Why not sharing services is a waste
When companies operate, they must ensure they they are able to pay their bills, collect income, and manage their staff. Often times, these are known as support services. Support services are not revenue generating, rather they are costs to running the business. Since this is expenditure, costs should be reduced as much as possible. Shared Services can help to reduce the cost per resource by spreading out the cost, but they offer much more than just basic services.
When is a Shared Services Centre needed?
Small companies tend to not benefit from separate sharing services. The volume of transactions is smaller, and a dedicated office manager or even the owner can manage human resources, accounts, and any financial reporting including tax. They are usually supported with simple software such a Quickbooks accounting or basic CRM systems. These software do not require much technical knowledge and are developed for these type of small transactions.
As companies grow, the complexity of their businesses and volume of transactions becomes much larger. The owner and office managers will not be able to keep up with the volumes, and a more structured back office support system will be required as their precious time will need to focus on supporting their customers and clients. What can be transitioned? Generally, the repetitive activities, such as accounts payable, accounts receivable, and some human resources processes are the first as they are part of operating the business not producing it.
Saving money by sharing
Shared Services allow different departments in one company or even multiple companies distribute the costs of running their businesses. Sharing services can take one team which specialises in an area have them repeat this task over again. Areas where sharing services can be beneficial:
Accounts Payable - Vendors need to get paid, but making that payment is not a specialist activity. Many countries have complex VAT, withholding, and other payment regulations which need to be supported by processes and strong controls. In addition to having to make the payments, accounts payable need to be evidenced, reconciled and reported to tax authorities.
Account receivable - Collecting from customers is important for every business. Ensuring that every customer has paid takes time and following up with customers will take valuable time away from conducting and gaining new business. Sharing this activity amongst reduces time spent. Accounts receivable also goes directly into the tax return preparation, and ensuring that the tax returns are supported with information can be shared as well. (This does not mean that a professional tax adviser or accountant is not required.)
Bank reconciliation - Comparing the bank account to the amounts in ledgers is a very important task and one which should be done on a regular basis; however, it does not need to be performed every day. Having full time resource to reconcile the account is not something that every company needs. (This is different than a full time treasurer who is responsible for ensuring cash is in the right placer, that's not a recurring task.)
Preparation of and consolidation of accounts - The record to report processes should be reviewed and approved by someone with experience in the accounting, and generally this person should be Certified Public Accountant or Chartered Accountant. The task of actually preparing these numbers, however is one that can be shared amongst many companies as these tasks often call for drawing from systems to prepare the accounts.
Human Resources - Human Resources Departments have a lot of information that they need to maintain: employee records, pension plans, emergency contact information, conflicts of interest declarations. The list continues. Shared Services can support the collection and monitoring of this information without required professional human resources staff to chase for individual pieces of paper.
By sharing these processes, businesses also share requirements to maintain systems, manual processes, and training. This will further reduce the costs to do so per business. Companies who keep these services completely in-house risk wasting money when they troubleshoot broken systems, pay for staff development, and over payment when that staff holding certain professional licences completes tasks which do not require the certifications they hold.
Is outsourcing required?
Sharing services and outsourcing services are related, but they are not necessarily the same. A medium sized company with different business streams can share services even without outsourcing.
Let's take an example:
A book publishing company has three business units: Biographies, Young Learners Fiction, and Historical Fiction. Each department has a sales team and publishers reviewing and approving the books.
Sharing the service with a dedicated back office (even of just one) is beneficial whether the activity is kept in house or outsourced. The publishing company could keep the back office services in-house maintain the systems in place. This could also be outsourced to a company who maintains a larger more advanced system and can perform the same task for less. Outsourcing would only be advantageous if the cost per reconciliation or payment is less from the outsourcing company than keeping it in-house.
How do I know if Shared Services is right?
The first step to reviewing a Shared Services model is to review the company's internal processes and systems. How does the company currently operate? Are departments forced to perform their own back office tasks, and is this taking away from their ability to generate more revenue?
Management should take feedback from their teams and understand how much non-business work they are doing. Projecting how having a department to share these services across the businesses will cost and how much more revenue is expected will be a big factor.
Consider bringing in Chayim Messer Consulting to help assess the business needs and determine how processes will need to change. Investment to set up a department like this will be needed, so companies should make sure they are making the right decision at the outset.