Shared service centers: Where quality precedes quantity
July 29, 2009
Shared services in a low-cost location? That makes sense at first glance, doesn’t it? But a shared service center established in a high-cost region? Does it work? Yes, it does – let me guide you through Germany for a few of minutes to show you, how. Are you ready for the trip?
What are shared services? What is the difference between them and the outsourcing concept? Let’s explain it in just one sentence: Outsourcing is about letting work done by a third party, shared services (insourcing) are about the concentration of company resources in form of an internal entity providing back-office services to multiple internal partners.
According to a research “CFO-Studie 2007 Reorganisation im Finanzbereich” undertaken by Horváth & Partner, corporations establishing a shared service center (SSC) expect it to bring them the following results:
- Cost reduction (68%),
- Economies of scale (62%),
- Increase of process quality (57%).
That corporations want to reduce their costs does not automatically mean that shared service centers are established in low-cost regions. The criteria for choosing a location for a shared service center are similar to those used for choosing of outsourcing destinations. These are as follows:
- Availability of qualified personnel,
- Local cost structures,
- Experience already gained regarding the location,
- Integration with the company infrastructure,
- Political stability,
- Life quality,
- Transport and technology connection.
They can be clustered in three dimensions: cost-related, human-related and related to business environment. All of them are taken into consideration while deciding whether to establish a shared service center in a certain location or not. Therefore, countries having relative high costs compensate this factor by the quality of infrastructure and human capital. No wonder that countries with relative high costs, as US, Germany, Canada, UK, France and some other are among the 50 most attractive global outsourcing destinations, listed in A.T. Kearney Global Services Location Index™ (GSLI).
Let’s now take Germany as an example, as promised before. For a few years this country has been very likely chosen as an attractive location for shared service centers. These and many other companies have decided to locate their shared service center in Berlin, the capital of Germany:
- BASF: (European HR and F&A service center),
- Corning Cable Systems: sales and customer service, serving customers from Great Britain, Germany, Austria and Switzerland,
- Opodo / TRX: ordering and accountig for the German language countries,
- Parexel: European finance shared service center,
- Schindler Elevators: payroll, accunting, IT, marketing, customer service,
- VW Leasing: accounts receivable.
Why is Berlin as popular as a shared services location? The advantages of the German capital are as follows: language skills, low employee turnover rates and relative low rental costs. Let’s take BASF as an example: After considering of many European locations, BASF has decided for Berlin in 2005. Hans-Carsten Hansen, Head of HR explained this decision as follows: “Berlin has more than fulfilled our expectations, especially regarding recruitment of well-qualified staff speaking many different foreign languages.”
There are also many shared service centers of other corporations in Germany, located outside of Berlin.
Quantity meeting quality… Or even: quality preceding quantity… – only this combination works while willing to establish a successful shared service center. That holds true for outsourcing as well.