Chapter 5: Shared Service

‘Sharing is caring’….that’s not the concept in corporate world. ‘Sharing is cost saving’ that’s the concept in corporate world which we will be discussing in this chapter. The whole idea and intent behind Shared service concept is to save cost.

Let’s take an example. Imagine a duplex bungalow where two families are living. They both have two separate kitchen with a cook working in each kitchen. Every kitchen has four major resources - Cook, Ingredients, Utensils and Fuel. Now if these two families combine their kitchen, they would get following benefits

• Single cook  with an assistant can work now to prepare food for both families
• Number of utensils required will be less 
• Ingredients required depends on quantity of food
• Fuel consumption would be reduced as entire food will be cooked at the same time

Because of all the above factors each family would now incur cost which would be lower than what they used to spend when their kitchens were separate.

This same concept is applied in corporate world. Let’s understand this with an example. Company A has three subsidiary, company B, C and D. Let’s consider an area of Accounts Payable (AP). Functions performed in AP is similar in every organization irrespective of nature of business of that organization. The primary role performed by AP team is to process invoices of vendors. Let’s say that the structure of AP team of all the above companies is as below:

Company	No of Team Leader	No of Team Member
A	1	6
B	1	4
C	1	3
D	1	3
Total	4	16

Now if the this organization want to set up a Shared Service unit for Accounts Payable team, one of the possible structure could be as below:

Company	No of Team Leader	No of Team Member
A	1	10
B
C
D
Total	1	10

As you can see from above two tables there were 4 team leaders and 16 team members before each company had their own AP team, but with shared service unit now the AP team has 1 team leader with team of 10 employees reporting to the leader. With this reduction in total headcount from 20 to 11 will definitely bring down the cost for entire organization.

Despite of the cost saving advantage there are some disadvantages also to this concept. Let’s revisit first example of two families with single kitchen. Earlier when the kitchens and cooks were different the food used to be prepared keeping in mind likes and dislikes of the each family, however now with the single kitchen and one cook the focus is more of preparing food for all the members of both family rather than likes and dislikes of anyone. Moreover since the food is prepared in large quantity there could be wastage if few members do eat it, which would lead to increase in cost.

Similar disadvantages will surface in corporate world also. In the above example of combined AP team, the focus of this new shared service unit would be entirely on just vendor payments because this is what they will be responsible for and their performance would be measured on this sole criteria. They won’t be concerned about cash flows and cash positions of individual companies. Since the AP team is working in isolation they won’t have visibility on the insights of the business of individual company hence at least one representative from each company will have to get involved with AP teams work which will unnecessarily increase the work load of that person.

One of the biggest issue in case of shared service is that of authority and responsibility. As explained earlier that the shared service unit does not have complete visibility of the business of individual company they would take inputs from a representative of individual company who would be responsible if anything goes wrong although that person does not have any authority. This representative does not have control over the team working in shared service unit. This representative would always be made a scapegoat.

Another concern is that of workload on shared service unit. As we can see in above example there are four companies having one common AP team. Now as the business of each of these individual companies grows the volume of work would also keep on growing which would increase workload on the AP team disrupting work life balance of employees working in this team. The way to reduce this workload balance is to increase the team size by recruiting more people in this team. However such support functions do not bring any revenue management would always refuse to bring in more people because this would lead to increase in cost without any increase in income. So management always prefers to put more burden on less employees rather than distributing this burden by increasing employee count.

The management thinker and inventor of The Vanguard Method, Professor John Seddon argues that shared service projects fail (and often end up costing more than they hoped to save) because they cause a disruption to the service flow by moving the work to a central location, creating waste in handoffs, rework and duplication, lengthening the time it takes to deliver a service and consequently creating failure demand (demand caused by a failure to do something or do something right for a customer)