What are Shared Services?

Defining Shared Services

Shared services refer to the consolidation of 'back office' functions, such as Accounts Payable (AP), Accounts Receivable (AR), or IT, into a single center. Instead of maintaining separate AP departments in every location, companies establish regional or global Accounts Payable shared services centers. AP is often among the first functions to transition to shared services due to its high volume of transactions and ease of automation.

For more detail and the history of Shared Services watch our video: What is Shared Services

Key Characteristics of Shared Services

1. Centralization: Shared services centralize activities, enhancing efficiency and capitalizing on economies of scale. For instance, instead of having AP teams in New York, London, and Chicago, a company might centralize these functions in a single Finance Shared Services center in Minneapolis.

Related: Key Considerations for your Location Strategy

1. System Consolidation: Shared services often involve consolidating ERPs (like SAP or Oracle), reducing the number of systems and instances, which can significantly cut costs and streamline operations.
2. Process Standardization: Standardizing processes across the organization is challenging but essential to improve efficiency and scalability. Standardizing processes involves change management, clear communication, and educating teams and suppliers about new procedures.
3. Automation: To achieve cost savings, shared services focus on automation. With centralized functions, there is greater value in deploying technologies like e-invoicing, workflow automation, reconciliation tools, AI, Robotic Process Automation, and supplier portals, aiming for touchless invoicing.
4. Continuous Improvement: Shared services operate like a business within a business, serving internal business units as 'customers'. This requires a shift from a transactional to a service-oriented culture, ensuring high-quality service delivery and cost-effectiveness.

Key characteristics of effective shared services

1. Leadership: Effective shared services require leaders with entrepreneurial skills, commercial acumen, and IT expertise, not just accounting or finance backgrounds.
2. Service Level Agreements (SLAs): Comprehensive SLAs indicate a mature shared services organization. SLAs with penalty clauses suggest confidence in service delivery and a move away from traditional accounting centers.
3. Customer Service Focus: A high-performing shared services organization thrives on excellent customer service and a service-oriented approach.
4. Charging Models: Recognizing itself as a business, shared services understand their costs and have a variety of charging mechanisms to demonstrate their value to the business.

Shared services are a strategic approach to managing back-office functions, centralizing activities, consolidating systems, standardizing processes, and leveraging automation to drive efficiency and cost savings. As shared services evolve, they transition from mere service providers to valuable business partners and evolve into Global Business Services.

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