Emerging role of Shared Services

Submitted as an Individual Assignment in PITEO

Institute: Xavier Institute of Management, Bhubaneswar Submitted to: Professor Francis Castelino Submitted by: Mayank Patnaik U111032 PGDM- II Batch- 2011-13

Table of Contents
Letter of Transmittal ................................................................................................................................... 3 Executive Summary ................................................................................................................................... 3 1. Overview of Shared Services Model ................................................................................................... 4 2. Evolving Patterns of Shared Services Model .................................................................................... 5 3. V2I Model of Shared Services Unlocking hidden Value .............................................................. 7 4. Conceptualizing Shared Services as a 4 Change Program ......................................................... 10 4.1 Implementation plan for 4 change program......................................................................................... 10 5. Trend of Transformational Shared Services ................................................................................... 12 5.1 Key Objectives of Integration Competency Center .......................................................................... 13 5.2 5.3 Value Proposition for Integration Competency Center: ............................................................. 14 Inclusive Foundation for Integration Competency Center: ........................................................ 15

6. Case Studies: A Real Insight into Shared Services .................................................................................. 16 6.1 6.2 Financial Sector Shared Services: Based on Motorola: A Successful Implementation ............... 16 Modeling an HR Shared Services Center: An Unsuccessful Experience of an European MNC ... 17

7. Economics of Shared Services ................................................................................................................ 20 8. Summarizing: Shared Services Start of a new Era................................................................................ 21 9. References.............................................................................................................................................. 23

Letter of Transmittal
This report was prepared as part of Planning IT Enabled Organizations project assigned by Professor Francis Castelino to the students of PGDM II. The objective of this report is to analyze and study the topic: The emerging role of Shared Services Model I thank Professor Francis Castelino for giving me the opportunity to research and report on the chosen topic. In case of any query, please feel free to contact: Name Mayank Patnaik Mail ID
u111032@stu.ximb.ac.in

Executive Summary
Creating shared services requires a coordinated integration of four change programs: Business processes redesign (BPR), organizational redesign, sourcing redesign, and technology enablement. If managed properly, shared services reduce costs, improve Services, and can even generate revenues. However, surveys show that many executives fail to achieve the promised results. In this article, we present the lessons Reuters learned during a five-year journey to create global shared services within its finance organization. The lessons highlight how to: (1) Adopt the right transformation approach; (2) Identify processes for shared services by analyzing the costs, attributes, and readiness of process activities; and (3) Get business unit clients and internal staff to cooperate and embrace Organizations create shared services to dramatically reduce costs, improve services, and even to generate revenue. Early adopters of shared services reported enormous benefits. General Electricrecognized as the first leader of shared services implemented shared financial and accounting services in 1984 and reduced staff by 30%. DEC created shared financial services in 1985, and reduced finance staff by 450 and reported annual savings of $40 to $50 million Although IT organizations have not adopted shared services as widely as finance and accounting, recent reports indicate that IT shared services is growing at a faster rate. Indeed, successful management of IT shared services was recently listed as one of the seven habits of effective CIOs.6 CIOs increasingly need to understand shared services because of the growing trend for them to become part of the CIO portfolio. The increasing complexity and number of application integration (AI) projects can no longer be dealt with on a project-by-project basis. The wide scope of AI projects requires the use of more specialized organizational structures and competencies.

In addition, the diverse and rare skills required (for example, data transformation and reconciliation) tend to be spread across disparate parts of the organization, which hinders many companies' attempts to take a consistent and integrated approach. Creating a single, shared service center that brings the diverse skill set together helps to create the focus, momentum, critical mass, processes and standards required to build and execute a world-class AI strategy. We looked into the detailed road maps critical success drivers, corresponding change management techniques and the economics involved to arrive at a suitable in depth and justified analysis of the overall paradigm of Shared Services.

1. Overview of Shared Services Model

The competition of Multinational Corporation is getting more and more intense with the economy globalization, requiring companies to standardize operations to stay competitive. Shared Services is an effective way of keeping costs down and improving efficiency by moving certain functions to one central location. Shared services refers to the provision of a service by one part of an organization or group where that service had previously been found, to more than one part of the organization or group. Thus the funding and resourcing of the service is shared and the providing department effectively becomes an internal service provider. The key is the idea of 'sharing' within an organization or group. The purpose of shared services is the convergence and streamlining of an organizations functions to ensure that they deliver to the organization the services required of them as effectively and efficiently as possible. This often involves the centralizing of back office functions such as HR and Finance but can also be applied to the middle or front offices. A key advantage of this convergence is that it enables the appreciation of economies of scale within the function and can enable multi function working (e.g. linking HR and Finance together), where there is the potential to create synergies. Facing major organizational change possibilities such as shared services, firms need to strategically decide whether and how to transform their businesses. Experience shows that, in order to successfully implement shared services, firms generally need to transform their service activities through several steps, namely, simplification, standardization, consolidation, in-sourcing, or outsourcing (e.g., Gould & Magdieli, 2007), while strategic decisions need to be made by each firm on when and how to pursue these steps. These decisions require a proper conceptualization and valuation of different shared services transformation approaches, especially in an uncertain business environment

2. Evolving Patterns of Shared Services Model

In terms of locational variations there are three basic types of shared services 1. On-shore: Work carried out by the company at a company at the clients location. 2. Near-Shore: Work carried out at a nearby location which is basically not far off from the clients location. 3. Off-Shore: Work can be carried out basically anywhere in the world but not at clients location or at a nearby location. In terms of work patterns shared services have a come a long way and is paving a way for a healthy future. The following points highlight the growth and journey of shared services. 1. Organizations that have centralized their IT functions have now begun to take a close look at the technology services that their IT departments provide to internal customers, evaluating where it makes sense to provide specific technology components as a shared service. E-mail and scanning operations were obvious early candidates; many organizations with document-intensive operations are deploying scanning centers as a shared service 2. The most interesting trend has been seen in shared services role in enterprise content management. The exponential growth in the amount of unstructured content is making ECM a priority within many organizations. Where previously content management may have been deployed to meet departmental needs, in certain niches within the organization, it is now being recognized as an enterprise-wide need: an infrastructure investment rather than a niche application. Many CIOs have concluded that if ECM functionality is to be offered to the enterprise, it makes sense to offer that functionality as a shared service, as a way of cost-effectively meeting the content management needs of large user bases, with potentially diverse requirements for various components of ECM functionality. n addition to cost-effectiveness, the ECM shared-service model also allows an organization to make better use of limited IT resources particularly when many upcoming IT projects tend to require one or more components of ECM functionality. Why Implement Shared Services in ECM? One of the most compelling forces driving ECM shared services is the economics of addressable seat costs versus utilized seat costs. ECM remained a niche application within many organizations because organizations purchased enterprise licenses that were then underutilized. Addressable seat costs (if IT were able to deploy ECM to everyone), are likely to be relatively low. In most companies, ECM has tended to be rolled out to only a subset of the potential user base, which means that the addressable cost per user may actually be considerably higher resulting in prohibitively high utilized costs per seat. Under

these circumstances, few organizations could cost-justify enterprise deployment of ECM. In contrast, a shared-services approach to ECM allows IT to define appropriate levels of functionality for various segments of the potential user base. IT and business units work together to define various packages or tiers of ECM functionality (for example, ranging from a package with basic store-and-retrieve capabilities, to a more advanced package offering revision-control and automated workflow capabilities). A charge-back model is then associated with the various tiers. The packages can then be rolled out to the various business units using a factory approach. Overall, such an approach helps an organization to cost-justify an enterprise-wide investment in the technology, thereby maximizing the economies of scale. The evolution of shared services in various sectors has seen a clear cut trend which can be noted in the following points below: 1. The private sector has been moving towards shared services since the beginning of the 1980s. Large organizations such as the BBC, BP, Bristol Myers Squibb, Ford, GE, HP, Pfizer, Rolls-Royce and SAP are operating them with great success. According to the English Institute of Chartered Accountants, more than 30% of U.S. Fortune 500 companies have implemented a shared-service centre, and are reporting cost savings in their general accounting functions of up to 46%. 2. The UK government under a central drive to efficiency following from the Gershon Review are working to an overall plan for realizing the benefits of shared services. The Cabinet Office has established a team specifically tasked with the role of accelerating the take up and developing the strategy for all government departments to converge and consolidate. This enables not only the benefits from within the departments but also for the synergies between departments to be realized. In the Republic of Ireland, the health service nationally has been reorganized from a set of regional Health Boards to a unified national structure, the Health Services Executive. Within this structure there will be a National Shared Services Organization, based on the model developed at the former Eastern Health Shared Services, where procurement, HR, finance and ICT services were provided to health agencies in the Eastern Region of Ireland on a business-to business basis.

3. V2I Model of Shared Services Unlocking hidden Value

Vision to implementation model of shared services unlocks potential hidden value by bringing together people process and systems. Implementing a shared services program is by no means an easy undertaking. It does not happen by accident: it requires desire, discipline and the ability to execute to a plan. Shared services means more than simply moving people together into one location and giving them common processes and systems. The process involves a change in mindset and an increased focus on the business. Successful shared services programs integrate processes, people and technology to deliver a totally new business capability. a. Assess the potential Value: In the initial phase, executives try to assess the potential value of implementing a shared services model. These are achieved by asking a set of vital questions which are shown below.

Based on Global Shared Services Model Followed By Accenture

b. Define the overall Strategy and plan: The more discrete and compartmentalized the implementation plan, the easier it is to manage to the desired outcome. The plan must encompass all aspects of the project itself (tasks, deadlines, and deliverables) and must also identify what impacts other concurrent projects outside of shared services might have on implementation.
Clearly defining the scope of the new organization, for example, is essential. The scope must be broad enough to achieve the benefits desired from a standpoint of cost savings and efficiency improvement, but compact enough not to overwhelm the organization as a whole. Current-state assessment that identifies what an improved service delivery model would look like , what gaps must be filled to reach it and what the value of pursuing the shared services model is to the organization This gap assessment provides key input needed to develop the operating model and a fact-based business case, something begun in this phase of work and then validated in the design phase

c. Create the Shared Services Design: n the design phase, organizations define, in detail, the components of the new shared services operation. The shared services operating model should remain at the heart of the effort, outlining the goals and strategic objectives for the design team. The deliverables developed during the design phase address the following key questions

d. Building and deploying the solution Architecture: The build and deploy phase moves the shared services program beyond theory so that the shared services center organization, processes and technology take physical form. This last phase of work typically lasts anywhere from 6 to 18 months, depending on the scope and scale of the effort. Deployment activities are generally completed in stages, transitioning a subset of the final processes and/or customers each time. A short period of stabilization is advisable after each rollout.

4. Conceptualizing Shared Services as a 4 Change Program

According to Accenture, the definition of shared services is the consolidation of support functions (such as human resources, finance, information technology, and procurement) from several departments into a standalone organizational entity whose only mission is to provide services as efficiently and effectively as possible.Organizations create shared services to dramatically reduce costs, improve services, and even to generate revenue. Early adopters of shared services reported enormous benefits.

4.1 Implementation plan for 4 change program

a. Business Process Redesign: Phase 1: BPR activity was to reduce the number of idiosyncratic business processes by creating global policies and standard business processes. In addition to reducing costs, another major reason for redesigning business processes was to prepare for the new organizational design. The company needed to standardize its processes so it could
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Based on Strategic Change management Plan implemented at Accenture and GE

relocate some of them from decentralized business units to new regional services centers. Phase 2: To ensure processes work in the new organizational Structure.

b. Organizational Redesign: Phase 1: The main goal of organizational redesign activity is to move as many end-to-end processes as possible from decentralized business units to the new focused services centers. The idea was that the new centers would be client-focused and house subject matter experts.

MIS Quarterly: Creating Global Shared Services: Lessons from Reuters.

Phase 2 Decide which processed to move where

c. Sourcing Redesign: Phase 2: Only comes into picture in phase 2 where it is Create new captive center and outsource to fill gaps in internal capabilities d. Technology Enablement: Phase 1: Simple and complex technologies are used to implement the newly designed business processes.

5. Trend of Transformational Shared Services

The Integration Competency Center (ICC), sometimes referred to as an Integration Center of Expertise (COE), is a shared service function within an organization, particularly large corporate enterprises as well as public sector institutions, for performing methodical Data Integration , System Integration or Enterprise Application Integration. Data integration allows companies to access their enterprise data and functions, fragmented across disparate systems, in order to create a combined, accurate, and consistent view of their core information as well as process assets and leverage them across the enterprise to drive business decisions and operations. System Integration is the bringing together of component subsystems into one system and ensuring that they function together effectively. Enterprise Application Integration enables efficient information exchanges and business process automation across separate computer applications in a cohesive fashion. Integration refers to the objective of the ICC to take a holistic perspective and optimize certain qualities such as cost efficiency, organizational agility and effectiveness, operational risk, customer (internal) experience, etc. across multiple functional groups. Competency refers to the expertise, knowledge or capability that the ICC offers as services. Center means that the service is managed or coordinated from a common (central) point independent from the functional areas that it supports. Large organizations are usually sub-divided into functional areas such as marketing, sales, distribution, finance,

human resources to name just a few. These functional groups have separate operations and are vertically integrated and are therefore sometimes referred to as "silos" or "stovepipes". From an organizational perspective, an ICC is a group of people with special skills, who are centrally coordinated, and offer services to accomplish a mission that requires separate functional areas to work together.

5.1 Key Objectives of Integration Competency Center

ICC as a concept is fairly simple. It is embodiment of the IT management best practices to deliver shared services. However, being an organizational concept, it is far more challenging to implement in practice than the conceptual view because every organization has different DNA and it takes specific personalization/customization effort for ICC that makes the ICC initiative successful. Here are some of the common challenges in ICC establishment journey: Change management in terms of technology, processes, organization structure Ability of the organization to deal with the pace and quantum of change Alignment of stakeholders and process owners for ICC strategy

Integration Competency Center Management Guide : 2009 Publication

 Inappropriate ownership level for ICC program and lack of senior management sponsorship Highly tactical focus and business program level constraints Ignoring foundation elements and jumping to implementation directly Inappropriate funding.

5.2

Value Proposition for Integration Competency Center:

An enterprise-wide, structured, and well-managed framework for EAI provides Business Alignment: Business objective-driven integration environment with increased visibility, informed and faster decision making Strategic Technology Ownership: The EAI governance model delivers a metrics and functional structure, and a comprehensive funding and costing model Lower TCO: Economies of scale ensure productivity gains and higher resource utilization from repeatable infrastructure (Giga: Average saving of 25%-30% in development cost and 30%-75% saving in operations and maintenance cost can be expected) Higher Solution Quality: Efficient operational practices ensure improved quality and process performance Lower Risk: ICC ensures agility and flexibility to manage changes in business and technology environment. In addition, it enables effective technology lifecycle management and faster maturity of integration. Now from the above two points which I have mentioned we have seen the objectives and the strong value proposition that ICC offers .The point of fact now remains is that how can an organization achieve those set of objectives and simultaneously also provide .Now essentially we need to have a clear cut plan on how to achieve Integration Competency Center Shared Services which we are going to see in the below analysis.

5.3

Inclusive Foundation for Integration Competency Center:

In addition, the diverse and rare skills required (for example, data transformation and reconciliation) tend to be spread across disparate parts of the organization, which hinders many companies' attempts to take a consistent and integrated approach.

Creating a single, shared service center that brings the diverse skill set together helps to create the focus, momentum, critical mass, processes and standards required to build and execute a world-class Application Integration strategy. Now the figure represents the entire detailed plan to achieve inclusive deployment of Integration competency centers.

Detail Implementation Plan for ICC at Infosys

6. Case Studies: A Real Insight into Shared Services

6.1 Financial Sector Shared Services: Based on Motorola: A Successful Implementation

The basic logic of the shared services is simple: Providing the services in one location which is to be used by several recipients in several other locations. It consists of the shared part which is used by several recipients such as internal customers and partners, and the services part which focuses on the services for internal and administrative purposes. The shared services almost only concentrate on the supporting functions such as human resources, IT and finance, but not on the core business or other operations. Financial Shared Services, therefore, is a professional financial services centre; it benefits companies and any other business organizations a lot, undoubtedly. However, there are also risks in implementing the system. Critical Advantages Seen from the Model by Motorola: a. The Motorola Accounting Services Center (MASC) which is located in Tianjin, China is one of the significant examples to demonstrate the organization and the function of this service model. There is more than 220 people work at MASC to process 90% of the global Accounts Payable invoices, more than 80% of all Travel and Expense Statements, more than 80% of all inter-company transactions, more than 70% of all Fixed Asset transactions and it performs more than 3,000 account reconciliations monthly. b. Financial Shared Services at Motorola is able to target the vital factors in processes that better align the business goals with the requirements and expectations of its customers. c. Financial Shared Services plays an important role in emphasizing global team spirits and eliminating cultural differences. The slogan of One Motorola can be seen everywhere in MASC, which greatly stimulates the employees enthusiasm and unites people from different nations. In addition, FSS have delivered a consequence of corporate government legislation, such as Sarbanes-Oxley. In New York Times, FSS helps them to reduce the time they spend on Sarbanes-Oxley.

Risks Faced by Motorola and mitigation Steps:

6.2

Modeling an HR Shared Services Center: An Unsuccessful Experience of an European MNC

What is it? An increasing number of large and multinational organizations are moving to shared services models in delivering the human resource function. It is commonly believed that the adoption of an HR shared services model can transform the role of HR by enabling the HR function to be more strategic at the corporate level and more cost-effective at the operational level. The delivery of the human resource function has undergone considerable changes in recent years, especially within large multinational corporations (MNCs). Traditionally, the typical HR structure in a large MNC starts with a small team at the corporate level that is responsible for strategic issues. Much of the operational HR function is carried out at the national level. This function is often devolved to the branch-office level, supported by a small on-site HR department. However, an increasing trend in recent years has been the establishment of HR shared services centers that deliver these functions more centrally, and often more remotely, from the subsidiaries of the firm. In terms of user orientation, there are two broad types of HR shared services. The first is the set of shared services set up by large organizations to provide HR services both to their own organization and to external client organizations as an outsourcing
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Financial shared services in multinational corporations: Based on Motorola

business. Examples of these organizations include BAE Systems in the United Kingdom. The second type of HR shared services refers to those set up, again, by large and often multinational or multisite organizations that aim to restructure their HR service provision through recentralization and the creation of an internal market system. Why did the MNC adopt HR Shared Services?
Adoption

Potential Benefits of Adopting Shared Services

Integrated total solution approach to problems through recentralization of the HR function (one stop shop) More selective and strategic contribution from HR because they are not focused on doing administrative work Improved cross-group learning and sharing of good practices through having a common information base Better management information, provided more consistently across the organization as a whole More efficient resourcing through economies of scale in staffing and facilities Greater efficiency and professional provision of HR services through streamlining and simplifying Services. Improved career development for HR staff Higher customer satisfaction ratings through an improved match between customer expectations and service. Better service specification (e.g., via service-level agreements) and performance monitoring as a result of the internal market system. Facilitation of corporate investment in computing and communications infrastructure by arguing the case on a collective basis. Greater transparency of cost of services and easier monitoring of budgets

The Change to the Shared Services Process In the reorganization of the delivery of the HR function in our MNC in Europe, most of the HR offices at the branch level were removed or radically slimmed down, with 150 HR jobs made redundant and a small number of HR staff redeployed and relocated. The call-centerbased Employee Services Center was set up to deal with HR administrative transactions and provide advice through the help desk. Self-help, online HR information system (HRIS) was introduced for employees to input and update their personal data on the system. The main objective was to the intention was to create an environment where all the HR administration is taken out of the line, automated and put into a shared service center. In addition, it was believed that this change would enable the HR function to develop centers of expertise that would provide consultants and advisors to HR professionals.
Implementation model revolved around 4 axes:

The model is defined along two axes: strategy versus operations and process versus people. The roles are strategic partners helping the business to successfully execute strategy; administrative experts improving organizational efficiency by re-engineering the HR function and other work processes; employee champions maximizing

employee commitment, competence, and their overall responsiveness to change; and change agents delivering organizational transformation and culture change.

Strategic Advice: Board representation

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Transformational Shared Services The employee Service Center

Professional Shared Services: Recruitment Training etc.

Business Planning Advice and Support

Findings and Discussions: Organizational changes can be unsettling to employees, especially changes of this kind that require employees to adopt different ways of obtaining HR assistance and discussing sensitive information. When poorly managed, these changes are likely to cause resentment and resistance among the workforce, as most major organizational changes tend to arouse worry and resentment to various degrees.

7 8

Source: Consult-Corp UK document, 2002 MODELING AN HR SHARED SERVICES CENTER: EXPERIENCE OF AN MNC IN THE UNITED KINGDOM

The recent advent of the HR shared services model as an alternative to traditional HR service delivery suggests that there no longer is a shared belief of the best way to deliver HR services. Against this background, this case study has reported the restructuring of the HR function of a large MNC section based in the United Kingdom. The companys vision of the change was to develop sophisticated analyses of HR information, to have clear accountability, and to be cost-sensitive, relevant to business, information- rich, integrated, automated, and streamlined. However, the findings of the study suggest that the implementation of the initiative exhibited a number of operational problems that are typical in change management. These problems have reduced the quantity and the quality of services for both employees and line managers, and they have led to rising levels of dissatisfaction.

7. Economics of Shared Services

U.S. organizations have been successfully whacking away at overhead and labor costs, specifically, by adopting the centralized, highly automated shared-services model for core financial transaction processing. Whether these shared services centers are located domestically or run by captives based in low-wage countries or even outsourced in whole or in part , the first big prize has been significant reduction of expensive American head count. Thats typically accomplished by redesigning aged processes (e.g., eliminating redundancy) and plugging in tools and technologies that automate data processing, data management, and workflows. The second big prize also courtesy of more and better IT comes in the form of higher-quality information and useful business analytics generated by the finance staff left standing. The third bonus prize takes shape as a bank of blinking dashboards that managers can monitor in the merry hunt for continuous improvement (read: endless productivity gains). And thats not the end of it. Adopting shared services and standardizing processes and systems around, for example, invoice approval and payment can lead to the capture of more early payment discounts and, subsequently, a steep cut in the overall costs of producing goods and services. Process improvements available from next-generation shared services can also do wonders for the cash conversion cycle, trade credit default rates, relationships with suppliers and customers, and internal cross-functional cooperation. It is cheaper! Organizations using shared services centers to process AP transactions spend less of their revenue on AP than organizations that manage AP transactions at the business-unit or headquarters levels. Top performers for this benchmark survey question using shared services centers spend $0.26 per

$1,000 in revenue, whereas operating/business unit structures spend $0.66 and headquarters arrangements spend $0.45. For a $1 billion organization that earned a place in the top-performer category, a shared services center approach for AP generates $400,000 in savings.

It Processes More Volume!

9

Clearly, shared services centers lead to process cost savings. But how strong is their contribution to process productivity. Figure 2 shows that top performers for this benchmark survey question who do use shared services centers process more than 20,000 invoices per AP fulltime equivalent (FTE), whereas top performers in headquarters arrangements average almost 5,000 fewer and operating/ business units average about 8,000 fewer.

8. Summarizing: Shared Services Start of a new Era

Two diametrically opposed perspectives continue to coexist in IT and other business service functions. One camp argues in favor of shared services, wherein the IT organization becomes the internal service provider to the rest of the company. The other camp promotes outsourcing: the delivery of IT services all done under one roof but with that roof located somewhere other than at the company. Companies outsource for several reasons. Cost saving may be the ultimate reason. But the means by which this is achieved vary, from introducing new technology, improving service quality, transforming fixed investments into variable costs, to freeing management time to focus on core competencies. Outsourcing is about the make-or-buy decision, and the term applies to a broad range of procurement activities in manufacturing (for example, automobile companies purchasing transmission components) or services (for example, a retailer sourcing TV advertising).Existing corporate structure affects the firms choice between outsourcing and shared services. Moreover, the creation of internal shared services first before outsourcing leads to greater retention of capabilities in-house; by contrast, a path to outsourcing, without an interim step of internal shared services, engenders greater reliance on suppliers capabilities. In fact, the first path is about selling shared services assets and capabilities to providers, while the second path
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Economics of Shared Services : By Mary Driscoll

is about buying in such capabilities from providers. Outsourcing faces highpowered incentives, with the client able to credibly threaten to terminate the contract when the provider underperforms; with an internal SLA, it is not easy to do anything if the internal shared services center does not perform. And whats worse, the internal operation is often a cost center rather than a profit center. At the same time, whenever a provider is offering standardized processes that could be delivered to more than one client, SLA acts as a powerful incentive to perform well for a specific client offering the bonus. By contrast, with processes that are customized for a specific client, SLA does not create as powerful an incentive. To summarize, the following is the implication from a perspective based purely on incentives. Outsourcing works best to make an external provider truly accountable for performance, whenever processes are standardized and stable for easy SLA specification. By contrast, an internal shared service is a better option in cases where processes are either customized or being transformed. The incentive based argument highlights the fact that parties must rely more on other mechanisms such as trust if outsourcing is applied to processes requiring customization or transformation. -------------------------------------------------------------------------------------------------------------------Outsourcing and shared services are both part of organization redesign to give primacy to the efficiency of corporate functions. Compared to shared services, outsourcing is a combination of decisions about the firms external boundary and its internal structure. Outsourcing may take place at different stages in corporate activities, either as an initial trigger to bring about fundamental restructuring in a big bang mode or a next step after a period of internal process transformation. Relational contracts, if well designed, can service the maintenance of high-powered incentives to ensure the delivery of high-quality service. However, the firm may wish to retain internal shared services without outsourcing if it anticipates instituting further business changes in structure and scope of business services. The choice between outsourcing versus shared services is not simply a matter of timing (in mature versus immature markets). It is more crucially a matter of long-term corporate strategy.

9. References
http://www.webwire.com/ViewPressRel.asp?aId=121091 http://www.accenture.com/Global/Research_and_Insights/Outlook/By_Industry/Government_and _Public_Service/SharedServicesInsightsOne.htm http://en.wikipedia.org/wiki/Shared_services https://www.mckinseyquarterly.com/When_to_divest_support_services_2394 https://www.mckinseyquarterly.com/Nonprofits_Ensuring_that_bigger_is_better_1419