Revitalizing Shared Services – The Accelerating Demand for Efficiency and Innovation
Introduction: the Janus-faced organization
There has perhaps never been a time when the seemingly contradictory demands of reducing costs and investing in innovation were stronger than they are today. In the current downturn, most firms have decided to focus on their core value-producing activities, and to sharply reduce the cost of all support functions. The latter have been outsourced to third parties, off-shored to other continents, or moved into shared services organizations (SSOs). Research suggests that the use of SSOs for support functions, including IT, has greatly increased during the downturn, and they have become an important part of the organization in many firms. Often separate from the rest of the organization, SSOs are effectively internal suppliers to the rest of the business.
But even as IT is being centralized in order to cut costs, technology continues to penetrate every corner of the business, even the product and service offering itself.1 Portable, mobile and social networking technologies are stimulating organizational innovation and changes in the very nature of work. Social networking technologies, in particular, hold the promise of overcoming some of the inefficiencies of today’s complex matrix organizations as well as engaging employees more productively.2 The networked organization, discussed for years, is now actually emerging. Faced with all this opportunity for innovation, executives in many firms are asking IT to raise its game and find new ways to add value.
But how can IT raise its game while simultaneously cutting costs and being consigned to IT SSOs, and to supplier status? Somehow, as one of the author’s colleagues remarked, the CIO must still find a way to “pay for the magic” even in these tough times. This report is designed to help CIOs effectively manage an SSO to reduce costs, while also supporting the innovation and value agendas of the firm. Throughout this report we will use the metaphor of the Janus face to remind readers of the need to both systematize the past and prepare to face the future. This is the best way to ensure that the firm’s shared services structure remains vital.
This report explores emerging approaches to generating value as well as lower costs from IT shared services initiatives and organizations. It is based primarily on interviews with over 20 major firms in Europe and North America. More details of these case examples are given in the Appendix at the end of this report.
Figure 1 – The business context of the IT function
Figure 1 summarizes some of the key forces acting on the enterprise and on its customers, all of which are driving firms to become both higher value and lower cost. The most immediate influence is the current business downturn that began over two years ago, and from which most firms are only now slowly recovering. In response to often-sharp declines in revenues, firms are cutting IT costs more dramatically than they generally have in previous recessions, in part through increased use of shared services.
Beyond these short-term pressures, firms continue to be influenced by the globalization of the economy, which is producing major new markets outside Europe and the US, but also new competitors, often based in Asia. To escape price competition, firms in the developed world are moving up-market into proprietary offerings and services that are harder for the new competitors to copy.3 They are also moving to more complicated organization charts, in particular to cover major new geographic markets in Asia, Latin America and elsewhere.
Finally, firms and their IT functions are increasingly influenced by their employees and customers, who have become much more familiar with technology and less willing to be led by IT in choosing their technology solutions. Consumer-oriented mobile IT, social networking sites and the cloud are revolutionizing IT at every level. New ways of working based on social networking technology are revolutionizing how work is done and the very nature of the work itself. The LEF has been researching and reporting these trends for some time.4
Figure 2 – The Janus-faced organization
The pressures of the downturn have motivated firms to think more carefully about how they add value to the customer and compete in the market. Increasingly they are distinguishing between two different forms of value:
- Value associated with standards and control. value is achieved through low costs and quality in operations, based on attention to detail plus relentless optimization and standardization of operational and transactional support activities. Everything is measured, and all dysfunctions and unnecessary complexity and diversity are rooted out. Standard services are offered globally at competitive costs. The resulting shared operational platform not only reduces cost, but also greatly improves management transparency and control.
- Value associated with innovation and unique products/services. value is achieved by discovering and developing new offerings and intellectual property that the customer finds valuable and is willing to pay for. Experimentation and trial and error are the order of the day. Team members often work with networks of outside experts and partners, facilitated by collaboration and social networking technologies.
Management must become ‘Janus-faced’, equally adept at rationalizing the past and embracing the future. (Janus is the Roman god of gates and doors, traditionally depicted with two faces or heads facing in opposite directions, looking into both the past and the future.) Management’s challenge is to get the two camps and cultures to work together for maximum benefit of the firm. The balance of these two directions will tend to define the culture of a firm at any particular point in time. As we shall see, the Janus metaphor applies to the firm as a whole as well as to major functions like IT, Finance and HR, and to associated shared services initiatives.
1. See David Moschella, Business/IT Co-evolution – Strategies for Growth and Competitive Advantage, LEF, November 2006
2. See David Moschella et al, Energizing and Engaging Employees – Social Media as a Source of Management Innovation, LEF, March 2010
3. See Kirtland Mead, Customer Services Strategies and the Role of IT, LEF, July 2009
4. See, for example, Doug Neal, Doing Business in the Cloud – Implications for Cost, Agility and Innovation, LEF, August 2009 and David Moschella et al, Energizing