How to Save Your Shared Services Model from Becoming a Money Pit

Albert Eng
Bill Krivoshik

As we emerge from the recession, new challenges face shared services groups. Fixed annual operating expenses may now appear high because of reduced corporate performance across revenue producing business units. As we all know, shared services aim to achieve efficiency, re-use and cost reduction through economies of scale when service capacity is properly sized for business needs. We have found that IT organizations don't track financial and operating performance routinely enough with the kind of granularity that can quantitatively measure each common service against these ideals.

Given the drastic changes that have occurred in many corporate operating models during the recession, certain common services may not be as highly value added as before.

Depending on whether or not your company expects to exploit the current displacement the economy has caused with companies in distress, here are some considerations that you may want to implement to keep your shared services from becoming fixed expense money pits:

1. Proactively recalibrate your shared services capacity forecasts with the activities of corporate Business Process Management and Lean initiatives. It's important to ensure you are anticipating long term financial and business objectives by leveraging third party findings in addition to the business unit forecasts. Factual data from third parties always helps to manage the dynamics of businesses wanting to keep services housed in a siloed manner.

2. Take the opportunity to revisit shared service candidates for finance and accounting, call center support, infrastructure, data management and testing. Use your company's strategic repositioning goals to your advantage.

3. Trends indicate that M&A activity will be a more frequent corporate strategy in 2010. If this your corporate strategy, then it is important to consider having due diligence and integration skills ready at hand. This skill type can be merged within your Project Management Office. A very important consideration will be to review the chargeback scheme being used and ensure that the methodology for allocating expense meets the needs of your company's inorganic growth objectives. Allocating expense vs. writing off technology no longer used is best decided before the acquisition to ensure that the valuation of the acquisition prices in non-leveraged assets. Going through an M&A integration process is also a good time to clean up shop. Initiate decommissioning studies to remove non-standard technologies and homegrown solutions at key points of the application architecture. Leverage M&A activity to enhance your data management strategy; perhaps formalize a data conversion and test management factory to migrate important customer, employee and product data. Adding configuration management to your centralized testing facility is an opportunity.

4. Initiate a cloud computing studies to adopt new variable cost technologies that are emerging from cloud service providers for non-core mission critical systems. Use this capability to support or TSA's (Transition Services Arrangements) for carve-outs.

5. Whether you are on-boarding a new company, or, shutting down a part of your business, a properly structured shared services function with the right ratio of variable cost services, transparent chargeback mechanisms and vendor relationships will facilitate the integration or decoupling process instead of being a money sieve with unexplainable allocations.

6. Lastly, the quick or easy answer might be to outsource. But this may also be the naive answer. An outsourcer can leverage a better cost model because of economies of scale, and in many cases be significantly more cost effective than doing it in house. But a shared service unit that has its own scale can also provide significant cost advantages. An internal shared service can be more responsive and lower risk than an outsourced arrangement. We all know this but regardless of your deployment style it still boils down to cost, quality, responsiveness and, a rigorous, understandable business case with the appropriate stakeholder buy-ins.

About the Authors:

Albert R. Eng is Head – M&A Transaction Services, BFSI for Wipro Technologies. A seasoned senior IT executive and change agent with 27 years of experience, Eng currently leads Wipro's M&A Transaction Services group for its Financial Services division. His team provides merger, acquisition and divestiture advisory for IT and Business operations with the net result of maximizing EBITDA potential.

Bill Krivoshik is Chief Information Officer for Marsh & McLennan Companies. In this newly created role, Bill is the highest ranking IT executive within MMC and reports directly to MMC President and CEO, Brian Duperreault. His responsibilities include developing, articulating, and implementing a firm-wide technology strategy. This includes working with the operating company CEOs and CIOs to set technology standards, improve collaboration, and improve efficiencies and productivity.