Shared Services so far so good, but where next for the standardisation project?

In this article Ian Herbert, Loughborough University, considers the shared services project in the wider context of the multi-divisional corporations and asks whether SSC managers are thinking strategically about the right balance between standardised processes and customised services.

 

Henry Ford had a great formula. Make only one model and colour but produce motor cars so efficiently that a new market with massive demand is created. People who had never owned a car found lots of things to do with them. They could change the way they did things and where they did them. Moving out of cities and driving back in to work. The key to success was the standardisation of both the end product and the manufacturing process. Ford had drawn from the defence industry’s development of interchangeable parts and the flow process systems of Chicago meat packers. However, once American customers became more demanding and markets became more sophisticated a new organisational approach was required. Step forward Alfred Sloan, who remodelled General Motors into what became known as the new multi-divisional form. In this approach, semi-autonomous divisions could now be left to their own devices to serve individual segments of the overall market, because their managers could be controlled by measuring the Return on Capital Employed. Some inefficiency in production and sales could be tolerated because overall the system was effective in giving customers a greater choice.

Roll forward to the end of the 20th Century and the forces of global competition – initially from Japanese manufacturers – raised the performance bar significantly in terms of both efficiency and effectiveness. Organisations now had to be cheap, flexible and innovative, in ways not thought possible only 50 years ago. More recently, the philosophy has changed to micro-level marketing from ‘dozens of markets of millions, to millions of markets of dozens’ according to Joe Kraus, founder of the pre-Google search engine Excite.

This history is important because the shared services phenomena has largely been predicated on rolling back the inefficient diversity and duplication created in all those individual business divisions. The SSC is a modern day, Henry Ford-style, standardisation project. There is of course much sense in this. One SSC manager told us she’d found 39 different maternity forms across the company and had replaced all of them with just one new form. Such stories are not untypical, there are huge savings to be made in the back office of most organisations, especially when it comes to rationalising a dozen or so legacy systems into a single ERP system. However, the questions that SSC managers now need to be asking themselves is this, ‘If the rest of the world is becoming more customer focussed and thus fragmented, how much more mileage can there be in a standardisation project? Will standardisation go too far and will corporate competitiveness suffer?  Will someone think of a totally new way of doing the back office that will enable a new breed of companies, designed to operate as ‘virtual’ organisations to compete in your markets?

Of course, there’s no clear cut answer to the customisation versus standardisation question. For every good example of each, there is a counter example and a counter argument.  If you are reading this on your ipad or iphone think about the Apple proposition. Here is a company that fought, and largely lost to Microsoft, the battle for a standard computer operating system– perhaps the ultimate standardisation project. Apple then stitched together a number of different technologies that had mostly been developed in government funded research projects (e.g. mobile phones, the internet, touchscreen technology, GPS, motion sensors, etc.) and came up with a totally standard (white) product but which was infinitely customisable by users (Mazzucato, 2013). Customers find their own ways of working around the standard system. Motorola are now developing a modular phone that consumers can assemble into a standard chassis from component ‘blocks’ supplied by ‘best of breed’ developers. Totally standard, totally customisable.

So the world has gone crazy, but that’s no reason not to have a clear view of what your shared service centre is trying to do and how it is supporting the wider company at the standardisation-customisation interface.

The key terms here are ‘sensible standardisation’ and ‘appropriate customisation’. The chief problem facing most shared services is that they can lead the debate in the early honeymoon period of the SSC but, if the sole rationale is to cut costs, there comes a point at which SSC managers become so involved in just keeping day-to-day operations going that they lose the time for strategic thinking, and thus influencing the wider agenda of business support services business support services across the organisation.

The underlying problem is that most SSCs are designed to rationalise the existing parent company systems. In other words, creating the optimal system for XYZ plc, not necessarily the best system for XYZ plc. There is usually a difference. Those SSCs, especially in the public sector, that are offering their services to other organisations are having to think hard about the wider agenda and this sense of discipline is likely to be better for their long term survival.

Perhaps it will not be too long before someone ‘stitches’ together the emerging public domain technologies into a set of ‘apps’ that will run the majority of small companies? EBay is an interesting example of an accounting system that serves millions of diverse customers. It’s ‘free’, totally standard but enables someone to buy a private plane one minute and an antique stamp the next. At the same time it provides a management information resource and audit trail to rival many proprietary small business accounting packages. It also comes with a ‘free’ buyer-seller policing system that is faster and more effective than debt collecting through the courts.

Obviously, such standardisation will not suit every situation and ebay customers need to be able to work-around the system to suit their own business and life-style needs. One of the success stories for SSCs is in eliminating shadow systems yet, work-arounds proliferate to get around standard processes. The questions for corporate SSCs are;

  1. When should the official system be customised to reduce the need for unofficial work-arounds?
  2. Who should do the work arounds? The SSC should be far more cost efficient at doing the necessary work-arounds than in the divisions but, the direction of travel for most SSC is about getting smaller not larger. Thus, the cost of work-arounds is shunted into the business.
  3. At what stage do work-arounds subvert the corporate culture such that no-one sees any merit in keeping the overall system functional?

It is beyond the scope of this article to propose any sweeping solutions, but as a suggestion it might be an interesting exercise to find out what ‘work-arounds’ are happening and who is doing them. You might be surprised by the answers. Whichever way, the results will enable the SSC to have a meaningful discussion with the C-suite about the best way of supporting the people in the business: the people who have to get lots of different stuff done for different customers every day. If the answer is that the SSC WILL be totally standard and people in the business will just need to make it work, then you might as well just outsource the whole thing today!

Ian Herbert is deputy Director of the Centre for Global Sourcing and Services at The School of Business and Economics, Loughborough University.

 

Email the SSC research team at Loughborough University ssc-research-team@lboro.ac.uk or visit the project website at www.shared-services-research.com

 

Project support by the General Charitable Trust of the Institute of Chartered Management Accountants.

 

References

 

Mazzucato, M. (2013) The Entrepreneurial State: Debunking Public vs. Private Sector Myths, Anthem Press: London.