Shared Services Models

There are numerous models to consider when evaluating your shared services strategy. Essentially models are a combination of sourcing and location. The different sourcing options include captive (company employees), outsourced or a hybrid of those two options. Location options include on-shore, near shore and off-shore. On-shore means the location of the center is in the same country as the business operations. So, if a company is headquartered and conducts most business in the U.S. the center is in the U.S. Similarly, if a company is headquartered and does most business in China, the center is in China. The near shore option simply means the location of the center is near, the country where most business is conducted. In the U.S. example, a center in Mexico or Canada would be considered near-shore. Offshore locations are defined as a center that is located in another part of the world as in a U.S. company having a shared services in India or the Philippines. See the chart below for the different combinations that these options can create.

shared-services-model-types

Experience indicates that labor arbitrage realized from moving centers to low-cost geographies has not been as successful as many had promised or hoped. Hidden costs and consequences incurred from these near or off-shore strategies range from additional management oversight to lost customer loyalty. Up to 25% of companies that outsourced shared services functions have either brought services back in-house or are in the process of doing so.1 As well, 70% had negative experiences and 50% failed to realize expected cost savings.2 This indicates that for those particular companies the strategy was not sustainable and certainly not optimal. Continuously moving work and searching for the cheapest labor is an overall distraction to the company and is very often counterproductive to lowering overall cost and increasing effectiveness.

Alternatively, establishing an on-shore captive center carries less risk and allows for the time tested Eliminate, Automate, Optimize method of process design. Often times, those who outsource do so before truly evaluating whether a process has truly been optimized. If optimization has not occurred, outsourcing makes little sense.

See our Case Studies where captive, on-shore centers were established.

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