Leadership Insight > Barbara Quinn

For almost a decade now, Barbara Quinn’s, book, Shared Services: Mining for Corporate Gold, has been the most authoritative resource for companies looking to cut costs and improve efficiencies by consolidating IT, finance, and HR staff functions into a global organization. The book includes vignettes about 75 shared services organizations.

Quinn has been around shared services since 1986, long before many Fortune 500 companies adopted this concept. In fact, over the years, Quinn’s former Cail Consulting Group has helped dozens of major companies and government agencies set up shared services organizations. Now that many shared services have matured, Quinn has moved on to establish 22C Partners, a management consulting firm to help established shared services organizations to move up the value chain. Her clients have included Bell Canada, Shell Services, SunLife Financial, and Glaxo Wellcome.

Inside BTM recently sat down with Quinn to discuss the new direction shared services is moving toward. Here’s what she had to say:

Q. How did the shared services movement come about?

It sprang out of finance in the early 1980s when Fortune 100 companies started to consolidate accounts payable and accounts receivable, and focus on the procure-to-pay process.

The entire shared services movement was predicated on the idea that a 70 percent level of transactional activities dominated staff functions. As a result, companies didn’t have many resources available to do the strategic value-added work. Shared services began as a way to free up resources and add capacity in IT, finance, and HR. These functional areas could now do the work that delivers higher business value, such as helping with an acquisition.

Once you crush your costs and do that part of the transaction, you need to shift your staff functions now into an advocacy or leadership role and into working up the value chain. At the end of the day, the demand for free services is virtually unlimited. People, however, don't value what's free contrary to public opinion. Having some form of allocation places accountability, and the staff functions operate in a business fashion.

Q. What things have changed in shared services since you wrote the book in 2000?

A couple of things have happened. More companies today consider outsourcing than they did a decade ago. If a company decides to outsource, it won’t bother to do all of the hard work of setting up a shared services organization. Technology also has had a profound affect on shared services. In the late 1990s, major companies looked at where they should put their gigantic global shared services centers. Did they need to have a center in Europe or in other parts of the world? These decisions often involved a lot of layoffs. Today, companies can have virtual shared service centers or virtual call centers staffed by people in different countries. Technology has been a gift to shared services because companies don’t physically need to consolidate people like before.

Q. Are shared services still a major component of the strategic goals of an organization?

Definitely! This strategy is not been a whim, it has legs. Only about three percent of the Fortune 500 companies, which have set up shared services, have removed them. Putting in a shared services organization has a high uptake at the beginning. However, once the organization is set up, it definitely has staying power.

Q. Are shared services being adopted by smaller companies these days?

That's a good question. There is a definite threshold where shared services don’t make sense. For example, if you have less than 3,000 employees, there is not much benefit.

Q. How successful have shared services been in integrating processes, people, and technology automation?

If you want to get to the first quartile as a staff function being the top performer, you need a combination of shared services, best in class processes, and technology. You need all three working together because not one of them can deliver the real potential for a staff function. Technology on its own has often had the lowest return, especially in the early days of shared services.

Q. Can you cite reasons why technology has had the lowest return?

When companies put in enterprise ERP systems, they didn’t bother, in many cases, to change business processes in something as simple as accounts payable or pay to procure. They used an expensive ERP system to automate a bad process. If you don’t have a consolidated shared services organization for discipline, you get a higher and higher degree of uniqueness, which dilutes the enterprise system you put in. Again, you need a combination of all three ingredients working together, whether you are IT, finance, or HR.

Q. How well does the IT organization fare in a shared service?

Very well! Although finance started the shared services movement, IT has been an early pioneer in helping to keep the high costs of starting shared services down. In the late 1990s, companies tended to have a single technology organization, while HR and finance were highly distributed and decentralized across the organization. The advent of enterprise systems really made it clear that each business unit didn’t need to buy its own copy, say, of Oracle Financials or PeopleSoft.

Q. How have cost models changed for shared services organizations?

In the early days, companies had some pretty elaborate cost models or pricing models. Today companies still need to have allocation, but the movement is toward higher levels of allocation with some year-on-year detail. For example, if I were running a HR shared services, I’d tell the business units that we’re both part of the same company. To get your basic HR services, I’d give you an allocation of so much per employee or so much for the entire year. If you want to finance the cost, you can do year-on-year contracting with the heads of the business units. On the other hand, if your business unit plans to do a major layoff or restructuring, or acquire a company, then the HR services you need now expand beyond basic services or normal sourcing level. As a result, you want to contract for some over and above resources in order to deliver to them. The basic model provides high-level allocation for the basics, plus discretionary allocation based on unique and large needs.

Q. Can you provide an example of how you helped a shared services organization become more effective?

I worked with a global financial institution that has a culture of holding business units accountable for profit and loss. These business units had their own staff functions for IT, HR, finance, and marketing. The heads of the business units presided over their domains. They delivered the cash every year and didn’t have time for shared services.

Eventually things changed and the company realized that it needed to operate more like a global enterprise with combined global technology systems, one marketing brand, and one employee brand. The company also liked the idea of not having different practices and processes all over the business. Moving to a global shared services organization, for example, put a big dent in the talent management crisis. Now the company could source globally, saving a lot of money by not duplicating recruiting campaigns. The increased global mobility helped people move around, thus allowing the company to fill jobs and retain employees longer.

Shared services can make a big impact strategically on some significant initiatives because you’re looking across the entire organization, not just by each business unit. And the impact isn’t just about cost savings. If you really need to cut costs, there are other faster and easier ways to do so.

The business units really respect shared services organizations that hold themselves accountable to run like a business. For example, they tightly monitor their standards, and they do customer satisfaction surveys where they invite the business leaders to evaluate the quality of services being received. They always look for opportunities to lead conversations on outsourcing, if that is the right answer.

Q. What happened to the business model where shared services sell their offerings outside of the parent company?

That continues to an abysmal failure. In the book, I provided an example of a multinational company that tried to do this for IT. This company had a sales force headed by an account executive, and even set up a complete profit and loss accounting system. Selling IT services was a hard sell for this company. Eventually, this company realized that it was in the energy business and not in IT.

The commercialization of shared services doesn’t make sense. Your core business is whatever it is; it’s not IT, finance, or HR. People became intoxicated by their own brilliance about the shared services they provided and felt they would have no trouble offering them to third parties.

I’ve lead boardroom discussions about this with heads of business units. They have good reason to worry about the color of the money. You get green money off the street, while brown money comes from an inter-company transfer. Will the color of money dilute the quality of services the business units receive? That's the issue.

Q. How are shared services looking to move up the value chain?

Now that many shared services organizations have matured, their focus now includes improving the capacity to do the strategic value chain work by doing two things: facilitating decision making, and being proactive about bringing ideas to the business units before they have a chance to think about them. Shared services today function more like a professional services organization. For example, technology needs to get more involved in making strategic decisions. IT might look more at how its distribution of resources can be improved to provide a better bang for the buck. If these folks are doing too much transactional work, then they have to go back to the basics and fix that. If the technology folks don't have a reputation as strategic advisers, then that's the part they will have to fix.

Q. What is the career path like for people in shared services organizations?

It has never been greater. That’s one of the side benefits to working in this environment. When you’re in a global services organization, you get to work on initiatives that, most likely, will affect the entire organization, not just one business unit. Career paths can become deeper and more interesting because of the global perspective.

Elizabeth M. Ferrarini is a writer from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.