Shared services 'not just a cost-cutter'

TO HEAR the management gurus tell it, you would think decentralisation is still all the rage. After all, many of the current enthusiasms - for example, being innovative and striving to be local at the same time as global - are dependent on it.

And yet many of the world's most successful organisations are concentrating many of their operations in a handful of locations. The driving force behind this notion - known as "shared services" - is to cut costs by centralising processes and people in one place, so reducing employee numbers and/or IT systems. Some companies have just one centre for Europe, others one for each country; some combine different functions in a single place, others reduce the risk by having different locations for different departments.

Proponents claim it is not just about cutting costs, but raising customer satisfaction with faster and better-quality responses by simplifying things.

According to a recent report published by the Economist Intelligence Unit, the concept is proving "a cost-effective strategic response to the vast array of changes taking place" - particularly in Europe, where the approach of economic and monetary union is just one challenge to be handled.

There are many approaches to and definitions of shared services, but broadly it amounts to setting up standardised and consolidated business functions or processes with "a service mentality" so they operate more effectively. Finance and IT are typical candidates, but some firms also apply it to other functions, such as legal.

Companies that have either adopted or are thinking about taking up the approach include British Airways, British Gas, Coca-Cola, Hewlett-Packard, Shell and Siemens. One of the leaders is said to be Elizabeth Arden International, the skincare and cosmetics business that Unilever acquired from Eli Lilly in the late 1980s.

The study "Shared Services: a new business architecture for Europe" finds the variety of approaches to the idea is reflected in "very mixed results". But firms that have successfully implemented the concept for Europe have achieved significant bottom-line results as a "shared services architecture provides a pan-European platform" that helps them to:

make economies of scale and scope;

increase accuracy and quality of information;

move quickly to identify and exploit market opportunities, especially around the single currency and the single market;

shorten the time it takes to bring new products to market;

increase learning and know-how via enhanced co-operation, communication and diversity.

Having specialists working together will not necessarily improve their efforts, but Marcie Krempel, who wrote the report in co-operation with the law firm Baker & McKenzie, Chase Manhattan Bank, KPMG Management Consulting and PeopleSoft, believes the process is now unstoppable.