The nonprofit sector is increasingly looking to successful business strategies to achieve operational efficiency and effectiveness. Motivated by the need to ensure that scarce resources are devoted to the mission of the organization, and with ever clearer accountability to boards of directors and donors, nonprofits are exploring shared services strategies for front and back office functions.
What is “shared services”?
Shared services is the consolidation of certain business functions on an enterprise (e.g. company), sectoral (e.g. various children’s aid societies) or community (e.g. geographic) basis, and the transfer of these business functions into specialist centres under shared management. These shared functions are then operated as free standing “businesses” accountable to clients for the purposes of:
- driving down costs: often between 10%-40% savings
- sharing scarce resources
- eliminating redundancy and duplication
- redeploying savings to mission critical areas
- increasing service quality
Typical shared services functions include:
- contact centres
- financial processing and accounting
- payroll and benefits
- legal and other professional services such as labour relations advice
- strategic and common procurement services
- utilities acquisition and management
- facilities management
- insurance and risk management
- information technologies services
- program services
The shared services model typically has three characteristics:
- Pooling or consolidating similar activity in as few locations as possible
- Standardizing and redesigning business processes
- Deploying common information management tools
To make a shared services model run like a business there are four basic building blocks to consider:
- Baseline Measurement — benchmarking your starting point in order to measure future progress.
- Service Level Agreements — formal contractual relationships with your shared service provider to ensure basic accountability mechanisms are in place.
- Pricing/costing/ and all other metrics such as service standards — particularly important for a nonprofit business context.
- Governance and Customer accountability — to make it “all sing,” governance and accountability structures are needed to optimize a service culture.
A shared services model attempts to strike a balance between benefits that typically can be achieved through a highly centralized service delivery model and those that typically characterize what might be called a distributed model, where each organization independently provides all its support functions. Most often the shared services model is confused with centralization, yet it is fundamentally different:
Governance – In a centralized model one organization sets the policy and the direction for the service. In a shared services model, the direction is provided by a board of directors representative of clients or customers.
Accountability – In a centralized model the central corporate goals take precedence; in a shared services model the customers’/clients’ needs shape priorities.
Flexibility – In a centralized model all services are mandatory; in a shared services example, there is usually a moratorium at the beginning, and after which customers can withdraw from some or all of the service offerings if there is dissatisfaction with the service quality or customer responsiveness.
Performance – In a centralized model corporate goals drive performance; in a shared services model performance is evaluated against the service level agreement defined by customers, and against external benchmarks.
Funding – In a centralized model services are paid through direct allocation or general “taxation”, whereas in a shared services mode, once a pricing structure has been established, customers are charged based on usage.
Shared services are usually adopted as a strategy for modernization, integration, transformation and capacity building. When a shared services model is implemented, there can be significant and positive cultural changes such as the creation of a “one company” mindset with enterprise or community-wide benefits. In order to realize benefits, there needs to be sustained commitment to the shared services model, at least for a few years, while investments are made in people, processes and systems.
For most governments and larger organizations, it is at the transactional level where the earliest benefits are gained. For example, multiple financial, payroll and IT systems are pulled together, redesigned and leveraged. For nonprofit organizations, early “wins” can also be achieved in program delivery. Welcome services, facilities management and training are good candidates for a shared services model, as are back office functions such human resources and other professional advice, and information technology support.
Consider shared services as a strategy for capacity building
Have clear and unambiguous goals that integrate shared services within a broader vision for your organization or sector and seek respected and trusted leadership from within your sector to articulate and lead the change.
Engage your sector’s leadership and stakeholders
Engage your sector’s leadership and stakeholders in identifying the project scope, i.e., services that are amenable to shared solutions. Start with early “wins”.
Manage your shared services implementation like a project
Articulate your “from/to” story and prepare an action plan to bridge the gap between where you are and where you want to be. Baseline the current situation and identify financial and non-financial benefits that are measurable. Prepare the business case and plan.
Remember to leverage modern service delivery strategies
Remember to leverage modern service delivery strategies such as contact centres, service agreements, portal technology and sector best practices. The investments in your shared services journey will be transformational!
Get governance right
Be thoughtful about defining your sector. Enlist the leadership and define the rules of engagement. Have a shared understanding of goals and outcomes. Effective governance will ensure that investments are made, milestones are met and wins realized.
Five Good Resources
- Implementing Shared Services in the Public Sector, The Pillars of Success. Carolyn Farquhar, Jennifer Fultz and Andrew Graham, The Conference Board of Canada, 2006.
- Shared Services, Mining for Corporate Gold, Barbara Quinn, Robert Cooke, Andrew Kris, Prentice Hall, 2000.
- Shared Services, Adding Value to the Business Units, Donniel Schulman, John Dunleavy, Martin Harmer and James Lusk, John Wiley, 1999.
- Conference Proceedings, Public Sector Shared Services 2006: Transforming Service Delivery, The Conference Board of Canada, November, 2006.
- Conference Proceedings, Public Sector Shared Services: How to Deliver Value for your Organization, The Conference Board of Canada, November, 2005.