Shared Services, Location, North West, Manchester, UK

Shared Services in the North West

20 Mar 2006 | (Survey)

The North West of England has one of the highest concentrations of Shared Services Centres (SSCs) in Europe. There are at least 40 SSCs the majority being located in the regional capital, Manchester.

Manchester has emerged as an attractive shared services location, building on its large professional employment base, extensive communications links and a track record of success in supporting similar business operations.

In 2000, a Forum was established to provide members of the region’s shared services community with the opportunity to meet and discuss operational and strategic issues with peers. The Forum played an important role in the development of the shared services community in Manchester and the wider North West region for a number of years but activity ceased during 2004.

This research paper has been prepared to assist MIDAS and leading members of the regional SSC community in understanding the opportunity that exists for re-launching the North West Shared Services Forum. It provides an overview of the existing shared services operations in the North West and suggests the way forward for the Forum in terms of its potential structure and activities.

1. Summary of Interviews

1.1. Company Information

A total of 15 shared services directors were interviewed as part of the research from centres of a variety of sizes and industries. The interviews helped the consultants to map the sector in the region and also to gauge interest in the Forum and ideas for how it could be best developed to add value to shared services activity.

1.1.1. Profiles of Shared Service Centre operators

The majority of SSCs visited operate relatively or completely separately from their parent organisation. They generally occupy separate premises and perform recruitment and procurement initiatives specifically for themselves. This has raised a number of important questions:

• To what degrees are the SSC’s able to make their own decisions with respect to how operations are run within the SSC?
• What influence does the SSC have on the parent company and is the SSC regarded as a strategic operation within the parent company?
• What charging structures does the SSC use and does the SSC operate as profit centre rather than a cost centre?

The questions above relate to the diagram in figure 3 (see page 7). Positive answers to the above questions would place an SSC towards the Centre of Excellence end of the diagram. In terms of the SSCs interviewed, it is felt that few would be able to place themselves towards this end of the spectrum. There is a definite opportunity for the Shared Service Forum (and MIDAS) to help and support existing SSCs on their journey towards this Centre of Excellence state. It will be important to draw on the experience of those more developed SSCs in understanding how to drive strategic value of individual SSCs, and hence, the strategic value of the SSC community in the North West as a whole.

1.2. Basic Shared Service Centre Information

There was found to be a wide variation in the profiles of the SSCs operating in the North West from 16 to 200 people. The majority of SSCs interviewed have between 100 and 150 employees and carry out transaction-based financial processing (Accounts Payable, General Ledger, Purchase to Pay and etc.)

Within some Finance SSCs, it was found that additional processes around IT and HR/Payroll also tended to operate. These additional processes were often judged to be repetitive, non-value-added tasks that would benefit from the standardisation/centralisation available within an SSC. HR SSCs tended to carry out dedicated HR processes only, which are a mixture of transactional and value-added activities.

Pan-European centres, although featuring widely in the regional SSC footprint 3 years ago, are in decline: most heads of shared services note that their multi-national peers are often the first to offshore shared service functions to Eastern Europe.

This perceived move towards offshoring and BPO is not limited to multi-national centres: the common thread of cost reduction running through all shared service operations requires a constant search for new ways to achieve operational savings. However, many operators did recognise a need to maintain a centre of excellence in the UK even if transactional processes were moved abroad or outsourced.

1.2.1. Shared Service Centre Set-up Information

The majority of centres have been operational for between 2 and 7 years. A few notable exceptions are operators such as Woolworths, which has evolved over time from a head-office finance department into shared services operation.

1.2.2. Reasons for creating a Shared Service Centre

Of the companies interviewed, the primary motivation for founding an SSC was to achieve a reduction in operating costs and an improvement in operational efficiency. It is generally expected that moving basic processing activity to a single site and streamlining processes to avoid duplication will result in savings. This is particularly evident in firms whose history involves a series of mergers and acquisitions, when centralisation of transactional processes is a logical step towards true integration of back office operations.

The next logical step for SSCs is to move up the strategic value chain in terms of the functions they perform. This relates to the comments in section 1.1.1 (see page 5) in terms of perceived value of the SSC by the parent company. The Forum is an opportunity for peers to discuss their approach to dealing with their parent companies and the forum itself should have a role to play in helping SSC operators drive their strategic value. Key points would be:

• How do I know what is strategic versus non-value added tasks currently carried out?
• Do I understand what is of strategic value to the parent company?
• What are the options for operating non value-added tasks?

1.2.3. Reasons for locating in the North West

A key driver for establishing a SSC is a desire to reduce costs and it is logical that cost is a significant factor in identifying a location. While more than half of the interviewees chose the North West as the location for their SSC because of existing operations and premises in the area, almost all of these acknowledged that relocation may have been an issue had the North West not been a low-cost location.

For the remainder, whose SSC location was the result of a detailed cost-benefit analysis and comparison with other regions, the North West was considered to be among the less costly regions of the UK, although not the cheapest.

In the cases where cost was not the sole driver, the location decision was also based on:

• Access to experienced SSC staff
• Good transport links
• Diverse community and links with higher education establishments (especially for language skills)

Also cited in a number of cases was the valuable service and knowledge provided by MIDAS: several directors admitted that without the input of MIDAS they might have chosen a different location.

This important feedback demonstrates the value (perceived and delivered) of the service offered by MIDAS. As the focus for location decisions moves away from easily quantifiable measures such as cost, it becomes more important to be able to demonstrate the qualitative strengths of a location and provide a value-added service to prospective companies, (evidenced by the service provided by MIDAS to the Bank of New York).

In terms of attracting shared service operators into the region, differentiators, such as the Shared Service Forum, also serve to strengthen the case for the region, especially if the forum (as it is believed to be) is unique within the UK.

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Shared Services in the North West

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