Renewed interest in Shared Services

Adopting industry best practices can help internal IT shared-services groups increase economies of scale, cost savings, and user satisfaction

Unrelenting cost pressures have renewed CIOs interest in running IT as a shared service. Some companies even aspire to spin off their shared-services operations into profit-making juggernauts, as Cincinnati Bell did in 1998 with its billing and customer-care venture, which became Convergys. Yet, such success stories are few and far between, especially in the highly competitive IT-services market. For example, a 2002 survey of German companies showed that internal IT shops rarely succeed when they ve been spun off. And when these ventures do succeed, they risk losing the parent company as a client. In contrast, taking an outside-in approach, which essentially brings the market in-house, offers new opportunities for a far greater payoff. In fact, companies can cut costs by 25% to 30% by centralizing and consolidating IT in a shared-services operation. Of course, offering IT as a shared service is nothing new. For three decades, businesses have pursued economies of scale, lower costs, and improved service delivery by consolidating and centralizing back-office operations, such as finance, human resources, and procurement. But shared service transitions usually require significant IT support?such as upgraded financial systems or self-service HR capabilities?at the same time that IT itself is undergoing a significant transition. By aiming for a market-level standard of quality, IT shared services can sustain and build on those improvements over time?all while delivering greater service to the business. What s more, this process is under way at many companies, spurred by the development of new, mature technologies. For example, complex ERP systems are now standard, integral parts of most companies. Also, IT infrastructures and applications have grown more sophisticated, as has the IT organization itself. Moreover, the newly globalized talent pool means that companies can move many IT functions to low-cost locations. Given these factors, the concept of insourcing, or offering IT as a shared service, can deliver a major payoff. CIOs can realize even more gains from these models by adopting the best practices of commercial vendors. These include consolidating data centers, help desks, and network operations. When done right, the results can be even greater than the scale advantages and cost savings typically achieved by offering IT as a shared service. Though putting a shared-services operation in place is especially challenging for companies with a decentralized organization and culture, even these situations can work with careful planning and implementation. Companies with business operations dispersed across the globe or those with insufficient scale to capture meaningful savings will find that implementing a shared service can be difficult, but not impossible. The most successful CIOs hold their IT shared services to a market standard of excellence. They insist that the IT organization offer market-matching levels of service, efficiency, price, quality, and reliability, as well as continual performance improvements. In this way, these CIOs also improve customer-satisfaction levels. The lessons these commercialized operations teach are particularly timely in today s tough market conditions. CIOs at a handful of leading companies have been able to sustain and build on the initial performance improvements offered by shared services by defining, pricing, and delivering services to business users cost-effectively. These executives have also put the right culture and governance in place to succeed long term. More specifically, the IT shared-services groups that have successfully brought the market inside to improve the professionalism of their operations have addressed the following five challenges: Create a viable service portfolio Cut IT costs by 5% to 10% annually Build a service culture in IT Install an effective management infrastructure Compete with external vendors for internal IT customers Source and full article: www.optimizemag.coma>

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