I tripped into the world of shared service centres (SSCs) by accident.
The revolution in telecommunications, media and technology (TMT) during the 1990s did not appear without cost. Valuations for TMT companies accelerated at warp speed from the early part of the decade right into a brick wall during the year 2000, but that’s really for another blog. The reason for the reference is really a contextual point for the sort of environment it fostered. Mergers and acquisitions (M&A) during the ‘90s took place at ever increasing valuations, and apparently at escalating costs. Companies started and continued to borrow for this activity, not at IG (Investment Grade) rates but HY (High Yield), or ‘junk’ rates. Interest rates on amounts borrowed for infrastructure investment and M&A exceeded double digits well before the end of the decade.
So what has this got to do with shared service centres?
Well the link may appear tenuous but it was far more direct than most would realise. M&A activity created opportunities for eliminating cost through removing duplication and those enormous interest payments had to be serviced. The industry needed some new ideas for saving operational costs, and quickly.
Centralisation as a concept had been around for many years before the appearance of shared service centres but the traditional approach was rather one-dimensional. In most instances it was simply a case of consolidating lots of people previously working on a dispersed basis into a single physical site. It was far less about efficiency and effectiveness than about visible control, and they were certainly not in the business of customer service. Likewise the concept of identifying critically important performance indicators had yet to evolve into an operating process standard.
With a clear need to save costs it was down to the ingenuity and creativity of the industry to develop practical ways of making it happen. Centralisation was agreed as the obvious place to start but the traditional model would not be enough. We were fortunate in that the tectonic shifts in the telecommunications industry were being matched by similar changes in information technology (IT). Developments in IT started to open doors to improving how transactions could be effected. Thus the concept of ‘Automation’ emerged as something very relevant to providing service vs. its usual application in the manufacture of goods. For my part I usually associate automation with ‘Standardisation’, the challenge of ensuring that tasks are undertaken on a consistent basis. Centralisation, automation and standardisation initially looked like the way forward and for a short time all the emphasis was placed in this direction.
But the really big change wasn’t technical or structural, it was cultural. Instead of just ‘doing stuff’ the concept of service, of ‘customer service’, was introduced. I worked in a sales environment at the time and the sales guys were measured daily on their performance. Our relationship was direct. The output of our sales operations had an immediate impact on the performance of the sales teams. The company expected Sales to deliver so why shouldn’t we be expected to deliver on a similar basis? Reports on our own performance as well as that of our ‘internal customers’ were developed, Key Performance Indicators (KPIs), not just on cost but on the services we provided. A standard operating environment (SOE) was developed with the sales line management which outlined how sales advisors would work, what reports they would receive, when, and generally what was expected of them. For the sales people to succeed we had also to deliver. A service level agreement (SLA) emerged. We agreed the types of reports that would be produced, at what time of day they would be produced by, and to whom they would be distributed. Commitments were made on how quickly the daily sales orders would be distributed and the time it would take to process orders through the ‘stages’ in the customer relationship management (CRM) system. End to end (E2E) process thinking became the norm with initial targets soon becoming performance standards.
Thus the shared service centre emerged. It wasn’t a tried and tested, well-trodden route to an optimised cost structure providing high quality services, but a pragmatic reaction to a requirement to reduce costs very quickly. It worked through the innovative efforts of our people in developing pioneering solutions, a commitment to teamwork, sound leadership and a recognition that fundamentally we all wanted to grow the business.
So what of the 21st Century shared service centre?
The concepts are basically the same as are the critical success factors. There is perhaps a slightly greater emphasis on the people aspect but the core elements developed in the 90s are pretty much the same. My own criteria for assessing a shared service centre involves taking a look at a number of aspects of its operation:
Cost effectiveness
Has it been structured in the most cost effective manner? This could take us into the realms of physical locations and virtually centralised operations as well as organisational structure.
Are processes optimised? Are they written down? Is there a process owner? Is there a continuous improvement culture? Shared service centres are established to process transactions and the processes used should be constantly reviewed for environmental changes and other improvement opportunities. Inferior processes equate to higher transaction unit costs and ultimately to competitive disadvantage.
Are processes optimised the extent where only increased automation can deliver additional benefit? Automation is a cost as well as a benefit so its contribution should be assessed in the context of its cost.
Effective planning, both for resources and tasks for the day, week, month and year is another essential ingredient in running a cost effective SSC. Poor planning will mean more cost. The SSC needs to have the right resources available at the right time to deliver to the committed SLAs. Costs are not just financial when things go wrong.
Customer service culture
Has the concept of delivering a service been embedded into the operation? Do the people within the service centre think in terms of delivering services to their internal customers, or is it just an administration job?
My firm belief is that you will never deliver excellence in a shared service centre unless the people operating it believe in service, and their part in contributing towards excellent external customer service. This means measuring your own performance, accurately and with integrity, and managing to the internal SLAs you have committed to.
It should also be remembered that it is a ‘shared’ service centre. There should not be preferential treatment to some functions at the expense of others. Agreements may be made within the context of a broader SLA from time to time, but they should be transparent and fair.
Most SSCs use individual financial incentives as a method of supporting the service goals of the organisation. These certainly underpin the importance of providing service but they ought to be carefully designed so that the cost aspects are not undermined and that there are no other ‘hidden’ costs relating to staff.
Customer service feedback is also important. KPIs may provide one communication route but opportunities to use response surveys and user groups should also be sought.
People
A third theme is around the people operating the shared service centre. Today’s centres can be substantial in size and the work repetitive. Consideration needs to be made of the training and career development needs of staff and work ought to be rotated. Teamwork is essential, not just within the SSC but with the functions and people supported. Teamwork will help foster ownership which itself helps promote customer service.
As with other functions the roles and responsibilities of people working within the SSC should be constantly evaluated and adjusted if necessary. The demands on an SSC will evolve over time and with those demands so will the processes and the roles played by individual line managers and staff.
Shared service centres evolved through internally centralising transactional environments. They have now moved externally and in some cases offshore. The emergence of external solutions has introduced a whole host of other sourcing related issues encompassing pricing, contracts, cultures, languages and time zones. The challenges of control, intellectual property and core strategy and also not too far away. Shared service centres are now not just about how they are run but who should run them, where and for what cost.
Looking beyond the present there is a significant chance that the functional tasks of the SSC will become further automated. There are already signs that Robotic Process Automation (RPA) will make significant steps over the next decade into replacing people processing tasks with automated hand-offs. It is not beyond possibility that the SSC of 2030 will look more like a server in an air conditioned IT room than an office in India processing transactions for a European bank. As past experience has often informed: if it can be automated then it most likely will be automated.
It has taken fifteen to twenty years for the modern SSC to evolve to where it is today. The next ten to fifteen could well introduce changes that are even more dramatic and possibly even lead to its elimination as a management concept.