CRITICAL SUCCESS FACTORS FOR SHARED SERVICES: A RESEARCH AGENDA

CRITICAL SUCCESS FACTORS FOR SHARED SERVICES: A RESEARCH AGENDA Shouhong Wang Charlton College of Business, University of Massachusetts Dartmouth Dartmouth, MA 02747-2300 USA swang@umassd.edu Hai Wang Sobey School of Business, Saint Mary's University Halifax, NS B3H 2W3 CANADA hwang@smu.ca ABSTRACT Shared services have been widely spread in the government and private sectors. This researchin-progress article proposes a research framework for future studies on critical success factors of shared services in the aspects of strategy identification, collaborative partnership networking, optimal shared services process re-designing, and new policies and regulations. 1. INTRODUCTION Shared services have been widely spread in private enterprises [10][21] and the government sector [6][28]. Shared service is the standardization and consolidation of common functions across multiple organizations to reduce information process duplication and increase information and knowledge sharing. The cross-organizational dimension of shared services makes up distinctive characteristics in contrast to other contemporary management practices. Many organizations have discovered that implementing shared services requires tremendous organizational support to make shared services workable for their specific situations [20]. Services for common functions in individual organizations can be shared to reduce business process duplication and increase knowledge sharing through standardization and consolidation of these service processes. Generally, accounting and financial management, human resources management, acquisition transactions, and customer relation management are the designated lines of business processes for shared services. Shared services are often mistakenly implemented as outsourcing. In fact, the differences between shared services and outsourcing are significant in many aspects [22]. Generally, shared services bring in long-term stable competitive advantages, while outsourcing involves much uncertainty [8]. In terms of general organizational structure, the shared service center, the provider of shared services for the partner organizations, is formed and governed by the partners, while the relation between the service provider and the outsourced firm in outsourcing is bilateral. The major strategies behind shared services are long-term cost saving and knowledge sharing beyond sourcing business processes for the short term. Effective shared services are achieved by standardization of processes to reduce process duplication across the entire shared service network. Human resource management, coordination of the shared service network, and risk sharing in shared services are

unique to outsourcing. Table 1 shows a comparison of shared services and outsourcing. Managerial Aspects Shared services Outsourcing General organizational structure Networking with shared service center Bilateral relation with the outsourced firm Strategies Long-term stable cost saving and knowledge Cost saving for the short term sharing Risk sharing among partners Yes No Coordination of process reengineering Yes No and standardization of processes Reduce process duplication Yes No Knowledge sharing among partners Yes No Central control (e.g., policies) Yes No Leverage of information technology Yes No IT human resource changes Re-deployment and Staff reduce training TABLE 1. Shared Services vs. Outsourcing The importance of organizational support to better fit the changing environment of competition is a familiar theme in the organizational theory field [25]. Nowadays people need a research framework to fully understand shared services. Given the unique characteristics of shared services, research [26] has suggested that strategy of shared services management, collaborative partnership network design, optimal service process design, and policy and regulation design are the major aspects of organization support for shared services. Others aspects of organizational support, such as leadership, control span, and culture could be crucial for the success of shared services in general, but are secondary to these major aspects. This research-in-progress article discusses shared services from the organizational perspective, and proposes a research agenda by developing a set of hypotheses for future studies on critical success factors of organizational support in these aspects for shared services. 2.1. Strategies of Shared Services 2. RESEARCH HYPOTHESES DEVELOPMENT In general, two types of strategic opportunities can be counted on as a result of shared services. One is cost saving through business process reengineering [2]. By sharing common non-core business functions such as accounting, financial transactions, human resource management, and customer services would dramatically improve business performance of all shared services partner organizations. Another promising advantage of shared services is information and knowledge sharing. For instance, shared distribution services allow the partners to share dependable marketing information [9]. Briefly, goals related to shared services include (1) cost

saving of business processes and improve services in the long run; (2) building a long-term strategic alliances with other organizations to share information and knowledge; and (3) establishing leadership through a focus on core functions. In general, there are two methods that can be used to define the strategy for the organization [4][5][16]. One is a top-down value chain analysis [19]. Value chain analysis provides a framework for information technology planning and strategy formulation. This framework is appropriate for shared services since it is useful for assessing the values of shared services. In performing value chain analysis, an organization can define its strategic direction by pursuing shared services such as lowering transaction costs, providing more services to customers, and share knowledge with the shared services partners. The second method is bottom-up non-core function analysis to identify potential benefit and risk of sharing these non-core functions with other organizations. Hypothesis 1: Organizations clear visions of strategies for shared services positively contribute to corporate success in shared services. 2.2. Strategic Partnership in Shared Services Research [7] has indicated that successful implementation of shared services requires new organizational forms of sourced service consortia organizations based on organizational analysis in understanding contracting, markets and the nature of cooperation. Shared services drive the partner organizations to form a network with the nucleus of shared services center. A shared service center facilitates the partner organizations and provides shared services and knowledge. Each individual partner organization is a stockholder of the center and acts as part of governance of the center. A shared service network is a virtual organization that actualizes value-adding, resource sharing, and risk sharing partnerships. Organizations tend to perform only those functions that they do best and arranging for other noncore functions to be performed by other companies. The resulting collection of independent, mostly single-function business units forms a network organization [12][14]. The rational behind shared services is that organizations tend to do fewer things better and with less, to be strong competitors. Organizations perform only those core functions for which they have expert skills, and share with alliance organizations those non-core services that can be performed more economically while are governed by the shared services network. Shared services create sophisticated networks that have all characteristics of inter-organizational networks as well as intra-organizational networks. The independent partner organizations of the shared services form an inter-organizational network. The network is governed by a board which is elected by the partner organizations. As the day-to-day operations of the shared services are coordinated by the shared service center, and the shared service center is in turn governed by the partner organizations, the center and its governance organizations assemble intra-organizational networks. Partners and shared service center are the fundamental components for supporting a shared service network. Although little research on hidden costs of shared services network

construction has been done, it is certain that partner selection and shared service center formation are demanding and costly. Shared services partners are long-term business alliances. A shared services partner must meet four criteria. First, the partner organization provides similar non-core functions that can be shared. Second, the partner can perceive the potential benefit of the shared services. Third, the partner is willing and capable to take the risk involved in the development of the shared services. Fourth, the partner possesses knowledge for the implementation of the shared services. In the organizational theory community there is growing agreement about the basic characteristics of the network organization [15][23]. To understand fully how networks are designed and operated, and where their applications lie, one must study organizational support in the shared services context. Hypothesis 2: Organizations long-term business partnership positively correlates with corporate success in shared services. 2.3. Business Process Optimization in Shared Services Shared services would optimize the operational business processes at the shared service network level. Few research reports can be found in the literature on management of the environment of shared services; yet, workflow management [3][29] is considered a technique for organizations to manage the new technological environment of shared services. Workflow management can be used to re-examine shared services related business process and the relationships between business units. The flow of shared services determines the shared services structure, eliminating the duplicated processes for the network. Workflow management permits the partner organizations to share the understanding of the shared services, and to support the shared processes to meet the shared services strategies. According to [11][13][17][18][24], every organized human activity gives rise to two fundamental and opposing requirements: the division of labor into various tasks to be performed and the coordination of these tasks to accomplish the activity. The two fundamental requirements can be fulfilled by optimal service process design in shared services. Optimal service process design includes optimal workflow design and optimal human resource design. (1) IT enabled optimal workflow design IT enabled optimal workflow design for shared services involves elimination of valueless business processes, negotiation for unique business processes, standardize the service processes, and knowledge sharing of business process reengineering. There are three levels of optimal workflow design. At the individual partner level, the service requirements are modeled in workflows based on maximum value adding. At the shared services network level, duplicated business processes are eliminated. At the shared service center level, all required workflows are optimized so that the services are provided at lowest costs. Hypothesis 3a: Radical business process workflows re-design positively contributes to corporate success in shared services.

(2) Optimal human resource design Human resource design becomes important more than ever for the organizations engaged in shared services. The shared service center employs people who are knowledgeable of the shared services. Hiring new skilled people, training the current employees to fit the new environment, and potential downsizing as a result of shared services are all new challenges for the organizations engaged in shared services. Hypothesis 3b: Re-design of human resource structures positively correlates with corporate success in shared services. 2.4. New Policies and Regulation in Shared Services Shared services create a special environment for partner organizations. The biggest issue in shared services is cost distribution among the partner organizations [1]. Mutual agreement on the cost distribution formula must be established for the shared service network. The bottom line for shared services is that every partner organization must receive a fair share of cost saving. Shared services create two new sets of policy and regulation issues in addition to cost distribution. One is related to the funding and governance of the shared service center. The other is related to the rules of access of shared services. It is extremely important to realize that any bylaw of shared services does not guarantee the success of shared services, but the success of shared services must be backed up by a bylaw. Organizational redesign process defines the course of action and requires varying amounts of improvisation [27]. New shared services introduce new policies and regulation for the partner organizations in the form of bylaws of the service network. The bylaws specify the rights and responsibilities of the partner organizations for the shared services. Generally, shared services create three categories of new policies and regulations. (1) Governance of the shared service network and center The configuration of shared service collaborative network is the summation of service operation network structure, negotiation network structure, and value-chain network structure. The shared service center is the coordinator of the collaborative network and represents the common interest of all partner organizations. The responsibility of a shared service center is to maintain and enhance the shared services and develop cohesion among the partners of the share services. The governance board of the shared service network exercises the charters of the board, acquires financial capital for the center, hires the general manager of the center, and monitors the operations of the shared services. Hypothesis 4a: Strong governance board and service center positively contribute to corporate success in shared services. (2) Cost distributions of the shared services The shared service network must have a mutually agreed cost distribution scheme for the partner organizations. The distribution scheme allocates and reserves the shared resources.

Hypothesis 4b: Effective cost distribution scheme positively correlates with corporate success in shared services. (3) Shared service access authorities and ethical codes Stable and reliable shared services are always regulated by service access authorization rules and ethical codes related to the shared services. Hypothesis 4c: Unambiguous ethical codes and access authorities positively contribute to corporate success in shared services. A conceptual model that articulates the factors and their relationships in shared services is depicted in Figure 1. FIGURE 1. Conceptual Model of Shared Service Management 3. PROPOSED RESEARCH FRAMEWORK FOR FUTURE STUDY In this section, we describe our plan of hypothesis tests to further investigate the critical success factors of organizational support for shared services in the aspects of strategy identification, collaborative partnership networking, optimal shared services process redesigning, and new policies and regulations. The research framework is depicted in Figure 2. 3.1. Proposed Variables Dependent Variable Tangible cost saving: Estimated cost saving for all shared services partners contributed by shared services. Dependent Variable Perceived long-term competitive advantages: Level of long term competitive advantages contributed by shared services. Independent Variable Clear vision of strategies of shared services: Level of clarity of shared service strategies.

FIGURE 2. Research Framework of Critical Success Factors of Shared Services Independent Variable Long term business relationships among shared services partners: Level of commitment on long term business relationships among shared services partners. Independent Variable Business process re-design: Level of business process re-design for shared services. Independent Variable Human resource structure re-design: Level of human resource structure re-design for shared services. Independent Variable Effective governance and service center for shared services: Level of effectiveness and satisfaction of governance and service center for shared services. Independent Variable Effective cost distribution scheme: Level of fairness and satisfaction of cost distribution scheme. Independent Variable Ethical code and access control for shared services: Level of completeness and satisfaction of ethical code and access control for shared services. 3.2. Proposed Sampling and Research Procedure A sample population will be examined in the sample selection process. Organizations will be selected from the following groups: Government organizations that are engaged into shared services. Large international business firms that have developed shared services. E-commerce companies that are using shared services. The participants will be company senior executives or CIO who well understand shared services

in their organizations. Data will be gathered through a questionnaire. A structural outline of the questionnaire will be developed, including General Questions: Information about the organization. Questions related to estimation of cost saving contributed by shared services. Questions related to long term competitive advantages contributed by shared services. Questions related to shared service strategies. Questions related to long term business relationships with shared services partners. Questions related to IT enabled business process re-design in the organization for shared services. Questions related to human resource structure re-design in the organization for shared services. Questions related to effectiveness and satisfaction of governance and service center for shared services in the organization. Questions related to fairness and satisfaction of cost distribution scheme in the organization. Questions related to completeness and satisfaction of ethical code and access control for shared services in the organization. An internal validity test of the questionnaire using the Cronbach Coefficient Alpha method will be completed. Statistical tests will be conducted on the relationships between the independent variable and the dependent variables which are pertinent to the hypotheses. 4. DISCUSSION Outsourcing has been an important managerial solution to competition in the business field. However, outsourcing may not be a practicable option for the government and many enterprises. This is because significant cost saving is difficult to achieve through domestic outsourcing. Offshoring to other developing countries might also have many obstacles such as significant differences of social systems, cultures, and languages, as well as high risks. We believe that shared service can be another solution to competition for many organizations. Research into shared services is still in its infancy. This research-in-progress article has discussed the potential impact of shared services on organizations, and has proposed a framework for future research into shared services by proposing a set of hypotheses to investigate critical success factors for shared services. Our future study is to collect data and test these hypotheses. REFERENCES [1] Baron, O., D. Beyer, and G. R. Bitran, Pricing of shared computer services, Journal of Revenue and Pricing Management, 2005, 4(1), 54-65. [2] Davenport, T. H., and J. Short, The new industrial engineering, Sloan Management Review, 1990, 31(4), 11-27. [3] Ferreira, D. M. R., and J. J. P. Ferreira, Towards a workflow-based integration architecture for business networking, Business Process Management Journal, 2005, 11(5), 517-531. [4] Galbraith, J. R., Organization Design. Addison-Wesley, Reading, MA, 1977. [5] Galbraith, J. R., Designing the innovating organization, Organizational Dynamics, 1982, 10(3), 5-25. [6] Janssen, M., and A. Joha, Motives for establishing shared service centers in public administrations, International Journal of Information Management, 2006, 26(2), 102-112.

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