The Pros and Cons of Shared Service Centres

Marlon Mai February 16, 2016 5 mins read

A great client of Morgan McKinley’s who participated in the foundation of Siemen's HR Shared Services Centre and subsequently worked as its director offers us an insight into the pros and cons of Shared Service Centres.

She currently works for one of the world's leading suppliers of HR and business process outsourcing (BPO) solutions, and are responsible for providing clients with plans for founding HR Shared Service Centres.

What is an HR Shared Services Centre?

In order to reinforce their internal management and increase their organizational and operational efficiency, a succession of companies have adopted a "one corporation" strategy. For instance, Unilever proposed a "One Unilever" strategy, and Phillips proposed a "One Philips" strategy. This is a new type of management model for independently run businesses that allows them to integrate their professional resources, reduce their running costs and increase their efficiency, while at the same time effectively avoiding compliance issues. Shared service centres primarily integrate resources such as human resources, information management technology and legal resources. These centres can regularly provide reports, as well as meticulously analyzing and monitoring the productivity of various departments in order to discover abnormalities as soon as they occur. However, data security is an important topic, in that different nations have different standards regarding data security, meaning that shared service centres cannot completely standardize the process whereby data is shared. Therefore, we can only really talk about "maximizing" the sharing of data.

Ford was the first company to make used of the "shared services centre" management model. In the 1980s, Ford founded a financial shared services centre in Europe. Today, the majority of the 500 most powerful companies in the world have their own shared services centres, with Asian companies establishing centres relatively late in comparison to other regions.

Do shared services help to save costs and workers?

Related statistics show that shared services can reduce HR costs by approximately 25-40%. This reduction in costs is not only a result of an increase in the HR team's productivity, but also in the team's capacity to save managers and employees from having to do practical tasks. For example, when we calculated the rate of return of investment for a transnational retail company that had decided to transform its HR department by establishing a shared services centre, we discovered that shop managers spent about 10% of their time on practical tasks such as paying salaries, keeping attendance records and organizing employee check-ins and check-outs. This company has thousands of store managers over the globe. We calculated that they had saved a considerable amount of time since establishing a shared services centre.

However, it doesn't always work out this way. Establishing a shared services centre implies the investment of a considerable amount of funds. It's often the CEO or the board of directors who make this decision, but the expenses involved in the subsequent maintenance of the centre are often paid by local subsidiaries. Additional factors that have an impact on the development and influence of a shared services centre include: whether or not business departments decide to purchase the services, whether or not the standards for the payment of shared services are sufficiently detailed and reasonable; as well as the degree to which departments are satisfied with the services.

Are there examples of shared services centres that haven't worked out?

Before establishing a shared services centre, it is crucial to conduct an investigation into both external and internal factors. Some clients neglect to do prior research, and simply establish the centre without tending to its subsequent maintenance. These clients believe that such an advanced system is merely used for paying salaries and keeping records, with the end result that the system is eventually forgotten.

Companies not only need to choose a business that will provide services related to the construction of the service centre; they also need to hire a professional team in order to analyze customer demands and design a logical shared services plan. The latter is largely involved with sales and provides a series of optional services from which the client may choose; they're not likely to provide the customer with in-depth services such as meticulous analyses of actual demands. Companies need to hire a professional team who will analyze their characteristics and needs. Even professional service providers such as ADP will sometimes hire AON to analyze their customer base's needs before compiling a plan.

How will shared service centres change in the future?

As far as trends in the development of shared service centres are concerned, an increasing number of shared service centres are leaning towards concentrated and regionalized development. Currently, the "shared service centres" of a majority of companies are further divided into regions, for instance, McDonald's has established three different HR shared service centres, which are respectively situated in the United States, Europe and Asia. Following the globalization of the economy, shared service centers will provide homogenized services throughout larger regions. We may even bear witness to shared service centers that provide services on a global scale.
On the other hand, regionalization has become an opposing trend where the development of shared service centres belonging to transnational companies is concerned. Some transnational companies choose to establish shared service centres in regions where labour costs are low, and then provide services to all nations within that entire region. Today, more and more transnational companies are choosing to establish shared services centres in India or China, as a means of supporting daily operations throughout all of Asia.

Marlon Mai's picture
Managing Director | Finance & Accounting, IT, Sales & Marketing Recruitment
mmai@morganmckinley.com