Q: Internal shared service centres - here to stay?

PS: Shared service centres and outsourcing are the two solutions most commonly adopted today by businesses as part of their back office process sourcing strategy. Four or five years ago, however, this choice was not so readily available because outsourcing was not really seen as a mainstream option. However, the balance is shifting significantly and now businesses do have a real choice.

Q: What is the point of Do-It-Yourself shared services these days? Isn't it just simpler to outsource?

PS: If only it were that simple. Unfortunately, the idea that a business can just throw everything over the wall to an outsourcer and thereby avoid all the hassle of transition, change, systems integration, process improvement and so on is just wrong. If it wants to achieve its business objectives from an outsourced shared service centre deal, the business will still have to focus at least as much on these issues than if it had kept everything in-house. And there are many other good reasons why a business might feel an in-house shared service centre might be the right answer - for example, existing capacity in a low cost location, fragmented systems or inefficient processes, or the need for a new ERP. If addressed properly, captive shared services are proven to deliver real benefits, and many businesses still find that they are quite enough to tackle in one go without going the extra step and handing them over to a third party.

Q: So how do you decide which way to go?

PS: This is a major subject in its own right. In our experience, however, there are usually as many emotional and political factors at play as there are rational factors. So, as well as obvious criteria such as business case, availability of internal resources and experience in offshore locations there are softer factors such as readiness for change and to what extent outsourcing is acceptable on an emotional level. Quite often, these softer criteria will be the deciding factors in the decision no matter what the business case says.

Q So what is the current state of the art in shared service centres?

PS: Like many business concepts, shared services have undergone considerable evolution since the concept first started in earnest about 15 to 20 years ago. The first centres tended to be centralised centres rather than service centres; this was quickly realised and the concept of service levels and customer focus then became the priority. The advent of new technology then moved the focus to process efficiency and automation, which is more or less where we are now. However, we believe that, paradoxically, outsourcing has a major role to play in the next evolution of in-house shared service centres. The next step, we believe, is towards the "internal outsourcer" - that is, the in-house centre that looks and behaves like a commercially focused external outsourcer. In this way, we believe that an in-house shared service centre should be able to match a third party in many respects.

Q: But it can't all be good news. What are the pitfalls of in-house shared services?

PS: Once a shared service centre is up and running operationally, the main pitfall (time and time again) is that people don't fully realise that the scope for process improvement inside the centre - that is to say, without relying on changed behaviour or compliance from outside the centre - is actually relatively small. You can have the most automated Accounts Payable process available, but if people aren't raising properly priced Purchase Orders there will still be a lot of exceptions to deal with - just as there always were. However, it is also important to note that the benefits of increased compliance will also be more apparent because the process is in one place. I think the second pitfall, related to the first, is that people just underestimate the sheer effort needed to get up to world class performance - it doesn't happen just because you have put all your finance or HR people into an office in Prague. There is no magic solution - it is a long and often slow process, involving painstaking attention to detail, and sometimes businesses get disillusioned because there were no overnight miracles. Having said all that, these pitfalls aren't unique to insourced centres and apply equally to outsourced solutions.

Q: Have shared service centres got anything to learn from the way outsourcers work?

PS: Yes, very much so. As I've already said, we think the next big movement in in-house shared services will be for them to adopt a commercial approach that mirrors how outsourcers behave - that is, moving from essentially a cost centre to a profit centre focus. This will mean more structured agreements with customers, a greater focus on governance, commitments to process and cost improvements over time, pricing structures other than cost reallocation that are appropriate to commercial operations and of course benchmarking against outsource solutions. I think that this approach will provide in-house shared service centres with a whole new impetus and focus.

Q: Where is it all heading? Will everyone outsource their shared service centres eventually?

PS: No, absolutely not. There will always be good reasons why an in-house solution will be better than an outsource solution for a given business at a given point in time. That's why we at Alsbridge aren't cheerleaders solely for outsourcing - because we recognise the merits and drawbacks of both solutions. It depends on what the right thing to do is at any particular point. That being said, we do see benefits from a convergence in thinking so that the best run shared service centres are effectively indistinguishable from an outsourced solution - that's the endgame.