Commercial Management of Shared Services

An ASG Group Company

Commercial Management of Shared Services

From service provider to business partner

Presented by: Mike Andrews

www.dowlingconsulting.biz


“Public bodies cannot quantify potential savings from sharing corporate services when they lack cost and performance data… Management Boards should expect to receive clear information on the cost and performance of corporate services, drawing on performance indicators.”

U.K. National Audit Office report: Improving Corporate Functions Using Shared Services. 29 November 2007

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Report from Shared Services & Outsourcing Week 2011 in Orlando

Conclusion:

62% of respondents see a need for a business-like approach and for a more service-oriented culture, but don’t see a need for a commercial approach!



• Run passively as a cost centre, rather than proactively as a business.

• Do not have good data on the cost of individual services

• Cannot provide accurate prices to their customers or support good financial decision‐making.

• Do not have a strong understanding of the customer

• Lack KPIs that align with customer objectives,

• Lack good service level management, and

• Do not have a robust service costing model.

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Many Shared Services organisations…



Commercial Management means:– Run Shared Services like a business

– Focus on the customer

– Understand costs and what drives them

– Understand and communicate the Shared Services value proposition

– Understand the competition, both internal and external

– Understand exactly what services you are (and are not) providing, to whom, and why. 5

Commercial Management concepts



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The Shared Services Journey



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Focus on the customer...



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Understand Shared Services Costs

Service XYZ EstablishmentPortfolio

ManagementService Usage

Labour Labour ‐Establishment cost

Labour ‐Portfolio cost

Direct Labour cost

Contracted Service

ContractedServices ‐

Establishment cost

Contracted Services ‐

Portfolio cost

Direct Contracted

Services cost

Materials & Asset

Materials and Asset ‐

Establishment cost

Materials and Assets ‐

Portfolio cost

Direct Materials and

Assets cost

Cost Code HR IT Property Archives

1001 $2,000 $3,300 $1,200 ‐

1002 ‐ ‐ ‐ ‐

1003 $6,700 $1,200 ‐ $900

1004 $5,000 ‐ $600 $10,000

Financial StatementsService Usage

1. Use any breakupthat makes sense in your organisation

2. Make sure costs are allocated consistently



Understand and allocate service costs to relevant cost buckets

Build a service catalogue

Align Shared Services KPI’s to customer KPI’s

Understand service performance levels

Survey and understand the customer’s view of service quality

Create a platform for dialogue with the customer

Understand what drives service costs

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How could your Shared Services organisation become more commercially focused and customer‐responsive?



LabourNumber of users (C)Network complexity (I)

Material & Assets

Off‐contract spend (I)Network complexity (I)

Sourcing effectiveness (I)

Contracted Services

Number of sites (C)Number of users (C)

Major security incidents (E)

e.g. Network Security Portfolio

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Cost Drivers

To run any business, you need to know what your costs are and what drives them. Typically, as in the example below, the relationship between costs and drivers is relatively complex because costs can be affected by multiple drivers, and drivers are often interrelated.

Cost Driver Tree:

(C) – customer driven (I) – internally driven (E) – externally driven



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Cost Drivers

Additionally, costs may not have a linear relationship to cost drivers. Often, the cost of providing a service remains fairly flat until a critical level of demand is reached. The service organisation then has to hire more people, buy more equipment, or sign a new contract and move to a higher cost base.

Portfolio Cost Cost Driver



– Relatively generic services at lowest cost

– High value services tailored to the customers needs

– “Bronze”, “Silver”, and “Gold” level services depending on customer preference

– Highly flexible service delivery that can change quickly with customer circumstances (acquisitions, mergers, new service requirements)

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Value Proposition

A good understanding of the Shared Services organisation’s value proposition is essential to running Shared Services like a business. For example:



• Any business must know what products and services it is providing.

• This seems obvious, but many Shared Services organisations focus on what they DO, and not on their SERVICES.

• For example, an HR Shared Services operation runs Payroll for several departments. – Their value proposition is “If you give us time and attendance

information on time, we will pay your employees correctly and ontime.”

– Their value proposition IS NOT “We will duplicate all the payroll processes you ran before the Shared Services agreement.”

– They also need to specify what services are NOT being provided, both for the customer and for their own staff who may inadvertently set incorrect customer expectations. 13

What services?



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What Performance?Shared Services performance improvement efforts will be more effective if they are:

• Linked to customers’ performance goals and KPI’s.• Measureable simply and objectively• Related to SLA service levels

In our HR Shared Services example,

• They defined a Service Catalogue based on simple high level service definitions

• Each service had 1 (or sometimes 2) associated measurements

• When reported together, the measurements comprised a “balanced scorecard” that helped Shared Services management and customers understand and optimise service provision and cost management.



• Shared services should be run like a business, not a cost centre

• To do that, you need to know a) your costs

b) what drives your costs

c) what level of service you are providing (Bronze, Silver, Gold)

d) What the customer(s) want: now and in the future

• Focus on the service you are providing – not on how you provide it

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In summary...


Contact details:

Mike AndrewsPractice Manager, Dowling Consulting Email:[email protected]

Business

Commercial Management of Shared Services