For many businesses, one of the biggest challenges, as they try to scale, is meeting the increased demand for their non-core functions. These are the processes of the business that don’t generate revenue but are necessary for the company to operate properly. They include things like human resources, payroll, accounting, and IT.
To free up resources to focus on their core competencies, many businesses have turned to shared services centers (SSCs). SSCs are centralized units that provide support for a range of non-core functions. By consolidating these functions into a single unit, businesses can achieve economies of scale and improve efficiency.
While this may not be a concern for your small business today, planning and setting up an SSC now can save you a lot of headaches down the road. We’re here to help you along the way. In this article we will:
- Introduce the concept of shared services centers
- Outline some shared services center benefits
- Examine which services are most often consolidated
- Discuss how to set up a shared services center
- Look over some common mistakes to avoid
Ready? Let’s go!
What is a shared services center?
Some of this might be a little complicated, so we should start with a shared services center definition. Put very plainly, a shared services center (SSC) is a centralized unit within an organization that provides support for a range of non-core functions.
The term “non-core” refers to any business function that doesn’t generate revenue. These are the necessary (but not necessarily exciting) tasks required to keep a company running smoothly. They include:
- Human resources
- Accounting and finance
- IT support
- Data entry and processing
Some companies choose to consolidate all of their non-core functions into a shared services center. Others will only move certain functions, like payroll or accounting, while keeping others in-house. It depends on the company and what makes sense for them.
What are the benefits of a shared services center?
There are several reasons why a company might want to set up an SSC. The most common ones are:
- To improve efficiency by consolidating similar processes into one unit
- To achieve economies of scale
- To improve communication and collaboration by centralizing functions
- To free up resources to focus on the company’s core competencies
- To improve quality and consistency by standardizing processes
Let’s take a closer look at each one.
By consolidating similar processes into a single unit, businesses can achieve greater efficiency. This means that the shared services center can complete tasks more quickly and with fewer resources than if each department were doing it on its own.
For example, let’s say your company has 100 employees in different departments spread out across the country. Each department has its HR person who handles things like onboarding new hires and processing vacation requests.
Now imagine that your company consolidates all of those functions into an HR shared services center. This team can now specialize in those tasks and handle them for all 100 employees.
They’re likely to be much faster and more efficient than each department’s HR person who only does it part-time for a handful of team members.
Economies of sale
Not only is productivity increased, but also how the SSC can operate leads to economies of scale. This happens in two ways.
First, when similar processes are consolidated into one unit, there are often opportunities to standardize them. This can lead to cost savings through things like process improvements and automated solutions.
Second, because the SSC is handling a larger volume of work, it can often negotiate better deals with vendors and suppliers.
For example, an SSC that manages payroll for 100 employees will be able to negotiate a better price for payroll software than each of those employees could if they were buying it on their own.
By taking advantage of economies of scale, businesses can save a significant amount of money.
It can be difficult to collaborate across departments when everyone is working in silos. By consolidating non-core functions into a shared services center, you can encourage communication between teams.
This is because all of the teams that provide support for non-core functions will be housed in the same unit. They’ll be able to work together more easily to find solutions to problems and share best practices.
For example, let’s say the accounting team is struggling to keep up with invoicing. They can reach out to the data entry group and see if there are any ways to streamline the process.
Free up resources
Resource management is one of the most important parts of any business, and with good reason. Your resources, both human and financial, are limited. You need to be strategic about how you use them if you want your business to succeed.
SSCs can help with this by taking over non-core functions and freeing up resources that can be better used elsewhere.
For example, if your accounting department is spending too much time on data entry, an SSC can take over that task, allowing your accountants to focus on more important tasks like analysis and decision-making.
In either case, having an SSC allows you to better use the resources you have, which can lead to improved efficiency and increased business agility.
Sometimes, if each department is also responsible for some non-core functions that are unrelated to their training, you can end up with a lot of inconsistency in the quality of those services.
For example, your human resources department might be excellent at benefits administration but not so great at payroll processing.
By consolidating all of the non-core functions into one unit, you can set up quality control measures to ensure that all processes are being carried out consistently and to a high standard. This is often done through the use of standard operating procedures (SOPs).
Not only will this mitigate risk and reduce conflict but it can leave your company a more desirable destination for job seekers looking to find stability in their careers.
Which services are often consolidated?
In 2021, a study from Statista found that finance was the most popular function performed in shared services centers, with 90 percent reporting at least some level of finance service. Let’s go through the top-five functions, ranked by how often they are included in shared services centers.
Finance (90 percent)
In an SSC, financial services can include things like:
- Accounts payable: Managing the supply chain and vendor relationships
- Accounts receivable: Creating invoices, issuing customer statements
- Billing and collections: Processing customer payments
- Credit: Managing risk and approving credit lines for customers
- Financial analysis: Reviewing financial data to make recommendations
- Tax: Complying with local, state, and federal tax regulations
- Treasury: Managing cash flow and business loans
As you can see, several different finance-related tasks can be consolidated into an SSC.
IT (57 percent)
Right behind finance is IT, a quickly growing function in SSCs as the business world becomes more and more reliant on technology solutions. Outsourcing IT processes is now the norm for many companies. This can include things like:
- Software and application development
- Networking and infrastructure
- Help desk support
- Data security and storage
This is an area where SSCs can shine. By consolidating disparate IT systems into a single unit, businesses can achieve economies of scale and improve efficiency. In addition, SSCs can provide much-needed expertise and support for businesses that don’t have in-house resources for these functions.
HR (57 percent)
As referenced above, HR’s place in a shared service center is easy to understand.
- A shared services center can manage onboarding for new hires.
- It can also handle employee communications and benefits administration.
- Payroll is another popular function to include in an SSC, as it is closely related to HR.
- Performance management may also be handled by the SSC.
- In some cases, the shared services center may even handle recruiting.
Since every business unit needs HR services at one level or another, it’s no wonder that this is such a popular function to include in an SSC.
Procurement (53 percent)
This can include anything from sourcing and supplier management to capacity management and spend analysis.
Customer Service (45 percent)
Another huge function of any business is customer service. It’s important to remember that your customers are the lifeblood of your company. Good customer service can increase customer satisfaction, which leads to repeat business and referrals.
A shared services center can help you improve your customer service by giving you a centralized place to track requests and issues. By consolidating all of your customer services into one unit, you can better monitor performance and make sure that each issue is resolved promptly.
How to set up a shared services center
Now that you know what it is, and why it can be important, let’s look at how you can take advantage of it for your own business.
There are a few key steps involved in setting up an SSC. Here’s an overview of what you need to do:
- Define the services to be consolidated: The first step is to identify which functions will be included in the SSC. It’s important to consider which functions are most likely to benefit from economies of scale and increased efficiency.
- Select a location: Once you’ve identified the services that will be part of the SSC, you need to decide where to locate the center. Often, businesses will choose to locate their SSC in a low-cost country.
- Create a legal entity: To operate as an SSC, you’ll need to set up a separate legal entity. This will help to protect your business from any liability associated with the activities of the SSC.
- Hire staff: The next step is to hire staff for your new SSC. It’s important to carefully consider the skills and experience that you need to ensure that your SSC is successful.
- Implement technology: To enable the SSC to operate effectively, you’ll need to put in place the right technology infrastructure. This includes things like HR software solutions and customer relationship management (CRM) systems.
- Define processes: Once you have all of the necessary components in place, you need to define the processes that will be used by the SSC. This includes things like order processing, invoicing, and payments.
- Go live: Once you’ve completed all of the necessary steps, you can go live with your new SSC.
There may be some additional steps involved, depending on the specific needs of your business. However, these are the key steps that you need to follow to set up an SSC.
Common mistakes to avoid
Before you go, it is important to go through a few of the most common mistakes businesses make when trying to use a shared services center. Such as:
- Not defining the business case: The first step is to establish a business case for your SSC. This will help you determine whether an SSC is the right solution for your company or if something like business process outsourcing (BPO) is a better strategy.
- Overlooking organizational change management: An SSC will require changes to how your company operates. To ensure a smooth transition, you need to have a plan for managing these changes.
- Not Assessing risk: Any time you make changes to your business, there is risk involved. Be sure to assess the risks associated with setting up and running an SSC.
- Failing to establish governance: Once your SSC is up and running, you need to put in place processes and controls to ensure it operates effectively. This includes things like defining roles and responsibilities, setting KPIs, and establishing a communication plan.
Even if you’re not ready to jump head-first into a shared services center, it is important to keep it in mind for when your business starts to grow. If you can avoid these mistakes while following some of the tips listed above, you’ll be well on your way to consolidating and scaling your enterprise.