9 - shared service organisation

Shared Service Organisation presented by

Richardus Eko Indrajit [email protected]

Presentation Objectives

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

4 Pointer Persiapan Penerapan SSO

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 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

Ba

Background

8 Corporate Services

9 Key Industry Trends

  Globalization   Rationalization, M&A

  Deregulation, Privatization   Cost Reduction

  Technology innovation   Information to Knowledge Transformation

  Risk Management   Government Regulations

10 Support Services

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 maturetechnologies

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 controlfrom 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) bemanaged?

Extended Enterprise What I/T services can enable supplier/customer processimprovements?

12 Business Imperatives

Business Imperatives I/T Implications

Scaleability

Mergers, acquisitions and entry into new markets require thecapacity to deploy increased levels and coverage of services quickly

Divestitures, JV’s and outsourced business processes drive loss ofscale and loss of cost effectiveness in existing services

Implementing new technologies and accommodating business changecreate large peak demands for services

Flexibility

Flexibility is essential to introduce new technologies andaccommodate business change

Freedom to select the technologies best suited for businessobjectives is important (i.e., technology choice is not dictated byinternal skill base)

Responsiveness andManageability

Quick access to productive, external resources is needed torespond to business opportunities

Reliability Service levels must be reliable in an unpredictable, changingenvironment

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 Root Cause Analysis Highlights

COMMON THEMES IMPACT EXAMPLES

Decentralized anddiversified corporatestructure

Limited sharing among divisionsand/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/benefitprocesses

Selection often driven byhistorical not economicconsiderations

Excessive dependence onautomation through technologyto capture benefits

Excessive number of productdevelopment projects focused onautomating low-value transactions

Insufficient support of cross-functional applications targeted tosupporting key decisions

Insufficient costvisibility andaccountability over I/T

Excessive discretionaryactivities

Lack of visibility of I/T costslimits opportunities to makeeffective cost/service tradeoffs

Multiple planning and technologygroups

Underutilized computers andnetwork, often viewed as “sunkcost” with no incremental cost

Inadequate level ofstandardization

Unclear definition of whocontrols assets – often leadingto lack of standards and tounderutilized assets

Limited definition andenforcement of standards

Multiple Networks and Desktopstandards increased support costsunnecessarily

Multiple organizations defining andenforcing standards often createda different set of standards bydivision and/or geography

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 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 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 Fundamental Reengineering

18 Priorities Analysis

Shared-Service Organisation’’s Definitions and Characteristics

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 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 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 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 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 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 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 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 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 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 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 Process Classification Source: KPMG

32 ex. IT Shared Services

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 Cost Reduction Phenomena

Type of Organisation Models

36 Alternatives

  Centralisation   Decentralisation

  Outsourcing   Shared-Services

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.


  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.


  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 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.


  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.


  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.


  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 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.


  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.


  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 Distinguishing Features

50 Organisational Management Model

51 Decentralisation Model

52 Coordinated Decentralisation Model

53 Concentration Model

54 Join Shared Service Center

SSO Components and Organisation

56 Shared Service Components

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 Emerging Charter of SSO

59 Evolution of SSO

60 Business Services Organisation Structure

Step-by-Step Implementation

62 Success Factors on Operational Mngt.

63 Best Practice Stages

Interaction with Units on Service Level Agreement

65 Why Service Level Agreement?

  Customer Perceptions --- Fantasy?

  Customer Expectations --- Reality

  Customer Agreements --- Targets @ What Cost

66 Matching Demand with Supply

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 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 SLA Checklists

Issues on Chargeout Aspects

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 Complete Roles of SSO

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 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 Challenge to the Chargeouts

ISSUE OPTIONS TO BEEVALUATED

TARGETEDBENEFITS

Limited ability to supportvarying business visions

Provide cafeteria styleoptions

Offer variety of servicelevel agreements

Greater control overcosts

Increased choice andflexibility

Support for varyingbusiness needs (low costvs. innovation, etc.)



TARGETEDBENEFITS

Client confusion overservice definitions

Offer more “user-friendly” bundles

Communicate userfeatures

Show single line item fortotal application costs(bundled)

Separate discretionaryprojects from ongoingoperations (lights-on)

Improved understandingof costs

Improved ability tomanage demand

Ability to monitor costsby business process



TARGETEDBENEFITS

Mixture of fixed andvariable costs

Recover fixed I/T costs(e.g., infrastructure) viafixed pricing

Recover variable I/Tcosts (e.g., applicationenhancements) viadiscretionary or per-unitpricing

Clearer understanding ofcost drivers

Greater control overvariable spend



TARGETEDBENEFITS

Process is difficult toaudit, often with surpriseyear-end true-ups

Increase focus ontracking usage acrossbusiness units (regulatedvs. deregulated)

Reconcile quarterly (ormonthly?)

Adjust rates semi-annually if over 10%variance – and explainwhy

Defensible in regulatoryproceedings

Greater budgetpredictability

79 Charge for Usage

Aftermath SSO Implementation

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

Q&A and Discussions

9 - shared service organisation

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