Why Shared Services is more than centralization of activities

When thinking about Shared Services, there is often confusion about what it really entails.  Of course, many companies are far down the road of creating and managing a Shared Service Organization (SSO) but others really haven't made the commitment to setting up a true SSO.  They may have gathered an activity such as accounts payable processing from the various business units and centralized them in a single location, typically at the corporate office.

One of the problems with this arrangement is that mere centralization of an activity is not a true Shared Service Center.  In centralization, the activity may be all under one roof, but it implies a bureaucratic mindset where the Business Units have to take what they get, there is no collaboration with the Business Units, there is no incentive for the group (in this case the accounts payable department) to continuously enhance service delivery while reducing cost, and costs are typically allocated back to the Business Units in a manner that has nothing to do with the volume and complexity of the services delivered.

In a true SSO, there is close collaboration between the Business Units and the SSO, the Center has the mindset of competing in the marketplace to deliver services at a competitive price, and there is a focus on continuous improvement to enhance delivery and reduce costs.

I believe it's wise to create a separate identity for the Shared Service Organization.  The most successful SSO's I've seen actually create a separate business unit for the group, so there is no doubt that they are in fact a business supplying services to the customers/partners.  They have their own budget and their own mission statement.  They are held accountable for delivering measurable savings  and delivery improvements year over year.  By creating a separate identity, there should be no confusion that this shift represents mere "centralization" but rather a separate business unit in the business of delivering value to its customers.