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Shared Service Organisation
presented by
Richardus Eko Indrajit
indrajit@post.harvard.edu

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Presentation Objectives

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SK No. Print - 201/I10200/2006-S0

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Pointer Persiapan Penerapan SSO

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Knowledge Highlights
Apa itu SSO dan mengapa harus SSO.
Langkah-langkah atau tahapan menyiapkan SSO dan apa
saja yang harus disiapkan.
Organisasi SSO seharusnya bagaimana.
Perangkat kesisteman apa saja yang diperlukan guna men-
dukung operasional layanan Shared Services (misal: SLA.
Charge Back, Kinerja, STK, dll)
Pentingnya pengukuran kinerja, berikut overview model-
model pengukuran kinerja yang dapat dipergunakan (misal
BSC, dll).
Penjelasan singkat terkait dengan sekuriti, BCP dan DRP.
Strategi menuju kepuasan pelanggan.
Bagaimana masing-masing Sub Tim seharusnya bekerja.
Source: Pointer Persiapan Penerapan SSO

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Agenda for Today
Background
Shared-Service Organisation’’s Definitions and
Characteristics
Type of Organisation Models
SSO Components and Structure
Step-by-Step Implementation
Interaction with Units on Service Level Agreement
Issues on Chargeout Aspects
Aftermath SSO Implementation

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Background

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Corporate Services

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Key Industry Trends
Globalization
Rationalization, M&A
Deregulation, Privatization
Cost Reduction
Technology innovation
Information to Knowledge Transformation
Risk Management
Government Regulations

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Support Services

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Technology Issues
DRIVER I/T CHALLENGE
I/T Staff
Turnover Rates > 14%
Wages increasing at a rate of 4x average
Renewal Efforts Major ERP implementations (SAP, Peoplesoft, Oracle)
Emerging Technologies
Requires different management model than mature
technologies
Outsourcing Must determine where and how to use service providers
Demand Management What level of service, which development projects?
Costs
Costs perceived to be too high with too little control
from the business
How should businesses be charged for these services?
Growth How can I/T support and enable corporate growth?
Organization
What organization model should I/T adopt (Centralized,
Decentralized, Shared Service)?
How can duplicate services (“shadow” I/T shops) be
managed?
Extended Enterprise
What I/T services can enable supplier/customer process
improvements?

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Business Imperatives
Business Imperatives I/T Implications
Scaleability
Mergers, acquisitions and entry into new markets require the
capacity to deploy increased levels and coverage of services quickly
Divestitures, JV’s and outsourced business processes drive loss of
scale and loss of cost effectiveness in existing services
Implementing new technologies and accommodating business change
create large peak demands for services
Flexibility
Flexibility is essential to introduce new technologies and
accommodate business change
Freedom to select the technologies best suited for business
objectives is important (i.e., technology choice is not dictated by
internal skill base)
Responsiveness and
Manageability
Quick access to productive, external resources is needed to
respond to business opportunities
Reliability
Service levels must be reliable in an unpredictable, changing
environment
Sustainability
Need skills that will effectively transfer technology into the
organization
Viable career paths are needed to effectively manage and leverage
I/T for business benefits
Cost-Effectiveness
Variable costs must be kept variable
Must maintain our cost competitiveness while changing scale
Risk Minimization
Need to make the right choice on technologies and partners
Need to manage the overall risk in our technology portfolio

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Root Cause Analysis Highlights
COMMON THEMES IMPACT EXAMPLES
Decentralized and
diversified corporate
structure
Limited sharing among divisions
and/or geographic areas
Duplicate groups and assets
Loss of economies of scale
Small and subscale Help Desks
Small and subscale Data Centers
Multiple applications supporting
the same process
Informal cost/benefit
processes
Selection often driven by
historical not economic
considerations
Excessive dependence on
automation through technology
to capture benefits
Excessive number of product
development projects focused on
automating low-value transactions
Insufficient support of cross-
functional applications targeted to
supporting key decisions
Insufficient cost
visibility and
accountability over I/T
Excessive discretionary
activities
Lack of visibility of I/T costs
limits opportunities to make
effective cost/service tradeoffs
Multiple planning and technology
groups
Underutilized computers and
network, often viewed as “sunk
cost” with no incremental cost
Inadequate level of
standardization
Unclear definition of who
controls assets – often leading
to lack of standards and to
underutilized assets
Limited definition and
enforcement of standards
Multiple Networks and Desktop
standards increased support costs
unnecessarily
Multiple organizations defining and
enforcing standards often created
a different set of standards by
division and/or geography

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Process-Based IT Organisation
Improving the value and return on I/T assets by
focusing resources on critical market driving
capabilities (e.g., ““Advantaged Systems””)
Positioning the I/T Organization to support growth
Improving service management disciplines using
process based organization concepts
Capturing cost reduction opportunities of up to 40%

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Implementing Best Practices Approach
Simplifying I/T Operational Processes
– Separate supply and demand, fixed and variable
– Eliminate low value added work and redundant support systems
accumulated over years of growth, acquisitions, etc.
– Optimize I/T processes for low cost delivery…benchmark to best
practices
– Develop processes to share expertise and internal best
practices
Restructuring I/T Delivery Model to Achieve Operational
Effectiveness
– Centralize operations where strong economies exist
– Develop service level agreements to create accountability to the
line
– Balance sourcing of I/T capabilities (insourcing vs outsourcing)

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Implementing Best Practices Approach
Leveraging Information Systems Investment
– Enforce common technical architecture standards
(hardware, software, network)
– Implement rigorous cost/benefit standards for new
application software investments
– Optimize application software maintenance requirements
Reducing Headcount Costs
– Strip out redundant support systems and staff
accumulated over years of growth, acquisitions, etc.
– Staff to ““base case”” I/T delivery model and streamlined I/
T processes

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Fundamental Reengineering

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Priorities Analysis

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Shared-Service Organisation’’s
Definitions and Characteristics

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Definition
The concentration of company resources performing
like activities, typically spread across the organization,
in order to service multiple internal partners at lower
cost and with higher service levels, with the common
goal of delighting external customers and enhancing
corporate value.
Schulman et al. (1999, p. 9)

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Definition
A collaborative strategy in which a subset of existing
business functions are concentrated into a new, semi-
autonomous business unit that has a management
structure designed to promote efficiency, value
generation, cost savings, and improved service for the
internal customers of the parent corporation,like a
business competing in the open market."
Bergeron (2003, p. 3)

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Definition
An independent organisational entity which provides
wel defined services for more than one unit (which may
be a division or business unit) within an organisation.
The organisation is responsible for managing its costs
and the quality and timeliness of the services it
provides to its internal customers. It has its own
dedicated resources and typically will have informal or
formal contractual arrangements, often called service
level agreements, with its customers."
Moller (1997)

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Definition
The practice of business units, operating companies
and organizations deciding to share a common set of
services rather than have a series of duplicate staff
functions."
Quinn et al. (2000, p. 7)

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Business Drivers
Economies of scale
Technology leverage
Processes re-engineered with best practices
Processes standardized
Greater span of control
Increased focus on process measurement
Leverage specialized skills
Sharing of information and resources across
businesses
Customer service focus

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Typical Shared Services Function
The initial scope of Shared Services is typically
focused on non-customer transactional services. As
the organization capabilities mature, and the business
case mandate increases, other processes are
considered.

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Characteristics
Shared services are often bundled in independent legal
entities. They are usually geographically separated from
the headquarter.
Tasks that should be gathered in shared services should
not be critical tasks from a competition point of view.
Neither should customer contacts or sales points be put
into shared services to retain their interconnection to the
core business. Thus, only support process and non-
strategic activitiesshould be bundled in shared services.
Earlier, different units could have handled things
differently, but in order to achieve economies of scale,
such processes and activities need to be streamlined.

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Characteristics
One goal with shared services is to set up a center of
scale.
An acquired power can help to negotiate better terms
and prices which can cut even more costs due to e. g.
volume discounts.
Additionally, extra revenues can be generated when
opening shared services to others.
Besides improving the organizations working capital,
also financial risk management can benefit from
external revenues.

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Characteristics
Establishing a center of expertise is another expressed
goal.Through concentration on core competencies,
output quality can be enhanced at the same time as
cycle time is reduced.
Employees are more satisfied and their competencies
can be better utilized and anchored in the organization,
which contributes to improved knowledge
management.
By feeling that their knowledge is more appreciated,
employees can also contribute to a new service minded
attitude, which is important when creating a new level
of internal customer-supplier relationship or business
partnership.

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Characteristics
Create a platform for business growth, flatten
organizational structure, and support of general group
strategy.
It is often a step towards globalization, an enabler for
cultural organizational change, or a step towards
external outsourcing.

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Common Definition and Characteristics
The joining of similar processes spread over several
organizational units or departments with the objective
to render services in an efficient and effective way to
other internal organizational units or customers.
– An innovative approach to standardizing and
streamlining the delivery of common processes in one or
several physical locations
– These processes are traditionally transaction oriented
and have common characteristics across business units
– It will lead to economy of scale because of
standardization and a more simplified process, a more
integrated ICT infrastructure and because of a reduction
of overhead costs
– Leads to a clearer (internal) customer relationship
because of having a well defined service level agreement
Source: KPMG

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Process Classification
Source: KPMG

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ex. IT Shared Services

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Second Generation Shared Services
HUMAN RESOURCES
Benefits
Recruiting
Payroll
Training
Career Planning
FINANCE &
ACCOUNTING
General Accounting
Accounts Payable
Accounts Receivable
Fixed Assets
Financial Reporting
Tax Accounting
Tax Compliance
Billing/Invoicing
Loss Prevention
MERCHANDISING
Order Management
Replenishment
Inventory
Logistics
Point-of-Sale
PROCUREMENT
Strategic Services
Tactical Purchasing
REAL ESTATE
Lease Administration
Property Management
Construction Services
INFORMATION
TECHNOLOGY
Data Center Operations
Communications Operations
Network Support

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Cost Reduction Phenomena

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Type of Organisation Models

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Alternatives
Centralisation
Decentralisation
Outsourcing
Shared-Services

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Alternatives: Centralisation
A classic alternative to shared services is to centralize
support processes.
It is an unarguably cheap alternative.
However, centralization often suffers from its sordid
history of a bureaucratic center with no idea of service
or the real world.
The distance to business services is also symbolized
through an orientation towards the headquarter,
whereas shared services are typically outward oriented
towards their internal customers with an expressed
customer/supplier relationship.

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Alternatives: Centralisation
Outward orientation in shared services is also
expressed by process thinking, which puts the
customer or business partner in the middle, whereas
centralized units are often characterized by a
functionally oriented design.
Another sign for outward orientation in shared
services, is how to treat customers or business
partners. While a medium to high customer orientation
can be observed in shared services, customer
orientation with centralization is rather low.

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Alternatives: Centralisation
A centralized unit is part of a legal entity and is
controlled through budgets with limited awareness of
costs and service levels. Shared services, however, are
often organized as cost-centers.

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Alternatives: Decentralisation
Another classic place to put support processes are
local departments. There exists an unique knowledge
about the business, which can directly be used in the
departments.
Per definition processes and activities are not gathered
in a separate legal entity. They are a part of the local
department, which distinguishes them from a shared
service organization, which is often owned to 100% by
the corporate group.

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Alternatives: Decentralisation
In principle, departments are locally located and
support processes and non-strategic activities are
performed at the same place with a responsibility for
the local organization only. In contrast, shared service
centers serve also entities at other locations.
They are not locally connected and there is no
association to one entity, as shared service centers are
organized in autonomous entities.
Another distinguishing feature is pricing. Shared
services often use transfer prices, whereas local
departments can only have some local cost
apportionment.

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Alternatives: Decentralisation
Precisely as centralized entities, decentralized units have
rather a functional structure than a process-oriented one,
which can be observed in shared services.
Synergy and professional competence have lower
potential in specialized units. Quantities tend to be too
low so that resources cannot efficiently be used. This
carries along the risk that no special competence can be
built up.
Shared services, on the other hand, other the possibility
to achieve economies of scale as quantities go up.
Higher quantities also allow for specialization and core
competence can be achieved.

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Alternatives: Decentralisation
Achieving economies of scale, however, is connected
to more standardization.
Consequently, shared services tend to be more
standardized and less flexible to meet an individual
entity's demands than a decentralized unit.
Thus, decentralized solutions over more flexibility and
adaptability.

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Alternatives: Outsourcing
It is the use of external resources after previously
having used internal resources.
There is an important difference between outsourcing
and shared services in the legal body. The outsourcing
alternative is provided by a third party legally
independent from the corporate group, whereas a
shared service organization is owned by the corporate
group.
Thus, the outsourcing organization is a legal entity
outside the corporation.

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Alternatives: Outsourcing
The degree of dependency is higher than in
alternatives owned by the corporate group. This can be
extremely critical when business critical processes and
activities are outsourced. Therefore, corporations
usually keep such processes and activities in-house.

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Alternatives: Outsourcing
Handing over support processes and non-strategic
activities to a third party implies that no professional
competence can be built up at the corporation. Often,
existing competence becomes even lower after a while,
as tasks are not performed in-house any longer.
Consequently, knowledge about them decline
constantly.
Pricing is based on negotiable market prices, whereas
shared services often use transfer prices and only
seldom market prices.

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Distinguishing Features

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Distinguishing Features

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Distinguishing Features

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Organisational Management Model

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Decentralisation Model

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Coordinated Decentralisation Model

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Concentration Model

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Join Shared Service Center

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SSO Components
and Organisation

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Shared Service Components

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People – Process – Technology
People Process Technology
Organiszation structure Change control Hardware
Skills development Metrics Architectures
Roles and responsibilties Problem management Software
Cultural; Legacy vs. Client/Server
mentalities
Disaster recovery Integration
Communication Performance and tuning OS
Training Security RDBMS
Transitioning Staff Capacity planning Server consolidation
Job descriptions Software distribution High availability (hardware)
Career path Asset management System management tools
Retaining staff Event monitoring Standards
Mentoring staff Network management Data warehouse
System management tools
Production acceptance
Quality assurance
Storate management
Scheduling
Service level agreements
Benchmark services
Charge-back
Wersion/Release management

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Emerging Charter of SSO

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Evolution of SSO

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Business Services Organisation Structure

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Step-by-Step Implementation

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Success Factors on Operational Mngt.

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Best Practice Stages

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Interaction with Units on
Service Level Agreement

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Why Service Level Agreement?
Customer Perceptions --- Fantasy?
Customer Expectations --- Reality
Customer Agreements --- Targets @ What Cost

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Matching Demand with Supply

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Interaction with Business Units
Create a Service Level Agreement between the Shared
Service Center and the Business Unit:
– Turnaround time on transactions
– Different transactions included
– Month-end closing procedure
– Month-end closing timeline
– Define owners for each transaction

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SLA Assessment
Define user measures and targets across all IT services
Define what users are doing themselves
Determine which are most important
Survey users on subjective topics
Perform periodic reviews with users/management
Compare to external benchmarks
Establish continuous improvement goals
Determine level of IT incentive pay
Update as business changes

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SLA Checklists

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Issues on Chargeout Aspects

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ex. Pertamina Cases
BUSINESS ENVIRONMENT
Business Growth
Industry Restructuring
(regulated vs. non-regulated)
Shared Service Implementation
Increasing Total I/T Costs
NEW DEMANDS ON I/T COST
MANAGEMENT
Support new acquisitions cost-
effectively
Achieve scale benefits
Support variety of business
strategies
Share resources without cross-
subsidizing
Demonstrate fair, equitable
costs
Support shifts in buying
behavior, service level planning
and scope management
Drive down overhead
Provide means for business to
access value of I/T services

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Complete Roles of SSO

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Chargeout Model Change
CURRENT CHARGEOUT
MODEL
Accounting tool to support
cost recovery
Difficult to understand
Lack of options
Year-end surprises
Costs perceived as high
Lack of control
TARGET CHARGEOUT MODEL
Communication tool to support
sound business decisions
Clear service definitions and
pricing
Product and service level
options
True-up when variance
identified
Costs are understandable
Predictable fixed costs;
determinable variable costs

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Direct Chargeout Principles
Chargeout systems should be simple and equitable
Chargeout approaches should, where possible, support the
business vision(s)
I/T should charge by service and prices should reflect full
costs
Predictable or fixed I/T costs should be allocated annually
based on simple drivers, and billed monthly or quarterly
Discretionary and highly variable costs should be billed
based on usage
Chargeout pricing should be benchmarkable
Chargeout pricing must be auditable and defensible
Chargeout systems should facilitate the reporting of total
costs by business process
The goal of chargeout is communication, not accounting

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Challenge to the Chargeouts
ISSUE
OPTIONS TO BE
EVALUATED
TARGETED
BENEFITS
Limited ability to support
varying business visions
Provide cafeteria style
options
Offer variety of service
level agreements
Greater control over
costs
Increased choice and
flexibility
Support for varying
business needs (low cost
vs. innovation, etc.)

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Challenge to the Chargeouts
ISSUE
OPTIONS TO BE
EVALUATED
TARGETED
BENEFITS
Client confusion over
service definitions
Offer more “user-
friendly” bundles
Communicate user
features
Show single line item for
total application costs
(bundled)
Separate discretionary
projects from ongoing
operations (lights-on)
Improved understanding
of costs
Improved ability to
manage demand
Ability to monitor costs
by business process

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Challenge to the Chargeouts
ISSUE
OPTIONS TO BE
EVALUATED
TARGETED
BENEFITS
Mixture of fixed and
variable costs
Recover fixed I/T costs
(e.g., infrastructure) via
fixed pricing
Recover variable I/T
costs (e.g., application
enhancements) via
discretionary or per-unit
pricing
Clearer understanding of
cost drivers
Greater control over
variable spend

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Challenge to the Chargeouts
ISSUE
OPTIONS TO BE
EVALUATED
TARGETED
BENEFITS
Process is difficult to
audit, often with surprise
year-end true-ups
Increase focus on
tracking usage across
business units (regulated
vs. deregulated)
Reconcile quarterly (or
monthly?)
Adjust rates semi-
annually if over 10%
variance – and explain
why
Defensible in regulatory
proceedings
Greater budget
predictability

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Charge for Usage

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Aftermath SSO Implementation

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Continuous Improvement
Assign accountability for continuous improvements to those
responsible for each service -- not to a dedicated quality
management group
Establish a close link between scorecard performance and
performance based systems -- in process
Define periodic market competitive ““stretch”” targets through
benchmarks
Continuously improve I/T cost and service structure
– Ongoing Service -- Organize I/T buyers’’ committees to review
cost and service performance and to negotiate future targets
– Current Investments -- Appoint ““process professionals”” to
maximize the value of current applications/investments on an
ongoing basis
– Discretionary Investments -- Review value proposition for new
projects and perform ““post-audit”” reviews to capture benefits
Negotiate cost and service levels with clients

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Q&A and Discussions