Locating a shared services center involves trade-offs related to cost, operating environment and talent. Shared services leaders need a rigorous approach to gauge those trade-offs and identify potential locations before making a final decision.
Research from the Gartner Finance practice identifies for shared services leaders four location clusters that can help them narrow their search.
Download eBook: The Digital Future of Finance
This article recaps their key points, edited for clarity and length.
Key considerations in locating a shared services center
No one location is perfect, so there will always be trade-offs. The first is the choice between the operating environment and cost savings. The second is between talent availability and talent quality. What this means in practice:
- An attractive, low-risk operating environment likely comes at a cost premium.
- Where there is high talent availability, talent quality is likely an issue.
- Shared services leaders who prioritize cost savings and talent availability will generally have to compromise on operating environment and talent quality.
Four location clusters frame SSC trade-off decisions
Your organization’s internal preferences and strategic objectives will inform the trade-offs that drive an optimal location selection. For instance, some organizations might prefer a service center close to their headquarters, irrespective of cost considerations.
Shared services leaders should collaborate with stakeholders (e.g., business-unit customers and functional heads) to understand their preferences and objectives in selecting a service center location — being mindful of the potential biases that can influence stakeholders’ input.
Gartner identified 99 cities that are viable candidates as shared services locations. The identified cities are geopolitically stable, have sizable shared services talent pools and offer significant cost savings compared to established, developed-world cities.
Within this group of 99 candidates, we identified four clusters; the cities in each cluster share similar characteristics, and each cluster comes with comparative strengths and weaknesses.
The four location clusters are as follows:
- Developed-country alternatives. Examples: Cities such as Cleveland, Ohio, U.S., and Toronto, Canada
- Established cost savers, where costs are attractive relative to cluster No. 1 given the low level of risk, e.g., Singapore and Hong Kong
- Emerging-market hot spots, e.g., Hyderabad, India, and Krakow, Poland
- Next-generation emerging-market cost savers, e.g., Beijing, China, and Manila, Philippines
Clusters 1 and 2 offer better business conditions and geopolitical stability than others, while 3 and 4 provide significant cost-saving opportunities but a less attractive operating environment.
While there are two key trade-offs, the decisions aren’t binary. For example, the established cost savers (between developed nations and emerging markets) enable leaders to realize moderate cost savings without sacrificing too much on a favorable operating environment.
How to use the clusters to frame your SSC location decisions:
SSC trade-off 1: Cost savings vs. attractive operating environment
Organizations looking for mature infrastructure, high living standards, and low political and business risk (i.e., an attractive operating environment) are likely to incur a higher total cost. For example, cities in developed countries offer a safer and more mature operating environment but with lower potential for cost savings.
Highly risk-averse organizations should gravitate toward developed-country alternatives and established cost savers, while those looking to maximize cost savings should focus on emerging-market hot spots and next-generation emerging-market cost savers — although they may need to invest in measures or advisors to mitigate these risks.
Learn more: Shared Services Strategy and Structure
SSC trade-off 2: Talent availability vs. talent quality
Locations with high talent quality come at a higher price, as competition for a smaller talent pool inflates local wages. Cities in the developed-country and established-cost-saver clusters offer a high-quality talent pool, but talent availability is generally low. In comparison, cities in the two emerging-market clusters will have high talent availability, providing access to a large talent pool, but leaders will have to invest more in training efforts to build skills and capabilities.