According to consultancy Deloitte, more than 80 percent the Fortune 500 have integrated shared services with their US operations (PDF: “Shared Services Handbook”). These companies are high profile organizations: their investors expect forward momentum on a quarterly basis and their competitors are looking for ways to beat them on a daily basis.
What Do Shared Services Look Like?
Following along the well-worn path pioneered by the Fortune 500, the US middle market is now moving in large measure into the intelligent use of shared services solutions. They, too, seek the operational flexibility and reduction in cost which the Fortune 500 have seen over the last couple of years. For example: State Street is headquartered in Boston, but its next-largest office, with 4,000 employees, is in Poland.
Definitions of the US middle market vary, but the benefits of a thoughtful approach to shared services truly shine for those US companies in the $100-million to $900-million (annual revenue) range. Even for those middle market companies that operate solely within the United States, there is an increasingly global influence to the nature of their customers and vendors, and to the development of products and services.
For best results, shared services are not shared with other companies; they are captive. That is to say: the US employer owns its shared service center (SSC) in full, whether the SSC is located in the US or abroad. The SSC typically delivers back-office solutions in finance, administration, human resources or some combination of these. And the “clients” for these solutions are the US company headquarters as well as any other offices operated by the US company -- whether these other offices are in the US or abroad.
Furthermore, while US companies may have first entered into shared services for reasons of cost reduction, these companies have, over time, discovered that shared services are inherently of tremendous operational influence. Nowadays, shared services are a strategic decision which helps companies to do more and better -- often with greater levels of speed and innovation.
Looking back on the experiences of the Fortune 500 and the early adopters within the US middle market, there is now a sense of maturation that allows managers to assess the “first wave” of lessons learned in the use of shared services. This act of reflection is giving rise to a reconsideration of what shared services should look like and how they are best designed and deployed.
Three Key Reasons
Here we list three key reasons why American companies may reconsider their current deployments in shared services and what they expect, from strategic and operational points of view, going forward.
1. Greater Value
For both large and middle-market US companies, there has been onshoring -- that is, shared services which are based in the United States. There are obvious benefits to onshoring (geographical proximity, cultural alignment, financial and operational rollup, etc.), but as the market for shared services is increasingly global, there are notable benefits to the offshoring of SSCs.
The next wave of opportunity in shared services is likely to be in the form of value for money. It is no longer sufficient to look for reductions in cost; US companies also want a bump in value added. Many are finding such benefits in Europe where executives, managers, and day-to-day employees and specialists are highly educated and simultaneously available at rates that compare favorably with the US and the greater OECD.
In particular, European Union countries such as Poland, the Czech Republic, and Hungary offer exceptional value for US companies looking to base SSCs in secure and stable locations. Today 50 percent of all investment in SSCs in Central Eastern Europe is from US-based companies.
2. Greater Quality
Some US companies began by locating SSCs in Asia and, in particular, in India. Again, as with US-based SSCs, there are notable benefits to locating an SSC in India. There are also opportunities for improvement, and this is where many US companies find greater opportunity in a shift from India to Europe.
For example, SSCs in leading European Union markets such as Poland, the Czech Republic and Hungary are able to field tens of thousands of employees who speak English as well as a dozen other languages while working to US standards of office culture, financial regulation, engineering codes, customer service standards and more.
These Central Eastern Europe countries are in the same time zone as the rest of the European Union and only one hour different to the United Kingdom. Their work day overlaps the US eastern time zone by four hours or more. For US companies with European operations, or even just a single Europe-based sales office, having an SSC in Central Eastern Europe is a welcome boon to synergy as well as an opportunity to raise the bar in terms of quality of operations.
3. Greater Opportunity
A decision to implement shared services operations is more than a line item in the C-suite agenda. Time and again we see that shared services actually bring about strategic change -- and improvements in business model definition as well as market opportunity identification.
It’s interesting that shared services are not an end in themselves. They are not, as some people misunderstand, simply about reducing cost. With an intelligent approach to shared services, American companies are becoming more focused on their core value-adding processes. They become more capable of staying on top of, as well as ahead of, their markets.
So our third reason is opportunity. Even for companies that already deploy shared services centers, there is a desire to evaluate these and to optimize them for strategic advantage. What are the newest methods, technologies, and locations for the operation and integration of shared service centers?
We are far from finding a mature market in shared services. Forward-thinking and fast-moving companies recognize that shared services are an ongoing commitment -- a matter of company culture as much as about process.