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Shared Service Organisation presented by
Richardus Eko Indrajit indrajit@post.harvard.edu
Presentation Objectives
3 SK No. Print - 201/I10200/2006-S0
4 Pointer Persiapan Penerapan SSO
5 Knowledge Highlights
Apa itu SSO dan mengapa harus SSO. Langkah-langkah atau tahapan menyiapkan SSO dan apa
saja yang harus disiapkan. Organisasi SSO seharusnya bagaimana.
Perangkat kesisteman apa saja yang diperlukan guna men-dukung operasional layanan Shared Services (misal: SLA. Charge Back, Kinerja, STK, dll)
Pentingnya pengukuran kinerja, berikut overview model-model pengukuran kinerja yang dapat dipergunakan (misal BSC, dll).
Penjelasan singkat terkait dengan sekuriti, BCP dan DRP. Strategi menuju kepuasan pelanggan. Bagaimana masing-masing Sub Tim seharusnya bekerja.
Source: Pointer Persiapan Penerapan SSO
6 Agenda for Today
Background Shared-Service Organisation’’s Definitions and
Characteristics Type of Organisation Models
SSO Components and Structure Step-by-Step Implementation
Interaction with Units on Service Level Agreement Issues on Chargeout Aspects
Aftermath SSO Implementation
Ba
Background
8 Corporate Services
9 Key Industry Trends
Globalization Rationalization, M&A
Deregulation, Privatization Cost Reduction
Technology innovation Information to Knowledge Transformation
Risk Management Government Regulations
10 Support Services
11 Technology Issues
DRIVER I/T CHALLENGE
I/T Staff Turnover Rates > 14% Wages increasing at a rate of 4x average
Renewal Efforts Major ERP implementations (SAP, Peoplesoft, Oracle)
Emerging Technologies Requires different management model than maturetechnologies
Outsourcing Must determine where and how to use service providers
Demand Management What level of service, which development projects?
Costs Costs perceived to be too high with too little controlfrom the business
How should businesses be charged for these services?
Growth How can I/T support and enable corporate growth?
Organization
What organization model should I/T adopt (Centralized,Decentralized, Shared Service)?
How can duplicate services (“shadow” I/T shops) bemanaged?
Extended Enterprise What I/T services can enable supplier/customer processimprovements?
12 Business Imperatives
Business Imperatives I/T Implications
Scaleability
Mergers, acquisitions and entry into new markets require thecapacity to deploy increased levels and coverage of services quickly
Divestitures, JV’s and outsourced business processes drive loss ofscale and loss of cost effectiveness in existing services
Implementing new technologies and accommodating business changecreate large peak demands for services
Flexibility
Flexibility is essential to introduce new technologies andaccommodate business change
Freedom to select the technologies best suited for businessobjectives is important (i.e., technology choice is not dictated byinternal skill base)
Responsiveness andManageability
Quick access to productive, external resources is needed torespond to business opportunities
Reliability Service levels must be reliable in an unpredictable, changingenvironment
Sustainability Need skills that will effectively transfer technology into the
organization Viable career paths are needed to effectively manage and leverage
I/T for business benefits
Cost-Effectiveness Variable costs must be kept variable Must maintain our cost competitiveness while changing scale
Risk Minimization Need to make the right choice on technologies and partners Need to manage the overall risk in our technology portfolio
13 Root Cause Analysis Highlights
COMMON THEMES IMPACT EXAMPLES
Decentralized anddiversified corporatestructure
Limited sharing among divisionsand/or geographic areas
Duplicate groups and assets Loss of economies of scale
Small and subscale Help Desks Small and subscale Data Centers Multiple applications supporting
the same process
Informal cost/benefitprocesses
Selection often driven byhistorical not economicconsiderations
Excessive dependence onautomation through technologyto capture benefits
Excessive number of productdevelopment projects focused onautomating low-value transactions
Insufficient support of cross-functional applications targeted tosupporting key decisions
Insufficient costvisibility andaccountability over I/T
Excessive discretionaryactivities
Lack of visibility of I/T costslimits opportunities to makeeffective cost/service tradeoffs
Multiple planning and technologygroups
Underutilized computers andnetwork, often viewed as “sunkcost” with no incremental cost
Inadequate level ofstandardization
Unclear definition of whocontrols assets – often leadingto lack of standards and tounderutilized assets
Limited definition andenforcement of standards
Multiple Networks and Desktopstandards increased support costsunnecessarily
Multiple organizations defining andenforcing standards often createda different set of standards bydivision and/or geography
14 Process-Based IT Organisation
Improving the value and return on I/T assets by focusing resources on critical market driving capabilities (e.g., ““Advantaged Systems””)
Positioning the I/T Organization to support growth
Improving service management disciplines using process based organization concepts
Capturing cost reduction opportunities of up to 40%
15 Implementing Best Practices Approach
Simplifying I/T Operational Processes – Separate supply and demand, fixed and variable
– Eliminate low value added work and redundant support systems accumulated over years of growth, acquisitions, etc.
– Optimize I/T processes for low cost delivery…benchmark to best practices
– Develop processes to share expertise and internal best practices
Restructuring I/T Delivery Model to Achieve Operational Effectiveness – Centralize operations where strong economies exist
– Develop service level agreements to create accountability to the line
– Balance sourcing of I/T capabilities (insourcing vs outsourcing)
16 Implementing Best Practices Approach
Leveraging Information Systems Investment – Enforce common technical architecture standards
(hardware, software, network)
– Implement rigorous cost/benefit standards for new application software investments
– Optimize application software maintenance requirements
Reducing Headcount Costs – Strip out redundant support systems and staff
accumulated over years of growth, acquisitions, etc. – Staff to ““base case”” I/T delivery model and streamlined I/
T processes
17 Fundamental Reengineering
18 Priorities Analysis
Shared-Service Organisation’’s Definitions and Characteristics
20 Definition
The concentration of company resources performing like activities, typically spread across the organization, in order to service multiple internal partners at lower cost and with higher service levels, with the common goal of delighting external customers and enhancing corporate value.
Schulman et al. (1999, p. 9)
21 Definition
A collaborative strategy in which a subset of existing business functions are concentrated into a new, semi-autonomous business unit that has a management structure designed to promote efficiency, value generation, cost savings, and improved service for the internal customers of the parent corporation,like a business competing in the open market."
Bergeron (2003, p. 3)
22 Definition
An independent organisational entity which provides wel defined services for more than one unit (which may be a division or business unit) within an organisation. The organisation is responsible for managing its costs and the quality and timeliness of the services it provides to its internal customers. It has its own dedicated resources and typically will have informal or formal contractual arrangements, often called service level agreements, with its customers."
Moller (1997)
23 Definition
The practice of business units, operating companies and organizations deciding to share a common set of services rather than have a series of duplicate staff functions."
Quinn et al. (2000, p. 7)
24 Business Drivers
Economies of scale Technology leverage
Processes re-engineered with best practices Processes standardized
Greater span of control Increased focus on process measurement
Leverage specialized skills Sharing of information and resources across
businesses Customer service focus
25 Typical Shared Services Function
The initial scope of Shared Services is typically focused on non-customer transactional services. As the organization capabilities mature, and the business case mandate increases, other processes are considered.
26 Characteristics
Shared services are often bundled in independent legal entities. They are usually geographically separated from the headquarter.
Tasks that should be gathered in shared services should not be critical tasks from a competition point of view.
Neither should customer contacts or sales points be put into shared services to retain their interconnection to the core business. Thus, only support process and non-strategic activitiesshould be bundled in shared services.
Earlier, different units could have handled things differently, but in order to achieve economies of scale, such processes and activities need to be streamlined.
27 Characteristics
One goal with shared services is to set up a center of scale.
An acquired power can help to negotiate better terms and prices which can cut even more costs due to e. g. volume discounts.
Additionally, extra revenues can be generated when opening shared services to others.
Besides improving the organizations working capital, also financial risk management can benefit from external revenues.
28 Characteristics
Establishing a center of expertise is another expressed goal.Through concentration on core competencies, output quality can be enhanced at the same time as cycle time is reduced.
Employees are more satisfied and their competencies can be better utilized and anchored in the organization, which contributes to improved knowledge management.
By feeling that their knowledge is more appreciated, employees can also contribute to a new service minded attitude, which is important when creating a new level of internal customer-supplier relationship or business partnership.
29 Characteristics
Create a platform for business growth, flatten organizational structure, and support of general group strategy.
It is often a step towards globalization, an enabler for cultural organizational change, or a step towards external outsourcing.
30 Common Definition and Characteristics
The joining of similar processes spread over several organizational units or departments with the objective to render services in an efficient and effective way to other internal organizational units or customers. – An innovative approach to standardizing and
streamlining the delivery of common processes in one or several physical locations
– These processes are traditionally transaction oriented and have common characteristics across business units
– It will lead to economy of scale because of standardization and a more simplified process, a more integrated ICT infrastructure and because of a reduction of overhead costs
– Leads to a clearer (internal) customer relationship because of having a well defined service level agreement
Source: KPMG
31 Process Classification Source: KPMG
32 ex. IT Shared Services
33 Second Generation Shared Services
HUMAN RESOURCES
Benefits Recruiting
Payroll Training
Career Planning
FINANCE &
ACCOUNTING
General Accounting Accounts Payable
Accounts Receivable Fixed Assets
Financial Reporting Tax Accounting Tax Compliance Billing/Invoicing Loss Prevention
MERCHANDISING
Order Management Replenishment
Inventory Logistics
Point-of-Sale
PROCUREMENT
Strategic Services Tactical Purchasing
REAL ESTATE
Lease Administration Property Management Construction Services
INFORMATION TECHNOLOGY
Data Center Operations
Communications Operations Network Support
34 Cost Reduction Phenomena
Type of Organisation Models
36 Alternatives
Centralisation Decentralisation
Outsourcing Shared-Services
37 Alternatives: Centralisation
A classic alternative to shared services is to centralize support processes.
It is an unarguably cheap alternative. However, centralization often suffers from its sordid
history of a bureaucratic center with no idea of service or the real world.
The distance to business services is also symbolized through an orientation towards the headquarter, whereas shared services are typically outward oriented towards their internal customers with an expressed customer/supplier relationship.
38 Alternatives: Centralisation
Outward orientation in shared services is also expressed by process thinking, which puts the customer or business partner in the middle, whereas centralized units are often characterized by a functionally oriented design.
Another sign for outward orientation in shared services, is how to treat customers or business partners. While a medium to high customer orientation can be observed in shared services, customer orientation with centralization is rather low.
39 Alternatives: Centralisation
A centralized unit is part of a legal entity and is controlled through budgets with limited awareness of costs and service levels. Shared services, however, are often organized as cost-centers.
40 Alternatives: Decentralisation
Another classic place to put support processes are local departments. There exists an unique knowledge about the business, which can directly be used in the departments.
Per definition processes and activities are not gathered in a separate legal entity. They are a part of the local department, which distinguishes them from a shared service organization, which is often owned to 100% by the corporate group.
41 Alternatives: Decentralisation
In principle, departments are locally located and support processes and non-strategic activities are performed at the same place with a responsibility for the local organization only. In contrast, shared service centers serve also entities at other locations.
They are not locally connected and there is no association to one entity, as shared service centers are organized in autonomous entities.
Another distinguishing feature is pricing. Shared services often use transfer prices, whereas local departments can only have some local cost apportionment.
42 Alternatives: Decentralisation
Precisely as centralized entities, decentralized units have rather a functional structure than a process-oriented one, which can be observed in shared services.
Synergy and professional competence have lower potential in specialized units. Quantities tend to be too low so that resources cannot efficiently be used. This carries along the risk that no special competence can be built up.
Shared services, on the other hand, other the possibility to achieve economies of scale as quantities go up.
Higher quantities also allow for specialization and core competence can be achieved.
43 Alternatives: Decentralisation
Achieving economies of scale, however, is connected to more standardization.
Consequently, shared services tend to be more standardized and less flexible to meet an individual entity's demands than a decentralized unit.
Thus, decentralized solutions over more flexibility and adaptability.
44 Alternatives: Outsourcing
It is the use of external resources after previously having used internal resources.
There is an important difference between outsourcing and shared services in the legal body. The outsourcing alternative is provided by a third party legally independent from the corporate group, whereas a shared service organization is owned by the corporate group.
Thus, the outsourcing organization is a legal entity outside the corporation.
45 Alternatives: Outsourcing
The degree of dependency is higher than in alternatives owned by the corporate group. This can be extremely critical when business critical processes and activities are outsourced. Therefore, corporations usually keep such processes and activities in-house.
46 Alternatives: Outsourcing
Handing over support processes and non-strategic activities to a third party implies that no professional competence can be built up at the corporation. Often, existing competence becomes even lower after a while, as tasks are not performed in-house any longer. Consequently, knowledge about them decline constantly.
Pricing is based on negotiable market prices, whereas shared services often use transfer prices and only seldom market prices.
47 Distinguishing Features
48 Distinguishing Features
49 Distinguishing Features
50 Organisational Management Model
51 Decentralisation Model
52 Coordinated Decentralisation Model
53 Concentration Model
54 Join Shared Service Center
SSO Components and Organisation
56 Shared Service Components
57 People – Process – Technology
People Process Technology Organiszation structure Change control Hardware Skills development Metrics Architectures Roles and responsibilties Problem management Software Cultural; Legacy vs. Client/Server mentalities
Disaster recovery Integration
Communication Performance and tuning OS Training Security RDBMS Transitioning Staff Capacity planning Server consolidation Job descriptions Software distribution High availability (hardware) Career path Asset management System management tools Retaining staff Event monitoring Standards Mentoring staff Network management Data warehouse
System management tools Production acceptance Quality assurance Storate management Scheduling Service level agreements Benchmark services Charge-back Wersion/Release management
58 Emerging Charter of SSO
59 Evolution of SSO
60 Business Services Organisation Structure
Step-by-Step Implementation
62 Success Factors on Operational Mngt.
63 Best Practice Stages
Interaction with Units on Service Level Agreement
65 Why Service Level Agreement?
Customer Perceptions --- Fantasy?
Customer Expectations --- Reality
Customer Agreements --- Targets @ What Cost
66 Matching Demand with Supply
67 Interaction with Business Units
Create a Service Level Agreement between the Shared Service Center and the Business Unit: – Turnaround time on transactions
– Different transactions included
– Month-end closing procedure
– Month-end closing timeline
– Define owners for each transaction
68 SLA Assessment
Define user measures and targets across all IT services Define what users are doing themselves
Determine which are most important Survey users on subjective topics
Perform periodic reviews with users/management Compare to external benchmarks
Establish continuous improvement goals Determine level of IT incentive pay
Update as business changes
69 SLA Checklists
Issues on Chargeout Aspects
71 ex. Pertamina Cases
BUSINESS ENVIRONMENT
Business Growth
Industry Restructuring (regulated vs. non-regulated)
Shared Service Implementation
Increasing Total I/T Costs
NEW DEMANDS ON I/T COST MANAGEMENT
Support new acquisitions cost-effectively
Achieve scale benefits Support variety of business
strategies Share resources without cross-
subsidizing Demonstrate fair, equitable
costs Support shifts in buying
behavior, service level planning and scope management
Drive down overhead Provide means for business to
access value of I/T services
72 Complete Roles of SSO
73 Chargeout Model Change
CURRENT CHARGEOUT MODEL
Accounting tool to support cost recovery
Difficult to understand Lack of options Year-end surprises Costs perceived as high Lack of control
TARGET CHARGEOUT MODEL
Communication tool to support sound business decisions
Clear service definitions and pricing
Product and service level options
True-up when variance identified
Costs are understandable Predictable fixed costs; determinable variable costs
74 Direct Chargeout Principles
Chargeout systems should be simple and equitable Chargeout approaches should, where possible, support the
business vision(s) I/T should charge by service and prices should reflect full
costs Predictable or fixed I/T costs should be allocated annually
based on simple drivers, and billed monthly or quarterly Discretionary and highly variable costs should be billed
based on usage Chargeout pricing should be benchmarkable Chargeout pricing must be auditable and defensible
Chargeout systems should facilitate the reporting of total costs by business process
The goal of chargeout is communication, not accounting
75 Challenge to the Chargeouts
ISSUE OPTIONS TO BEEVALUATED
TARGETEDBENEFITS
Limited ability to supportvarying business visions
Provide cafeteria styleoptions
Offer variety of servicelevel agreements
Greater control overcosts
Increased choice andflexibility
Support for varyingbusiness needs (low costvs. innovation, etc.)
76 Challenge to the Chargeouts
ISSUE OPTIONS TO BEEVALUATED
TARGETEDBENEFITS
Client confusion overservice definitions
Offer more “user-friendly” bundles
Communicate userfeatures
Show single line item fortotal application costs(bundled)
Separate discretionaryprojects from ongoingoperations (lights-on)
Improved understandingof costs
Improved ability tomanage demand
Ability to monitor costsby business process
77 Challenge to the Chargeouts
ISSUE OPTIONS TO BEEVALUATED
TARGETEDBENEFITS
Mixture of fixed andvariable costs
Recover fixed I/T costs(e.g., infrastructure) viafixed pricing
Recover variable I/Tcosts (e.g., applicationenhancements) viadiscretionary or per-unitpricing
Clearer understanding ofcost drivers
Greater control overvariable spend
78 Challenge to the Chargeouts
ISSUE OPTIONS TO BEEVALUATED
TARGETEDBENEFITS
Process is difficult toaudit, often with surpriseyear-end true-ups
Increase focus ontracking usage acrossbusiness units (regulatedvs. deregulated)
Reconcile quarterly (ormonthly?)
Adjust rates semi-annually if over 10%variance – and explainwhy
Defensible in regulatoryproceedings
Greater budgetpredictability
79 Charge for Usage
Aftermath SSO Implementation
81 Continuous Improvement
Assign accountability for continuous improvements to those responsible for each service -- not to a dedicated quality management group
Establish a close link between scorecard performance and performance based systems -- in process
Define periodic market competitive ““stretch”” targets through benchmarks
Continuously improve I/T cost and service structure – Ongoing Service -- Organize I/T buyers’’ committees to review
cost and service performance and to negotiate future targets – Current Investments -- Appoint ““process professionals”” to
maximize the value of current applications/investments on an ongoing basis
– Discretionary Investments -- Review value proposition for new projects and perform ““post-audit”” reviews to capture benefits
Negotiate cost and service levels with clients
Q&A and Discussions
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