The shared service model has been a success story in the private sector and increasingly in many parts of the public sector. In the face of continuing austerity, it is tempting for hard pressed VCs to grab something out of the management toolkit that now seems to be proven to make worthwhile savings.
However, the increasing ubiquity of the shared service model belies a number of more nuanced issues that need careful thought if implementation is to work in HE; not least because league table driven competition is not conducive to mutual sharing and collaboration within the sector.
Ahead of University Transformation 2015, Ian Herbert and Andrew Rothwell of Loughborough University’s CIMA-Loughborough SSC Project explain how the shared service phenomenon is more than just about headline cost savings.
The following lessons have been gleaned from 10 years of research into Shared Service Centres in the UK and across the world.
1. Think beyond immediate cost savings
Whilst no Financial Director can be expected to sign-off on a business case in which the cash benefits do not exceed the outlay, many of the real advantages of shared services are qualitative and, indeed, often serendipitous.
It is always difficult to quantify ‘back office’ savings because the activities that are being aggregated together have previously been embedded in disparate operational units/departments, where the cost base is often opaque and subject to political posturing. We used to do it cheaper and better! (Herbert and Seal, 2012).
In our research, we have had a variety of answers to the question ‘how much has the SSC saved?’ Whilst, there have been some grand claims we suspect that the most honest answers are something like:
“We can’t be sure but after two years we now have around half the previous headcount, and yet people are doing more than they did before.”
Another response is, “Although there was a significant implementation cost, some of the spending in upgrading systems and in redundancies might arguably have occurred anyway.”
Universities can learn a lot from what has been happening in the private sector. Outsourcing led the way in Information Technology in the 1990s but, whilst there is always the potential for cost
reduction in all aspects of support services, the real benefits of a comprehensive approach to sharing business support services tends to be around the potential for organisation-wide standardisation. In other words, designing end-to-end processes which go right across the organisation: processes that are underpinned by information systems and which create a ‘single version of the truth’. This enables greater visibility and therefore the opportunity for better control and coordination from the centre, whilst simultaneously promoting empowerment. This is because actions and results can be seen and compared with more confidence.
The Shared Service model is often sold on the basis of cost reduction, but many organisations in the UK are finding that this is not always the main issue. In higher education the ‘big picture’ is about students and how to best support them in a research-led environment. For example, if you think about the costs of running a university, typically 70% of the total cost is pay/on-costs, 80% of which goes on frontline teaching and research staff. The new territory will likely be about how the philosophy of the shared services model might be applied to teaching and research activities?
2. Think big, but don’t try and do the ‘big plan’
This is counter intuitive in an era of systematic corporate planning regimes. However, many successful SSCs start in small, sometimes even happenchance ways. The typical approach in the private sector is to target the low-hanging fruit such as payroll (a critical activity but essentially a programmable one). Only after migration, stabilisation and re-engineering have been completed are then further activities added. The overriding priority in getting to ‘Base 1’ is to establish a mutual understanding and good working relationship with ‘client’ departments, this will be essential when the trickier activities are tackled.
In our research we have found that the public sector still favours the ‘big-bang’ approach, sometimes with disastrous consequences (see the UK’s National Audit Office report on the combined SSC and ERP implementation at the UK Research Councils, 2012).
First and foremost, shared services are a business transformation issue. It is about finding a better way of doing business. Whereas people often think, ‘let’s change the business by opening the toolbox and pulling out shared services.’ In our view, this does not work and is an anathema to how we have seen successful shared services being undertaken.
Rather it has to work the other way around. It has got to be a programme of business process transformation that sets out a vision of what an operating model will look like in, say, ten years’ time.
Shared services and selective outsourcing can play a leading role in business transformation, but neither should the ’tail wag the dog’.
3. Don’t assume a new computer will solve all the other problems
It is tempting to start shared services with a big investment that will in itself enforce harmonisation of working practices across campus. After all, ‘technology is the future’ and a new ERP system comes with all sorts of ‘persuasive’ benefits.
However, there are some notorious examples where organisational change has failed because the technological platform has not lived up to expectations or there have not been the appropriate working relationships and procedures established on the ground to make things happen in a sustainable way. Top management sponsorship is vital although it can be much harder to ‘sell’ soft organisational change and keep them interested when there is no big capital project to flag up risks at board meetings.
4. Contracts are bad, partnerships are good
At the sign-off stage, senior management naturally want to see a nice ‘watertight’ contract that absolves them from accusations of sloppy governance that has a legal redress against a third-party and hence, such thinking misses the philosophy of shared services. There may be no third-party to sue: it is always difficult to mount a legal case about the poor performance of outsourcing in many aspects of STE support services. Good governance is about continual mutual adjustment between the SSC and its customers in the operating units. At all levels of management, the talk needs to be about ‘partnerships’ and not ‘contracts’. One of the most insightful quotes in our study came from a divisional manager in an engineering consultancy;
“We spend a lot of time up-front negotiating service level agreements. This helps to guide a discussion about what we need, what the SSC can reasonably deliver, how much it will cost and also what we have to do on our side. But, when the new financial year starts, the SLA’s go into my drawer. If we have to take them out and refer to the letter of the agreement then it means the service has already failed and we cannot allow that to happen. If we have got things wrong we have to quickly adapt, not start threatening to ‘sue’ each other internally.
That’s the big difference of the SSC model compared with outsourcing, retaining the flexibility to do what is appropriate for the culture and the business context. One large multi-national company with 5,000 plus SSC workers has abandoned SLAs, seeing them as ‘anti-trust’ systems.
Business transformation is about keeping an open mind and being able to understand why we are in the business of education? But, it is also about acceptance that some parts of our work are not directly about education, hence generic business support processes can be a significant element.
5. Shared Service Centres are for life, not just for Christmas
Many of the ‘big prizes’ in adopting the SSC model can only be realised over time. For example, the standardisation of processes and protocols across a range of operating units is likely to also save money in the front-line units, but the payback will be largely hidden. In a study of an SSC implementation in the Swedish justice system, Janssen and Joha (2006) found that many of the planned benefits did not actually arise but other, largely unforeseen, benefits did emerge.
In a university context, it is likely that shared services are not going to deliver a lot in terms of headline cost reduction in the short term. They will not move the performance needle of the whole university. But, what perhaps they can do is to create a culture of sharing and collaboration within and between institutions. In addition, standardisation of working practices, systems, processes and protocols, will enable greater comparability between departments, and indeed, with other universities. This sort of transformation will ultimately result in a long-term improvement in the way the whole HE sector operates and is governed.
Ian Herbert and Dr Andrew Rothwell are based at The School of Business and Economics, Loughborough University. Their longitudinal research on shared services has been supported by the Charitable and General Trust of the Chartered Institute of Management Accountants and Universities UK.
Ian Herbert will be further exploring the role of shared services in the universities of the future at University Transformation 2015.
For more information visit www.universitytransformation.com.au or call +61 2 9229 1000 or email firstname.lastname@example.org
Herbert I.P. and Seal W.B. (2012) Shared services as a new organisational form: Some implications for management accounting, The British Accounting Review 44 (2), p. 85.
Janssen, M. and Joha, A. (2006) Motives for establishing shared service centres in public administrations, International Journal of Information Management, 26, 102-115.
National Audit Office (2012) Efficiency and reform in government corporate functions through shared service centres, Report by the comptroller and the Auditor General, HC 1780, Session 2010-2012, London, National Audit Office, p.10, http://www.nao.org.uk/report/efficiency-and-reform-in-government-corporate-functions-through-shared-service-centres/