Shared services is a business model that consolidates common business processes and distributes them across an organization. It aims to reduce operational costs while standardizing processes and transactions. Shared services refer to the consolidation of common business functions across an organization into a centralized organizational unit to achieve economies of scale and specialization. The key functions that are usually consolidated and shared include finance and accounting, human resources (HR), procurement, IT and customer service. HR tech services play a crucial role they provide innovative technological solutions that enhance the efficiency and effectiveness of these shared services, particularly in the HR function, thereby further driving organizational performance and growth
What are Shared Services?
Shared services refer to the consolidation of common business functions across an organization into a centralized organizational unit with the goal of achieving economies of scale and specialization. The key functions that are usually consolidated and shared include finance and accounting, human resources (HR), procurement, IT and customer service.
This centralized unit is responsible for delivering standardized services to multiple business units within the organization in an efficient and cost-effective manner. Shared services enable business units to leverage scale while reducing duplication of efforts and streamlining processes.
Coherent Market Insights explores this concept in detail in Shared Services Market.
Benefits of Shared Services
There are multiple advantages that organizations can realize by adopting the shared services model:
- Cost Savings: Consolidating back-office functions leads to cost reductions through economies of scale. Resources are shared rather than duplicated across business units. This results in lower operational costs.
- Standardization: Common processes are standardized across the organization which promotes efficiency, eliminates duplication and reduces errors.
- Specialization: Resources can specialize in particular functions rather than being generalists. This improves operational effectiveness through better expertise.
- Scalability: As demands grow or shrink in different business units, shared services remain flexible to adapt to changing needs more easily.
- Governance: Centralized oversight and governance over common processes promotes compliance, controls and governance standards uniformly.
- Focus on core competencies: Business units are able to focus on their revenue-generating activities rather than back-office operations resulting in improved productivity.
Models of Deployment
There are three main models used for deploying shared services organizations:
- Centers of Excellence: Functions are pooled together but remain connected to the business units with a dual reporting relationship.
- Shared Services Centers: Functions are consolidated into an independent organizational unit that is remote from the business units.
- Global Business Services: A transformation of shared services into integrated global hubs spanning regions and countries.
Key Success Factors
For shared services to be effective, certain key factors need to be considered:
- Executive buy-in and support: Change management requires gaining organizational alignment at leadership levels.
- Scope definition: Defining appropriate functions to share based on standardization potential and benefits quantification.
- Location and space planning: Deciding appropriate location, facilities and infrastructure for shared services centers.
- Technology enablement: Implementing integrated IT platforms to support centralized/automated processes.
- Performance management: Establishing service level agreements (SLAs), key metrics, balanced scorecards for accountability.
- HR transition and talent: Managing transitions smoothly and developing a shared services culture and skills internally.
- Governance and operating model: Adopting an oversight model with roles, responsibilities and escalation paths defined clearly.
- Communication and training: Communicating effectively across functions and upskilling employees on process changes.
- Continuous improvement: Monitoring progress regularly and institutionalizing shared services as a strategic capability.
Market Outlook
The Shared Services Marketis witnessing strong global growth driven by the need for organizations to focus on their core competencies through operational efficiencies. North America currently dominates the market led by the U.S. while Europe and Asia-Pacific also present significant opportunities. Key industry sectors contributing substantially include BFSI, healthcare and pharmaceuticals, IT & telecom, retail and manufacturing. Factors driving the rising global demand include increasing adoption of automation technologies, cost optimization pressures and need for enhanced governance through centralized operations. While the market experienced temporary slowdown during the pandemic, a fast recovery is expected as shared services adoption gathers further momentum across organizations worldwide.
