1. Shared Service Principles
2. Why Is the Shared Services Model So Appealing?
3. Shared Services: The Best of Both Worlds

A shared service agreement template is used by businesses to deliver corporate support. Shared services are consolidated and combined to include administrative or other services from headquarters and business units in a distinct entity.

Shared Service Principles

There are multiple principles on which shared service agreements are based, including:

  • Price transparency — This principle follows the understanding that every service should have a price, and the business unit can decide how much it wants to value its services at.
  • Business management — The service should be managed as though it was a business unit and not a shared cost created to serve internal and external customers.
  • Market responsiveness — It should provide the service levels that the business units will want instead of what the staff may think is needed.
  • Best practice proliferation — The business will need to identify and then deploy best practices rapidly and on a global scale.
  • Process standardization — There should be a developed and streamlined process so that standards can be maintained and improved easily when necessary.
  • Service culture — Business units should be treated as though they are customers, and services that business units would find valuable should be offered with a charge for each service.

It is vital for a shared services entity to have the ability to compete with outside vendors. Business units should be under marketplace discipline in all respects and free to seek support services when necessary. By doing this and pushing out proprietary standards and corporate cultures in lieu of best practices, business units can gain the competitive edge that they need.

Providers that are responsible for meeting those requirements should have their performance regularly evaluated using measurable criteria. In essence, the shared services unit will become another business unit which will be perceived and managed the same as any outside vendor and will have to compete on both the price and service level.

Why Is the Shared Services Model So Appealing?

The shared services model can be extremely appealing for a number of reasons including:

  • Combining the advantages of both centralization and decentralization
  • Providing more standardized work while minimizing redundancies
  • Tailoring services to suit the needs of business units
  • Eliminating services that don't add value
  • Balancing supply and demand of support services
  • Creating operating budgets based on customer demand
  • Experiencing huge cost savings
  • Freeing up business units to focus on the invention, manufacturing, and selling of their products and services
  • Bringing together expertise-based services including such things as law, risk management, and communications
  • Building critical capabilities
  • Providing new incentives to undertake large infrastructure projects

Shared Services: The Best of Both Worlds

While there are many benefits to shared service models, the setup does have some negatives. Some managers in business units do not like the loss of control and often worry about the accountability of the service providers. Some argue that the cost reductions also come with a loss of quality.

A shared services model is a blend of both centralization and decentralization, leading many people to refer to it as the best of both worlds. In a centralized business model, there will be a headquarters that will dictate policies, programs, and procedure, as well as control the staff and resources of a company.

A shared services environment will treat the business as though they were customers and will provide the external services. In this setup, both parties must agree on the level of service as well as the quantity and cost. This also gives the service unit the ability to draw resources from both internal and external sources as well as outsourcing and joint ventures.

Shared services differ from centralized services in the fact that they have the power and ability to buy or shop elsewhere as long as it is done within certain parameters. In a newer setup, many companies may prevent outsourcing for the first year or more to give their internal service units the time they need to get up to speed.

If this point is reached and the business units believe that outsourcing will provide them with better opportunity or serve them better, they can start to outsource if the service passes a high-level review from a management board. A decision to allow outsourcing is not arrived at lightly due to the fact that it can dilute economies that have some scale, though some companies may still select to outsource if there is an overall benefit to the corporate economics behind the decision.

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