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HUMANE Winter School 2005
How to Organize for High Quality Services:
Shared Service Centres
Prof. Dr. J. Strikwerda
Business School – University of Amsterdam
Nolan Norton Institute
11 November 2005
16-03-05 J. Strikwerda 2
Topics of this Key Note
What is a shared service centre?
How to organize shared service centres within the organization of a university?
The governance of shared service centres
What is quality of services?
Change management
16-03-05 J. Strikwerda 3
What is a shared service centre?
• A SSC is an accountable entity in the internal organization of a firm tasked to provide specialized services to operational entities (divisions, business units) on basis of a service level agreement and full charge out of costs on basis of a transfer price
• Specialized services: e.g. Accounting services, HRM-
transactions, IT, purchasing, both supportive and part of a
value chain
• Other examples :
- E-Bridge (Randstad)
- Counting House Maastricht (DHL)
- Werkgeversdiensten (SFB)
- Purchasing (DSM)
- HR Services (Accenture, KPN)
- Many others (SSC’s are known in the USA for over ten
years)
Examples of SSC’s
Service centers for o.a. Mortgage administration, insurance, imdemnity insurance
A SSC Finance & Accounting in Poland for Europe (CE)
A SSC for support and facilities for the armed forces
US Army SSC
Accounting Plaza (service firm)
Rabofacet (avant la lettre)
16-03-05 J. Strikwerda 4
Contribution of SSC’s to firm performance, types of effects
Cost reduction (20-30% on costs of processes, ~ 1% of turnover)
- Increased labor productivity former staff departments- Reductions of costs of IT
Higher level quality internal services
Increased transparency, improved management control
Achievement of synergy: sharing of knowledge and experience
Flexibility: lower exit and entry costs to restructure portfolio
Organization form responsive to higher level of professionalism of workers
Providing higher quality of services at large low scale costs, whilst maintaining local identity and policy discretion of small counties, institutions etc.
Operational
Strategic
HRM
Public and non-profit domain
16-03-05 J. Strikwerda 5
Shared service centers and the costs of organization
• ICT lowers costs of communication and
coordination
• Increasing informational, non material
nature of products
• SSC’s + ICT lower the costs of
organization whilst preserving the
advantages of the M-form:
• Market orientation of value creating
activities• Internal capital marketType of operational model
FinancialHolding
Functionalform
Costs
A
A’B
B’
C
M-form
Total costs of organisationC’
Costs due to duplication of functions
Lower costs of coordination due to ICTA”
Coordination costs
B”
Ssc’s
16-03-05 J. Strikwerda 6
CEO
StaffServices
BU BU BU
CEO
StaffServices
} ssc’s
BU BU BU
CEO
StaffServices
BU BU BU
Acc Mgt X
Acc Mgt Y
CEO
Staff
BU BU BU
ssc A
ssc B
ssc C
p
r
1
1
1
c
p
1
1
1
p
r
ijijij
ijijij
ijijij
c
p
jkjkjk
jkjkjk
jkjkjk
BO+
FO
rpc
R = resources / processesP = products / servicesC = customers
c. Shared-service - model d. Infrastructure - model
b. Accountmanagement - modela. M-form - model
Ssc-activitys are generic,, are not business specific
SSC are part of a generic unbundling in the economy, but (Drucker) knowledge firms will be organized like
universities, not the other way around
16-03-05 J. Strikwerda 7
Multiple options exist where to place ssc’s in the organization, but options differ in value
Shared Service Center (b)
Board
Faculty Faculty Research Institute
Staff dept.Central
service (c)
Shared Service Center (a)
(d)
Legal organization
(50%)
Joint Venture (e)
Service Firm (f) Plug & Play Infrastructure
For statutory tasks and compiance
only
Conflict between staff culture and service culture
Non-stable options
For selected services only
Strikwerda, J. 2003. Shared Service Centers: van kostenbesparing naar waardecreatie. Assen: Van Gorcum - Stichting Management Studies
16-03-05 J. Strikwerda 8
Example:
http://www.uva.nl/organisatie/
SSC
• University Library• Safety, Environment and Security• IT-Services• Administrative Centre • Facility Services • Student Affairs• Communication• UvA-services
• Office of Alumni Relations and University Fund • Documentary Information Services• Human Resource Services• Legal Services• Liaison Office• Project Organisation Building Development and Renovation• Shared Planning and Resource Management Services ( Bedrijfsbureau)• Office of University Doctors• Registrar's Office • Office of Doctoral Degrees• Project Cooperation UvA-HvA
Office of the Rector
16-03-05 J. Strikwerda 9
Human Asset
Human Asset
The perception of the modern academic and student of the organisation of the university
Human Asset
Intellectual challenge
Decorum for life
Social safety (tolerance)
Knowledge and IT infrastructures
Amenities Infrastructure
Administrative infrastructures
16-03-05 J. Strikwerda 10
The task of the Board of the university: to facilitate students and faculty with proper infrastructures
Board
Staff
F F F
Infrastructure A
Infrastructure B
Infrastructure C
Therefore:
The mission of ssc’s in universities is not to provide high quality services, but to help students and faculty to excel
16-03-05 J. Strikwerda 11
Shared service centers are an effective tool to introduce the value of efficiency in the organization of a university, but keeping this separate from the academic values and maintaining the proper hierarchy of values
Discover and ExtractCommodities
Develop and MakeGoods
Devise and DeliverServices
Determineand Guide
Transformations
Depict and StageExperiences
Adapted from: Pine, B. J., & Gilmore, J. H. 1999.
30103A.08
Traditional enterprisesSupportive services by ssc’s
(transactions)
Religion, education, Bildungcare
(interaction)
Theatre, theme parks, the experience of education (collective memories, social
patterns)(access)
Academic values
Efficiency
16-03-05 J. Strikwerda 12
The most critical success factor for shared service centres: its governance
Before making a SSC operation is has to be decided:
To whom the manager of a SSC reports, who sets by which procedure the budget
Who is or are authorized to decided which services will be delivered, at what quality and what prices whether there will be a user board, degree of differentiation of services, responsiveness to different needs of different academic departments, etc.
What type of service level agreements wil be used, system and basis of transfer prices
Whether services are mandatory
Process for conflict resolution
Board
Fac Fac Fac
Corporation
User Board
External organisation
SSC
Shared Service Center
Internal organisaton
Inte
rna
l gov
ern
ance
Staff dept.
16-03-05 J. Strikwerda 13
A difference between firms and universities
Firms
Through SSC’s business managers are forced to be more conscious to optimize alternative use of their budgets to optimize their performance, which is financial
ABC, TQM and process engineering allow precise SLA’s at low cost (and defining quality at each process step)
Due to IT contract policing is automatic Support processes often are by IT linked to
core processes
BU-managers thus are required to be explicit on what they want from ssc’s and to spend time on this, they see the use of this
Universities
In universities academics want to focus on research, teaching, writing
Academic work results in difficult to measure outcome
Top-academics will vote with their feet if a university does not provide adequate facilities and move to another university
Academics often want to have a say on type and quality of services they expect, but don’t want to spend time on it
Service Level Agreements are hardly used in universities*
Therefore it is the task of the Board to define a set of service infrastructures that helps to attrack and to retain top academics
* Dove, C. S. 2004. The Shared Service Center: A Model for University Efficiency? Dissertation, University of Pennsylvania.
16-03-05 J. Strikwerda 14
What is quality of service? “Do Not Advertise Service Quality: Deliver It!”*
Firms
High quality service is defined as service delivered according to agreed parameters and meeting other expectations, with low costs of coordination, souple resolution of conflicts and which is responsive to needs for innovation
Quality (and costs) is benchmarked against ssc’s in other firms and that of independent service firms
Universities
The met-expectations-model of service quality is too sterile and too rational with respect to academic values
The Board, managers of shared service centers should anticipate what services to offer, based on the mission of the university and on basis of the principle of penser le client
Faculty and students always should be provided opportunities to express their wishes with respect to services rendered
*Schneider & Bowen, Winning the Service Game, 1995
16-03-05 J. Strikwerda 15
The Difference between Customer Expectations and Customer Needs: Quality Starts with Gratifying Needs
Conscious
Specific
Surface
Short-term
Desired outcomes from
“service encounters”
(e.g., service with less
than a five-minute wait)
If you dissatisfy
customers by not
meeting their
expectations,
you can still recover
Unconscious
Global
Deep
Long-term
Desired outcomes from
“human existence”
(e.g., maintenance of
self-esteem)
If you dissatisfy
customers by not
meeting their
basic needs,
you will lose them
EXPECTATIONS NEEDS
NEEDS:
1. Security
2. Esteem
3. Justice
Schneider & Bowen, Winning the Service Game, 1995
16-03-05 J. Strikwerda 16
Generic services, as defined in a process between Board, management of SSC’s and deans
Customized services, as agreed between dean and SSC and approved by the Board
Costs: Charge-back or Show-back?*
Generic (mandatory) services better should not be charged out, as faculties often are expense centers, funding is by the Board
Most important is that ssc’s report to faculties and institutions what services they have provided in a past period
However when faculties or institutions have income from third parties (grants, contract research), a reasonable percentage of that should be paid to co-fund the generic services
Always provide the option for customized services on the principles that all costs incurred by customization are charged to the customer (mainly for psychological reasons)
* Dove, C. S. 2004
Charge-back
Show-back
Costs of services
16-03-05 J. Strikwerda 17
Should SSC’s be outsourced? Be careful, low prices now may be vendor lock-in in a
couple of years, consider sharing with other educational institutions
Market transaction Market transaction Market transaction
ContractContract or vertical
integrationContract or vertical
integration
ContractContract or vertical
integrationVertical integration
Uncertainty
Low Medium High
Low
Medium
High
Ass
et S
pec
ific
ity
Brickley, J. A., Smith, C. W., & Zimmerman, J. L. 2001. Managerial Economics and Organizational Architecture (second ed.). Boston: McGraw-Hill, p. 477
16-03-05 J. Strikwerda 18
Change Management
The implementation of SSC’s: change management at the level of internal governance first
1. Awareness that existing business model no longer is adequate and that introducing a ssc is a solution to the
problem
1. Awareness that existing business model no longer is adequate and that introducing a ssc is a solution to the
problem
2. Deciding new business model: new rol BUs, place and role SSC's
2. Deciding new business model: new rol BUs, place and role SSC's
3. Deciding new governance model: control of BUs in connection with
control of ssc’s, accountability Mgr SSC's, new Planning & Control
cycle, conflict resolution procedure
3. Deciding new governance model: control of BUs in connection with
control of ssc’s, accountability Mgr SSC's, new Planning & Control
cycle, conflict resolution procedure
4. Appointment of managers on the accountable entities: BUs + SSC's
4. Appointment of managers on the accountable entities: BUs + SSC's
5. Defining tasks, allocation of resources: to BUs en SSC’s
5. Defining tasks, allocation of resources: to BUs en SSC’s
6. Managers of BUs and SSC’s organise human resources,
operational processes
6. Managers of BUs and SSC’s organise human resources,
operational processes
7. Performance control7. Performance control
16-03-05 J. Strikwerda 19
Identity: A critical issue in staffing a ssc
Identification is an important mechanisme through which the individual commits himself to the organization
The negative impact of working in a ssc on identification was not noticed Problems with motivation, higher turnover, lower quality of work
Negative: lower skill levels, individuals who’s identity is not defined by a profession
Negative: for professionals who prefer to identify themselves preferably with products and brands instead with their profession
Positive: skilled workers who prefer to concentrate themselves on their métier Effect: some professionals (esp. HRM) react negatively to ssc, because ssc’s
expose the limitation in their competences and what they really are doing
16-03-05 J. Strikwerda 20
Ssc and standardization: what is needed
Definition of data elements
Accounting standards
Work methods
Quality requirements
Methods and concepts for capacity planning
(labour conditions, HRM sets)
Modules of products and services
Software applications
Operating platforms
Technical standardsNecessarily preceding implementation of ssc’s
Dependend per situation, preceding or during implementaion
16-03-05 J. Strikwerda 21
The most critical factor for success: the commitment of the Board, and the Board understanding its roles
Operational
StrategicPlans
Strategic Guidelines
Financial
Stand- Shared/ Shared Singlealone similar business business
skills system system
HoldingCompany
StrategicArchitect
StrategicController
Operator
Ty
pe
of
co
ntr
ol
Type of business system
With respect to infra-structure ssc’s
With respect to
the university