Insights / Finance / Article

3 Advantages of Shared Services Over Centralized Services

April 08, 2021

Contributor: Jackie Wiles

A shared services model has three key advantages over centralized services, making it more likely to deliver sustained business impact, especially during disrupted business conditions.

Rapid shifts in business conditions are forcing finance and shared services leaders to reevaluate which service delivery and structure deliver the most business impact. Both the shared services model and centralized services can reduce costs, provide scale and increase standardization, but shared services has some key advantages.

“As companies continue to invest in digital solutions, build new capabilities and enter new markets, they need a service delivery model that can provide timely and localized support to the business while simultaneously controlling costs,” says Cliff Struhar, VP, Advisory, Gartner. “The shared services model has distinguished itself — relative to centralized services — around customer service, performance management and continuous improvement.” 

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How does the shared services model differ from centralized services?

Shared services organizations (SSOs) are popular with large multinationals and midsize enterprises alike, and are now used by government agencies and nonprofits as well as the private sector. 

The shared services model is often confused with centralized services, but there are key differences. Gartner defines the approaches as follows:

  • The shared services model is designed to provide services to “customers” — internal stakeholders, business-unit leaders and functional heads. The SSO typically operates like a business, with a defined set of services and pricing structure.
  • Centralized services are usually an extension of functional teams located at an enterprise’s headquarters, and certain types of work required throughout the enterprise (e.g., transaction processing) are performed by this single centralized organization.

Why the shared services model is better than centralized services

Both approaches free the business to focus on more value-added activities; however, the shared services model has three key advantages over centralized services for delivering sustained impact in the face of constantly evolving business needs. 

SSO advantage 1: Better expectation setting with the business

Formal service-level agreements (SLAs) help clarify the terms of service delivery upfront, ensuring greater transparency for the business and helping to align customers’ expectations about what exactly to expect from the SSO, how they need to contribute to the job’s completion and who is accountable in the case of a process breakdown.

The SLA usually contains clear service pricing and premiums for exceeding permissible levels of customization or volume, which can help to influence customer behavior — for example, by reducing instances of noncritical or low-value requests from customers. This helps to ensure that the SSO has resources available for truly critical requests.

In the centralized services model, the focus is more on consolidating work in a single location, with little or no involvement of business users. That approach increases the likelihood that services will fall short of the business’s expectations.

Learn more: Shared Services Strategy and Structure

SSO advantage 2: Greater motivation to control and reduce costs

In the shared services model, the cost of providing services is “charged out” to customers and business groups might have the option to hire an external service provider or perform the work themselves, so the SSO must be priced competitively. 

This dynamic also encourages SSOs to develop a strong culture of continuous improvement, ensuring they are always on the lookout for new and efficient ways of delivering existing and new services. For example, instead of defaulting to costly training initiatives for developing in-house analytics expertise, an SSO may use innovative methods to perform analytic work such as hiring experts from a low-cost location, employing contractual workers or partnering with an internal customer. 

In a centralized model, people, processes and technology are consolidated, delivering cost savings initially, but cost overheads are allocated on some basis other than transaction volume, so there is less incentive for the organization to keep service costs low.

SSO advantage 3: Increased responsiveness to changing business needs

A unifying customer-oriented vision enables shared services staff to better sense and respond to changes in customer requirements. Shared services models that employ regional centers are also well-positioned to account for regional needs, regulations and language. 

By proactively managing the customer relationship, SSOs can also identify opportunities to add or remove services from the portfolio and reallocate resources to fulfill the most pressing service needs. Visibility into the customer base helps shared services reach out to a broad audience with new-in-kind services, allowing it to quickly achieve economies of scale and lower service costs.

Also, process teams in the shared services model report to a single leader who is responsible for setting a common, customer-oriented vision for the SSO. This common vision strengthens alignment with the broader service goal, enabling improvements across the different parts of the service value chain.

Centralized-service process teams usually have strong functional alignment that can conflict with the goals of integrated service delivery. Their tie to the headquarters can also dilute the customer focus and instead favor a one-size-fits-all approach that may not be responsive enough for the needs of different business groups.

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