Anyone who has been in an organization for a decade or more has probably experienced at least one, probably more, moves to either a more centralized operating model or a more decentralized one. As with many business decisions, there is no perfect answer to what activities should be centralized and which are more effective dispersed to business units or regions. The external environment and the current business context can often make one or the other model more appropriate, which explains the almost constant swing between them. Additionally, the preferences of leaders based on their experiences can also precipitate changes even if the business context has not changed. Anyone who has been through these shifts knows that they are generally highly disruptive.
In the last few months, we are seeing more and more businesses move towards greater centralization of functions into shared services. Centralization does have many benefits – it creates greater cost efficiency, process innovation, deep specialization, and easier best practice sharing. On the flip side, the tradeoff from moving resources away from business units or regions is slower, less agile processes that are not as connected to the business and customer needs. Additionally, centralized functions can harden silos and make it more difficult to collaborate across them. In a world that is more uncertain and where change is more frequent, this lack of agility and responsiveness to customers can be a significant challenge.
While some tradeoffs are inherent in the decision, others can be mitigated. It is possible, at least to an extent, to have the best of both worlds – the efficiency and deep functional expertise of a shared services model and the agility of a decentralized one. If you are moving to a shared services model, here are some ways to maintain at least some of the benefits of a decentralized model:
Establish Networks to Work across Silos
Organizational structure can get in the way of agility when decisions and communication must flow up the chain of command and then back down through another functional group. Relying on escalation through the hierarchy to collaborate across silos is far too slow. Instead, establishing informal (and sometimes formal) networks can allow for quicker cross-silo communication and collaboration. Leaders can cultivate these networks through formal mechanisms like requiring that cross-regional or cross-functional support be part of job expectations. They can also encourage these networks through a culture where ideas and information are shared broadly across the organization. Having clear roles that are well understood across the whole organization also helps, as people will know whom to reach out to for what questions/support. Finally, consider what incentives systems and structure are rewarding. In a centralized function, leaders may need to explicitly recognize and reward cross-functional collaboration.
Deliberately Create Information Channels
A key part of establishing the network described above is having information channels that allow communication across silos and across levels. This is particularly important, as resources in a centralized shared service are further away from the front lines of the business. To ensure these resources hear what is happening within the business, with customers, and in the market, new mechanisms for communication may need to be established. These could include having shared service resources be tagged to various business teams and be part of their team discussions, having business metrics be part of shared service dashboards, being deliberate about how to use communication mechanisms like slack and teams to stay connected with the business.
Focus on the Service in “Shared Service”
A side effect of the shared service model is that the function gets disconnected from the business objectives and creates procedures, rules, policies that are “good practice” but don’t necessarily serve a business reason or goal. This is when the shared service model starts to slow down progress and become the bad version of bureaucracy. Leaders of shared service functions can avoid this by staying focused on the “service” aspect of shared services – being clear about what the internal customers are looking to achieve, and how the functional resources can enable or hinder those objectives will keep the function from becoming an entity in itself. Tactics like requiring all shared service metrics to explicitly connect to business metrics, establishing service level agreements like those with external providers, and conducting periodic voice of the customers efforts can be useful in ensuring that shared services are truly serving the business.
Cultivate Business Curiosity
When the director of HR or the general counsel sits in the office next to the business unit head, they are aware of the businesses’ current challenges. This does not happen organically in a centralized model. In addition to creating information channels, cultivating curiosity in the functional teams helps combat the lack of organic exposure. Adopt an active strategy to recruit for, develop, and promote curiosity in your functional team. Curiosity will prompt people to reach out and learn more about the other aspects of the business. Nudging individual behavior through recruitment, expectation setting, and rewards can have a big impact.
With the current business environment seemingly pushing more and more companies towards greater centralization to capture efficiencies and the opportunities in greater specialization, it is important to mitigate against the tradeoffs that come with this move. Fortunately, with a deliberate approach that ensures shared services continue to stay connected to the business needs, don’t become inward focused, stay curious, and look for ways to get closer to customers and markets, it is possible to have your cake and eat it too.