Developing a Shared Service pricing model that drives behavior

One of the challenges for companies moving to a Shared Service model is to decide how they want to price those services.  How a company chooses to recover its expenses will in large part determine the behavior of the business units who use those services.

I currently have a client that is moving a variety of Finance functions and activities to a Shared Service model.  As part of that discussion we're considering the various pricing models.  They have expressed reluctance to move to an activity-based model up front, fearing that it may to too radical a change for their corporate culture.  I believe it's a mistake not to consider the pricing model as an integral part of the Shared Service design.

When I was a Controller in private industry, I worked for a company that had its Finance & Accounting function centralized at Corporate, but were not part of a Shared Service Organization.  To be fair, this was a long time ago before the concept of Shared Services was really proven.  The problem was that we had a "buffet" pricing model - pay one price and you can go back for as much as you want.  As a result, we were getting endless requests from the business units because it didn't cost them anything to make special requests. 

A Shared Serivces pricing model should properly allocate costs back to those users who generate the most activity.  One pricing model that would accomplish this is a model that provides a core set of services, such as management reporting, for a basic price.  Activities that vary by volume and complexity, such as Accounts Payable or customized reports, would be priced based on volume and time required. 

To be sure, this model is not as simple as a flat rate pricing or one based simply on the FTE's in the business unit, but it is a model that will help generate the right behaviors.  Those business units that are content with the basic services can pay accordingly.  Those business units that generate more activity or have more "one-off" requests can decide if the extra cost is worth it.  By pricing the services of the Shared Service Organization based on volume and complexity, it requires the business units to use its resources and those of the SSO wisely.