Optimize Your Running Costs with a Shared Services Organization (SSO)

Support function costs are often measured globally and allocated to profit centers using varying analytical rules across departments. This inconsistency creates challenges for achieving transparency and effective cost control, ultimately hindering the implementation of tools that can measure operational efficiency.

A Shared Services Organization (SSO) addresses these issues by transforming support functions into internal service providers, where costs are based on real consumption. This transparency allows for better cost monitoring, improved operational efficiency, and clearer profitability insights across the company.

What Are the 3 Key Benefits of Implementing a Shared Services Organization?

1. Enhanced Budget Visibility: Through Activity-Based Costing (ABC) and the introduction of performance, profitability, and quality indicators.
2. Cost/Income Ratio Improvement: Standardization and measurable alignment between support functions and business needs.
3. Clearer Profitability Analysis: Increased visibility into the true profitability of business lines, enabling more informed investment decisions.

What is a Shared Services Organization?

A Shared Services Organization (SSO) transforms support functions, traditionally viewed as cost centers, into internal service providers. Each service offered by these internal providers is assigned a metric and unit price. Departments are billed based on their actual consumption of services, governed by pre-agreed service level agreements (SLAs).

Unlike traditional cost allocation methods, SSOs allow central functions to optimize their processes and expenses, benefiting from economies of scale and remaining competitive. For profit centers, SSOs offer greater transparency into profitability and improved budgeting accuracy.

How Does a Shared Services Organization Operate?

An SSO operates through two core processes:

1. Annual Budgeting: Unit prices for services are reviewed and recalculated based on the forecasted consumption and the internal customers’ budgets.
2. Monthly Billing: Internal customers receive invoices based on their actual service consumption, which are then validated. Variations between forecasted and actual figures are analyzed, and action plans are developed to address discrepancies.

This client-supplier relationship within the organization is managed by three key roles:

• Relationship Manager: Serves as the main contact for internal customers, coordinating between customers, service managers, and the billing entity. Their role includes advising customers on optimizing their service consumption.
• Service Manager: Manages the services offered by the SSO, ensuring competitive pricing and high service quality. They oversee data collection and consumption reporting.
• Billing Entity: Handles administrative processes, including annual unit price updates and monthly billing.

The goal is to establish a customer-oriented structure that promotes operational transparency and efficiency.

What Operational Benefits Can You Expect from a Shared Services Organization?

Implementing a Shared Services Organization offers multiple operational benefits:

• Improved Management of Internal Services: SSOs standardize service offerings, introduce consumption tracking tools, and foster a more commercial relationship between internal suppliers and customers.
• Enhanced Budget Management: By calculating unit prices through Activity-Based Costing (ABC), SSOs improve budget forecasting and monitoring. Billing based on actual consumption enables more accurate profitability analysis for departments and business lines.
• Support Function Performance Boost: SSOs drive continuous performance improvements through the use of Key Performance Indicators (KPIs), Lean methodologies, and Six Sigma processes.

Is a Shared Services Organization Part of a Continuous Improvement Approach?

Yes, a Shared Services Organization is inherently aligned with continuous improvement and operational efficiency. It enhances transparency for internal customers while helping internal suppliers better understand and meet their needs.

Does Implementing an SSO Lead to Other Improvements?

Absolutely. Implementing an SSO is a major step forward from traditional models but is not the final destination. SSOs pave the way for further operational optimizations, including:

• Process Automation: Implementing automation projects and Straight-Through Processing (STP) to improve efficiency.
• Cost Optimization: Revisiting procurement policies to renegotiate with suppliers, potentially opening the door to outsourcing or offshoring opportunities.
• Scalability: Expanding the scope of the SSO or revising its legal structure to leverage tax incentives or further outsourcing.

How Does the Implementation of a Shared Services Organization Work?

The complexity and duration of an SSO implementation depend on the company’s initial state and the desired scope. Typically, implementation for large organizations or SMEs lasts between 5 and 15 months and follows five key stages, alongside a comprehensive change management initiative:

1. Framework:

• Analyze the current organization.
• Define the objectives and challenges of the target organization.
• Assess potential resistance to change.
• Identify risks that could hinder project success.

2. Metrics:

• Define service offerings and metrics for each service.
• Implement tools to measure actual customer consumption.

3. Budget & Chargeback:

• Use Activity-Based Costing (ABC) to determine the cost of each service.
• Set unit costs for each service.
• Implement tools for budget forecasting, monitoring, and internal re-invoicing.

4. Organization:

• Define the SSO’s legal framework.
• Appoint service owners, business partners, and billing managers.
• Provide training and publish procedures.

5. Implementation:

• Conduct shadow billing exercises to test the model.
• Manage the impact on business lines and address any discrepancies.
• Roll out the new model and define strategies for continuous improvement.

A Shared Services Organization transforms internal support functions into efficient, customer-centric service providers. By fostering transparency, improving budget management, and driving performance, SSOs enable businesses to optimize operational costs and enhance profitability. When combined with continuous improvement initiatives like Lean and Six Sigma, SSOs become a powerful tool for long-term business success.