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9 - Shared Service Organisation

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9 - Shared Service Organisation

  1. 1. Shared Service Organisation presented by Richardus Eko Indrajit indrajit@post.harvard.edu
  2. 2. Presentation Objectives
  3. 3. 3 SK No. Print - 201/I10200/2006-S0
  4. 4. 4 Pointer Persiapan Penerapan SSO
  5. 5. 5 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
  6. 6. 6 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
  7. 7. Ba Background
  8. 8. 8 Corporate Services
  9. 9. 9 Key Industry Trends   Globalization   Rationalization, M&A   Deregulation, Privatization   Cost Reduction   Technology innovation   Information to Knowledge Transformation   Risk Management   Government Regulations
  10. 10. 10 Support Services
  11. 11. 11 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?
  12. 12. 12 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
  13. 13. 13 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
  14. 14. 14 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%
  15. 15. 15 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)
  16. 16. 16 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
  17. 17. 17 Fundamental Reengineering
  18. 18. 18 Priorities Analysis
  19. 19. Shared-Service Organisation’’s Definitions and Characteristics
  20. 20. 20 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)
  21. 21. 21 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)
  22. 22. 22 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)
  23. 23. 23 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)
  24. 24. 24 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
  25. 25. 25 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.
  26. 26. 26 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.
  27. 27. 27 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.
  28. 28. 28 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.
  29. 29. 29 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.
  30. 30. 30 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
  31. 31. 31 Process Classification Source: KPMG
  32. 32. 32 ex. IT Shared Services
  33. 33. 33 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
  34. 34. 34 Cost Reduction Phenomena
  35. 35. Type of Organisation Models
  36. 36. 36 Alternatives   Centralisation   Decentralisation   Outsourcing   Shared-Services
  37. 37. 37 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.
  38. 38. 38 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.
  39. 39. 39 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.
  40. 40. 40 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.
  41. 41. 41 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.
  42. 42. 42 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.
  43. 43. 43 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.
  44. 44. 44 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.
  45. 45. 45 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.
  46. 46. 46 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.
  47. 47. 47 Distinguishing Features
  48. 48. 48 Distinguishing Features
  49. 49. 49 Distinguishing Features
  50. 50. 50 Organisational Management Model
  51. 51. 51 Decentralisation Model
  52. 52. 52 Coordinated Decentralisation Model
  53. 53. 53 Concentration Model
  54. 54. 54 Join Shared Service Center
  55. 55. SSO Components and Organisation
  56. 56. 56 Shared Service Components
  57. 57. 57 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
  58. 58. 58 Emerging Charter of SSO
  59. 59. 59 Evolution of SSO
  60. 60. 60 Business Services Organisation Structure
  61. 61. Step-by-Step Implementation
  62. 62. 62 Success Factors on Operational Mngt.
  63. 63. 63 Best Practice Stages
  64. 64. Interaction with Units on Service Level Agreement
  65. 65. 65 Why Service Level Agreement?   Customer Perceptions --- Fantasy?   Customer Expectations --- Reality   Customer Agreements --- Targets @ What Cost
  66. 66. 66 Matching Demand with Supply
  67. 67. 67 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
  68. 68. 68 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
  69. 69. 69 SLA Checklists
  70. 70. Issues on Chargeout Aspects
  71. 71. 71 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
  72. 72. 72 Complete Roles of SSO
  73. 73. 73 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
  74. 74. 74 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
  75. 75. 75 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.)
  76. 76. 76 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
  77. 77. 77 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
  78. 78. 78 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
  79. 79. 79 Charge for Usage
  80. 80. Aftermath SSO Implementation
  81. 81. 81 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
  82. 82. Q&A and Discussions