Shared service centers and outsourcing providers both have their respective functions and types of businesses they cater for.
For some firms, it may be more advantageous to use an outsourcing provider, while others find that a shared service center is best for their needs.
Maybe you’re looking to outsource some business processes but you’re unsure of what type of provider to use to maximize the quality of your deliverables.
In this article, we’ll explore the functions of both shared service centers and outsourcing providers, as well as discuss the differences between both of them and the functions performed by both.
Let’s get going!
What is a Shared Service Center?
A shared service center (SSC) is a centralized unit within an organization that provides support services to multiple departments or business units. SSCs are created with the aim of improving efficiency and quality, while also reducing costs.
The most common type of SSC is an accounting shared service center, which provides financial and accounting services to different parts of the organization.
Other types of SSCs include HR shared service centers, IT shared service centers, and procurement shared service centers.
What is an Outsourcing Provider?
An outsourcing provider is a company that takes on the responsibility of managing an organization’s business processes, or a specific function within the organization, on their behalf.
Outsourcing providers can either be based in-house (within the organization) or externally (outside of the organization).
The most common type of outsourcing provider is an IT outsourcing provider, followed by HR outsourcing providers and finance & accounting outsourcing providers.
Differences Between an Outsourcing Provider and a Shared Service Center
Let’s discuss some differences between outsourcing providers and shared service centers so we can better understand which functions can be performed by each.
Difference 1: Personnel Catered For
The main difference between an outsourcing provider and a shared service center is that an outsourcing provider takes on the responsibility of managing an organization’s business processes, while a shared service center provides support services to multiple departments or business units.
Let’s take an example where a company wants to outsource its human resources (HR) function. The company will engage an outsourcing provider that will be responsible for managing the HR function on the company’s behalf.
This includes payroll, recruitment, training, and development, employee relations, and so on.
On the other hand, if a company has a shared service center, the services offered by the shared service center would be available to all departments or business units within the company.
The services provided by a shared service center can include finance and accounting, HR, IT, and procurement.
Difference 2: Duration of Service
An outsourcing provider is usually engaged to manage an organization’s business processes on a long-term basis, while an SSC is set up within an organization to provide support services on a more short-term or ad hoc basis.
This means that the relationship between an outsourcing provider and its client is typically more strategic in nature, while the relationship between a shared service center and its internal customers is more operational in nature.
Difference 3: Standing Within the Organisation
Outsourcing providers are usually third-party service providers that are external to an organization, while shared service centers are typically set up within an organization.
When you engage an outsourcing provider, you are essentially engaging a company to provide services on your behalf, whereas a shared service center is a part of your own organization.
Difference 4: Level of Expertise
Outsourcing providers also have a team of experts that are dedicated to your account. Shared service centers differ here as they typically have a team of generalists who support multiple departments or business units.
This means that when you use an outsourcing provider, you will have a team of specialists who are focused on your specific needs, whereas when you use an SSC, you will have a team of generalists who may not be as focused on your specific needs.
Difference 5: Approach Taken
Outsourcing providers typically have a more hands-off approach when it comes to managing your business processes compared to shared service centers.
SSCs tend to take a more hands-off approach.
This means that when you engage an outsourcing provider, you can expect them to take care of the day-to-day management of your business processes, while an SSC requires you to do some of the management yourself.
Logically this makes sense since, as mentioned before, shared service centers are set up within your firm while outsourcing providers are external to your firm.
What Functions are Performed by Both Shared Service Centers and Outsourcing Providers?
The most common functions that are able to be outsourced to both shared service centers and outsourcing providers are as follows:
Accounting and Finance
This function is essentially the financial backbone of any business. It includes tasks such as preparing and analyzing financial statements, managing payroll, and keeping track of expenses.
Outsourcing providers and SSCs can both do this as they have the necessary staff and expertise.
HR encompasses a variety of functions, from recruiting and training employees to managing employee benefits and payroll.
SSCs usually have an HR team that can handle these functions, while outsourcing providers typically have access to a network of HR professionals who can be hired on an as-needed basis.
IT support is vital for any business that relies on computers and other digital devices to operate. IT tasks can range from setting up new computer systems to troubleshooting technical problems.
SSCs and outsourcing providers both usually have staff who are trained in IT and can provide support as needed.
Marketing encompasses many different activities, from developing marketing campaigns to conducting market research.
SSCs and outsourcing providers can both assist with marketing tasks, although it’s more common for businesses to outsource their marketing efforts to agencies or freelancers.
Customer service is important for any business that wants to retain its customers. It can include tasks such as handling customer inquiries, providing product support, and managing returns.
SSCs and outsourcing providers can both provide customer service, although SSCs are more likely to have staff who are specifically trained in customer service.
Outsourcing providers will also be able to handle other specialist areas, such as legal services or data analysis.
It’s important to remember that not every provider will offer the same functions — it’s vital that you check with them beforehand to see if they’re able to meet your specific needs.
These are just some of the most common functions that are performed by both shared service centers and outsourcing providers.
Depending on the size and requirements of your business, you may find that one type of provider is better suited to your needs than the other.
Situations Where SSCs are Better Than Outsourcing Providers
There are some situations where SSCs may be better than outsourcing providers at getting the job done.
1. When the Company is Undergoing A Digital Transformation
A lot of times, when companies are undergoing digital transformation, they need to change the way they operate and move towards a more agile way of working.
Shared service centers can be better at handling this type of transition as they’re used to working with multiple stakeholders and dealing with change on a regular basis.
2. When There’s a Need for Process Improvement
If your company is looking to improve its processes, then a shared service center is likely to be a better option as they have expertise in process improvement.
They will be able to work with you to streamline your processes and make them more efficient.
3. When There’s a Need for Compliance
If your company needs to comply with certain regulations or standards, then a shared service center can be better at ensuring this.
They’re used to working with businesses that have different compliance requirements and can put in place the necessary controls to make sure that your company meets these.
Situations Where Outsourcing Providers are Better Than SSCs
Now that we’ve discussed on side of the argument, let’s look at some situations where outsourcing providers might be a better option than SSCs.
1. When the Company is Looking for Cost Savings
If your company is looking to save costs, then an outsourcing provider is likely to be a better option. They can often provide services at a lower cost than what it would take for your company to do them in-house.
2. When the Company Wants to Focus on its Core Business
If your company wants to focus on its core business and outsource non-core functions, then an outsourcing provider is a good option. This way, your company can focus its resources on the areas that are most important to it.
3. When the Company Wants to Tap Into New Markets
If your company wants to enter new markets, then an outsourcing provider can be a good option. This is because they can provide you with the resources and expertise that you need to enter these new markets.
As you can see, there are situations where shared service centers are better than outsourcing providers and vice versa. It’s important to assess your company’s needs and requirements before deciding which option is best for you.
Best of luck!