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Shared Services

Shared Services Center (SSC)

SSC are common today in large organizations with bringing together common services i.e. identical functions which are repeated over several locations and/or business lines.

SSC should not to be commingled with corporate staff departments because different to staffdepartments, the output of an SSC is measurable in quantity, quality and in costs per unit of service provided. Therefore the funding and resourcing of these service can be shared and the providing department may render its services as an internal service provider.
Typical services provided include IT support, human resource administration, financial accounting, sales administration and so on. Some functions should not be organized in shared service centers such as corporate controlling, corporate legal, management development policy and others.

Traditionally, the development of an SSC within an organization is primarily an attempt to reduce costs (mainly through economies of scale) and standardize processes. But a large-scale cultural and process transformation is a difficult process and the move to shared services can possibly include redundancies and changes of established past work practices.

The shared services model is different from the outsourcing model, in which an external third party is paid to provide services that were previously internal to the buying organization.

Shared services are more than just centralization or consolidation of similar activities,. It can mean running these service activities like a business and delivering services to internal customers at a cost, quality and timeliness that is competitive with alternatives.

Cost charges are defined on the basis of a service level agreement (SLA) with an agreed output for quantity and sometimes quality.

Concerning the location of the SSC when the task is carried out in the same country but at a different location, it is called "on-shore, if the task is carried out in a close location, e.g. Slovakia relative to Germany, it is called "near-shore".

Management thinker John Seddon argues that shared service projects may fail because they cause a disruption to the service flow by moving the work to a central location with implied rework and duplication and lengthening the time it takes to deliver a service.

We have the experience to support you in the prerequisite analysis and planning as well as the implementation of a Shared Services Center (SSC). The job is not finished there, however. Best Practice recommends including Service Organization Controls (SOC) in the SSC design. Internal Control is responsible for the quality of the SOC and our team is experienced in these audits and can advise you well.

Service Organization Controls (SOC)

When applying Service Organization Controls, we refer mainly to the reports prepared in accordance with the Statement on Standards for Attestation Engagements (SSAE) by the AICPA:

SOC 1 : Report on Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting

SOC 2 : Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality or Privacy

SOC 3 : Trust Services Report for Service Organizations

Managing a Shared Services Center

Economy of scale in service organisations

Managers of a shared services center are first challenged with solving the following three variables

How much work is coming in?
How many people do I need for this work?
How much time is necessary to fulfill the requested tasks?

The residual is a calculation then used to plan and manage resources. As a rule of thumb, most companies use a best practice guide as a benchmark for planning and estimating the necessary resources.

Managing costs causes costs

According to a survey of the English Institute of Chartered Accountants, more than 30% of U.S. Fortune 500 companies have implemented a sharedservice center and are reporting cost savings in their general accounting functions of up to 46%.
In running a shared services center, continuous measurement with using agreed key performance indicators (KPIs) helps to determine the operational efficiency. Usually fewer than 10 carefully chosen KPIs will deliver the best results.

It is important that the manager of a business unit and the manager of a SSC together define a service level agreement (SLA) to avoid later complaints that some agreed services are not delivered as expected.

Budgeting and signing the SLA is the duty of the Board of Directors.

We have the experience to support you in defining the SLAs and running the SSC.