A Beginner’s Guide To The Shared Service Model

As a result of the COVID-19 pandemic, clients and businesses increasingly seek flexibility, efficiency, and compliance. The shift towards remote work and digital solutions has accelerated these demands, making it essential for companies to adapt quickly. Embracing new technologies and innovative strategies is key to meeting these evolving needs and maintaining a competitive edge in the market. Businesses are expected to adapt swiftly to changing circumstances, streamline their processes to maximize productivity and adhere to regulatory standards more diligently than ever before. This new landscape requires innovative solutions and a proactive approach to effectively meeting evolving needs and challenges. This demand has further led to the rise of Shared Services. 

Shared service delivery models offer streamlined and standardized processes, thereby reducing costs and improving efficiencies by leveraging best-in-class practices and centralizing functions and resources. Shared service organizations have adapted well to changing market demands and regulatory requirements, demonstrating resilience and flexibility. Businesses are adopting the shared service model to enhance collaboration, drive innovation, and achieve better outcomes. This article will serve as a comprehensive guide to understanding the shared service model and its components. Additionally, we will explore how shared service organizations can upgrade your outsourcing needs, providing you with a more streamlined and cost-effective solution.  

What is a Shared Service?  

A shared service is a delivery method that centralizes administrative business functions into an independent entity, supporting the entire organization. This model is designed to improve efficiency and reduce costs by consolidating human resources, finance, and IT services into one unit. Functioning like a third-party vendor, this entity operates autonomously and treats each department as a customer, providing tailored services to meet their specific needs. Organizations can focus more on their core activities and strategic goals by streamlining these functions. This concept is known as a Shared Services Organization (SSO) or Shared Services Center (SSC), and large enterprises commonly adopt it to enhance operational effectiveness.  

What is the goal of a Shared Service?  

The primary goal of a shared service is to optimize the efficiency and effectiveness of an organization’s support functions. Shared services seek to streamline administrative tasks by centralizing them, aiming to eliminate redundancy, lower operational costs, and maintain a consistent quality standard throughout. This model allows organizations to leverage economies of scale, enabling them to do more with less. In addition to cost savings, shared services strive to improve service delivery by implementing best practices, utilizing advanced technologies, and fostering a culture of continuous improvement. Ultimately, the goal is to provide high-quality, reliable support services that allow the organization to concentrate on its core business activities and strategic objectives.  

What is the difference between a Shared Service and Outsourcing?  

While both shared services and outsourcing aim to streamline operations and reduce costs, they differ significantly in structure and approach. Shared services involve consolidating internal support functions into a centralized unit within the organization, allowing the business to maintain direct control over these processes. This structure closely aligns with the organization’s goals, culture, and standards while providing tailored solutions to different departments. Since the shared service entity operates as an internal service provider, it can quickly adapt to the changing needs and priorities of the business, ensuring a high level of agility and responsiveness. However, shared services may incorporate outsourced elements to enhance the success of the delivery outcomes. While elements can be vendor-driven, it is important to note that the core operations and decision-making processes are predominantly not outsourced. This approach allows organizations to maintain greater control over their service delivery, ensuring that key objectives align closely with internal goals and values, even when leveraging external resources for specialized expertise. 

On the other hand, outsourcing entails contracting out specific business processes or functions to an external third-party provider. This approach allows organizations to benefit from the vendor’s specialized expertise and advanced technologies. However, outsourcing may involve multiple layers of management, potentially slowing down decision-making processes and reducing the organization’s control over the outsourced activities. While both models can drive operational improvements, choosing between shared services and outsourcing depends on the organization’s specific needs, strategic priorities, and the degree of control it wishes to maintain over its support functions.  

How does a Shared Service Center work?  

SSC offers a comprehensive portfolio of services tailored to the varied needs of its internal customers. These customers include different departments within the organization, each treated as a distinct client. The SSC’s role is to deliver customized solutions that address the specific requirements of these departments, whether it involves finance, human resources, information technology (IT), or other critical functions.  

Service level agreements (SLAs) are often established to formalize this relationship. These SLAs define the expectations, performance metrics, and responsibilities of both the SSC and the internal customers. By setting these clear benchmarks, SLAs ensure transparency, accountability, and a mutual understanding of service standards. This customer-centric approach fosters a strong partnership between the SSC and its service departments.  

The SSC employs advanced technologies and automation tools to enhance efficiency, accuracy, and speed of service delivery. These tools help streamline processes, reduce manual errors, and provide faster turnaround times for service requests.  

Continuous improvement is a critical component of the shared service model. The SSC continuously monitors its performance against the established SLAs and seeks feedback from its internal customers to identify areas for enhancement. Regular performance reviews assess how well the SSC meets its targets. Benchmarking against industry standards and best practices helps the SSC stay competitive and innovative.   

By fostering a culture of best-in-class innovation and adaptability, the shared service model not only meets the organization’s current needs but also anticipates and prepares for future challenges. This ongoing commitment to improvement ensures that the SSC remains a valuable asset, contributing to the organization’s overall success and competitiveness. The SSC’s ability to quickly adapt to changing business environments and evolving technology trends positions it as a strategic partner in the organization’s growth and transformation journey.   

The Four Most Common Types of Shared Services  

Finance and Accounting Shared Services  

Finance and accounting shared services are among the most prevalent types of SSCs due to their significant impact on organizational efficiency and cost savings. These services typically encompass a wide range of financial activities such as accounts payable, accounts receivable, general ledger management, treasury operations, and financial reporting. By consolidating these functions into a single, centralized unit, organizations can standardize processes, reduce duplication of efforts, and achieve greater accuracy in financial data management. This centralization streamlines workflows, fosters better compliance with regulatory requirements, and enhances overall financial transparency.  

Human Resources Shared Services  

Human resources (HR) shared services are designed to manage and streamline various HR functions, including recruitment, onboarding, payroll processing, benefits administration, and employee relations. Centralizing HR activities allows organizations to provide consistent and high-quality HR services across all departments, improving employee satisfaction and productivity. By adopting this model, organizations can leverage advanced HR technologies and analytics to make informed decisions regarding workforce planning and talent management. Additionally, HR shared services play a crucial role in ensuring compliance with employment laws and regulations while promoting a standardized approach to HR policies and practices.  

Information Technology Shared Services  

Information technology (IT) shared services focus on delivering a robust and scalable technology infrastructure that supports the organization’s entire spectrum of operations. These services include network management, cybersecurity, application development and maintenance, user support, and IT procurement. By integrating IT functions into a shared services model, organizations can enhance the efficiency of their technology deployment, optimize IT resource utilization, and improve service levels. The centralized nature of IT shared services enables better governance and security and rapid response to emerging technological trends and challenges. This ensures that the organization’s IT capabilities align with its strategic goals and business needs.  

Procurement Shared Services  

Procurement shared services handle the acquisition of goods and services necessary for the organization’s operations. This includes vendor management, contract administration, purchase order processing, and strategic sourcing. By centralizing procurement activities, organizations can achieve economies of scale, negotiate better terms with suppliers, and ensure consistent application of procurement policies across the enterprise. Additionally, procurement-shared services enhance visibility into spending patterns, enabling better cost control and more strategic decision-making. The consolidated approach to procurement also supports risk management efforts by ensuring that all purchasing activities comply with established standards and regulations, thereby reducing the potential for fraud and unethical practices.  

The Benefits of Using a Shared Service 

Cost Efficiency  

One of the primary benefits of using a shared service model is cost efficiency. Organizations can reduce redundancy and leverage economies of scale by consolidating various functions into a centralized unit. This results in significant cost savings, as the centralized operations eliminate the need for multiple departments to perform the same tasks independently. Operational expenses such as staffing, infrastructure, and technology resources are minimized, enabling the organization to allocate financial resources more effectively toward strategic initiatives.  

Improved Service Quality  

Shared services drive improved service quality across the organization. The SSC can ensure consistent and high-quality service delivery by standardizing processes and employing best practices. Centralization facilitates better control and monitoring of performance metrics, allowing for continuous improvement in service standards. As a result, internal customers experience more reliable and responsive service, which enhances overall satisfaction and drives organizational efficiency.  

Consistent Access to SMEs and HR Advisory Services  

Shared service models ensure organizations have consistent access to Subject Matter Experts (SMEs) and HR advisory services. By centralizing expertise within the SSC, organizations can provide employees with reliable and professional guidance in areas such as compliance, talent management, and employee relations. This centralization fosters a consistent application of policies and best practices, further aligning with strategic goals. Additionally, this access to specialized knowledge helps address complex issues effectively, thereby enhancing overall workforce productivity and satisfaction. Having a dedicated team of experts at the SSC ensures that the organization remains agile and well-supported in navigating the intricate landscape of human resources and business operations. 

Enhanced Compliance  

A centralized shared service model is instrumental in ensuring regulatory compliance. Organizations can better manage adherence to laws, regulations, and internal policies with unified processes and oversight. This cohesive approach simplifies compliance monitoring and documentation, reducing the risk of non-compliance and associated penalties. Shared services also promote the consistent application of best practices and standards, which is crucial for sectors with stringent regulatory requirements.  

Access to Advanced Technology  

Shared service centers often leverage advanced technologies and automation tools to streamline processes and improve efficiency. These technologies include robotic process automation (RPA), artificial intelligence (AI), and data analytics. By investing in these advanced solutions, the SSC can reduce manual workload, minimize errors, and provide faster service delivery. This technological edge ensures that the organization remains competitive and can quickly adapt to evolving business needs and opportunities.  

Better Data Management  

Centralizing functions within a shared service model leads to improved data management and reporting capabilities. By consolidating data from various departments into a single source of truth, the SSC can provide more accurate and comprehensive insights. This enables better decision-making, as management can access reliable data for strategic planning and operational adjustments. Improved data governance also enhances transparency and accountability across the organization.  

Scalability and Flexibility  

The shared service model offers scalability and flexibility to accommodate the organization’s changing needs. As the business grows or pivots, the SSC can quickly adjust its services to support new requirements and initiatives. This adaptability is crucial for maintaining operational continuity and responding to market dynamics. The centralized structure allows for efficient allocation of resources, ensuring that the organization can scale its operations without compromising service quality.  

Strategic Focus  

By adopting a shared service model, organizations enable their departments to focus on strategic objectives rather than administrative tasks. The SSC handles routine operational activities, freeing internal teams to concentrate on core business functions and innovation. This strategic focus drives higher value creation and supports long-term organizational goals. With a centralized model in place, departments can align their efforts more closely with the organization’s overarching mission and vision.  

How YRCI is using Shared Services to deliver Cost-Effective Solutions  

YRCI’s adoption of the shared services model exemplifies a strategic approach to delivering cost-effective HR and other solutions to its clientele. By centralizing HR functions such as classification, recruitment/staffing, onboarding, payroll, and benefits administration, YRCI has achieved significant cost efficiencies by eliminating redundancy and leveraging economies of scale. This centralized approach enables YRCI to manage data more effectively, providing valuable decision-making and strategic planning insights. Moreover, the flexibility and scalability of the shared service model allow YRCI to quickly adapt to the evolving needs of its clients, ensuring that it remains responsive and competitive in the market. Ultimately, YRCI’s shared services model empowers its HR teams and customers to focus on strategic initiatives, driving higher value and supporting the long-term success of its clients.  

For more information on how YRCI can help streamline your organization’s HR processes and deliver cost-effective solutions, reach out to contact Colin Waitt, Director of Business Development, at cwaitt@yrci.com. Learn how YRCI’s shared services model can transform your HR functions, drive efficiency, and support your strategic objectives. Contact Colin today to discuss how our expertise can benefit your organization.