Customer or Partner? The Role of the Business Units in Shared Services

I've posted a new article today dealing with the relationship between Shared Services and the business units they serve.  Here's an excerpt:

In developing the framework for shared services in an organization, there are different approaches to how the business units should be viewed. Some organizations view the business units as customers while other companies view the business units more as partners in a journey.  How the Shared Service Organization views the business units will impact their relationship with the business units and the way they chose to deliver services.

Continue reading Customer or Partner? The Role of the Business Units in Shared Services.

After the Go-Live: Ten focus areas for effective Shared Service delivery - Part 7 - Evaluate Additional Processes to Shift to the Shared Service Organization

Once the Shared Service Organization is up and running, the governance committees responsible for oversight should regularly be engaged in identifying additional processes and activities that could be moved into the Shared Service Organization.  There are several different angles a company could take as they work to leverage the existing shared service infrastructure to drive additional value.

1. Expand the number of Finance activities.  Typically a company moving to Shared Services will take a relatively low risk (read: far away from the Customer) process and migrate it to a SSO.  Many times companies start with Accounts Payable or expense reimbursement.  Not that these aren't important activities, but they tend to be lower risk than other choices a company has.  As a company becomes more comfortable with "outsourcing" these activities from the Business Units to the SSO, they start to look at other processes such as general ledger accounting, management reporting, customer invoicing and cash applications.  Still others further along the curve are looking at budgeting, variance reporting, product costing and profitability, and customer profitability.  There is no single "right" choice for every company.  It depends on a number of factors including the complexity of the product or service, diversity in the lines of business, geographic dispersion and corporate culture.  The point is that leading companies are always looking for additional processes to migrate.  And they start with the assumption that the process could be migrated and then look at why it might not be wise to do so.  The burden of proof is on those who believe it should stay locally in the Business Unit.
2. Bring additional Business Units, Regions or Countries into the fold.  For a variety of reasons it may make sense to start with one business unit to stand up the SSO and then migrate additional business units.  Many companies take a regional perspective.  I worked on one client, a U.S.-based multi-national, who started with their North American operations, moved to Asia to consolidate a number of back-office processes in that region, and then moved to Europe to consolidate there.  The roll-out strategy will need to be developed as part of the overall approach, and will be heavily guided by the potential cost savings as documented in the business case.
3. Migrate non-Finance processes.  Even though this is a Finance blog, the reality is that many companies have moved beyond the single function SSO and are leveraging their existing infrastructure to drive additional value.  IT and HR are two common functions, but companies are moving beyond that to look at Procurement, Customer Service, Facilities Management, Logistics and more.  As a company moves further away from the traditional functions of Finance, IT and HR, they can expect more and more push back from the Business Units.  They'll tell you that they're unique and that those processes can't possibly be moved to an SSO.  The reality, however, is that there are companies today doing just that.

The Steering Committee that has overall governance oversight is ultimately responsible for driving additional value.  However, they'll depend on the Process Councils as well as other interested stakeholder groups to identify processes that are logical candidates for the move to Shared Services.

After the Go-live: Ten focus areas for effective Shared Service delivery - Part 1 - Engage in Consistent Governance

Note: This is the first post in a series focusing on the continuous improvement of Shared Services.

Creating and deploying a Shared Service Organization is a major initiative that requires substantial commitment from an organization.  Yet the deployment of a Shared Service Organization is only the beginning of the journey to create a high-performing service organization that partners with the Business Units and continuously creates value.  True value creation occurs over time.  As part of an on-going commitment, the following ten areas should receive management’s attention to drive value creation in the Shared Service Organization.

1.  Engage in Consistent Governance

As part of the planning process for the Shared Service Organization, a governance structure should be created to ensure appropriate oversight of the Organization.  If the Shared Service Organization has multiple service centers globally, the governance program will guide the entire Organization as well as the individual centers.

Governance committees should exist for the entire Shared Service Organization and for the processes within the organization.  The Steering Committee should be comprised of senior level executives with overall responsibility for the Shared Service Organization.  They resolve issues that haven’t been resolved at lower levels, provide continued funding of the organization,  and guide the expansion  of the Organization to incorporate additional functions that will drive valuation creation.

Process councils should be created to give oversight to each major process handled by the Shared Service Organization.  For example, the Procure-to-Pay process would receive oversight from executives in Procurement and Finance to ensure that global processes were as consistent and efficient as possible, to help resolve any conflicts that arose between organizational units, and to continue evaluating additional improvements that will drive efficiency while delivering value to the Business Units.

Five mistakes that damage the effectiveness of Shared Services and how to avoid them - Part 5

Note: This is Part 5 in a 5-part series.  You can click here to read Part 1, Part 2,  Part 3 and Part 4.

5.  A strong governance structure is not implemented.

The creation of a Shared Service Organization is much more than the consolidation of processes.  It involves creating a distinct organization that is committed to creating value in the company by providing support functions more effectively and efficiently than if they were embedded in the business units.  For this to be accomplished, the Shared Service Organization must be guided by a governance structure that provides the oversight and control that enables Shared Services to achieve its vision. 

The top governing body for Shared Services should include representatives from the major business units and IT as well as representatives from the major support functions such as Finance, HR and Procurement.  This body typically goes by the name of Steering Committee, and it is responsible for ensuring that the Shared Service Organization is fulfilling its mission.  They do this by giving oversight to the SSO, providing adequate funding, and resolving high-level issues that prevent the SSO from performing at its expected level.  The Steering Committee also has responsibility for providing an on-going vision to create value as additional processes are migrated to the SSO.

Another governance body that enables the SSO is the Process Council.  This council is comprised of subject matter experts (SMEs) for a given process, such as Procure-to-Pay.  In this example, experienced personnel from areas such as purchasing, inventory management and accounts payable would lend their expertise to ensure that this process worked as efficiently as possible.  Process councils meet regularly (typically once a quarter) to resolve any process-level issues and to evaluate additional opportunities to enhance the efficiency of the process.

Regardless of the committee or council, it is essential that the representatives of these governing bodies have the organizational and moral authority to get things done.  If these roles are delegated to low-level employees then the governance structure will not be effective.  A truly effective Shared Service Organization is guided by a coalition that has the authority, experience and dedication to drive the SSO to high performance.

Business unit accountability: Process Governance

I've previously discussed the need for the Business Units to partner with Shared Services in creating the Finance organization that delivers services effectively and with a competitive cost structure.  One way to do that is to participate in process governance.

Process governance is focused on creating and sustaining end-to-end processes that are highly efficient while meeting the needs of the Business Units.  It involves the active representation of the Business Units in Process Councils to ensure that their requirements are understood and met.

Process Councils accomplish the following:

1. Establish standard processes and handoffs between the Business Units and the Shared Service Organization.  One challenge in organization is the tendency to view activities in silos, such as Finance and Procurement.  Highly efficient processes transcend this silo mentality and are designed as fully integrated, end-to-end processes.  This involves crossing over artificial organizational boundaries to create highly efficient processes.  A Process Council with the appropriate representation can help break down these organizational barriers.
2. Identify and solve issues that arise at the process level.  Issues will inevitably arise in the execution of services to the Business Units.  The Process Council is a forum where Business Unit representations can bring their concerns and have them addressed.  For this to be effective, the Business Units need a mechanism in place to ensure that issues identified in the day-to-day operations are brought to the attention of the Process Council representative.
3. Stay apprised of emerging best practices within the process sphere.  The representatives to the Process Council should be informed and aware of changes in their industry and the emerging best practices for the processes under their stewardship.  These ideas should be discussed during meetings to identify the initiatives that should be given the green light.
4. Identify initiatives and set priorities.  The Process Council will have the opportunity to discuss a variety of initiatives that could be conducted to enhance the service delivery capabilities of the Shared Service Organization.  It will be up to the Process Council to identify these initiatives and to order these priorities to support the vision of the SSO.  Process Council representatives should have a good understanding of the major corporate initiatives and how their proposed initiatives would support and interact with these broader initiatives.  Process Council representatives should also be prepared to give input into any business case that would need to be developed as part of the initiative approval process.
5. Oversee the implementation of new activities.  The Finance organization and their partners in the business units should always be looking for new ways to optimize processes.  This could involve bringing new activities into a captive Shared Service Center or it could mean outsourcing part or all of that process.  The Process Council and its members have a responsibility to make this determination on an on-going basis and to oversee the execution of these initiatives to ensure they deliver the anticipated business value.

By participating in Process Councils, Business Units can be properly represented in the on-going effort to optimize the processes delivered to their organization.  This shouldn't be optional for the Business Units.  It is essential that appropriate representatives be assigned to the governance process to ensure representation and accountability of the Business Units.

Business unit accountability: Provide timely and accurate feedback on performance

As business units capture performance data on the company's Shared Service Organization (SSO), they'll be able to provide timely and accurate feedback on performance.  I previously covered the collection of performance data in this post.  What are the correct forums to provide feedback?

1. Informal feedback.  There should be a good working relationship between the SSO and the Business Units.  In the ordinary course of business there are opportunities to address specific issues and identify solutions.  And remember, timely and accurate feedback is not only about problems.  Try to catch people doing something right and let them know.  Positive feedback and encouragement can go a long way.
2. Process councils.  As part of the governance structure, there should be periodic meetings (typically quarterly) to discuss the effectiveness of a process (i.e. procure-to-pay).  A written report of the activity that quarter and the related performance metrics should be reviewed and discussed.  Any deficiencies in the delivery of that service relative to the Service Level Agreement should be covered.  An actionable plan to address the deficiencies should be developed and assigned to specific individuals.
3. Advisory council.  Consists of representatives of the Business Units, Shared Services, Finance and IT.  Used to discuss high-level issues that are not process specific.  As with the process councils, the Advisory should review a written report that covers the quarterly performance of the Shared Service Centers and identifies any issues that requires remediation.

Business unit accountability: Partcipate in the governance framework

An essential component of business unit accountability is the governance process created as part of the shared services operating model.  The governance arrangement enables the business units and the Shared Services Organizations to jointly decide on the scope of services to be offered by the SSO and the manner in which those services will be delivered.

By participating in the governance of the Shared Service Organization, the Business Units accomplish the following:

1. Ensures that the mission of the Shared Service Organization remains consistent with the company's overall strategy,
2. Establishes agreements between the Shared Service Organization and the Business Units regarding the operation of the Centers and the delivery of services,
3. Clearly establishes the roles and responsibilities of each party, so that misunderstandings between the parties are minimized,
4. Participates in discussions to improve existing services,
5. Participates in discussions on expanding delivery capabilities of the SSO,
6. Resolves any high-level issues that can't be resolved at a lower level.

By establishing a formal governance framework early in the process of developing a Shared Service Organization, transparency and trust can be developed.  This trust will be necessary if the Shared Service Organization is to effectively perform its mission to deliver high quality services to the Business Units.