value insights

Shared services model implementation strategies- Valutrics

When  companies  need  to focus on  growth  through  decreasing
their time to market or increasing product or service quality, the ability
to move back-end functions offsite and under separate management
frees up physical space, management, and other resources.
The new resources can result in a competitive advantage for the company.

The experiences of management, human resources, and the
employees of the shared services unit illustrate several key issues for
shared services:
•A successful shared services implementation demands a special breed of
employee. Employees who are content with maintaining the status
quo or afraid of change won’t survive in the shared business
unit.More important,risk-averse employees without an entrepreneurial-
spirit won’t contribute to the success of the unit.
•Managing human resources is key. The parallel functioning of
existing payroll systems and the new unit was possible only
because of the way the transition was handled. Both down-
sized and transferred employees were fully informed about the
transition process, including the timeline. Furthermore, the
morale and productivity of employees destined to be down-
sized was maintained by outplacement services and a generous
severance package. Employees were given between three and
nine months notice—more than enough time for them to
secure other employment.
•A shared services implementation doesn’t occur in a vacuum. There
are inter dependencies that must be addressed in transitioning
to a new system. For example, existing lines of communications-
must be evaluated and modified if necessary so that the
processes handled by the shared business unit can be sup-
ported. In this example, the former ties with Information
Services in each institution had to be modified to support the
shared payroll services until the system-wide information net-
work could be developed.
•Training transitioned employees is key to success. Simply throwing
employees into a new management structure and work environment-
without additional training is a recipe for disaster. In
this example, employees of the unit had to be given training
on back-end processes associated with the unit—processes
such as billing and accounts payable that had been invisible to
employees in the past because they were handled by another
back-end service at their institution.

•The quality and experience of the transition team largely define the
odds of success. The transition manager,consultant,and human
resources specialist were obviously experienced in handling a
transition process to a shared business unit with minimal disruption-
to existing services.When performed properly,the employees-
in the parent organization are unaware of the change.
•The culture established for the shared business unit is a good predictor
of success. An environment in which innovation is rewarded, an
entrepreneurial spirit is fostered, and where everyone knows
what’s expected of them promotes success, regardless of the
•Specific skills are required of the transitional manager. Given that
creating a shared business unit is like creating a startup operation,-
a transitional manager with an entrepreneurial bent, flexibility-
in approach, and with a good presence or charisma is
key to success.
•A factor that distinguishes the shared services model from internal
services is the separation of delivering service and management.
Employees of the payroll unit no longer had to contend with
enforcing corporate policies, such as minimum payroll deduction-
amounts, but were free to focus on serving the customer
as efficiently and effectively as possible.
•Information technology provides much of the leverage for downsizing.
Part of the reason that so few employees are required in the
payroll system is that most processes are controlled or enabled by computer technology.


The creation of the shared services   illustrates the typical process  of forming a shared business unit. The five phases of business unit are: Identification, Mobilization, Consolidation, Extraction, and Encapsulation

Phase I: Identification
In this,the first phase of implementation,the parent company identifies
the back-end processes to be moved to the shared business unit.  Identifying back-end services to move
should take into account the timing of other events in the organization,
such as a reorganization following a merger. It should also take into
account the functions that will provide the most visible and likely “win”
for a shared business model, and supply traction for following shared

services implementations.The risks associated with moving a particular
service to a shared services model must also be considered.
Of course,for the manager charged with running the business unit,
there may be no choice in the matter. However, if the manager identified –
as the shared services expert can select from several projects to
champion,the risks of failure should be weighed against any prospect of
gain. For example, if the move to a shared services payroll system fails,
it’s likely that most employees in the organization will be aware of the
failure, and the manager may lose his job. However, if the accounts
payable process is disabled for a month or two, at worst a few vendors
may be upset over late payments.

Phase II: Mobilization
In the mobilization phase, the processes are moved out of the disparate
centers of activity within the parent corporation.The mobilization phase
is selective in that some resources are earmarked for the new shared busi-
ness unit, while the parent corporation will absorb or discard others.        HR director may be faced with the
challenge of identifying potential future employees of the shared business
unit. Those employees who did not represent the future core compe-
tency of the shared payroll system were slated for downsizing.

Phase III: Consolidation
In the consolidation phase,the resources identified as part of the shared
business unit are combined with an eye to further streamlining opera-
tions and identifying unnecessary employees, management, and process
support. The distinction between mobilization and consolidation is
often a soft one,   when the move
to a shared business unit isn’t sudden and all encompassing, but rather
occurs over several months and is instituted on a department-by-depart-
ment or institution-by-institution basis.

Phase IV: Extraction
In the Extraction phase, the resources and processes that will form the
core competency of the shared business unit are put in place and extra-
neous resources, that is, redundant employees, are downsized.
Downsizing is limited in scope and typically involves a reduction in
force.Employees and managers who don’t fit the new culture are let go
or transferred.

Phase V: Encapsulation
In this phase, the resources supporting the core competency of the
shared business unit are encapsulated in back-end functions. For exam-
ple, the employees of the business unit are given standard back-office
functions, such as human resource, payroll, stocking, accounting, and
purchasing support—business processes that were formerly provided by
the individual institutions in the network. During encapsulation, the
management structure crystallizes into a tight, organized unit
Throughout this process,there are multiple instances of downsizing
as it becomes clear which resources are needed to provide the core
competency of the shared business unit. This places considerable
responsibility on the HR director, who must attend to bolstering the
morale of those employees who stay,while culling unnecessary resources
from the employee pool.

The interactions with external customers through the shared business
unit are virtually identical to those that existed through the parent
corporation.The main difference is in the management of the customer
relationship.The interactions between external customers and the shared
business unit have to be beneficial to the parent corporation, regardless
of whether they are advantageous to the shared business unit. For example,
the shared business unit may be forced to provide a service outside
of its core competency,simply to appease the parent corporation.
However,when internal customers interact with the shared business
unit, the focus is mutually beneficial exchanges between the customers
and the business unit,with little or no regard to the parent corporation.
This shift in focus is central to the maturation of the shared business unit
to a semi autonomous entity capable of eventually taking on external
customers in the open market.

In a tightly held, newly created shared business unit, management
may have no choice but to provide the services dictated by the parent
corporation, even if the relationship results in a poor use of internal
resources. For example, customers may demand personal, custom service, –
when the shared business unit is understaffed to provide anything
but a standard service package. In addition, from the perspective of the
shared business unit, there is a cost of an ongoing relationship with
internal customers,regardless of whether the relationship is profitable or
not.For example,there is the cost of doing business,which may include
ancillary services such as internal customer support.

Shifting employees to customer support, in addition to distracting
management and employees of the payroll unit from payroll functions,
also incurs a lost opportunity cost associated with supporting ancillary functions. The cost of doing business also involves the ongoing task of
gathering and sorting data on internal customers to determine what can
and should be offered to groups of internal customers in exchange for
repeat business. However, despite these costs, the shared business unit
may be compelled to serve employees of the parent corporation, espe-
cially early on in the life of the shared business unit.
Treating all internal customers as valued customers has the advan-
tage of simplicity. Unlike businesses that must compete on the open
market,there is no need to create customer profiles and track customer
activity over time to discover which customers are profitable and which
ones are not, or which types of service provide the greatest profit mar-
gins. The disadvantage is that the shared business unit may be dissipat-
ing its resources on activities that don’t add to long-term viability as an
autonomous business.
With maturity and looser control by the parent corporation, man-
agement of the shared business unit may be able to engage in CRM
activities that improve its profitable activities. Achieving a profitable or
at least mutually beneficial relationship with the parent corporation
involves gaining a better understanding of the internal customer.

 Internal Customer View  
Acquiring a better understanding of the internal customer for better
managing the customer relationship requires an investment in data collec-
tion and management.Data from all customer interactions are collected,
verified,and then analyzed to obtain a better view of the customer.The
first and most important thing to know about customers is whether they
are a current or potential source of revenue (in excess of expenses), or
whether the customer is a loss for the shared business unit.
If a customer is expected to remain unprofitable for the duration of
the relationship,then the business unit lacks motivation to continue the
relationship past its contractual obligations, and has no need to gather more customer information. For example, management of the shared
payroll unit may determine that processing payroll for the smaller clin-
ics in the HealthCare Partners network is unprofitable, in part because
of the cost of customer support.As a result, in the long-term, manage-
ment of the shared payroll unit has to focus on the profitable hospital
employees if the unit is to become an autonomous business that can
compete in the open market.
Information that should be gathered   includes:
•Needs. Corporate employees look to the shared business unit
to satisfy their needs. In the context of the shared business
unit, needs are defined as the services addressed by the core
competencies of the unit, such as payroll or billing services.
Customer needs should be readily quantifiable, because the
parent corporation largely defines them. For example, the
number of employees in the parent corporation defines the
number of checks that must be processed every two weeks for
•Wants. In contrast to absolute needs, wants are services that are
desired though not essential. Customers of the payroll unit may want personal, immediate customer service regarding
their payroll account. It’s important for the shared business
unit to be able to accurately predict customer wants so that it
can decide which ones to address and which ones to ignore.
Customer desires represent opportunities for added services
that can be provided at an extra margin later in the evolution
of the business unit.
•Purchase Cycle. One of the criteria in evaluating the value cus-
tomers present for future business is the customer purchase
cycle, the time between a customer’s repeat purchase of serv-
ices.The frequency and likelihood of additional purchases as
well as the nature of those purchases depend on both the cus-
tomer and the product. For some services, such as payroll, the
purchase cycle is fixed. However, other services, such as train-
ing, can be cyclical and topic-dependent.  The demand for this training or orientation is a function of employee turnover, which is influenced
by the external economy, the time of year, and other,
unknown factors.
•Interaction Opportunities. Every customer interaction represents
an opportunity to gather customer information and increase
the odds of future business. However, there is also a cost for
each customer interaction, especially if it’s through customer
service or some other high-cost interaction. In evaluating the
value of a particular customer or class of customers, manage-
ment of the shared business should be able to quantify the
costs and benefits of all customer interactions.
•Lifecycle. The customer lifecycle includes the typical career events of classes of customers. By accurately predicting the
lifecycle of its customers, management can proactively offer
appropriate products and services to its customers to extend its
relationship with them. For example, customers of computer
training services can be expected to progress through different
needs as their careers advance. Employees may require basic
computer skills training when they first join the parent corpo-
ration, progressing to more sophisticated software applications,
including spreadsheets, databases, and statistical analysis or
graphics applications as they grow within the organization and
take on different roles.

•Profile. In order for management to allocate its resources most
effectively, it’s in the shared service unit’s best interest to know
as much relevant information about the customer as possible.
A shared business unit that offers specific training in, say, the
use of computers for word processing, can expect a much
greater demand from secretaries than professional staff, who
may be more interested in, for example, training in statistical
analysis and graphing tools.

Typical back-end processes that don’t directly add to the competitive-
ness of the parent corporation, such as human resources and payroll,
become the core competency of the shared business unit.In general,the
value of these back-end processes is defined in terms of cost, assuming
that delivery is timely and within some reasonable range of service.
Otherwise, one billing service is difficult to differentiate from another,
and lack of differentiation means ease of substitution.
However, a parent corporation may also rely on a shared services
model to handle strategic services that are specialized and more difficult
to replace with the generic services of a third party.The strategic serv-
ices that can be supplied by shared business units generally fall into one
of five categories:
1. Market Intelligence. Provide trend and market analysis, survey
results, and information on what the competition is up to.
2. Marketing. Create advertising campaigns,slogans,corporate logos,
messages, and manage promotions.
3. Sales Support. Create catalogs, performing customer needs analysis,-
and ordering.
4. Customer Support. Provide CRM expertise and support.
5. Technology. Provide networking, database, and software support,
and information-based processes that can streamline internal and
external operations.
Shared business units charged with supplying these and other strategic-
services have the greatest likelihood of progressing to an autonomous,
profit-driven company that can compete in the open market.