Over the last twenty years, Shared Service Centers (SSCs) have become an important part of the organization for most large multinationals. Having made considerable investments in establishing SSCs, many companies are looking for ways to bring the performance of their SSC to a higher level. SSCs that use performance measurement are significantly more successful in improving their processes, customer service, quality, costs and productivity.
Many shared service centers underperform
Cost reductions, internal controls and quality improvement are three main reasons for companies to establish a SSC. Not every organization however, has been equally successful in implementing and optimizing the performance of its SSC. The goal of a SSC is not as straight forward as reducing the costs of the organization. Even though the cost component is probably the most important one, real success can only be reached if back offices are in control and are capable of improving their services as well. Often senior finance executives from large organizations are not satisfied with the results of their SSC, as they don’t deliver the promised business benefits.
7 steps to optimize performance
The following 7 steps will help to optimize performance and make a success of your shared service center:
Introduce a closed shop principle and conduct regular benchmarks
Oblige business units to buy the services from the SSC (i.e. closed shop principle), to optimize capacity planning and guarantee sufficient economies of scale. However, regular benchmark research is required to ensure that internal prices remain competitive with market prices.
Define the SSC as a profit center
Define the SSC as a profit center and divide indirect costs over products and services. This allows the SSC to charge full costs (for example by using activity based costing). Also, allow the SSC to add a mark-up on its prices. In this way management (and employees) can be held responsible for the SSC result and be rewarded accordingly.
Steer the SSC using a KPI dashboard
Measure the performance of the SSC using the right set of Key Performance Indicators (KPIs). For example by using the Balanced Scorecard approach. Defining the right KPIs for a SSC is not an easy task. The KPIs need to focus on measuring output and should fit the organization’s strategy and business plans.
Products, service levels and prices need to be agreed between the SSC and Business Units
Although the board of directors is normally responsible for the SSC mandate, they should only have a guiding role in defining products, service levels and prices. Both the SSC and business unit representatives (i.e. the customers) should agree on the products and services required, as well as prices and quality aspects (for example time-to-deliver).
Incorporate process descriptions as part of the SLAs
Product or service definitions as well as prices are standard components of the Service Level Agreement (SLA). However, SLAs should not only focus on input and output, but should also include (high-level) process descriptions. Including process descriptions will increase transparency and understanding from customers on product prices and quality expects, like time-to-deliver.
Define required actions if targets are not met
Consequences and required follow-up actions, in case the SSC cannot meet the requirements, are to be defined and included as part of the SLA. This will help to increase transparency and avoid conflicts, in case delivery is not satisfactory.
Provide SSC services to third parties
In some situations and in case there are no issues with data confidentiality, performance can be enhanced by providing SSC services to third party organizations. By focusing on its key competences the SSC can increase economies of scale, turnover and profit.
Introducing the different steps above is not an activity an organization can perform overnight and not all steps require equal focus for every SSC. Based on our experience the need to enhance SSC performance definitely exists. However in most cases there is limited attention and/or limited know-how on how realize the required change. Therefore, introducing the different steps defined above can be an outcome to optimize the performance of your SSC.