieve sustainable competitive advantages in today’s dynamic business environment.
OpenAI is an artificial intelligence research laboratory that transitioned into a for-profit organization in 2019. The corporate structure is organized around two entities: OpenAI, Inc., which is a single-member Delaware LLC controlled by OpenAI non-profit, And OpenAI LP, which is a capped, for-profit organization. The OpenAI LP is governed by the board of OpenAI, Inc (the foundation), which acts as a General Partner. At the same time, Limited Partners comprise employees of the LP, some of the board members, and other investors like Reid Hoffman’s charitable foundation, Khosla Ventures, and Microsoft, the leading investor in the LP.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
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.
Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. This allows the company’s stores and divisions to more flexibly respond to local market conditions.
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.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).
Goldman Sachs has a hierarchical structure with a clear chain of command and defined career advancement process. The structure is also underpinned by business-type divisions and function-based groups.
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.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
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).
Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.
Samsung has a product-type divisional organizational structure where products determine how resources and business operations are categorized. The main resources around which Samsung’s corporate structure is organized are consumer electronics, IT, and device solutions. In addition, Samsung leadership functions are organized around a few career levels grades, based on experience (assistant, professional, senior professional, and principal professional).
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Starbucks follows a matrix organizational structure with a combination of vertical and horizontal structures. It is characterized by multiple, overlapping chains of command and divisions.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
Toyota has a divisional organizational structure where business operations are centered around the market, product, and geographic groups. Therefore, Toyota organizes its corporate structure around global hierarchies (most strategic decisions come from Japan’s headquarter), product-based divisions (where the organization is broken down, based on each product line), and geographical divisions (according to the geographical areas under management).
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
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.
