What Are Shared Services? Definition & Models
Summary
Shared services is a service delivery approach that consolidates back-office functions-finance, IT, HR, procurement-into one centralizedunit that serves many business units. Read through this guide to explore how a shared services model works, its definition, and its two main models.
Simply put:
What it is – A shared services setup is an operational service-delivery method for consolidating back-office functions in one centralized business unit for the entire company.
There are two key approaches: the functional model (which focuses on specific business processes, such as IT support) and the integrated model (which consolidates various functions under one entity to encourage cooperation and deliver cohesive service).
How it’s structured – A shared services unit acts as its own business, providing services to other departments as customers.
This business support unit offers standardized services-including finance, HR, IT, and procurement-to other units across an organization.
More simply put, shared services mean collecting and processing business tasks into one unit to share them among the organization, which helps reduce duplication. In terms of definition, the shared services meaning centers on concentrating efforts into a central team rather than having different units of a company perform the same functions repeatedly. This allows for greater efficiency, quality control, and significant cost savings for all parties involved.
What is the definition of shared services?
Shared services is a unified back-office infrastructure for business processes – typically customer service and back-office transactions such as processing, finance and administration, IT services, customer management, HR operations, and procurement . Shared services meaning one thing, many parts.
The shared service concept suggests creating a centralized organizational structure that brings together the common elements of distinct business units and consolidates them under a central administrative team, such as IT operations or customer service representatives.
The main aim behind consolidating such tasks into a singular group rather than having divisions carry them out separately is cost savings .
What does shared services include?
Common business functions included in shared services:
Accounting and Finance: Accounts payable and accounts receivable, general ledgers, expense reporting.
Information technology: IT support desks, network management, software implementation.
Human resources: Onboarding, benefits administration, payroll management.
Customer service: Helpdesks, account management. Procurement : Purchasing, contract negotiation.
These functions, while often internal, may also be out-sourced to third-party organizations to take advantage of scale and specialization.
While typically associated with the ‘back office’ of an organization, a number of organizations are leveraging the benefits of the model to shared services more customer-facing, operational, and R&D-centric functions such as retail CRM, production, supply chain and logistics operations, and research.
How are shared services structures categorized?
Most shared service models can be characterized in one of two primary categories, though most often organizations develop a blend of the two:Functional shared services modelThis structure creates independent units responsible for specific functions, such as finance or IT, for multiple business units.
Each unit acts like a business, managing its own operations, service level agreements, and cost structures.
This structure allows organizations to gain expertise within each function, leading to increased efficiency and standardization. Integrated shared services model. This model consolidates several functions into a single organization to provide integrated services to all business units. It encourages collaboration between different functions, breaking down silos, and fostering a holistic view of the customer or service experience. Technology and data analytics often play a key role in managing this integrated unit.
What is a shared services organization?
A shared services organization (SSO) is the business support center that carries out shared services . Whether the shared services approach followed is functional or integrated, it’s the organization that serves as the nexus for those specialized, repeatable tasks that multiple business units can use .
What are the drawbacks of shared services?
In any service delivery model that standardizes the support for multiple business units, it is important to consider how the unit will meet the specific requirements of individual groups, which the standardized model is unable to meet, at an acceptable price point. One significant drawback is employee resistance to new ways of working that, initially, are not supported adequately through up-skilling and changes to systems and processes. Standardized IT systems and support processes that do not adequately cater for niche business requirements will not yield the efficiencies that are promised of a shared service model.
While many changes have occurred to the shared service model over two decades, it is one of the few business strategies to have become stronger in the second decade rather than diminish.
Shared services is defined here as providing value rather than reducing cost and it is important for such value creation that organizations have in place the capabilities and strategies needed to realize these benefits.
FAQs
What is the meaning of shared services?
Shared services means centralizing repeatable business functions — finance, HR, IT — into one unit that serves multiple business units, so work isn’t duplicated across departments and the organization gains economies of scale.
What is a shared services organization?
It’s the dedicated, self-sufficient unit that delivers centralized functions to the rest of the company, operating with its own processes, standards, and accountability.
What is an example of shared services?
A single finance-and-accounting center handling payroll, invoicing, and reporting for every business unit in a company, instead of each unit running its own.
