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Atlas Shrugged? by Francisco Diez

This is the first of a 3-part series on shared services co-authored with Paul Blase

Ayn Rand Would Have Shared More Services, Why Doesn’t Your Company?

We all learned that it’s good to share - so why don’t companies share more, when there is more value to be had?  Imagine if the architects of the last plane you flew used 20 different blueprints for each section of the plane - each not integrating with the other.   Imagine if the project managers that built the plane used different plans, tools and techniques to manage workers and evaluate quality.  If you were lucky the plane wouldn’t have taken off to begin with - if you are unlucky the plane would have plummeted to the ground.   As viscerally as we understand the need for shared and top notch architecture and program management in mission-critical engineering situations; our research suggests in most companies executives don’t feel the same way about the common functions in their businesses.

Diamond’s Business Design Study 2010 surveyed 176 companies to identify where they were sharing services in their organizations - and if so, how they were doing it.    The eleven areas we surveyed include:

• HR/Legal
• IT: Development, Infrastructure, Architecture, Tech Support
• Finance & Accounting
• Procurement
• Customer Service
• Program & Project Management
• Transaction Processing
• R&D

Our study found between 50% and 75% of companies aren’t sharing services across geographies and functions that are the most critical to improve their business productivity, scale and quality  - these are IT Development, Customer Service, Program & Project Management, Transaction Processing, R&D and Architecture.  These companies are leaving productivity improvements on the table and will have a difficult time growing profits as effectively as competitors that are better at sharing across their complex operations.

What Services Are Shared - And How Many?

The majority of companies shared between 3 and 6 of the listed services; about a quarter shared 8 or more.  The top 3 most commonly shared services are HR, IT Infrastructure and Tech Support.   While important, these are support functions that have long been the focus of consolidation and shared service efforts.   The 3 least shared services are Transaction Processing, R&D and Architecture.   In general companies are less likely to share services that impact the front office and market performance.  Managers are reticent to give up control and if shared services aren’t managed well, they can initially add complexity to operations, raise short term costs and create delays.  Consumer packaged goods companies shared the most services, with a third of the firms sharing 9 or more out of 11.  Financial services firms shared the least - over half of the companies surveyed shared 5 or fewer services.

Who Provides Shared Services?

Our study found internal groups provide the majority of all shared services except IT Development.  IT Development is the service most commonly provided in partnership with external parties.  Very few companies exclusively use an external party or internal party to supply their shared services.   Companies are more likely to use a balance of external and internal parties to create shared service areas such as HR/Legal, IT Infrastructure, Tech Support, and IT Development to take advantage of subject matter expertise, variable cost flexibility and offshore labor rates.  By using internal resources they are able to maintain enough of their own working knowledge to manage the operation and effectively negotiate terms.   Companies are less likely to use external and internal parties in shared services such as architecture, and program/project management to name a couple - even though subject matter expertise and deep skills in these areas are frequently nascent in organizations.

In our follow-up posts, we will discuss the case for sharing and some alternative organization designs and implications.

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