Choosing a site for a shared service center - Part II
/In part one of this series, I discussed the benefits of locating a Shared Service Center at an existing location or facility. While the majority of companies decide to leverage an existing location, it sometimes makes sound business sense to choose a completely new location. Here are some of the reasons:
- Establishing a new identity for your new Shared Service Organization. At times none of the existing Finance operations are performing significantly better than the others, and none of them are performing at the level of leading companies. Or maybe there is a fragmented Finance organization due to multiple acquisitions and each one is loyal to their old business units. Whatever the case, merging the various support groups into a single group and creating a new identity can be beneficial. Of course, you could do this and still stay at an existing location. The problem is that there may still be a lingering perception that it really the old Finance group under a new name. A new and separate location can go a long way towards dispelling that image.
- Building in a new region to support organizational expansion. Since the mission of the Finance organization should be to support Operations, it may make sense to go to a new location to support the organization in that area or region. A couple of years back I had a client that had acquired various businesses in Europe. Of course, each business came with it's own Finance organization. They elected to build a Shared Service center in a greenfield location, in this case Budapest, Hungary. While they didn't have a presence there prior to the establishment of the SSC, a number of variables made it an ideal location.
- Labor arbitrage. Let's face it. One of the, but certainly not the only goal of Shared Services is to create a more competitive cost structure. This could be the compelling reason for not establishing a Center at an existing location. This could apply to a U.S. company that simply wants to consolidate operations into a single support business and needs to find a lower cost onshore alternative. This is particularly true of companies located in high cost areas such as the San Francisco Bay Area and the New York and Boston areas. It could also mean establishing an offshore presence to create a global delivery center.
- Tax incentives. It's no secret that various country, provincial, state and local governments are eager to recruit clean employment like a Shared Services Center. This can be a powerful incentive when choosing to move to a new location.
- Infrastructure incentives by local/regional government. Similar to tax incentives, many governments will help with infrastructure buildout as part of the overall package.
- Requirement for new skills not available in existing locations. If an SSC needs a specific skill set not easily available in the local market, it may make sense to move to a new market. More likely, this is tied in with the labor component. You could almost surely find the skills you need for the right price, but it may be more expensive than is necessary to pay.
- Requirement for new language capabilities. Similar to the skills argument, language skills may be a reason to move to a new location. I have one client that has an SSC just outside of London and they can handle service requests in 11 different languages. On the other hand, I had a client setting up a regional SSC in Asia that picked Shanghai, China in part because of the language skills they could find there.
It is certainly less risky to establish a Shared Service Center in an existing location. When doing so, the company is already familiar with the local laws, customs and languages. However, there are very real benefits to moving to a completely new greenfield site. This option should not be discounted simply because it carries higher risk. If done properly, a new location can reap economic and intangible benefits for years to come.
