While a lot of attention has been paid to the terms "Outsourcing" and "Offshoring", "Shared Services" has been gaining a lot of momentum just since 2005. Shared Services are where companies centralize functions like Finance and Accounting, Human Resources (like benefits administration, new employee orientation, etc), Training, Recruitment, Purchasing, etc.
Very large corporations squeeze out a lot of inefficiencies and dead time with the same resources spread in multiple parts of the company to one centralized Shared Services Organization. Oracle Finance and Accounting is being moved out of many countries where Oracle operates, to the Oracle Shared Services center in India, for example.
A number of factors have contributed to this and almost all of it can be covered by Tom Friedman’s "Flat World" explanations: Explosive growth in Internet Bandwidth, Connectivity, Document Scanning, Imaging, Computing capabilities and lower cost destinations.
Why have an accounts payable person in each division sitting around for part of a week doing nothing when they could be processing all of accounts payables across many country offices in a centralized Shared Services Center. Offshoring may be involved but in most cases Shared Services may still be in countries like the U.S and U.K.
The problems, challenges and opportunities with shared services seem to just the same as any outsourcing effort. The service provider and the service consumer may all need to work to some common framework of service levels and performance. Otherwise, the benefits in centralizing functions and making them shared across many parts of the company may be lost.
The main challenge shared services centers may face is that service levels may suffer unless diligent attention is paid to putting in the right safeguards and controls. If you have an accountant working for you in your division, if he/she is not performing well they could be fired. What will you do if that service is provided by a shared resource and you don’t have any authority over firing that person or even have the latitude to ask for a specific other, better shared resource.
At the same time, the Shared Services Center may need to work out their services at multiple service levels and make sure that their internal "customers", pay more for speedier service, even though it may all be interdivisional transfers or "funny money" as it is known within large organizations. CEO and CFO’s offices may be charged "Gold Service Level" charges while slower service may be O.K with another internal client that doesn’t have a large budget and may be happy with relatively slower "Bronze" service and may only be charged lower bronze rates.
Interesting model and lots of knowledge and learning being generated as we speak! Again shows that the flat world theory is right on and is manifesting itself in many ways across companies, particularly large global ones.