Shared Services

An overview of Shared Services

Shared Services is a methodology for structuring “back office” functions and is based on:

The standardisation of processes across all businesses
Focusing on continuous process improvement, either via process redesign or new technology
Operating as a business with a customer service focus, even though it probably is not trying to make a profit, placing more emphasis on the efficiency of the activities been performed

The aim of a shared service is to combine the efficiency and leverage of centralisation (standardisation, economies of scale, a single base for improvement) with the superior customer service usually associated with decentralisation.

Originating in the USA and migrating to Europe the shared services model has been used successfully since the late 1980’s. It became popular in Australia, New Zealand and Asia in the 1990’s. Due to the geographical spread, cultural and language diversity of organisations in the Asia Pacific region it has often been viewed as “too difficult” for organisations that may have successfully implemented shared services elsewhere.

Commercial pressures and the improvements in technology, including the roll out of ERP systems across the region by large organisations, has enabled the shared services model to be applied across borders in this region. This change has seen the establishment of dozens of shared service centres.

Services included in Shared Services
There are two basis characteristics for services that are good candidates for a shared service. They are either:

Similar across different locations (eg: transactional processes like Accounts Payable), or
May benefit from a common approach (eg: specialised services like Treasury or Taxation)

Services that require a local presence or processes that lack commonality are not good candidates for a shared service. This may result from physical geography, process/system design or specific business needs.

Listed below are services that are commonly included in a Shared Service:

Accounts Payable
Accounts Receivable
Customer Billing
Customer Credit Assessments
Customer Debt Collection
Payroll (Salaried and Waged)
Cash Management
Treasury
General Ledger
External Reporting
Fixed Assets
Intercompany Payables/Receivables
Inventory Accounting
Management Reporting
Taxation (GST, VAT, Sales taxes, Withholding Taxes)
Travel & Expense Accounting Policy
Travel & Expense Claim Processing
Human Resources
Customer Call Centres
Information Technology
Project Management

The diversity of the activities included in shared services demonstrates the wide ranging application and effectiveness of this approach.

Shared Service Models
Four main shared service models are utilised, all of which may include an element of outsourcing:

Local Units

Characteristics include:
- Managed centrally with activity done locally
- Geographical spread with some localisation
- Standardisation main benefit , though minor economies of scale achieved
- Simple to implement, difficult to change culture
This model can be used as a stepping stone to the other models. It reduces the culture impacts while moving to some degree of standardisation. The benefits would be minimal when compared to other models, and the ability to retain any standardisation achieved would depend on Senior Managements commitment.

Centre of Excellence

Characteristics include:
· Is managed centrally but processes are located in areas where expertise is available. Multiple locations handling specific processes, minimal localisation & focus on common process design
· Can achieve economies of scale & scalability benefits, and can reduce the number of redundancies required
· Can be complex to implement and reduces efficiency. It can also be difficult to change the internal culture Many organisations use this model to some degree, where they have specialised shared service centres situated in different locations. Often the prime reason for this is because of the availability of expertise. The model can produce benefits but it would be difficult to instigate cultural change when the same people may do the same activity in the same place.

Central Unit

Characteristics include:
· Managed centrally with activity centralised
· Single location, usually separate from current sites
· Minimal localisation with a focus on a common process design
· Economies of scale achieved and scalability benefits
· Complex to implement and language skills may be required
This is the standard model for a shared service. While it is the most difficult to implement, when compared to the Local and Centre of Excellence models, the benefits achievable make the effort worthwhile.

E-enabled

Characteristics include:
· Managed centrally with a focus on self service using technology to automate processes
· The high use of technology and the Internet reduces the size of shared service, which focuses on an audit role and the handling of exceptions
· High economies of scale and scalability.
· Complex to implement, potentially high implementation costs
This model is usually adopted by “Central unit” model shared services as they develop their processes and mature. It requires an overall “technology” plan that can be difficult to justify and implement if the knowledge gathering of going through the “Centre unit” model has not been undertaken. It can be adopted as a starting point but requires in depth planning, a commitment to complete and hands-on cultural change management.
Outsourcing
Few shared services do everything in-house. Most have outsourced all or part of a particular activity, depending on their own competencies.

The most common model used is the “Central Unit” model, generally with the intention of progressing to the “E-enable” model. What, if anything, is outsourced should be based on a competencies assessment and cost-benefit analysis. Choosing the shared service model to be implemented tends to be an easier decision than the choice of location.

Locations in Asia Pacific
In the Asia Pacific region there are eight countries preferred as locations for shared services. Each country has its merits, however, the final choice of country tends to be for business specific rather than country specific reasons (eg: the business may have large operations or regional headquarters in a particular country). For reasons of size, stability, infrastructure, regulatory environment or language the remaining countries in Asia Pacific are not usually considered viable locations for a shared service that is required to cover multiple countries.

The eight countries that are popular locations have a mixture of locally focused shared services and those that have a wider customer base. Some countries are highly bureaucratic (eg: India & China), some tend to enact retrospective legislation (China is renown for this) and others are developing stability and are keen for foreign investment (eg: Malaysia & the Philippines).

Australia - There are numerous shared services located in Australia mostly servicing either only Australia or Oceania, though there are several Asia Pacific shared services located here.
China - A major manufacturing centre China attracts shared services that are aiming to support these operations. The shared services located here are generally servicing only China with some servicing the surrounding countries.
Hong Kong- Most shared services based here are either servicing financial institutions or businesses with significant operations in Hong Kong itself and China
India - India is a popular location for shared services that are servicing Europe & the USA, though some also service Asia Pacific. The larger shared services tend to be located here where staff numbers can be in the thousands.
Malaysia - This is a good low cost location. There are numerous shared services here servicing the Asean countries and Asia Pacific
New Zealand - Though not usually an obvious choice NZ has a cost base 20%-30% lower than Australia, thus it is attracting attention as a location. It also has a time zone benefit enabling it to complete activities before other countries have technically begun.
Philippines - Another good low cost country. It has several shared services based here servicing the Asean and Asia Pacific region.
Singapore - Singapore is a major gateway for many companies and has excellent transportation links with the rest of Asia. This has made it a prime location for organisations whose business rely on this.

If your business is looking for:

Low risk locations you could choose from Australia, Hong Kong, New Zealand and Singapore
Low cost locations you could choose from India, Malaysia and the Philippines
Countries with good language skills you could choose from Australia, Malaysia and Singapore

Though the assessment of countries as a location is important the final choice is invariably made for business reasons rather than because one country is better. The various attributes of these countries assist to reduce the number of potential locations, depending on your criteria, but does not determine the final choice. In the end it is your particular business requirements that need to have the highest weighting.

Conclusion
Shared Services are well established in Asia Pacific even through undertaking such an initiative can be challenging due to the geographical spread and cultural, language diversity. However, this does not prevent this business model from being effective, with the dozens of successful implementations bearing testament to this. Careful planning and forethought is required to ensure that the cultural differences and logistical challenges are covered, with the choice of location having an impact on this. But there are no barriers that can not be overcome.