Design a Robust Shared Services Governance Framework

1 | SEPTEMBER 2014 - HOW TO DESIGN A GOVERNANCE FRAMEWORK THAT ALL STAKEHOLDERS CAN TRUST
2014
SEPTEMBER
HOW TO DESIGN A GOVERNANCE FRAMEWORK THAT ALL STAKEHOLDERS CAN TRUST

Why is Governance Important, Now?
As the Shared Services model gains in maturity and its impact beyond cost is widely recognized, organizations have been forced to give more thought to how to manage the model.
In the early days of mandated Shared Services, SLAs outlining service levels, quality and cost were deemed sufficient for managing what was effectively a transactional agreement. Reporting tended to be functional in scope, and served the purpose of confirming agreed standards.
With Shared Services evolving into business partnerships, however – as many organizations opt for a hybrid combination of in-house Shared Services and Outsourced Services delivery, and more focus is placed on process improvement, data based analytics, and business insights – “governance” has acquired a completely new role and responsibility. This also reflects the shift in how Shared Services is today designed, including: pricing, which has evolved from “usage” to performance- and output-based; oversight, which now includes risk and compliance; and control mechanisms, which today include metrics and reporting as well as representation at senior executive meetings.
Not least important: as services become more “strategic” the relationship between services provider (in-house or third party) and customer has changed. While the opportunities for modern Shared Services are significant, even game changing, implementation depends on all stakeholders sharing skin in the game and a vested interest in improving the status quo. To do so, business units/departments are being asked to give up more and more process control – sometimes even for more customer-facing functions like Sales and Marketing – and to trust service providers. Whether mandated by the Board or driven by regional leadership, Shared Services cannot fully capitalize on its potential without the proactive commitment of all parties involved. In other words: If the business doesn’t really “buy in” and also do its part then Shared Services has a much tougher job!
Governance, by establishing joint accountability between the business and Shared Services, provides a framework that enables truly value adding Shared Services. For example, a primary driver for cost reduction is implementing business discipline to increase efficiency. Shared Services cannot make this happen alone. It can only be achieved through joint ownership of outcomes and collaboration between the business units/departments/countries and Shared Services, especially along the entire end-to-end process, including points of input, hand-offs, escalation and outputs.

Resistance, Risk, and
Realization: the 3 R’s
One thing that has not changed much is the relative resistance
of business units / customers to handing over control of
processes they have been used to managing. If this was a
challenge with transactional F&A or HR processes, it’s even
more of a challenge as Shared Services scope expands to more
“professional and technical”, knowledge-based services, or
data based analysis. Operating units not willing to relinquish
control is one of the top reasons for Shared Services failure,
but it is something that can be resolved through robust and
transparent governance, and partnership.
The risks of services delivery escalate as the model moves
from regional/locally oriented to one defined by Global
Business Services and end-to-end process ownership and
management. As customers will tend to remain local in their
demands and requirements, the effectiveness of a global
delivery model needs to be counterbalanced by governance
procedures that allow for local feedback and concerns.
An additional risk factor, the profile of which is growing in the
external market, is “compliance”. As the external marketplace
has reacted to the uncertainty unleashed by the global
financial crisis and global recession via increased regulation,
being compliant is vital to continuing in business. The
management and control that good governance delivers is
therefore a significant factor in its increasing role, importance
and emphasis.
While data analytics and business insight promise far greater
returns on Shared Services than the cost arbitrage that
led many organizations down this path to start with, many
opportunities are still unrealized. Any organization running
Shared Services has the capacity for improved decision-making
and leveraging intelligent information, but many are
still focused on the original Shared Services business case
without the broader view required to take things further. A
governance framework, consisting of various committees and
advisory units, is not just able to take a broader view (beyond
implementation) but will include strategic reassessments
and planning as part of its responsibilities. A governance
framework also serves to promote Shared Services’ evolution
into higher-level activities, and, again, helps enable true
partnership across the business and meeting of enterprise
wide goals.

How Does Governance Support Performance?
By definition, governance ensures that Shared Services meet its targets by aligning customer requirements with Shared Services outputs, and by ensuring that management incentive plans are aligned to desired strategies. It does so by means of a clearly defined charter, outlining roles and responsibilities, membership/stakeholders, defining operational processes, confirming information flows and issues escalation procedures, and allowing the voice of the customer to be heard. In other words: Governance provides the strategic, operational and technical oversight and direction needed to run successful Shared Services, as well as managing procedures for process improvement, scope expansion, and dispute handling.
The University of Texas, defines Shared Services Governance as follows1:
“The purpose of the governance model deliverable is to define how decisions about the broader SSO will be made within the context of the broader UT Austin environment. An effective governance organization promotes accountability, stakeholder participation, and defined integration points for decision- making.”
A strong and robust governance process supports performance by clearly defining desired outputs; outlining and managing the means of tracking and assessing this output; and providing solutions to dealing with any deviations from what is expected. Today’s governance has moved beyond the early implication of mere “regulation”, and has a bigger purpose within the operation. As such, it serves as a fluid and evolving function, not a static one.
Its capability is best defined by outlining its stakeholders, as well as its core mission. While governance impacts Shared Services end-to-end, it drives understanding and manages the relationships between three main categories of stakeholder involved:
1.
Consumers/users of services
2.
Shared Services provider(s)
3.
Business Unit /Department management/Customer
By clearly defining the parties to an agreement, their respective roles, and their expectations, a governance framework creates a secure and robust environment for Shared Services delivery. At its simplest, it sets out very clearly:
•
Who makes decisions
•
How decisions are made
•
How services are measured
•
How actions are approved/authorized
•
How problems are escalated
•
How Shared Services is managed
More specifically, it confirms the business case for Shared Services, the purpose of Shared Services, the processes covered and services delivered, measures for tracking success/failure of services delivery, and the commercial basis for providing services (cost).
By clarifying what is in scope of the agreement, and how this is defined, governance plays an important role in managing customer expectations. Where deliverables are subsequently perceived as falling short, the governance framework provides a mechanism for addressing this. It also outlines regular review mechanisms as well as the duration of the agreement.
By eliminating uncertainty, services delivery is clarified. Some areas in which this clarity supports improved performance are:
•
Confirmation of in scope and out of scope processes
•
Confirmation of roles and responsibilities, inputs, operations and outputs
•
Confirmation of hours of operation / availability
•
Confirmation of service standards and metrics
•
Confirmation of cost
•
Confirmation of escalation procedure
4 | AUGUST 2014 - HOW TO PREPARE FOR ERP AND 10 TIPS ON GETTING IT RIGHT

The governance structure defines how Shared Services interacts with stakeholders, business units, departments and
countries to deliver to agreed targets. It is generally established on the basis of a number of executive or advisory
committees that meet at regular intervals (daily, weekly, monthly, quarterly as appropriate) to guide Shared Services’
evolution, resolve performance issues, and manage query resolution. The main participants are the Shared Services
sponsors, customer representatives, Shared Services leadership, Process leaders, business unit/department/country
representatives, and end-users.
A common scenario might include:
1. Executive Steering/Joint Steering
Meeting quarterly, from the planning stage, and monitoring Shared Services, acting as a sponsor, and resolving issues. This
committee also appoints the other two bodies. It is more focused on strategic issues and provides key risk/issue resolution
and monitors the progress of the project
2. Project Board/Advisory Board
The project board is focused on business coordination and sponsorship, sign-off of end state processes and organizational
design. A key aspect of this is finding the right blend of feedback and involvement from the stakeholders from the different
business units that allow individual feedback to be articulated. The project board tends to be in place more during “Project”
phases - like when there are new deployments or expanded scope. Advisory Board can be made up of similar attendees, but not
necessarily exactly the same. Advisory Board would also probably be in place during “stabilization” and “business and usual”
periods. The project board might meet monthly and offers functional guidance on process, policies, and procedures; guides the
Shared Services management team; decides on Services Partnership Agreements (SPAs); tracks performance; resolves issues
and disputes; implement improvement initiatives. It represents both the SSO and the operating units (customers).
SHARED SERVICES GOVERNANCE STRUCTURE
Structuring Governance

In Chazey, we refer to SPAs rather than SALs. The power of
service partnership agreements (SPAs) is that they provide a
framework for client-focused service. Different from SLAs,
the Service Partnership Agreements allocate responsibilities
for service delivery between the SSOs, corporate
departments, and the clients, defining the appropriate level
of service to meet the client’s needs. It represents a two-way
agreements, in recognition of the partnership that is required
for successful service provision.
3. User/Functional Committee
Representing users at the local level within operating units.
Meets monthly to highlight issues that have arisen and offer
feedback, once the SSO is live.
Challenges
There is of course no ‘one size fits all template’. The
governance model that is the best fit for a given Shared
Services model will vary according to the reporting structure/
scope of services offered (where does the SSO sit? who does
it report to? whether Shared Services is single-function or
multi-function; how independent the SSO is; its size; and its
geographic location/reach, etc.)
In addition, the complexity of the above can add layers of
complexity to the governance framework, and the work
culture – if based on traditional demand and supply habits
– which may work against the constructive collaboration
needed. Designing a visual roadmap for governance from the
start, and updating and adapting this as various stages are
reached, will help to provide context and clarity around why
governance is worthwhile.
Finally, many ERP solutions include tools that can support
governance requirements, and these should be maximized
where at all possible.
Summary
Today’s evolving services delivery models are less about
cost and more about supporting and enabling improved,
data-based, value-adding enterprise wide performance. But
taking on more of the value driving processes also means
exposing your operation to more complexity and risk.
Managing compliance and regulation as a means of
mitigating risk is one of the key drivers of governance.
Increasingly, the data derived from this process is also
being fed back into the system to drive additional insights.
Furthermore, governance, by providing a framework for
secure, reliable and controlled engagement, based on true
partnership between the business and the Shared Services
Organization, is a crucial enabler for any successful SSO and,
crucially, the host enterprise.
An additional important point to note is that as the number
of service providers and number of data sources increase, more
sophisticated governance structures and tools will likely be
required.
Resources
1. Governance Model – The University of Texas at Austin
http://www.utexas.edu/sites/default/files/files/Governance%20Model.pdf

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Chazey Partners
Chazey Partners is a practitioners-led global management advisory business. We bring together a unique wealth of experience, empowering our clients to strive for world-class excellence through Business Transformation, Shared Services & Outsourcing, Technology Enablement, Process Enhancement and Corporate Strategy Optimization. We pride ourselves in having built, operated and turned around some of the world’s most highly commended and ground breaking Shared Services Organizations, and for implementing many highly successful multi-sourced (shared services and outsourced) delivery solutions. Over the last 20 years, we have delivered numerous programs globally, in the US, Canada, UK, Continental Europe, Ireland, India, Eastern Europe, South America, Singapore, Australia, China, Middle-East and Africa. Our experience covers both Private and Public Sectors, providing expertise in a wide spectrum of business functions, including Finance, HR, IT and Procurement.
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If you would like to speak to a partner about this article, please contact:
Phil Searle CEO & Founder
Chazey Partners
philsearle@chazeypartners.com
David O’Sullivan Co-Founder & Partner
Chazey Partners
davidosullivan@chazeypartners.com
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Chazey Partners
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Design a Robust Shared Services Governance Framework

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