Shared Services As a New Organizational Form 9781783505364, 9781783505357

Citation preview

SHARED SERVICES AS A NEW ORGANIZATIONAL FORM

ADVANCED SERIES IN MANAGEMENT

Previous Volumes: Relational Practices, Participative Organizing EDS. CHRIS STEYAERT AND BART VAN LOOY Autopoiesis in Organization Theory and Practice EDS. RODRIGO MAGALHAES AND RON SANCHEZ Organizations as Learning Systems “Living Composition” as an Enabling Infrastructure ED. MARJATTA MAULA Complex Systems and Evolutionary Perspectives on Organizations: The Application of Complexity Theory to Organizations ED. EVE MITLETON-KELLY Managing Imaginary Organizations: A New Perspective on Business EDS. BO HEDBERG, PHILIPPE BAUMARD AND A. YAKHLEF Systems Perspectives on Resources, Capabilities and Management Processes EDS. JOHN MORECROFT, RON SANCHEZ AND AIME´ HEENE Tracks and Frames: The Economy of Symbolic Forms in Organizations ED. K. SKOLDBERG Electronic HRM in Theory and Practice EDS. T. BONDAROUK, H. RUE¨L AND J.C. LOOISE Commercial Diplomacy and International Business: A Conceptual and Empirical Exploration ED. H. RUE¨L (Dis)honesty in Management: Manifestations and Consequences EDS. TIIA VISSAK AND MAAJA VADI Social Media in Strategic Management EDS. MIGUEL R. OLIVAS-LUJA´N AND TANYA BONDAROUK Social Media in Human Resources Management EDS. TANYA BONDAROUK AND MIGUEL R. OLIVAS-LUJA´N

SHARED SERVICES AS A NEW ORGANIZATIONAL FORM EDITED BY

TANYA BONDAROUK School of Management and Governance, University of Twente, Enschede, The Netherlands

United Kingdom India

North America Malaysia

China

Japan

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2014 Copyright r 2014 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78350-535-7 ISSN: 1877-6361 (Series)

ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004. Certificate Number 1985 ISO 14001

Contents

List of Contributors Shared Services: New Opportunities for Research and Practice

1.

2.

3.

4.

5.

6.

7.

Shared Service Centers: From Cost Savings to New Ways of Value Creation and Business Administration J. Strikwerda

vii ix

1

Managing Boundaries Better: The Key to More Effective HR Shared Services Peter Reilly

17

Shared Services — Standardization, Formalization, and Control: A Structured Literature Review Tanya Bondarouk and Christina-Maria Friebe

39

What Is Shared Services? Joseph Soalheira and Greg Timbrell

67

Governance and Control of Shared Service Centers Reinald Minnaar

85

Structuring Shared Services: Realizing SSC Benefits Through End-Users’ Usage of an HR Portal Jeroen Meijerink, Joost ten Kattelaar and Michel Ehrenhard

105

A Knowledge Management Perspective to Shared Service Centers: A Case Study of a Finance SSC Ian Herbert and Will Seal

133

vi

Contents

8.

Value Creation by Transactional Shared Service Centers: Mapping Capabilities Marco Maatman and Tanya Bondarouk

153

Interorganizational Shared Services: Creating Value across Organizational Boundaries Paul C. van Fenema, Bianca Keers and Henk Zijm

175

9.

List of Contributors

Tanya Bondarouk

University of Twente, Enschede, The Netherlands

Michel Ehrenhard

University of Twente, Enschede, The Netherlands

Christina-Maria Friebe

University of Twente, Enschede, The Netherlands

Ian Herbert

The Centre for Global Sourcing and Services, Loughborough University, Loughborough, UK

Bianca Keers

Royal Netherlands Navy, Julianadorp, The Netherlands

Marco Maatman

University of Twente and Atos, Enschede, The Netherlands

Jeroen Meijerink

University of Twente, Enschede, The Netherlands

Reinald Minnaar

Radboud University Nijmegen, Nijmegen, The Netherlands

Peter Reilly

Institute for Employment Studies, London, UK

Will Seal

Loughborough University, Loughborough, UK

Joseph Soalheira

Queensland University of Technology, Brisbane, Queensland, Australia

J. Strikwerda

Universiteit van Amsterdam, Amsterdam, The Netherlands

viii

List of Contributors

Joost ten Kattelaar

University of Twente, Enschede, The Netherlands

Greg Timbrell

Queensland University of Technology, Brisbane, Queensland, Australia

Paul C. van Fenema

Netherlands Defence Academy, Breda, The Netherlands

Henk Zijm

University of Twente, Enschede, The Netherlands

Shared Services: New Opportunities for Research and Practice

Some argue that the term “Shared Services” was introduced in 1980s (Davis, 2005) although it was only in the 1990s that the research arenas in different disciplines welcomed this concept into their scholarly investigations. Today, organizations are increasingly introducing shared services and establishing Shared Service Centers (SSCs), for transactional (administrative) or for transformational (organizational change) purposes. Their popularity presupposes a combination of efficiency gains and increased service quality, without having to relinquish control of the organizational and technical arrangements. Whether transactional or transformational shared services are established, the belief is that they should be able to maximize the advantages of both centralized and decentralized delivery of business functions (Bondarouk, 2011; Maatman, Bondarouk, & Looise, 2010; Meijerink & Bondarouk, 2013). Standardization, labor division, efficiency, control, coordination, centralization, resource bundling … : are we reinventing the wheel? Have organizations finally resolved the century-old dilemma of how to create standardized procedures using shared processes and technologies that can deliver faster, more efficient, and sustainable quality services? This volume was inspired by the above, and some other more specific, questions, such as what structural arrangements are required between shared services providers and organizations to secure the success of both? Further, which business processes can and/or should be shared, how does one get the best value from sharing services, and who are the stakeholders? Since the 2000s, researchers have been devoting increasing attention to examining shared services, and findings have accumulated about their purposes and the implementation processes (e.g., Janssen & Joha, 2006; Quinn, Cooke, & Kris, 2000; Reilly & Williams, 2003). Major investments are involved and are justified on the expectation that sharing services will improve business quality and contribute to its organizational effectiveness by freeing decentralized professionals from administrative burdens and thereby allowing them to undertake critical strategic management activities (Strikwerda, 2010). Shared services are seen as a way of implementing business strategies, policies and practices, often through the use of information technology based channels, from a

x

Introduction

single location that houses targeted activities for a selected domain of an organization. SSCs are often associated with “insourcing” corporate activities: creating a new business unit to provide services to a range of in-house clients (Cooke, 2006; Davis, 2005). The ethos behind the service concept is that clients decide which services they would like to receive from the center, rather than the business function within the organization deciding on which services it will deliver. Shared services are thus designed to deliver services of the highest value at the lowest cost to internal or “pseudo-external” clients (Reilly, 2000; Reilly & Williams, 2003). Although the authors of the chapters in this volume offer various definitions of shared services (see the overview and extended discussion by Joseph Soalheira and Greg Timbrell later in this volume), it is convenient to outline from the start the essential meaning of shared services. In so doing, I follow the research tradition of viewing shared services as involving the bundling of resources and intellectual capital (Maatman et al., 2010; Meijerink, Bondarouk, & Looise, 2013). From this perspective, shared services play a key role in the (re-)design of the organizational model for the delivery of targeted business processes and therefore for the outcomes of the targeted business function as a whole. It has been suggested that to achieve an inclusive understanding of shared services one should integrate: (1) the distinctive features of the shared services; (2) the service provider that offers these shared services matched to the specific types of end-users; and (3) an intra-organizational business arrangement, that is the formal structure that defines the responsibilities and delegation of tasks within a business function (Bondarouk, Maatman, & Meijerink, 2010; Dibbern, Goles, Hirschheim, & Jayatilaka, 2004). That is, a Shared Services Model should include a collection of shared services whose characteristics are determined by the customers, provided within an intra-organizational business arrangement, to a specific set of end-users, by a semi-autonomous or autonomous business unit (the service provider) on the basis of agreed conditions. The chapters that follow move beyond debating the relevance of shared services toward more systematic research into the structure and governance, knowledge management and dynamic capabilities, enactment and institutionalization, plus new value creation by Shared Services Models. Somewhat simplistically, all contributions reflect a one-dimensional input output line: that is, studies focus on the nature of a shared services provider, the characteristics of the shared services model including its composition, structures and service types, and the value created for customers, end-users and organizations as a whole. After accumulating knowledge for almost three decades on the business life of shared services, authors from a range of scholarly traditions here revive the discussion as to what constitutes shared services, what do these models bring to the business, and what conditions are necessary for their success. There are five main theoretical priorities that shape the content: conceptualizing shared services for different types of business processes; business strategy and shared services; shared services and performance; pluralism in organizing shared services; and usage and governance of shared services in different types of organizations. Thus, the opening chapter in this volume by J. Strikwerda challenges scholars by re-conceptualizing Shared Service Centers in terms of the changing nature of the

Introduction

xi

firm and offers practitioners an instrument to define more efficient change processes. The chapter by Peter Reilly offers a discussion about the potential for service fragmentation. It argues that shared services within a single business function (particularly within Human Resource Management) should be appropriately connected to the rest of this function in order to offer customers an integrated service “to avoid the structure’s division of labour inducing incoherence.” The chapter by Reinald Minnaar explores the governance and control aspects of the intra-firm relationships of a Shared Service Center, and concludes that the decision to implement an SSC entails choosing a management control structure and then a governance structure for the transactional relationships between the SSC and its customers. The chapter by Tanya Bondarouk and Christina-Maria Friebe investigates the structural dimensions of shared services reported in the literature, and observes that although centralization has been one of the most discussed dimensions, there is still no consensus as to whether the models should be centralized or decentralized. Further, standardization and formalization are generally seen as very important, along with a need for customization. Since the 1990s, the literature has been advancing a number of benefits that are expected to flow from the introduction of shared services in organizations: an integrated “total solution” approach to problems through the re-centralization of the business function (the one-stop shop); a more selective and strategic contribution by freeing staff from the burdens of administration, enabling them to undertake critical management activities; greater efficiency and professional service provision through simplifying services and providing a single point of contact for clients; costeffectiveness; more efficient resourcing through economies of scales in staffing; improved cross-group learning and the sharing of good practices through a shared information base; better information management provided more consistently across the organization as a whole; improved career development for staff; greater customer satisfaction through better service specification; greater transparency of cost of services and easier monitoring of budgets (Schulman, Lusk, Dunleavy, & Harmer, 1999). Several chapters in this volume discuss the intended and realized benefits of shared services from a range of theoretical perspectives. The chapter by Paul C. van Fenema, Bianca Keers, and Henk Zijm explores how inter-organizational shared services can be positioned in value chains, distinguishing vertical, horizontal, and hybrid variants. The chapter by Ian Herbert and Will Seal shows how SSCs, as a hybrid organizational form, can help in redefining core versus non-core activities within a firm and thus play a role in the creation of form-specific dynamic capabilities. The contribution by Marco Maatman and Tanya Bondarouk promotes the value of the mapping approach to connecting Shared Services Providers, based on the operational and dynamic capabilities of a transactional Shared Service Center. This chapter shows that, if mapped constructively, the dynamic capabilities enable the transformation of service delivery throughout the organization and increase the function’s strategic contribution. Further, the operational capabilities enable an SSC to provide day-to-day services and take care of individual end-users and support the business.

xii

Introduction

Jeroen Meijerink, Joost ten Kattelaar, and Michel Ehrenhard in their contribution argue that “a popular argument in existing studies is that the benefit of shared services follows from the design of the organizational structure” of the Shared Service Center. They continue that many studies overlook the fact that shared services, as with many organizational innovations, are often used differently than envisaged by executives and their designers, and that therefore a new research perspective focusing on the way end-users and customers inscribe and enact shared services is worthwhile. Overall, the chapters that make up this volume reveal some of the major conceptual and methodological tensions, paradoxes, and doubts that the research and practice of Shared Service Mode face given the changing nature of firms. Hopefully, it suggests the way forward to the next phase of research and development in Shared Service Mode. The key issues presented in this book lead us to conclude that this research is now moving toward crystallizing its theoretical backgrounds and broadening its methodological approaches. We believe that this book provides executives and managers with a better understanding of the applications and uses of Shared Service Mode; suggestions on ways to create benefits beyond cost savings; insights into specific control and governance structures; and possible solutions to the risks observed in the introduction of Shared Service Mode. Tanya Bondarouk Editor

References Bondarouk, T. (2011). A framework for the comparative analysis of HR shared services models. In T. Bondarouk, H. Rue¨l, & J. C. Looise (Eds.), Electronic HRM in theory and practice (pp. 83 104). Advanced Series in Management. Bingley, UK: Emerald Group Publishing Limited. Bondarouk, T., Maatman, M., & Meijerink, J. (2010, May). Human resource shared services: Business models and value creation. Results of a qualitative benchmark study. Research report into the value creation by HRM SSMs. University of Twente, The Netherlands. Cooke, F. L. (2006). Modeling an HR shared services center: Experience of an MNC in the United Kingdom. Human Resource Management, 45(2), 211 227. Davis, T. R. V. (2005). Integrating shared services with the strategy and operations of MNEs. Journal of General Management, 31(2), 1 17. Dibbern, J., Goles, T., Hirschheim, R., & Jayatilaka, B. (2004). Information systems outsourcing: A survey and analysis of the literature. The Data Base for Advances in Information Systems, 35(4), 6 102. Janssen, M., & Joha, A. (2006). Motives for establishing shared service centers in public administrations. International Journal of Information Management, 26(2), 102 115. Maatman, M., Bondarouk, T., & Looise, J. C. (2010). Conceptualizing the capabilities and value creation of HRM shared service models. Human Resource Management Review, 20(4), 327 339.

Introduction

xiii

Meijerink, J., & Bondarouk, T. (2013). Exploring the central characteristics of HR shared services: Evidence from a critical case study in the Netherlands. The International Journal of HRM, 24(3), 487 513. Meijerink, J., Bondarouk, T., & Looise, J. C. (2013). Value creation through HR shared services: Towards a conceptual framework. Personnel Review, 42(1), 83 104. Quinn, B., Cooke, R., & Kris, A. (2000). Shared services: Mining for corporate gold. Harlow: Pearson Education Limited. Reilly, P. (2000). HR shared services and the realignment of HR. Brighton: Institute for Employment Studies. ISBN:978-1-85184-298-8 Reilly, P., & Williams, T. (2003). How to get best value from HR: The shared services option. Aldershot: Gower Publishing Limited. Schulman, D. S., Lusk, J. S., Dunleavy, J. R., & Harmer, M. J. (1999). Shared services: Adding value to the business units. New York, NY: Wiley. Strikwerda, J. (2010). Shared service centers II: Van kostenbesparing naar waardecreatie. Assen Den Haag: Van Gorcum Stichting Management Studies.

Chapter 1

Shared Service Centers: From Cost Savings to New Ways of Value Creation and Business Administration J. Strikwerda

Abstract Purpose — The reason of this chapter is to clarify at a conceptual level the phenomenon of shared service centers. The aim of the chapter is to enable managers make better decisions when applying the concept of shared service centers. Design/method/approach — This is a conceptual chapter, in which the phenomenon of shared service centers is being rewritten, from an initial cost efficiency level, into a constituting building block in the new nature of the firm. Findings — The findings of this chapter are that especially the combination of financial shared service centers and IT shared service centers are an instrument to organize information outside the structure of the internal organization of the firm, as implied by the changing nature of the firm. Also shared service centers are enablers for new business models, especially those based on human capital. Practical implications — Executives and managers that have a better conceptual understanding of the application of shared service centers will create more benefits beyond costs savings. Originality/value — This is the first chapter in which shared service center is reconceptualized in terms of the changing nature of the firm. With that it is also one of the first chapter describing the changing nature of the firm in operational terms. The value of the chapter is that it will help executives to define more efficient

Shared Services as a New Organizational Form Advanced Series in Management, Volume 13, 1 15 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1877-6361/doi:10.1108/S1877-636120140000013000

2

J. Strikwerda

change processes. A second value of the chapter is that it opens new avenues of empirical and conceptual research for academia. Keywords: Shared service centers; financial shared service centers; ICT-SSC; nature of the firm; intangible assets; business administration; cost savings; organization of information; organization theory; organization design; M-form

Introduction At the end of the eighties in the 20th century, the first appearances of what would be called shared service centers demonstrated themselves in a number of US companies. One of the first was a shared service centers of the US Army that among others processed travel expenses. In the nineties, there was a slow growth, be it poorly documented, on the application of shared service centers, in many cases these were about ICT services, and for HR transactions. Financial shared service centers also made their appearance, but the growth of Financial Shared Service Center (FSSC) would demonstrate itself after 2000. Today virtual no multinational company or other large organization, and even government organization, can be identified which does not operate one or multiple SSCs. This is remarkable because the concept of shared service center was no part of traditional theories for organization design. Even more, the introduction of the concept of the shared service center is a fundamental digress from the so successful M-form. Therefore, the phenomenon of the SSC raises a number of questions. A first question is what distinguishes an SSC from a staff department? A second question is by what theory it can be explained that introducing an SSC in an existing M-form will produce a more efficient organization? A third question is how the concept of the SSC is consistent with the need of decentralization of decision making and entrepreneurship, especially in the information economy? A fourth question is whether SSCs are consistent with new business models and especially with the changing nature of the firm, due to the salience of intangible assets? To develop answers to these and other questions will help practitioners in better decision making and in managing the introduction of SSCs where appropriate and to achieve sought for efficiency of the organization. Also good theories will help those involved to cope with change, develop new understanding and skills to be able to work productively in a context with SSCs. A better understanding of the phenomenon of SSCs by academics will produce better research, new insights in theories for organization design and will improve teaching on organization design and organization forms. The questions reflect the scope and objectives of this chapter. To achieve this in the section “What Are Shared Service Centers and What Not?,” the phenomenon of shared service centers will be described by definition, objectives, results, and demarcation. The section “Shared Service Centers and Organization Theory” will provide an explanation of the shared service centers in terms of organization theory.

Shared Service Centers

3

The section “SSCs and the Changing Nature of the Firm” will be a reflection of the phenomenon of SSCs in terms of the changing nature of the firm. In the section “Closing,” an explanation of the phenomenon of SSCs will be presented in terms of the changing nature of the firm, leading among others to the conclusion that the name shared service centers is blocking our view on what shared service centers really are about; Herbert Simon’s insight that in the design of the internal organization the organization of information is the first parameter, no longer structure is. The closing section provides a number of views with respect to the implications of the gained insight with respect to practice, research, and education.

What Are Shared Service Centers and What Not? A shared service center can be defined as an accountable entity in the internal organization of a firm or institution, tasked to deliver specialized services to operational units (business units, divisions) on basis of a service-level agreement Service Level Agreement (SLA) against set transfer prices (Strikwerda, 2010). These services usually are about ICT services, HR transactions and HR support, finance and accounting, purchasing, facilities, but also examples exist of shared service centers providing manufacturing services, logistic services, medical services, etc. Typical statutory support for the executive board, legal counsel, management development, business development and strategy, and corporate control are consistently not allocated in a shared service center. Typical examples of shared service centers in the Netherlands are the SSC Finance of Philips Electronics (organized distributed on a number of places in the world), the back-office SSC of Randstad, the functional SSCs of the chemical multinational DSM, the CDC organization of the Dutch Defense organization, and SSCs for HR and ICT in the Dutch government. Empirical research for achieved cost savings is wanting. First, because little research on cost savings is done. Second, because of measurement problems and a lack of good quality information within firms. The measurement of the initial costs of the processes to be organized in an SSC should be in the situation in which those processes are still organized within the business units or divisions. Often these costs are not known and target setting and measurement starts at the start of the SSC as a result of which costs remaining in the business units are not taken into account. The research available suggests that US firms achieve costs savings on financial SSCs typically between 40% and 70% within two years, but European firms between 25% and 50% (Bangemann, 2005). Respondents report benefits other than cost savings from SSCs: achievement of synergies (e.g., in purchasing, increased purchasing power), improved use of knowledge of various kinds, higher level of quality of services, higher degree of transparency in the organization, strategic flexibility of the firm, and an improved position on the labor market for support function because better career prospects can be offered (Strikwerda, 2010). Shared service centers are to be distinguished from corporate or central staff departments. The distinction between those two is summarized in Table 1.

4

J. Strikwerda

Table 1: Defining differences between shared service centers and central staff departments (Strikwerda, 2010). Shared service center Customer oriented, customer is BU Delivering service is core business Provided services are based on requirements of the BUs Cost coverage/allocation of budgets is based on demand Operational culture Costs per unit of service are calculated and managed SL Services are based on an SAL and on basis of documented processes Located where conditions, labor market, cyber infrastructure, are most optimal for the operation Accountability is primarily for the quality of services and costs

Central staff department Oriented toward the HQ, to the Executive Board Service to BUs is subordinate to defining policies and implementation of policies Services are based on corporate policies Cost coverage/allocation of budgets is based on corporate objectives and HQ budgets Staff culture Blind cost center; cost per unit of service are not calculated, reported nor managed Services are based on procedures and functional authorities Located at site of HQ

Accountability of primarily for policy formulation and the cost budget of the department

The definition provided suggests the existence of SLAs between a shared service center and a business unit or division, based on a set transfer price. The reality is more complicated, dependent on factors like the role of services provided in the customer value proposition, dynamics in the customer value proposition, whether costs of services are volume sensitive or not, and whether volumes of products or services are volatile or not. Also the nature of the SLA and the system of cost charge out may depend on the phase of development of the shared service center, the professionalism of the business units as “purchasers” of services and the level or conceptualization of the shared service center by headquarters (whether an SSC mainly is perceived as an instrument for cost savings or whether it is deployed in the context of a corporate strategy).

Shared Service Centers and Organization Theory The concept of the shared service center violates the concept of the M-form (the multidivision or multibusiness organization) within which this concept is being

Shared Service Centers

5

applied. In the M-form, the manager of a business unit or a division has a bottomline responsibility to achieve an assigned strategic and financial performance in an assigned market segment or business, and to that end this manager has hierarchical control over all the resources needed to accomplish the assigned objectives, including management accounting, HR, ICT, except some reserved powers with respect to, for example, corporate legal affairs, accounting standards, and such (Strikwerda, 2003a). It has been reported that the M-form is the most successful organization form of the 20th century in terms of its contribution to the growth of our economy (Williamson, 1985, p. 279). Also the M-form is the default organization form at the level of internal governance in textbooks for management accounting, management control, organization design, etc. Why then is there such a large-scale abandonment of the successful M-form? As so often in business, intuition precedes explaining or legitimizing theory, but not necessarily a more fundamental theory. A first level for a theoretical explanation of shared service centers can be found in the phenomenon of convex curves for marginal costs and average costs as a function of quantity of output (Brickley, Smith, & Zimmerman, 2001, p. 111). For a long time, it is a well-known phenomenon that the different parts or activities in a value chain of a business have different cost curves (marginal costs, average costs) resulting in different minimum efficient scales for each of those activities (Figure 1). In case the value chains of a multibusiness firm have similar subprocesses which can be alternatively applied in each of those value chains (e.g., IT) and have a minimum efficient scale which is larger than the minimum scale of the complete value chain (the subprocesses A1 A3 in Figure 1), the firm has an opportunity to increase the efficiency of the organization of the firm as a whole by sharing the subprocess A across the three divisions, provided this can be done subadditive, that is that the costs of the additional required coordination are offset by the gains in efficiency. Within the traditional theory of organization design, the sharing of the similar process A across the three businesses would be organized by creating a central department. This however might be detrimental to the focus on assigned markets by the business units and impair the scope of accountability of the management of the business unit. The success of the M-form can be explained in multiple ways: one simplified explanation is that the M-form combines a best focus on markets with lowest costs of organization, being the sum of costs of coordination and costs of duplication of (support) functions (curve C in Figure 2). (The M-form does have a corporate headquarters with multiple staff departments creating an added value to each of the businesses (Chandler, 1996; Goold, Campbell, & Alexander, 1994)). By reducing the costs of duplication of functions by creating centralized departments, the curve for the total costs of organization would be the curve B B’ in Figure 2, favoring the functional organization. However, this curve does not reflect the benefits of market orientation. What the concept of shared service centers does, as is reflected in its name, is not creating a functional organization, but

6

J. Strikwerda

Figure 1: The value chains of a multidivision firm, which each division having the same minimum efficient scale, but within each of the value chains the constituent sub-activities having different minimum efficient scales.

Figure 2: The relation between type of organization form and total costs of organization.

Shared Service Centers

7

maintaining the scope of accountability of the manager of the business unit, while modifying the scope of control over resources. The manager of a business unit decides which services to procure from the shared service center or not and vice versa, and the shared service center is funded from the budget of the business unit, not from a central, corporate budget. It is assumed that business managers can articulate adequately and efficiently their demand for services to be provided by a shared service center, including a business case. This should result in a most efficient allocation of resources within the firm; a shared service center in theory is a step in decentralizing decision making for resource allocation, not centralizing. In theory, the manager of a business unit is a perfect principal to the shared service center because he knows precisely (based on Total Quality Management (TQM) techniques) his processes and is able to write in an efficient way complete contracts with the shared service center, also because in the period (1990 2000), the costs of coordination declined due to the capital deepening of ICT (Varian, Farrell, & Shapiro, 2004). As a result, the curve of the total costs of organization changes from C to C’ thus maintaining the M-form with its focus on the market. A number of case studies reveal that in a majority of cases (but for this survey-type quantitative research is lacking), the true concept and underlying microeconomic theory is not understood (Strikwerda, 2003b). The underlying microeconomic theory of the shared service center implies that, at least in those situations, in which a strong relation exists between the nature of the services rendered by a shared service center and the customer value proposition and a high variability or volatility exists for the latter, the bottom-up resource allocation process (Bower, 1986), which is so typical for the administration of the M-form, is adapted to an economic model of the firm exploiting synergies through shared service centers (Strikwerda, 2010, p. 194). Because in the theory of organization design, the resource allocation process is not a design parameter, whereas it should be (Bower, 2003; Bower & Gilbert, 2005; Kaplan & Norton, 2008), in many cases, but not all, the introduction of the concept of shared service center created problems resulting in not achieving the potential efficiencies implied by the concept as explained. As to be explained by March’s concept of belief conservation (March, 1994) in many cases, management and others involved, including management consultants, applied the concept of the shared service center, without acknowledging that this implied a departure from the M-form, but instead mentally and conceptually clung to the familiar M-form and all its rituals, identities, rules, and processes: assigning SSCs the status of division (e.g., in the case of the ING Bank, which now has been repaired), having the manager of an SSC report to all division managers simultaneously without executive involvement, sticking to the resource process as typical for the M-form. Like in the early days of the M-form, in many cases, a corrupted concept of the SSC was applied; in some cases, executives managing the costs of divisions not up-front in direct relation with the division managers, but through the backdoor of the SSC, thus eroding the confidence of members of the organization in the concept of the SSC.

8

J. Strikwerda

SSCs and the Changing Nature of the Firm The question to be asked is whether the concept of the shared service center is intended to increase the efficiency of the M-form or whether the concept of the SSC reflects a more fundamental change in the nature of the firm. An organization (form) is efficient if there is no available alternative that is universally preferred in terms of the goals and preferences of the people involved (Milgrom & Roberts, 1992, p. 22). The M-form is one of a limited set of organization forms applied in the 20th century (Grandori & Kogut, 2002; Williamson, 1985). This limited set of organization forms constitutes one of the complexity-reducing institutions in the 20th century as needed for efficient relations between actors in the economy in a context of high costs of information and a limited capacity to process information (North, 1991). However, these organization forms not necessarily would produce the technically highest level of efficiency, whereas neoclassical economics requires the technical possible highest level of efficiency and thus wants to reduce the role of complexityreducing institutions. The M-form developed within the specific institutional arrangement labeled by Chandler as the Modern Business Enterprise (MBE) (Chandler, 1977). Chandler focused on the M-form as being typical for the MBE, Zingales rightfully deepened the concept in terms of the nature of its assets, the limits of the MBE, the role of knowledge, and some other parameters which provide a more accurate description of the nature of the firm compared to the original description of the nature of the firm as provided by Coase and the MBE as provided by Chandler (Arrow, 1996; Chandler, 1977; Coase, 1937; Zingales, 2000). The MBE was shaped by at the end of the 19th century by the then new corporate laws, property laws, and labor laws in the various western jurisdictions. These three laws in their turn were based on tangible assets and on patent law as the only form of intangible assets. The latter reflected the acknowledgment and salience of the exploitation of codified knowledge. Tacit, uncodifiable knowledge as held by trained workers in some way was acknowledged but labor, including the knowledge carried by trained workers, both in neoclassical economic theory and in the three constitutive laws was defined to be a bought commodity by the firm; it is no part of the firm. Through idiosyncratic work methods and standards, and an immobile labor market, in most cases workers carrying tacit knowledge could not turn this asset into an economic bargaining power. The methods for industrial engineering, based on the concept of scientific management, aimed for codifying all knowledge and making it a property of the corporation. With that the M-form, in Chandlers definition so typical for the MBE, was based on tangible assets and knowledge codified in those assets, which were not or only costly interchangeable to be used across multiple products and or markets. The synergies to be achieved in the M-form were limited to finance, management development, R&D, and dependent on the nature of the industry, to a number of components or subsystems. Also, the M-form was based on high costs of information, high costs of communication, a low speed of communication, and a limited capacity of communication channels (Stinchcombe, 1990).

Shared Service Centers

9

Since about 1975, a number of fundamental changes are developing with respect to the firm. Due to TQM, processes are increasingly better specified and standardized, increasing the number of processes eligible for either sharing across multiple value chains or for outsourcing. In the exploitation of knowledge uncodified, personal knowledge has become at least or even more important as is the exploitation of codified knowledge (Arrow, 1996; Jensen, 1998). The costs of information and communication are declining as is the speed of communication increasing to real time and the capacity of information channels is virtual unlimited (Jorgenson, 2001). Since 1995, we witness the rise of information goods and with that a change in the nature of resources to be exploited by firms and traditional tangible goods are subject to meditation. The new resources, information, images, and knowledge which can be exploited without being embedded in discrete physical goods have a semipublic nature and require new business models, for example, the multiplier profit model, to achieve highest levels of efficiency. That is, basically all the assumptions underlying the M-form and even the MBE are disappearing, in speed, kind, and degree dependent from business to business and from industry to industry. As was felt by managers since about 1990, the old M-form limited the capabilities of the firm in view of the changing nature of the assets and in view of the new opportunities for organization design offered by the declining costs of information. A strong intuition existed to do away with the M-form, but the M-form having become an institution itself through reification due to its initial success induces a number of resistances to be overcome by identities, attributed and acknowledged roles, management accounting and reporting standards, expectations of investors, lack of sufficient managers, and staff experts who were capable to work with alternative organization forms (the issue of organization capital intensity (Arrow, 1974)), lack of clear concepts on how to deploy information technology, etc. So a tension was growing between what the changing nature of assets implied by requirements and new options, and the M-from as unconsciousness routine in business. At the end of the eighties, Michael Porter analyzed why in that period the Japanese economy and the German economy were more competitive as the US economy. From that study Porter concluded: “Many American companies have embraced a form of decentralization that involves autonomous business units and limited information flows both vertically and horizontally. … [successful] Companies practice a form of decentralization that involves much greater information flows among multiple units in the company as well as with suppliers and customers” (Porter & Wayland, 1992). In the same publication, it was stated that intangible assets, especially human capital, information capital, and organization thus capital, are more important in the economic system of a firm to create value and for the market value of the firm as are tangible assets (Arrow, 1996; Kaplan & Norton, 1992). There was a plea for the network-type organization, with free flows of knowledge, people, and information across business lines and IT organized as an enabling infrastructure (Nolan & Croson, 1995). However, the functional fields of management control and management accounting did not move, they clung to the M-form and these functions did not offer solutions to turn the economically sound intuitions of executives and entrepreneurs into operational practices to answer the

10

J. Strikwerda

changing nature of the assets. As a result, the M-form is still the dominant reference for the internal organization. The concept of the shared service center could be organized within the concept of the M-form because the concept of the SSC fits into the existing system of costs centers and transfer prices, apart from the fact that the achieved cost savings legitimized the concept. In this approach, the purpose of the SSC remained limited to cost savings. The quoted article by Porter and Wayland implies that firms, to have a higher level of efficiency in view of the changing fundamentals of the economy, organize their information disembedded from the structure of the internal organization, in stark contrast with the old organization principles and the existing practice in IT governance. This message went unnoticed in the main stream of management books, but not for a few leading companies. Also Herbert Simon’s message that in the design of the internal organization of the firm no longer structure is the first design parameter, but the organization of information and the factoring of decision making went unnoticed in mainstream management books. An example of a firm that picked up Porter’s message is IBM, which in the nineties started deliberately to eliminate the internal and vertical information asymmetry by deploying shared service centers for finance and IT services (Campbell & Strikwerda, 2013; Strikwerda, 2008; Strikwerda & Stoelhorst, 2009). IBM deliberately used the declining costs of information to create one global transaction recording system and one global general ledger in which transactions are recorded with multiple attributes, allowing IBM to report the performance simultaneously on multiple dimensions. By eliminating the internal information asymmetry, the cooperation between knowledge workers is facilitated (under the guidance of the IBM values) and responsiveness to market dynamics is improved, while providing a safe climate for its workers. In this example of IBM, we see that based on considerations of strategy and awareness of the increasing role of personal knowledge, the concepts of the SSC are being used to organize information disembedded from the traditional internal structure of this multinational company, while maintaining that traditional structure for reasons of legal organization (countries) and resource configuration (the traditional product divisions). The through SSC’s disembedded organized information however allows to solve problems which could not be solved in the traditional M-form: defining the (corporate) customer as the first profit center (as opposed to the BU being the first profit center) as a prerequisite for customer synergies, and making cross BU’s and SSC’s processes the first dimension for resource allocation and planning of investments (Kaplan & Norton, 2004, 2008) to answer Porter’s 1992 call to prioritize investments in intangible assets. To this needs to be added that both the capital markets and executives themselves acknowledged that in the traditional M-form, but also due to the phenomenon of financial performance management, the agency costs became more of an issue between the executive board and the management of the divisions than between the investors and the executive board. To reduce those agency costs, both the ownership of information and the organization of information needed to be redefined, without impairing the accountability of business managers. The latter was conceptually facilitated by applying Anthony’s distinction between financial control, business control, and

Shared Service Centers

11

process control (Anthony & Govindarajan, 1995). These three components of management control tended to be organized in the same department within divisions. Process control being the recording of transactions, the general ledger and maintaining protection of assets is not typically business sensitive and therefore can be organized within a financial SSC (which therefore includes increasingly HR transactions). Business control is about issues like resource allocation and e.g. cost difference analysis and therefore typical is business sensitive. Business control needs to be organized to be within a division (although, for example, KLM has organized the controllers for business control in an SSC for reasons of professionalism, which then are on secondment to the businesses). Financial control is closely related to the statutory duties and responsibilities of the executive board and is thus organized as a corporate control department, although some of its routines (not policy making) also may be organized in the financial SSCs. A third factor is that the costs of IT systems, which were driven by lack of semantic data standardization and by a lack of standardization of software, whereas in most cases such standardization does not conflict with product differentiation, needed to be brought down. These three factors pushed the deployment of especially the combination of financial shared service centers and IT shared service centers and in their wake HR-SSCs. The underlying force is to create a higher level of transparency, a higher level of control, and to enable new business models, especially those based on personal, uncodified knowledge, and business models based on the exploitation of information as a resource (Johnson, Christensen, & Kagermann, 2008). In actual business cases, the weight of any of those three motives for deploying SSCs will differ. The larger picture however is that the combination of corporate account management (the customer is the first profit center), the priority of customer value proposition based processes over traditional departments, and shared service organizations constitute the transformation of the M-form toward the platform organization with its three constitutive elements, a guiding system, tools, and its platform (Kanter, 2009). Implied in that is an almost unnoticed ongoing change in the fundamentals of business administration which is summarized in Table 2. By reading the phenomenon of the SSCs in the context of the changing nature of the firm and the subsequent changing nature of business administration (Table 2), the concept of the SSC both can be understood as an expression of this changing nature as well as a practical instrument of change enabling firms to manage a transition toward new economic models for their firm in the context of institutions (accounting rules, lagging concepts of organization design) which are lagging the developments in the economy. The concept of SSCs enables the transition toward the new natured firm by disentangling operational and support processes and placing generic processes in what is to be called the platform of the firm. Especially the combination of financial shared service centers and IT shared service center operationalizes the second row in Table 2. Because shared service centers are process based and also the process interface between operational units and SSCs need to be specified, the concept of the SSC is, together with TQM and process reengineering, a force to elaborate processes as cause-and-effect relations, thus contributing to the dimension in the third row in

12

J. Strikwerda

Table 2: A summary of the ongoing changes in business administration (Strikwerda, 2012). 20th century instruments

Issues

21st century instruments

Programming by indoctrination of selected individuals and through organization culture in general

Indoctrination text limits Programming is through information processing codification of mission and values in the capacity of the organization, culture objective function of the assumes lifetime explicit formulated and employment and strong communicated business identification model Structure with information Structure assumed high Organization of information disembedded organized partitioned costs of information within structure to and communication and from structure, elimination of influence thinking tangible assets, impedes (focus) of organization team work information asymmetry members (Herbert Simon) Budget-driven bottom-up Budget gaming, satisfying Allocation on basis of resource allocation behavior, structure validated cause-andprocess limits strategic effect relations, development, frustrates mobilization of synergies intangible resources Power is based on Internal agency costs no Power is basis on the information asymmetry longer are accepted capacity of sensing, sense making, creativity to achieve goals Selection of positionExperts, creative Modern workers are oriented managers, (knowledge) workers contribution oriented, as because of motivation pursue an as large as acknowledged based on control over possible personal contribution is their resources market, require resource source of motivation mobilization

Table 1. Because the combination of financial shared service centers and IT-SSCs enable to organize the information outside the structure of the internal organization, SSCs provide the technological possibilities to reduce information asymmetry, but still a constitutional decision by the executive board is needed to allow all members of an organization access to all information. Because SSCs reduce the scope of resources of the traditional unit manager, the traditional unit manager is forced to manage more through nonhierarchical relations and on basis of content, thus weakening the power and the concept of the traditional unit manager. This opens up opportunities for those workers whose motivation is more based on contribution, the last row in Table 2. Because SSCs, as a more decentralized system for resource

Shared Service Centers

13

allocation, emphasized further horizontal self-coordination over imposed, hierarchal coordination, mission and value become more critical to avoid parochial decision making and serving interests of individual departments.

Closing The phenomenon of shared service centers can be experienced and conceptualized in multiple ways, dependent on the interests and the viewpoint of the observer or practitioner. Interests may be narrow or broad, viewpoints may be egocentric, parochial, conventional, or more future oriented and community oriented. The task of academia is to provide practitioners and students with insights and an understanding that will help them to create and operate efficient organizations in the context of a society that for its well-being depends on efficient organizations. What an efficient organization is or will be is in constant flux as a result of technological developments, changing relative prices, changing customer preferences, changing self-images of individuals and groups, cultural changes, political changes, etc. It is a natural tendency to describe, explain, and organize a new phenomenon, in this case the shared service center, in terms of traditional organization theories and practices. But in that way we are suffering the horseless carriage syndrome. To change, to innovate, to renew our organizations first and for all is to rethink and to review our concepts. In a first research on shared service centers, it was observed that in cases in which executives decided for a shared service center from an operational, cost savings only and perspective on basis of the traditional M-form concept, implementation turned out to be a process full of obstruction and halfhearted solutions. In cases in which the executive viewed the introduction from a broader strategic perspective at industry level and understood the fundamental nature of introducing the SSC, an implementation would not necessarily be faster, but more steadfast, better conditioned by the executive board and less prone to obstruction or other mishaps (Strikwerda, 2003b). As has been explained in this chapter, the phenomenon of SSCs needs to be taken by academics to ask questions with respect to organization theory, to unearth forgotten assumptions, to identify new design parameters, to review our concepts and their limitations and to identify new possibilities. This will result in a better understanding and thus in improved changes processes, more pleasant organizational climates for managers and workers, less efforts wasted, and more efficient organizations and happiness.

References Anthony, R. N., & Govindarajan, V. (1995). Management control systems (8th ed.). Chicago, IL: Irwin. Arrow, K. J. (1974). The limits of organization. New York, NY: Norton.

14

J. Strikwerda

Arrow, K. J. (1996). The economics of information: An exposition. Empirica, 23, 119 128. Bangemann, T. O. (2005). Shared services in finance and accounting. Aldershot: Gower. Bower, J. L. (1986). Managing the resource allocation process. Boston, MA: Harvard Business School Press. Bower, J. L. (2003). Building the Velcro organization: Creating value through integration and maintaining organization-wide efficiency. Ivey Business Journal, 68(2), 1 10. Bower, J. L., & Gilbert, C. G. (2005). A revised model of the resource allocation process. In J. L. Bower & C. G. Gilbert (Eds.), From resource allocation to strategy. Oxford: Oxford University Press. Brickley, J. A., Smith, C. W., & Zimmerman, J. L. (2001). Managerial economics and organizational architecture (2nd ed.). Boston, MA: McGraw-Hill. Campbell, A., & Strikwerda, J. (2013). The power of one: Toward the new integrated organization. Journal of Business Strategy, 2(34), 4 12. Chandler, A. D. (1977). The visible hand: The managerial revolution in American business. Cambridge, MA: The Belknap Press of Harvard University Press. Chandler, A. D. (1996). The functions of headquarters in the multibusiness firm. In M. Goold & K. S. Luchs (Eds.), Managing the multibusiness company: Strategic issues for diversified groups. London: Routledge. Coase, R. H. (1937). The nature of the firm. In O. E. Williamson & S. G. Winter (Eds.), The nature of the firm: Origins, evolution, and development. New York, NY: Oxford University Press. (1991). Goold, M., Campbell, A., & Alexander, M. (1994). Corporate-level strategy: Creating value in the multibusiness company. New York, NY: Wiley. Grandori, A., & Kogut, B. (2002). Dialogue on organization and knowledge. Organization Science, 13(3), 224 231. Jensen, M. C. (1998). Foundations of organizational strategy. Cambridge, MA: Harvard University Press. Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing your business model. Harvard Business Review, 86(12), 50 59. Jorgenson, D. W. (2001). Information technology and the U.S. economy. The American Economic Review, 91(1), 1 32. Kanter, R. M. (2009). Supercorp: How vanguard companies create innovation, profits, growth, and social good (1st ed.). New York, NY: Crown Business. Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard — Measures that drive performance. Harvard Business Review, 70(1), 71 79. Kaplan, R. S., & Norton, D. P. (2004). Strategy maps: Converting intangible assets into tangible outcomes. Boston, MA: Harvard Business School Press. Kaplan, R. S., & Norton, D. P. (2008). The execution premium: Linking strategy to operations for competitive advantage. Boston, MA: Harvard Business Press. March, J. G. (1994). A primer on decision making: How decisions happen. New York, NY: The Free Press. Milgrom, P., & Roberts, J. (1992). Economics, organization and management. Englewood Cliffs, NJ: Prentice-Hall. Nolan, R. L., & Croson, D. C. (1995). Creative destruction: A six-stage process for the transforming the organization. Boston, MA: Harvard Business School Press. North, D. C. (1991). Institutions. The Journal of Economic Perspectives, 5(1), 97 112. Porter, M. E., & Wayland, R. (1992). Capital disadvantage: America’s failing capital investment system. Harvard Business Review, 70(5), 65 82.

Shared Service Centers

15

Stinchcombe, A. L. (1990). Information and organizations. Berkeley, CA: University of California Press. Strikwerda, J. (2003a). An entrepreneurial model of corporate governance: Devolving powers to subsidiary boards. Corporate Governance: An International Review, 3(2), 38 57. Strikwerda, J. (2003b). Shared service centers: Van kostenbesparing naar waardecreatie. Assen — Den Haag: Van Gorcum — Stichting Management Studies. Strikwerda, J. (2008). Van unitmanagement naar multidimensionale organisaties. Assen — Den Haag: Van Gorcum — Stichting Management Studies. Strikwerda, J. (2010). Shared service centers II: Van kostenbesparing naar waardecreatie. Assen — Den Haag: Van Gorcum — Stichting Management Studies. Strikwerda, J. (2012). Organization design in the 21st century: From structure follows strategy to process follows proposition. iTunes Store. Strikwerda, J., & Stoelhorst, J. W. (2009). The emergence and evolution of the multidimensional organization. California Management Review, 51(4), 11 31. Varian, H. R., Farrell, J., & Shapiro, C. (2004). The economics of information technology: An introduction. Cambridge, New York: Cambridge University Press. Williamson, O. E. (1985). The economic institutions of capitalism. New York, NY: The Free Press. Zingales, L. (2000). In search of new foundations. Chicago, IL: University of Chicago – Graduate School of Business.

Chapter 2

Managing Boundaries Better: The Key to More Effective HR Shared Services Peter Reilly

Abstract Purpose — This chapter seeks to optimize HR shared services performance by highlighting the potential for service fragmentation that can arise out of in the so-called Ulrich (structure or service delivery) model. Design/methodology/approach — The evidence used in this chapter principally comes from the author’s own work, especially research for the UK’s Chartered Institute of Personnel and Development (CIPD), and draws upon academic literature where possible. Findings — This chapter argues that HR directors should guard against three sets of fragmentation risks. Firstly, HR shared services should be properly connected to the rest of HR to offer customers an integrated service to avoid the structure’s division of labor inducing incoherence. Second, to guard against this risk, HR directors should exercise care in outsourcing/offshoring beyond individual, discrete services because contractually or spatially separating services risks exacerbating this tendency to fragmentation. Outsourcing/offshoring may focus too much on cost savings and insufficiently on quality. So, third, HR should argue for the distinctiveness of its activities and fight commoditization that is also implied in the creation of cross-functional shared service centers. Research limitations/implications — The arguments in this chapter could be better supported by academic research. In-depth case studies of management decision making and shared services operation would help support or challenge the chapter’s conclusion, as could quantitative evidence on the benefits/disbenefits of outsourcing/offshoring/cross-functional shared services centers.

Shared Services as a New Organizational Form Advanced Series in Management, Volume 13, 17 38 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1877-6361/doi:10.1108/S1877-636120140000013002

18

Peter Reilly

Practical implications — We have highlighted a number of reported problems with HR shared services operation, besides the three principal risks noted above, but we have suggested possible solutions that could be adopted by practitioners. Originality/value — HR managers may find this chapter helpful in designing new HR structures or in assessing the effectiveness of shared services that goes beyond the typical key performance indicator measures. Keywords: Shared services; outsourcing/offshoring; structure; functional transformation; centralization; standardization

Introduction The purpose of this chapter is to consider the link between shared services and the function to which it relates. We will primarily look at the HR function from this perspective. HR has a number of common features with other corporate functions, but as we will argue in this chapter it has some distinctive features which impact both service delivery and customer experience. Our contention is that shared services cannot be judged as effective independently from the “main” function, as we believe it is intimately involved in common service provision, whatever organizational model has been used. This is because shared services and other parts of HR (or other “support” functions) have the same customers. From their stand point, it matters not what labeling is given to support activities; they are all of a piece. You hear customers say, “HR did this,” “HR did that,” not “I had a good experience with shared services but a poor interaction with the HR center of expertise.” Most customers are not that sophisticated or informed. Again, while other functions face the same challenge, HR can be particularly damaged by poor service integration. So from the premise that HR supports executive and line management, employees and (to a degree) pensioners and that we should largely judge its effectiveness through their experience, we think there ought to be an integrative relationship between the various HR organizational entities. Moreover, from a business performance perspective if you agree that it is the bundling together of HR work that drives people management and leads to superior organizational outcomes (Huselid, Jackson, & Schuler, 1997), then considering the contribution of different parts of HR in aggregate rather than separately is the best route to organizational success. Given this chapter’s aims, we will look at the development of HR shared services, the forms it has taken, and challenges faced, before concluding with suggestions for improvement. This then is a practitioner view of the world that seeks to optimize the HR shared services model. In the space available we are not able to discuss whether it is the “right” model for organizations; we accept that it is now a common feature of many organizations, but we do believe it is not an easy construct to manage successfully, precisely because of its interaction with the function as a whole.

Managing Boundaries Better

19

We will use evidence from academic research where it is available, but the bulk of the evidence will come from organizational insights developed since 1998 when the author’s interest in the topic first arose.

What Do the Original HR Shared Services Models Tell Us about Intended Design? If we start by considering the function’s aims in HR transformation they were very much around how HR could become more strategic in its organizational contribution and how it could add more value. It was argued that the point about Human Resources compared with old style Personnel was that the former was attuned to the business and raising its performance; the latter was regarded as too employee welfare focused or simply an administrative processing unit. Of course, this was a gross over simplification of the past and completely ignored the role of Personnel in industrial relations or work done with sociotechnical systems. Nevertheless, it tuned into the HRM movement’s emphasis on management and employees’ common objective in raising business performance. HR’s repositioning also had academic support: for example, Tyson and Fell talked of the shift from a “clerk of the works” to “strategic architect” role (1986) and Storey offered the distinction of HR as “handmaidens” and advisers to the business to the more interventionist regulators or change agents (1992). The question then became how in practice could this repositioning be effected. The principal route advocated and chosen was to restructure the function by changing the way it delivered services. As with so much of the inspiration to HR transformation we start with the ideas of Dave Ulrich. He might not have invented the service delivery model that bears his name (Hird, Marsh, & Sparrow, 2009), but the three-legged stool of business partners, centers of expertise, and shared services had an appeal because it separated out transformational activities that could be performed by business partners and HR experts from the transactional tasks undertaken by shared service centers. Business partners and HR experts would as a consequence be able to concentrate on a strategic contribution to the business not distracted by operational and administrative duties. Turning specifically to shared services, Ulrich’s writing from the mid 1990s introduced many in HR to possibility of shared services for their function. (Shared services had arrived in Finance and IT from the late 1980s.) His views were very plain: shared services were not centralized services but common to all with the customer defining the nature of service provision: “the user is the chooser” as he so graphically reported (1995). Others followed the same line. McWilliams (1996) distinguished between centralized standardization and customer optimization in shared services. It was thought that shared services could obtain the efficiency benefits from economies of scale but be sufficiently customer attuned to seize the sort of advantages found in decentralized models. The PWC figure (Figure 1) clearly captures this point.

20

Peter Reilly Shared Services

Higher costs Variable standards Different control environments Duplication of effort

Business units maintain control of decisions Recognition of local priorities Responsive to client needs

Pooled experience Enhanced lateral career progression Cross-organizational synergies Lean, flat organization Recognition of administrative activities

Common systems & support

Central overhead cost

Consistent standards & control

Less responsive to business unit needs

Economies of scale

More remote

Critical mass of skills

Dissemination of good practice

Decentralized

Centralized

Figure 1: The benefits and disbenefits of different organizational models. Source: Adapted from PWC by Bramson (2005).

But an element in the attraction of shared services was its positioning as part of a wider reform of HR structures. Lentz (1996) talked, for example, of finding in his study of shared services that the successful organizations managed to integrate the competitive features of customer focus and flexibility with the equally competitive features of economies of scale. This “hybrid model” shifts the idea from shared services being directly customer responsive to a situation where it is the “embedded” parts of HR that meet customer needs (Ulrich, 2007); shared services becomes simply an administrative function that should be as efficient as possible. The consequence was that the introduction of shared services was very quickly seen to be primarily about a way of cutting costs rather than delivering customer value. As a Deloitte study pointed out (2005) a large majority of organizations surveyed introduced shared services and transformed their function to save money. Farndale and Pauuwe’s (2008) survey in the Netherlands put the cost as the main goal and benefit of HR shared services, and besides a quality driver, there were also other efficiency imperatives involved, especially the standardization of HR processes. Our report for the CIPD (Reilly, Tamkin, & Broughton, 2007, p. 14) came to the same conclusion: “The decision to introduce shared services seemed in most [case study] organisations to be driven primarily by cost, efficiency and headcount considerations.” Research on HR transformation for global companies (Reilly & Williams, 2012) reported that standardization was a key component and wrapped up together with automation and consolidation.

Managing Boundaries Better Integrated service provider

In-house cost centre

Income generating business unit

Wholly owned subsidiary

21

Outsourced to third party

partial

complete

onshore or offshore

Figure 2:

Different HR service provision options.

If expense was in the forefront of corporate thinking regarding shared services it is not surprising that the next step was to explore ways of further cost elimination and that often meant considering other routes to managing shared services. Enter cross-functional sharing, joint ventures, spin-offs, outsourcing, offshoring, etc.: all designed to get a better bang for the corporate buck. Figure 2 indicates the options. An early change was to consider HR alongside other corporate functions as candidates for back office integration. Using a common IT platform and telephony allowed better service integration, resource sharing, and customer handling under a client-centric philosophy. IBM’s late 1990s model, for example, covered HR, IT, Finance, procurement, and facilities management with the one phone number and a single management structure. This meant that HR shared services was not always run by the HR function. The head of HR shared services operations at Powergen, for example, from its inception in 1993 reported to the services division director, with a dotted line to the HR director. The HR function was a customer, managed through a Service Level Agreement, rather than colleagues from the same team. Even more remote from “core” HR were functional shared service operations that were part of separate companies. This is a model that is often found in Germany. Evonik, a Ruhr-based industrial group formed out of several mergers, exemplifies this point. Its HR shared services operation reported not to the HR director but into a Services GmbH. This sort of separation between shared services and the rest of the HR function may also arise after a merger or acquisition and before any form of organizational integration. Another way chosen to save money was to offshore the shared services to fewer, lower cost locations but retain organizational control. This started with near shoring, as with the creation of IBM’s shared service center in Hungary and DuPont’s European operations in North West Spain. Companies organizing themselves with more of a global perspective went further setting up shared services on a regional basis across the world. Thus SAP has shared service centers in Prague, Singapore, and Philadelphia. Shell has them in Manila, Krakow, and Kuala Lumpur. The next “logical” step was to outsource shared services. Using Ulrich again, he has argued that outsourcing will become the most appropriate means of delivering

22

Peter Reilly

the sorts of activities undertaken in shared services centers because “collaborative work across boundaries … will characterize the organizations of the future” (2007). Many outsourcing deals have been done to transfer shared services outside the organization, such as done by BP, Centrica, Procter and Gamble, and Unilever. Sometimes this action is taken before a shared services operation has been internally created; alternatively, there is outsourcing of an existing shared service center. The case of BT shows the progressive move toward outsourcing. It separated its shared services operation from the main HR function, before making it an internal profit (rather than cost) center. BT together with Accenture then established a completely discrete joint venture company expected to run as an independent business called e-peopleserve. Ultimately, BT settled on straight outsourcing in a long-term deal with Accenture. Finally on the spectrum of distancing shared services from organizational “home” is agreeing with the external provider to offshore internal services. IT and Finance led the way toward this form of offshoring. Companies have been able to access a large pool of skilled, English speaking workers and advanced telecom/networking infrastructures especially in India early on and then further afield in Asia. HR has not really followed suit, though Lloyds TSB did transfer its HR helpline to Xansa (which was subsequently acquired by Steria) and part of Xansa’s HR processes were offshored to India. The sort of developments we have discussed above, with the exception of offshoring, has been seen in the public sector as well as the private sector. Internally created and outsourced shared service centers have been launched. For example, in the UK, of the government departments with some sort of shared services operation, one can find services provided internally for that department (e.g., the Ministry of Defence); a shared service center operating for several departments or agencies (e.g., the Department for Work and Pensions); and outsourced provision as at the Department for Transport HR where shared services are run by arvato. There have also been moves toward even bolder cross-organizational partnerships in the United Kingdom (e.g., in local government where there are examples of independent councils creating shared back offices), the creation of third-party companies jointly owned by the parties (e.g., “South West One” a joint venture between IBM, Police, and local authorities). There are similar trends in the Netherlands where there are examples of individual organizational shared service centers (e.g., Gemeente Amsterdam) and more complex, across more distinct organizational units or bodies, shared service centers as in the Dutch Civil Service (Meijerink & Reilly, 2010) and in progress across Leiden, Leiderdorp, Zoeterwoude, and Oegstgeest.

What Has Been the Result for HR Shared Services Operations? What is the evidence of success of these developments? In fact, it has proved hard to show benefits. Much of what we have to go on to judge effectiveness is merely based on assertion or at best perception. Part of the problem has been that organizations have not sufficiently frequently defined their base position such that one

Managing Boundaries Better

23

Shared Services

35 – 50%

Standardization

20 – 35%

Simplification

Benefits

can be certain of improvement (or regression) through restructuring. Another issue is that it has been difficult to establish what the consequences would have been if a different route had been taken: there are no controlled trials! Supporters of HR shared services have claimed that the cost reductions sought have indeed been delivered. Consultants talk of typical cuts of the order of 30% in HR expenditure with, say Booz Allen (2000) putting the savings in the 20 50% range. Furthermore, The Hackett Group (2007) reported that more than 60% of all companies with HR shared services operations have achieved cost reductions of 21 80% and a PWC Saratoga study demonstrated that shared services can deliver significant administrative savings given that administrative costs per employee can be cut by two-thirds in organizations that are efficiently run (PricewaterhouseCoopers, 2006a). Ask users of shared services and they claim similar savings. In the CIPD research (op cit) 87% of respondents believed they had reduced costs. There are specific organizational examples one can also use to back up the consultants’ claims, some reported in consultancy publicity literature. However, these assertions and “facts” are hard to verify as shared services have often been introduced along with other structural change and, more importantly, with processual and technological improvements. Another PWC report for the NHS (NHS Confederation, 2010) using its consultancy experience calculates that isolating the benefit of shared services is not a very precise science and may deliver less than simplification and standardization, as shown in Figure 3. Indeed, some organizations have suggested that they have benefited more through having common procurement of services than having a shared services operation. What makes weighing up these arguments especially difficult is that the creation of shared services may have facilitated common procurement, standardized processes and E-HR. And this is the problem with corporate exemplars of shared service centers — precisely separating out the shared services effects from other parts of the change process. BOC’s 1999 calculation is typical of a form of assessment that through time-based activity analysis of actual hours spent on different tasks shows HR

20%

Complexity of barriers

Figure 3: (2010).

Efficiency gains through different means. Source: NHS Confederation

24

Peter Reilly

apparently becoming more strategic through functional transformation, but as a result of both structural and technological improvements (Figure 4). The redirection of resources in HR away from administration and toward strategy is a well supported by organizations and according to the CIPD survey partially achieved. See Table 1. However, it is important to note that there were no significant differences in the distribution of time spent on each HR activity between HR functions that had restructured compared with those that had not. Interestingly, when considering the future balance of time, HR functions that have fully restructured intend to spend more time on strategic activities and less time on administrative and operational

Original HR

10%

30%

60%

Figure 4:

After Shared Services

After Self-service

Strategy

20%

Advice & delivery

60%

Admin

20%

An example of HR’s shift in activity toward strategic work.

Table 1: HR’s changing time distribution. HR function time spent Activity area/date Strategic Operational Administrative

2003 12% 39% 50%

2007 23% 41% 36%

Source: Reilly et al. (2007).

Table 2: Changing activity within HR over time. Activity/focus Maintaining records Auditing/controlling HR services provider Practice development Strategic business partnering Source: Lawler et al. (2006).

% time 1995

% time 2004

15 12 31 19 22

13 13 32 18 23

Managing Boundaries Better

25

activities than those partially restructured; the latter in turn having different intentions on time distribution, to the same degree, to those who have not restructured. Is this a case of the “wish being the father to the thought,” that is, greater sensitivity to time rebalancing on the part of organizations undergoing restructuring or an anticipation of progress that will be made? Again what academic research there is confirms caution in confirming these sorts of results. For example, as shown in Table 2, Lawler, Boudreau, and Mohrman (2006) found no association between outsourcing, e-HR and structural change and HR becoming more strategic, albeit that the dates of analysis and location base are both different. Though HR might have the idea that by removing noncore activities, it would move up the value chain, this research found no empirical support for this happening in practice. Nor has the freeing up of HR’s time seen a switch of resources into higher value added work (Reilly et al., 2007; Weatherly, 2005). More recently, the Society for Human Resources Management (2010) reported that only 19% of a survey of 200 organizations with HR shared services saw greater strategic functioning of HR through its introduction. Moreover, a 2007 customer survey (reported in PricewaterhouseCoopers, 2008) is typical of doubts expressed about how effective at the higher end of their role HR has become. “Their HR contact” was rated on a scale of 1 6 as 2.8 on effectiveness in challenging and influencing thinking on key business issues and 2.9 in driving people change within their organization; that is, the “contact” was judged to be “not consistently effective.” Another advantage of HR transformation has been to improve the ratio of HR staff member to total workforce. Many organizations through the economies of scale benefits of shared services have aimed to move the ratio to 1 100, “the rule of thumb” in the United States (Russell & Harrop, 2005), and even higher toward the top quintile performance allegedly, a ratio of 1:173 as reported by The Cedar Group also in 2005 (www.thecedargroup.com). However, PWC surveys of (PricewaterhouseCoopers, 2006b & 2008) do not indicate any striking shift in the ratios of HR staff to total workforce (though more in the United Kingdom than elsewhere in Europe) or in costs, not least because lower graded administrative staff have been replaced by more expensive business partners and experts. As to customer service reaction, again organizations are positive about the impact of shared services. About 70% of the 2007 CIPD survey of HR managers (op cit) thought that after the introduction of shared services HR now delivered improved and more responsive services, and was better positioned, more credible and spending more time on strategic issues. Farndale and Pauuwe’s survey (op cit) in the Netherlands reported similarly positive quality gains. McLean and Company’s 2013 survey on the implementation of HR shared services came to similar conclusions (Figure 5). One reason for greater customer satisfaction is that HR’s output may be of a higher quality (there are fewer errors, outputs are faster and delivered in a more timely manner), yet these changes may again be the result of process improvement not through structural consolidation.

26

Peter Reilly

Figure 5: Customer reaction to HR shared services. Source: McLean and Company (2013). Critics of shared services like Seddon (2003) contend that shared service is neither better for customers nor for the bottom line. He argues that shared services often end up costing more than intended because it disrupts the “service flow.” He thinks that economies of scale benefits are exaggerated and the effects of moving the work to central or distant locations generate waste (in lean terms) and delays through increased handoffs, rework, and duplication. One of his specific points is that “failure demand” as opposed to “value demand” often occurs when call centers are introduced because customers make repeated calls to get the answer they expect, need, or want. (A point illustrated by E.ON in our CIPD research, Reilly et al., 2007.) This was subsequently called “avoidable contact” by the UK government in a drive to improve Civil Service efficiency. Notwithstanding the positive points made earlier, criticisms are heard from shared services’ users and HR practitioners and these appeared in the CIPD survey (Reilly et al., 2007). Problems reported included: ▪ ▪ ▪ ▪ ▪

boundary management (56%) service gaps (41%) poor communication (36%) and learning (19%) failing to recognize differing customer needs and expectations (35%) expected savings not achieved (26%)

(Percentages are taken from the 2007 CIPD survey excluding problems relating to the HR workforce itself — the subject of a separate essay!) Interestingly, the difficulty of separating out and removing transactional work was the principal problem for centers of expertise reported in the survey, followed by communication with the rest of the function. “Getting drawn into the ‘wrong’

Managing Boundaries Better

27

activities” was the top challenge for business partners, with the tension between corporate and business unit needs a close second. The report’s case studies illustrated these points with one HR team member saying: “we have replaced one set of silos [based on business units] with another [based on HR functions].” Those restructuring HR believe that there should be a clear separation between shared services centers concentrating on administration and transactional tasks and information provision via a call center, the business partner focusing on strategy, the centers of expertise on policy development and high level advice, and the corporate center on HR strategy and governance. If there are consultants they may provide project support in concert with either the business partners or centers of expertise and if there are operational HR advisers they may source their work from shared services, business partners or directly from line management. However, the picture that emerges is that the principal downside to three-legged stool model comes from the very segmentation of the service into discrete operating parts that made it attractive in the first place. Ulrich explicitly identified the risk of role confusion in his seminal (1995, p. 16) article on shared services: Mixing Service Centers and Centers of Excellence may result in confusion since both have different purposes and require different organizational arrangements to operate.

The challenge is that this division of labor produces fragmentation that hinders the integration of HR activities and leads to poor customer service. There are lots of boundaries between activities that need to be managed and role accountabilities to be defined. As Cooke found in his case study of an multinational company (2006, p. 217): A(nother) consequence of the removal of the local HR office has been the lack of clarity of ownership of problems that may occur in HR services. This is true for employees and managers alike.

As further evidence, survey results reported by Sparrow, Hird, Hesketh, and Cooper (2010) indicate that the vast majority of their respondents felt their structures needed “further refinement” and 41% need to deliver “joined up” services. Depending on the range of their activities, shared service centers can and do have interface issues with all their functional colleagues. This can lead to the following difficulties: ▪ Who is accountable to the business unit customer? Business partners as they front the function to the customer? But they are supposed to avoid getting involved in administrative or operational activities. So is shared services responsible for its actions directly to the customer? ▪ How well do centers of expertise take account of the administration of policy and practice change that shared services will be asked to deliver? For example, are the payroll implications of reward modernization properly considered at an early enough stage?

28

Peter Reilly

▪ How effective is the escalation of difficult “cases” from a call center to business partner or expert? For example, experts have complained that the call center is not screening out the simple, basic questions sufficiently but are escalating them further. ▪ Cost conscious HR might automate or transfer tasks to line managers, but do they feel “dumped on” without the time or the skills to do things they believe should be done in HR shared services? These issues are not marginal but fundamental to HR’s success. As every practitioner will tell you getting “the basics” right is essential. As one American HR manager graphically put it: “Administration … doesn’t get you anything but a black eye if you screw it up” (quoted in Eisenstat, 1996). Improving administrative performance and extricating business partners and experts from unnecessary transactional work does not mean that HR administration is unimportant. Yet getting administration wrong will deny HR access to the “higher value added” activities. If boundaries are not properly managed, gaps in the HR service can appear. One of the commonest is who delivers operational support to line managers. Business partners are not supposed to be involved in fire fighting nor are policy experts. They, together, with the shared service center may not be resourced or skilled to do this work. Or there may be duplication. If an issue passes through a number of hands before being dealt with, there is the danger that the response is suboptimal — slow, inconsistent, and incomplete. Following on from the above point, communication, downward and across HR, can be ineffective. This is a perennial problem, but harder if the boundaries between parts of the function are too rigidly drawn. In particular, the informal transfer of knowledge may not occur and feedback loops may fail. Poor communication leads to poor learning. If problems that arise in one part of the HR service are not communicated to others in the team then the service will suffer. Business partners may not keep other members of the HR community aware of emerging issues. The shared services center may not pass on feedback on individual cases or patterns of difficulty picked up via the helpline. Staff in shared service centers may become detached from the business. They provide services to it but either indirectly through an IT interface not a human one or remotely. So they lack the feel of what is going on in the business and suffer a lack of commitment to it. They do not always know what is happening on the ground and are very reliant on being kept well informed; which brings us back to communication. There may be a lack of clarity in the respective roles of the HR team exacerbating these problems. These may have to do with reporting relationships: who owns problems, where does the knowledge sit? It may be because the terms of reference of the roles have not been spelt out (a particular complication with business partners). There may be deliberate overlap to ensure a boundary is properly covered. This can lead to tensions in the HR team. These can be worsened if one part blames another part of the service chain when problems arise, especially when criticized by the line. For example, business partners, rather than taking accountability for the performance of the function, might disown the shared services center if there

Managing Boundaries Better

29

is a service failure. From the customer’s perspective, they want somebody to be accountable. Even though they no longer directly own the resources, business partners have to be seen to be supporting those providing the services. From a customer point of view, the consequence is that HR service delivery process can seem complicated and remote. Customers often resent the loss of their “own” integrated HR operation and the need to deal with multiple HR services. Instead of walking down the corridor to your friendly, neighborhood HR team you have to phone some distant office that may not be in your own country. Where in the past, there was a one stop shop where all HR matters (transactional, informational, advisory, or strategic) could be dealt with by a single team, whom the customer got to know well, now different units have to be approached for different things. The net result can be that to the customer it seems as if the right hand does not know what the left hand is doing. So far from offering an integrated service, HR delivers a fragmented one. Rather than following good practice in customer service where the complexity of service delivery is managed behind the scenes, the customer is presented with all the various interrelationships to sort out themselves.

How Can We Do Better? If there is a single way HR shared services can improve its performance then it is through better integration with the rest of the HR function. This is the route to better service customer because it provides a more coherent offering and because each part of HR holds the others to the task in hand. As Cooke (2006, p. 222) put it: The intertwined nature of HR activities and the intangible role of the HR should not be divided simplistically, as they are the core threads that form the HR fabric of the firm. For this model to work, some links are needed to create a seamless HR function.

However, there are, as we described above, many different contexts within which this improvement would have to take place. Our view is that structurally detaching shared services from the rest of HR (e.g., through introducing cross-functional shared services or having reporting lines that bypass the HR director) or spatially separating shared services (through offshoring) or simply outsourcing shared services risks exacerbating the fragmentation of the service delivery model, creating too many separate silos of activity. This risk already exists even where shared service centers are physically proximate and structurally integrated. The threat is intrinsic to the original model since it deliberately seeks to split HR work into distinct categories of work, but introducing further forms of separation potentially makes matters worse. Moreover, many of these options (outsourcing, offshoring, and cross-functional sharing of services) mistakenly treat HR as if it is just another service function. Hewitt’s shared services study (2007) persuasively makes the point that such an idea is simplistic. It argued that there are many differences in HR work compared with that undertaken by IT and Finance, namely the personal and complex nature of

30

Peter Reilly

many of the interactions between service users and providers. Moreover, service volumes are much lower for HR than these other functions, making economies of scale less easy to achieve. This is especially true for contact centers where additional language costs may have to be factored in. HR work is also less rule bound than say Finance and IT; there are not always “right” answers, decisions can easily be contested. Culture and context can make a big difference to how HR approaches a problem and how customers react. And the more organizations worry about employee engagement, the more the application of HR policies will have to flex with individual circumstances. This puts a premium on interpretation and judgment skills for the HR community, especially if line managers have become more competent people managers. The more sophisticated the manager the more sophisticated the HR service will have to be. As Professor John Purcell has argued much of HR’s work is becoming more bespoke, especially advisory activity, despite attempts to standardize policies and practices (quoted in Chartered Institute of Personnel and Development, 2006). Dr. Vickie Cuplin (Director of Research at Ashridge Business School) agrees that the drive to process simplification fails to take account of human complexity: when dealing with people one has to recognize their variety and idiosyncrasy (talk to the HR Directors’ Business Summit, Birmingham, February 4, 2014). The automation of simple processes and manager/employee self-service, moreover, remove a lot of mundane tasks from work schedules, leaving the high value added activities to be undertaken by HR. When HR is treated like any other commodity in say business process outsourcing (BPO) or when HR is combined with other “service” functions into a joint shared service center, this denies these functional peculiarities or assumes that they can be minimized through clever IT solutions or greater process standardization. Again such a view sees the issue to be one of efficiency only, whereas we believe the pressure will be to deliver quality as much as cost in supporting 21st century managers and staff. In fact, offshoring (especially outsourced offshoring) has not grown as might have been expected or as predicted by some consultancy firms. The same is true of HR outsourcing: there are some big name deals and a lot of selective outsourcing of discrete processes (like occupational health advisory services, pensions, or training delivery), but no evidence of widespread BPO. The evidence is harder to assess with cross-functional shared services, but our sense is that it also happens only to a limited extent. If outsourcing, offshoring, and cross-functional integration are not the solutions to the problems described earlier, how can we ameliorate them in other ways? We will address this question primarily through looking at what internal shared services can do to connect better with the rest of HR.

Blur the Model — Structure and Roles One obvious solution to fragmentation is to blur the distinctions between roles and structures. To illustrate what we mean you could allow contact center staff to do

Managing Boundaries Better

31

more than deal with calls or pass them on if they are too complex. Instead, you could allow contact center staff to follow up issues raised. There are risks in this approach — that staff get dragged away from what are perceived to be their primary duties — but equally customers (and HR colleagues) do get aggravated by rigidity of the existing model: our alternative puts the customer need first. Rather than permitting such an approach on an occasional basis (for developmental or learning reasons) you could build it into the service delivery model. It worked well at a financial services company we researched where staff rotated between call handling, individual case management, and research on longer term issues arising from the calls received. Clearly such a way of doing things has an impact on staff selection for roles, implying that you would need more experienced and capable people to multi-task in this manner. Some organizations (in functions outside HR) have used so-called triage systems (adapting it from its origins in medical management) in contact centers to weed out the unimportant calls and escalate the serious cases quickly. Counter intuitively, this implies putting some of the best people on the front line. Plug Service Gaps To meet gaps in the service delivery model and the “polo problem” (Reilly & Williams, 2006) where operational support disappears down the hole in the middle between HR units, some organizations have made adjustments to the “pure” model. They have given a casework role to the shared service center. Time can be spent dealing with individual issues brought by line managers or employees but probably over the telephone. This is an easy adjustment to the model but can still mean a remote and ad hoc service. It does not provide a personalized or regular source of advice and guidance to line managers. So some organizations have introduced “delivery” units or HR delivery managers. These provide much more direct operational support. Often in this structure there are “mobile advisors” to meet managers face to face where the case is particularly complex or serious, and where help over the phone is insufficient. Clarify Accountability Given what we said earlier about unclear roles, defining accountabilities is imperative. Some organizations have formalized this through RACI models where accountabilities are formally specified. Figure 6 gives an example of how one HR function has used this approach. Choosing where to vest the principal accountabilities says a lot about the HR service delivery model — how customer needs will be met: primarily through the business partner or split between business partners and the shared service center? Who will call the shots in the new service delivery model? Shell, for example, gave the principal policy ownership to “process holders” in centers of expertise with clear accountability for delivery including for activities undertaken by the shared services operation. Other

32

Peter Reilly

Activity

HR Director

HR Executive Team

Centre of Expertise

Operational HR

Business needs assessment HR budget planning HR budget management Work prioritisation Policy design Policy implementation Service delivery Risk/compliance management HR communications HR staff management & development HR resource deployment HR IT strategy

Figure 6:

An example of a RACI model. Source: Reilly and Williams (2012).

organizations (e.g., SAB) make the business partner the accountable officer. The main point to make is that it is known which role holds ultimate accountability and ambiguities between the parties removed as much as possible. Moreover, using decision-making models such as this helps with defining accountabilities in sufficient detail that performance can measured against specification. Illustrating this point, SAP monitors how well the RACI “rules” are applied — whether accountability and responsibility, in particular, are being accepted. Especially where deviances are identifiable through actions reflected in data input (e.g., incorrect bonus sign-offs) these can be tracked and remedial action taken. Review Processes and Measure Performance Customers can get a better service if HR is faster, more consistent and accurate in what it does and more aware of good practice internally and externally. This means: ▪ improving connections between activities so that processes work better for users ▪ removing unnecessary tasks, especially those that duplicate activity or involve HR as a “postbox” ▪ reducing the number of process handoffs ▪ simplifying tasks ▪ measuring performance to check that standards are being met Technology has facilitated much of this change through automation or manager self-service or employee self-service. Organizations have also sought a change in attitude from HR so that it becomes more consumer than producer driven. Creating SLAs and monitoring against performance metrics has reinforced this mindset shift. Some organizations have applied process improvement methods like Lean or Six Sigma to optimize processes by removing “waste” and reducing error rates.

Managing Boundaries Better

33

All of this change is laudable as long as HR realizes that these processes usually owned by shared services offer only one part of delivering value to customers. Sending out recruitment offer letters quickly and accurately is important. However, the right people need to be recruited in the first place for the process to be successful. The failing in some organizations is that all that is measured is process efficiency. This is partly because measuring strategic contribution, quality of expert advice, or change management inputs is much harder to do, but it is also because the oversight of the activity is structurally segmented: shared services may get its part done well but is not responsible for the rest of the process. As practitioners know, the requirement to get the basics right precedes any ambition to be more strategic, but it is not sufficient on its own to transform HR. It can remove noise in the system, get customers on-side, hopefully release time and resources and legitimize HR’s desire for influence and impact, but further steps are needed. These involve defining where HR’s extra added value will come from and how it will be delivered. This contribution requires its own set of metrics, linked to the more transformational assessments.

Functional Leadership Against this background we require HR leadership to shape the change direction and deliver against its goals. We need a coherent vision of where the function is headed, rooted in an analysis of its current strengths and weaknesses, aligned with the business model and cognizant of customer preferences. The vision needs to balance cost and quality, and give due attention to the capability to deliver against this promise. Besides the vision, though, we need leadership to successfully transform the function. As we have suggested above, this requires a lot of skill, navigating between the different interest groups and squaring the efficiency versus effectiveness circle. It also has to get into the “weeds” of new structures, roles, reporting lines, job descriptions, etc. This suggests, as would be true of all good change programs, that leadership is not just at the top of the organizational tree, it has to be found throughout the function. So leaders at all levels must carry the vision with them and implement it with drive and sensitivity. How does HR appear to be meeting these requirements? There are obviously many examples of real leadership from HR directors or within the function. If one was being critical, however, the challenges in this area seem to come from: ▪ HR directors looking to manage the relationships more with their senior colleagues than involving themselves in functional matters. ▪ Relying too much on consultants for the design of the new model such that the leadership insufficiently understands what it has bought. Again this is particularly true when design is a standard product not adapted to the specific organization’s needs. At worst, this might mean that the HR director is buying the wrong

34

▪ ▪ ▪ ▪ ▪

Peter Reilly product or, marginally better, does not understand how it should be implemented and chooses to ignore the detail. Not appreciating technological opportunities or risks, over reliant on the views of those who may has a vested interest. Managing expectations of customers in the speed with which cost and quality benefits are realized (see Farndale & Pauuwe, 2008). A lack of engagement of the middle layer of HR managers who feel more “done unto” than “doing the change.” This is especially true of situations where external consultants are hired. Not trying to win the hearts and minds of the whole function. This may be because HR leaders are too remote from colleagues or from fears about upsetting them; it is just easier to present a fait accompli of change. Making assumptions about the capability (as well as willingness) of the HR team to deliver change and operate the service delivery model as intended.

None of these challenges is insurmountable: though change is not easy these sorts of obstacles can be overcome by clarity, persistence, and engagement. We suggest that part of the leadership focus should be on pulling the function together and orienting its actions to delivering business value and satisfying customer needs. Working through these requirements with staff is vital, but not just at high, purpose level, in the detail too — what are their jobs about, why do they exist, how will they relate to customers and other colleagues. The HR leader should be spelling out these necessities in the context of the functional vision. They should be bringing on board middle-level managers and team leaders, explaining and convincing them and their staff of the rationale behind the model.

Knowledge, Skills, and Experience Enhancement Informal communication can be vital in building organizational bridges and improved relationships that will link the different parts of HR together. This might mean encouraging visits between teams so that personal relationships grow and building “communities of practice.” More formal actions might include job rotation for short spells (e.g., absence cover) or longer assignments. Organizations have successfully encouraged those in the centers of expertise to experience time in the call center to get a better appreciation of the types of enquiries received. This helps them understand the context of referrals in the escalation ladder. Joint project work is another good way to encourage breadth of thinking such as including experts, business partners, and administrative staff in policy development so that all the angles (direction of travel, customer reaction, and implementation issues) are covered. Knowledge of what others in the team do can foster understanding of functional interconnectedness. Gaps can be tackled through formal classroom style training (internally or externally provided) or informal knowledge sharing sessions to discuss how to deal with nonstandard or new problems. RBS used “lunch and learn”

Managing Boundaries Better

35

sessions on specific topics. An electronic “chat room” for HR staff was a helpful feature at Telewest Communications that allowed questions to be posted and answers received where people were uncertain on company policy (Incomes Data Services, 2001). Sheep dip style training can be used to at least in part to remedy collective skill deficiencies. Thus a lack of commercial awareness or customer facing skills can responded can be dealt with through some group training. Colocation Some take the view that, while technologically possible to deliver services from a number of physical centers, this defeats a large part of the logic of having shared services. Without colocation optimum resourcing is likely to be difficult. More importantly for our argument on functional integration, colocation helps develop an esprit de corps that should generate common and improved service standards. Learning, knowledge sharing, and better communications can also be facilitated.

Conclusion Rereading Ulrich’s article from 1995 one is struck by the fact that while the emerging HR model he was describing with HR shared services at its heart did indeed distinguish between functional roles, and transactional from transformational activities. He was clear that HR needed teamwork and a process not a structural focus to deliver customer value. He acknowledged the risks of internal functional boundaries and noted the problems they caused, but in his mind they could be dealt with through teams working to a common purpose. In the nearly 20 years since publication, Ulrich’s ideas on role, content, and structure have become pervasive. However, we would argue that with respect to shared services that they have been corrupted. He was clear that shared services were not centralized services because they were to be defined by the customer and the process map he created started with defining user requirements (by the HR business partner) and delivering results to them (by HR shared services). What we have largely seen instead is a cost focus in the setting up of HR shared services to save money for HR, not an objective to deliver customer value or benefit the customer (albeit only indirectly in reducing organizational costs by a fraction). This does not contradict in three ways the evidence presented earlier of customer appreciation of better service delivery. Firstly, improved customer service, it could be argued, was a by-product not the driver of the launch of shared services: cost was that driver. Second, was it structural change that led to better service or processual improvement that could have happened without service consolidation? Third, have customers really appreciated the release of time and resource that HR transformation has promised either because HR has failed to make that strategic

36

Peter Reilly

contribution or because customers do not really understand what difference strategic HR might mean to organizational performance? We realize that we are somewhat over stating our argument and the situation is more varied and complex than we suggest. The reason for the exaggeration is to reinforce the point that Ulrich’s “horizontal process” that “begins with the customer and demonstrates that resources need to flow from the shared service to the customer” (1995, p16) has not often been used. At the level of setting shared service center KPIs to guide the function’s daily work this might be true, but in shaping the service delivery model in the first place we believe few organizations have been that customer centric; they have looked after functional interests first. Moreover, the attention of the HR business partner is directed to strategy and change and not so much as a broker of or deliverer of services to the customer (though we noted earlier that some organizations do have more of an account manager in this role). The consequence of these developments, as we argue in this chapter, is that team working has been replaced by functional separation; that this fragmentation has given users a disjointed service; and that boundaries between HR units have been an issue in preventing integrated service delivery. Ulrich’s confidence in collaboration, be it between members of internal HR or together with external suppliers, was in our view over optimistic. Some of the “solutions” to the potential problem of fragmentation, namely outsourcing, offshoring, and cross-functional shared service centers, have probably made matters worse by putting up contractual or spatial barriers to HR integration, while cross-functional sharing tends to assume that all support services are the same. We have argued that they are not. In addition, these solutions are intent on driving down costs at the point when HR should be emphasizing quality. Automation and process improvement techniques can and have improved efficiency. Empowering and upskilling line managers should lead to better people management. Taken together these two developments should leave HR responsible for the more complex operational work or where the greatest organizational risk seems most apparent. In this context the next generation of shared service centers will be judged on their ability to deal with more challenging tasks — effectiveness not efficiency will be king. The difficulties we have described in successfully operating shared services in part stem from HR’s weakness — being seen as a corporate overhead to be pared back not a value adding function. And some of the problem comes from HR’s reaction to this diminution in importance. It has tried to emphasize its role in change, strategy, and organizational governance that means it is not just a servant to the (management) master but an equal partner in business. This has led naturally to the bifurcation of its role: a service function and a strategic function. These do not easily go together and do not follow the simple process model Ulrich offered. Not explaining sufficiently this duality to itself and particularly to customers and confronting the consequences goes some way to explaining why the criticisms of HR performance continue to be heard, despite much endeavor and some success.

Managing Boundaries Better

37

References Booz Allen, H. (2000). Getting shared services right: Capturing the promise. Bramson, R. N. (2005). A sequel to shaking up the state workforce, an HR shared services model. IPMA News, January. Chartered Institute of Personnel and Development. (2006). The changing HR function: The key questions. Cooke, F. L. (2006). Modelling an HR shared service centre: Experience of an MNC in the UK. Human Resource Management, 45(Summer), 211 227. Deloitte Consulting. (2005). Global HR transformation. Eisenstat, R. A. (1996). What corporate human resources brings to the picnic: Four models for functional management. Organizational Dynamics, 25(2), p. 19. Farndale, E., & Pauuwe, J. (2008). Restructuring the HR function: HR shared service centres in the Netherlands. In G. Martin, M. Reddington, & H. Alexander (Eds.), Technology, outsourcing and transforming HR. Oxford: Butterworth Heinemann. Hewitt. (2007). HR shared service centres: Into the next generation. Hird, M., Marsh, C., & Sparrow, P. (2009). HR delivery systems: Re-engineered or over engineered? CPHR White Paper No. 09/05. Lancaster University Management School. Huselid, M., Jackson, S., & Schuler, R. (1997). Technical and strategic human resource management effectiveness as determinants of firm performance. Academy of Management Journal, 40, 171 188. Incomes Data Services. (2001). HR service centres. Report No. 707, April. Lawler, E., Boudreau, J. W., & Mohrman, S. (2006). Achieving strategic excellence. Palo Alto, CA: Stanford University Press. Lentz, S. S. (1996). Hybrid organization structures: A path to cost savings and customer responsiveness. Human Resource Management, 35(4), p. 454. McLean & Company. (2013). Implement HR shared services: Lay a foundation for HR customer service excellence. McWilliams, B. S. (1996). Have you considered insourcing? Across the Board, 33(10), 31 34. Meijerink, J., & Reilly, P. (2010). Shared services: Going Dutch. People Management, September 30. NHS Confederation. (2010). QIPP national workstream: Back office efficiency and management optimisation. PricewaterhouseCoopers. (2006a). HR shared services index 2006 for 30 companies in the United Kingdom and Europe. PricewaterhouseCoopers. (2006b). Key trends in human capital: A global perspective — 2006. PricewaterhouseCoopers. (2008). Managing people in a changing world: A global perspective — 2008. Reilly, P., Tamkin, P., & Broughton, A. (2007). The changing HR function: Transforming HR? London: Chartered Institute of Personnel and Development, Research into Practice. Reilly, P., & Williams, T. (2006). Strategic HR: Building the capability. Aldershot: Gower. Reilly, P., & Williams, T. (2012). Global HR: Challenges facing the function. Aldershot: Gower. Russell, R., & Harrop, D. (2005). Staffing the human resources function. Retrieved from www.rsmmcgladrey.com Seddon, J. (2003). Freedom from command and control: A better way to make the work work. New York, NY: Vanguard Press.

38

Peter Reilly

Society for Human Resources Management. (2010). Shared services and centers of excellence SHRM Poll (On-line presentation). Retrieved from http://www.shrm.org/research/surveyfindings/articles Sparrow, P., Hird, M., Hesketh, A., & Cooper, C. (2010). HR Structures are they working? In P. Sparrow, M. Hird, A. Hesketh, & C. Cooper (Eds.), Leading HR. Basingstoke: Palgrave Macmillan. Storey, J. (1992). Developments in the management of human resources. Oxford: Blackwell. The Hackett Group. (2007). Shared services can reduce HR process cost cuts by up to 80%; while driving improved satisfaction, productivity, and quality. Research Alerts & Press Releases, January 30. Tyson, S., & Fell, A. (1986). Evaluating the personnel function. London: Hutchinson. Ulrich, D. (1995). Shared services: From vogue to value. Human Resource Planning, 18(3), p. 16. Ulrich, D. (2007). The twenty-first-century HR organization. Workforce Management, 10(December), 40 44. Weatherly, L. A. (2005). HR technology: Leveraging the shift to self-service it’s time to go strategic, SPHR, March. Retrieved from www.shrm.com/KnowledgeCenter/research

Chapter 3

Shared Services — Standardization, Formalization, and Control: A Structured Literature Review Tanya Bondarouk and Christina-Maria Friebe

Abstract Purpose — The purpose of this study is to offer an integrated literature review of shared services’ organizational structures by specifically focusing on centralization, specialization, control, and formalization mechanisms. Methodology/approach — A sample consisting of 103 empirical and conceptual articles, identified in a structured literature search in Science Direct and Scopus, was analyzed. The focus was on exploring the structural dimensions of shared services in various fields: Supply Chains, Finance, Human Resource Management, and Information Technologies. Findings from the selected articles were codified alongside the structural dimensions drawn from contingency theory. Findings — Most of the papers identified were concerned with the Human Resource function or with Accounting and Finance in the private sector. Purchasing was only mentioned in a few general articles and Marketing not represented at all, even though the literature suggests that shared services do exist in this field. This uneven distribution across fields, as well as the reality that many articles fail to make clear divisions between disciplines, is hardly conducive to identifying trends for individual disciplines, and only general trends for each dimension could be identified. Although centralization was one of the most discussed dimensions, there was no consensus as to whether shared services should be centralized or decentralized. Standardization and formalization were both found to be highly important, although a need for customization was also emphasized.

Shared Services as a New Organizational Form Advanced Series in Management, Volume 13, 39 65 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1877-6361/doi:10.1108/S1877-636120140000013003

40

Tanya Bondarouk and Christina-Maria Friebe

Implications — Future research should be oriented toward the structural dimensions of shared services in a broader range of fields as current findings are dominated by the Human Resource function. Another implication of our findings is that scholars could usefully test empirically the dimensions, especially those where opinions differed the most: centralization and specialization. Originality/value — Earlier conceptualizations noted that the mixed shared service outcomes stem from the diversity in governance and several contingency factors. This work continues the exploration of the contingency factors and mechanisms that, through integration, allow shared services to respond to the environmental uncertainty. The value of this chapter is in examining the structures of different functional types of shared services that are reported as successful in the literature, thus offering an overview of best practices in organizing shared services. Keywords: Shared services; shared service center; organizational structure; centralization; standardization; control; formalization

Introduction In this chapter, we continue the discussion on the structural arrangements of Shared Service Models (Bondarouk, 2011; Maatman, Bondarouk, & Looise, 2010). It is widely acknowledged that existing studies elaborate on a three-dimensional (efficiency — effectiveness — HR services improvement) value proposition of Shared Services. It has been conceptualized that the range of shared service outcomes reflects the diversity of governance structures, that themselves rest on several contingency factors, and that therefore one should address mechanisms designed to reduce uncertainty within an intra-organization HRM model (Bondarouk, 2011). These mechanisms are viewed in terms of the classic contingency factors (coordination, control structures, and task interdependencies) that in their integration respond to environmental uncertainty (Luke, Block, Davey, & Averch, 1973). When addressing Shared Service Models, the literature often focuses on the Human Resource (HR) function, despite other fields such as Finance and Purchasing also introducing Shared Service Centers (SSC) (Bondarouk, 2011; Farndale, Paauwe, & Hoeksema, 2009; Maatman et al., 2010). By identifying trends, as well as differences, in organizing shared services in different domains — for example in terms of standardization, centralization, or control — one can nuance ideas and recommendations for future shared services and related research. To this end, we provide an integrated literature review that deepens knowledge about shared services by focusing on their organizational structure and synthesizing the findings dispersed across various fields.

Shared Services — Standardization, Formalization, and Control

41

Organizational Design of Shared Services The organizational design or structure of shared services has been defined in terms of three components (Daft, 2010, p. 56). These are: (1) formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors; (2) the grouping together of individuals into departments and of departments into the total organization; and (3) the design of systems to ensure effective communication, coordination, and integration of efforts across departments. Friebe (2013) broke down the organizational structure and presented it in terms of different characteristics, or structural dimensions, which vary throughout the literature (James & Jones, 1976; Khandwalla, 1973). Starting in the late 1950s and continuing until the 1970s, the focus in organizational research was on structural issues (Scott, 1975) and, therefore, the literature from that period is relevant for this review. Indik (1968) discerned organizational structure in terms of 10 variables: size, span of control, number of hierarchical levels, authority structure, communication structure, degree of task specification, degree of task interdependence, task specialization, status and prestige structure, and physical distance between decisionmakers and operating levels (James & Jones, 1976, p. 79). In the same year, Pugh, Hickson, Hinings, and Turner (1968) defined general dimensions of the organizational structure: specialization (the degree to which tasks are divided between positions, compared with standardization that concerns the use of determined procedures and formalization that refers to the extent that these procedures and rules are written down); centralization (the decision-making style of an organization: whether it remains with top management (centralized) or is located at lower levels (decentralized)); and configuration (role structuring within the organization and the number of hierarchical levels). One can observe that some of Indik’s (1968) dimensions, such as span of control and hierarchical levels, are here combined in the configuration dimension, while interdependence is not part of Pugh et al.’s (1968) dimensions. Based on the study of Pugh et al. (1968), James and Jones (1976) proposed seven different dimensions: total organization size, centralization of decision-making and authority, configuration, formalization, specialization, standardization, and interdependence. Here they reintroduced interdependence, referring to the degree of “interdependence and autonomy with respect to intra-organizational functions” (p. 82). Mintzberg (1980) discussed nine organizational design dimensions: job specialization, behavior formalization, unit grouping, unit size (span of control), vertical diversification, horizontal diversification, training and indoctrination, liaison devices, as well as planning and control systems. Whereas the first six dimensions had already been identified, albeit under slightly different names, the last three dimensions had not been used by other authors. Training and indoctrination refers to the education of the employee, with the aim of standardizing skills and knowledge. Liaison devices are “the means by which the organization encourages mutual adjustment across units” (p. 326). Planning and control concern the standardization

42

Tanya Bondarouk and Christina-Maria Friebe

of outputs by either predetermining the output or controlling the outcome afterwards, for example, through performance measures such as sales growth (Bowers, 1964). Eisenhardt (1985) adds to the importance of the control aspect by stating that organizations can be designed through control variables, rather than organizational structure dimensions, thus offering two control strategies: performance-based or social-based (Sorensen & Baum, 1975; Tannenbaum, 1961). With performancebased control, either the behavior itself or the outcome of the behavior is measured, whereas social control aims to achieve organizational goals through cooperation and can be achieved, for example, through selection and training. These studies heavily focussed on structural dimensions, and it took later research for scholars to become aware that the dimensions are contextually bounded, that they have to fit with the situation, and in this way the concept of contingency factors became established (Mintzberg, 1980). Daft (2010) pulled together the literature on the structural dimensions and distinguished structural and contextual dimensions that shaped the design of organizations. The structural dimensions focus on the “internal characteristics of an organization” (Daft, 2010, p. 14) whereas the contextual dimensions focus on the organization as a whole. The former were seen as including six variables: formalization, specialization, hierarchy of authority, centralization, professionalism, and personnel ratios. The latter of five: size, organizational technology, environment, goals and strategy, and culture. In configuring the organization, the structural dimensions need to be combined but with the underlying assumption that there is no single best way of organizing (Galbraith, 1973). Different configurations lead to different outcomes, and even the same configuration may have varying effects depending on the contextual dimensions and contingency factors (Tushman & Nadler, 1978). The essence is, with the help of the dimensions, to design the organization in such a way that it performs well (Daft, 2010). Dalton, Todor, Spendolini, Fielding, and Porter (1980) reviewed empirical studies into the effects of organizational structure on performance and concluded that the relevant literature is highly ambiguous and that general conclusions could not be drawn. An inverse relationship was found between size and performance at the subunit level whereas, for the total organization, no clear relationship could be identified. Both Herbst (1957) and Revans (1958), in three studies, found that medium-sized firms performed better than both small and large firms. However, five later studies (Bidwell & Kasarda, 1975; Corwin, 1970; Mahoney, Frost, Crandall, & Weitzel, 1972; Reimann, 1975; Reimann & Negandhi, 1976; Revans, 1958) failed to identify a relationship between size and performance. Size has also been suggested to have an effect on absenteeism (Dalton et al., 1980), albeit with a positive relationship between total size and absenteeism found in only one study (Ingham, 1970). However, nine cited studies found a positive correlation between subunit size and absenteeism (Acton Society Trust, 1953; Baumgartel & Sobol, 1959; Hewitt & Parfit, 1953; Indik & Seashore, 1961; Kerr, Koppelmeier, & Sullivan, 1951; Metzner & Mann, 1953; Revans, 1958), adding credence to the suggestion. In terms of there being a relationship between administrative density

Shared Services — Standardization, Formalization, and Control

43

(ratio of administrative workers to production workers) and performance, there are mixed findings: of seven reviewed studies, six using a manufacturing sample and one investigating school districts, four (Delehanty, 1968; Hildebrand, Liu, & Liu, 1965; Holland, 1963; Pondy, 1967) reported a positive relationship and three (Bidwell & Kasarda, 1975; Melman, 1951, 1956) an inverse one. In considering size as a contingency factor, Child (1974b) suggested that, with increasing size, formalization needed to increase in order for the organization to perform well. The author showed that the relationship between formalization and performance was moderated by organizational size: small organizations became more effective one year later with low formalization, whereas the opposite was true for large organizations (Child, 1975). Other findings related to contingency factors show that both matching control and support structures to a firm’s technology as well as adapting administrative structures to employee needs increase organizational performance (Child, 1974b). Child (1974a) found, in a sample of British organizations, that the environment influences the relationship between formalization and performance, with a positive association in fairly stable environments and a negative one in varying environments. An overview of the dimensions used in these studies with their respective definitions is presented in Table 1. A recent study by Meijaard, Brand, and Mosselmann (2005) investigated the relationship between organizational structure and performance in small Dutch firms. They concluded that strong decentralization can lead to high performance across a range of sectors including business services and manufacturing, but the same was also true for centralization. Centralization in combination with a strong hierarchy plus specialization was found to deliver high performance in terms of achieving growth. The same was concluded for hierarchical, formalized organizations with decentralized decision-making and specialized employees, especially in financial services and manufacturing. Strong specialization was generally associated with larger firms. Overall the authors concluded that small firms have diverse structures and that various organizational configurations perform equally well in the same contextual setting, especially when considered over the longer term. The range of effects that the organizational design can have emphasizes the importance of considering the various individual dimensions when investigating the design of organizations. As claimed by Daft (2010) and apparent from this review, structural and contextual dimensions provide much information about organizations and the differences between them. Consequently, they are used as a basis for analyzing the organization of shared services in the remainder of this chapter.

Article Selection The initial article base was created by entering the key search words “shared services” and “shared service center/centre” into Scopus and Science Direct. Figure 1 indicates that typing “shared services” as a key word into Scopus led to 2614 hits.

44

Table 1: An overview of structural and contextual dimensions considered in shared service models (Friebe, 2013).

Dimension

Contextual Definition

Refers to the location of decision making, whether it remains with top-management (centralized) or takes place at lower levels (decentralized) Hierarchy of authority Reporting relationships and span of control per manager

Centralization

Dimension Environment

“all elements outside the boundary of the organization” (Daft, 2010, p. 17)

Goals and strategy

“purpose and competitive techniques that set it apart from other organizations” (Daft, 2010, p. 17) “underlying set of key values, beliefs, understandings, and norms shared by employees” (Daft, 2010, p. 17) The way inputs are transformed into outputs by means of tools, techniques, and actions

Standardization

Use of predetermined procedures

Formalization

Extent that rules and procedures are written down Standardization of outputs by Organizational predetermining outcome or by technology controlling performance and/or outcome Concerns the level of training and Interdependence education of employees, usually before entering the firm Extent of task division between positions Distribution of employees across Size functions and departments

Control

Professionalism

Specialization Personnel ratios

Definition

Culture

Degree of dependence between organizational units

Size of the organization, measured, for example, by the number of employees

Tanya Bondarouk and Christina-Maria Friebe

Structural

Shared Services — Standardization, Formalization, and Control

“shared services” 2614

“shared service center” 78

language

language

77

subject

32

2516

subject 116 key words

“shared services” 1134

topic

35

“shared service center” 146

topic

14

47 Science Direct

Scopus Duplicate removal

Figure 1:

45

103

Data collection: search scheme (Friebe, 2013).

Applying the language filter, and excluding all languages apart from English and German, reduced the hits to 2516. Using the subject filtering option and thereby limiting results to “Business, Management, and Accounting” reduced this dramatically to 116 hits. Next, a key word filter was employed, restricting the results to “Organization and Management,” “Shared Service,” and “Shared Services,” decreasing the number of hits to just 47. The exercise was then repeated using Science Direct and an initial base of 1134 hits was achieved. Adding a topic filter, limiting results to “Shared Service,” “Business Unit,” and “Service Unit,” reduced this to 35 hits. A second search term “shared service center” was then tried in both indices. This led to 78 initial hits in Scopus, and the language and subject filters reduced this to 32. With Science Direct, this second search resulted in 146 hits and after applying a topic filter, limiting results to “shared service” and “service center,” 14 hits remained. Using the complete reference information, duplicated entries were excluded, resulting in a total of 103 potential articles for our analysis. The titles and abstracts of the publications were scanned for the abovementioned key words and independently judged for their relevance by three researchers. Full agreement on relevance was achieved for 48 articles, and these formed our preliminary sample (Figure 2). Unfortunately, full texts could not be accessed for all of them, reducing the sample to 44. Given the focus of the review, the introductions as well as discussions and conclusions of all remaining articles were then examined, leading to the exclusion of a further 19 articles. The citations of the residual articles were then reviewed, identifying another 54 potentially relevant articles, of which 21 could not be readily accessed. Again, introductions, discussions, and conclusions were examined and 17 irrelevant articles excluded as they did not cover issues related to organizational structure. The resulting combined sample of 43 publications were reviewed based on the full text leading to the exclusion of a further 10, either because they lacked elaboration of the dimensions used or were a pure review, resulting in a final sample of 33 articles. To avoid a bias in the sample due to the exclusion of inaccessible publications, the abstracts of these were checked as to whether they were concerned with organizational design and could have led to other conclusions. Although only 50% of the abstracts were available, most of them did not cover the topic in question.

46

Tanya Bondarouk and Christina-Maria Friebe

Potentially relevant articles = 103 Exclusion based on title/abstract Articles for further review

48 Full text not accessible

Articles for further review

55

4

44 Exclusion after review of Introduction, Discussion and Conclusion 19

Articles for further review

26

Back referencing = 54

Not accessible

21

Excluded after review of Introduction, Discussion and Conclusion 17 Articles for further review

43 Exclusion based on full text 10

Final selection = 33

Figure 2:

Article selection process (Friebe, 2013).

Naturally, for the rest, no judgment can be made so a sampling bias cannot be completely excluded. However, as these articles were all referenced in at least one of the reviewed articles, it is likely that any controversial findings would have been noted. The identified dimensions listed in Table 1 were used as codes to classify the literature. To ensure a comprehensive overview, a concept matrix was used in which one axis lists the codes and the other the articles that addressed that topic (Webster & Watson, 2002). While reading the full texts, notes were taken concerning the topics covered in the article, classified by the dimensions. An article was only included for a specific dimension if the topic was covered in the actual research of the study, and not if the dimension was simply mentioned in the introduction or review part of the paper. Figure 3 shows the frequencies with which the dimensions occurred, that is, the number of articles addressing that specific topic. For example, 20 articles considered goals and strategy, whereas interdependence was only covered in 3 articles.

Shared Services — Standardization, Formalization, and Control

Figure 3:

47

Frequency of occurrence of dimensions (Friebe, 2013).

In the second phase of the reading process, significant citations for each code related to the identified dimensions were noted as a basis for the integration and synthesis of the literature. In addition to the classification of articles based on the dimensions addressed, the field or discipline of the shared services in question was also noted to provide an overview of the fields covered and to see if specialties arose in specific fields. .

Findings: Organization of Shared Services Centralization Whereas Becker, Niehaves, and Krause (2009) find evidence that SSCs can be either centralized or decentralized, depending on whether the services were centralized or not prior to the SSC being established, several other authors report evidence only for centralization or for a mixture of both. Pengluo (2011) notes that, with shared services, activities formerly decentralized across business units become centralized in one center. Cooke (2006) adds that a centralization of administrative processes helps HR professionals to focus on strategy. Centralization has been claimed as necessary to achieve the goal of shared services of achieving economies of scale (Borman, 2008, 2010). A centralized implementation was favored by managers in the Dutch governmental sector because the implementation of an SSC was seen as complex, and that it would not be possible to standardize the ICT system, and other aspects, in a decentralized approach (Wagenaar, 2006). However, this author also argued that decentralization may still be necessary as management cannot focus on the whole organization and that individual adaption needs to reflect the context,

48

Tanya Bondarouk and Christina-Maria Friebe

which requires a certain degree of decentralization. It has been argued that the position regarding centralizing or decentralizing is not static, but can be adapted over time depending on the decision that needs to be taken, for example, about the use or scope of the SSC. While Meijerink and Bondarouk (2013) found evidence of an HR SSC that centralized HR activities but retained decentralized control, Janssen and Joha (2006) had not in their case study of a public sector ICT SSC. Ulrich (1995) even questioned the relevance of the debate on centralization versus decentralization in shared services, viewing shared services as a horizontal process and not a vertical one. Some authors have however seen a mix of centralization and decentralization as the outstanding feature of shared services. The benefits of both can be realized by creating a centralized unit to achieve economies of scale, but retaining an ability to react to local customer needs (Farndale & Paauwe, 2008). This is also referred to as the “hybrid approach” (Selden & Wooters, 2011, p. 352).

Hierarchy of Authority In terms of reporting relationships, we found little support for Ulrich (1995) who stated that hierarchical power is not that important for shared services. He argued that the organization of processes is more important than who is the leader because processes add value and teamwork is required for an HR SSC. Legare and Bechtel (2001) failed to find support for this view in SSCs in several fields. Rather, they found that several levels of committees were introduced in the implementation, ranging from the executive level providing direction and strategy to the support team managing the actual implementation and reporting results back to the executive committee. Rothwell, Herbert, and Seal (2011), in contrast, report a very flat hierarchy with broad spans of control.

Formalization Formalization has generally been found to be high in SSCs, and established through Service Level Agreements (SLAs): a contract between an SSC and business units specifying all kinds of processes such as the provision of services and the charges for, or the performance measurement of, the executed services (Davis, 2005; Legare & Bechtel, 2001). Key Performance Indicators (KPIs) are another approach to detailed measure performance of both individuals as well as the whole SSC (Howcroft & Richardson, 2012). Farndale and Paauwe (2008) and Farndale et al. (2009) found that most organizations in their sample use an SLA, with nearly as many SSCs establishing individual SLAs with the different organizational units as using a common SLA across all business units. While formalization is supposed to reduce the ambiguity of expectations (Reilly, 2000), a lack of proper documentation understanding and involvement of the user can lead to problems in delivering the services (Ulbrich, 2006) and to dissatisfaction with the services (Janssen & Joha, 2007).

Shared Services — Standardization, Formalization, and Control

49

Standardization Throughout the literature identified, standardization was reported as a key feature of shared services and one of the main reasons for establishing shared services in the first place. This was because it was seen as achieving many desired objectives such as maximum efficiency, customer satisfaction, and cost savings through economies of scale (Borman, 2010; Farndale & Paauwe, 2008; He & Cao, 2009; Wagenaar, 2006). Farndale and Paauwe (2008) argue that what will be standardized in an SSC needs to be decided in advance of its implementation. Different forms of standardization are presented, for example, process, IT, and personnel standardization (Knol, Janssen, & Sol, 2013). Howcroft and Richardson (2012) differentiate between KPIs and SLAs as types of standard, the former as an internal measure of workers’ performance, the latter defining which services are provided, as already outlined above. Meijerink and Bondarouk (2013) reported that HR standardization led to employees being more willing to move between units because of the equal compensation on offer. Even though standardization plays an important role, and is necessary to keep control and coordination (Howcroft & Richardson, 2012), not all authors argue for full standardization. Wagenaar (2006) argues that customized services still need to be delivered and that even though standardized tasks are easier to transfer to an SSC, because they are unrelated to departments, less standardized and more specific tasks, such as legal research, can also be executed more efficiently by an SSC. Strikwerda (2006) adds that providing innovative services to increase customer value results in a trade-off between standardization and differentiation. Howcroft and Richardson (2012) support this view, arguing that, besides standardized tasks, “highly qualified and culturally sensitive capacities” (p. 117) are needed. To address this trade-off, Strikwerda (2006) found SSCs with two sets of operations: one for standardized services and one for the more specialized tasks.

Control Howcroft and Richardson (2012) found that SSCs, despite their decentralized features, are centrally controlled from a distance through defined performance targets. Maatman et al. (2010) state that although SSCs should logically be controlled by the business units, through the customer provider relationship, some organizations retain control at the top. Reilly (2000) found that the quality of services could be monitored internally, for example, in terms of timelines and accuracy, but with some organizations using customer-satisfaction checks as an external control. According to Davis (2005), the SLA defines the performance measurement of an SSC, with specific KPIs that many organizations check on a monthly basis. Strikwerda (2006) agreed, and even found evidence of daily monitoring of the metrics. The same metrics could be applied across regions for benchmarking purposes (Davis, 2005). However, Howcroft and Richardson (2012) identified problems with using standardized metrics for employee performance across countries because cultural differences led to varying use and interpretation of measurements.

50

Tanya Bondarouk and Christina-Maria Friebe

In HR, formal control plays the main role, with customers focused on output control through SLAs and satisfaction surveys, although the role of informal controls cannot be ignored given the interdependency of the SSC and the customer (Meijerink & Bondarouk, 2013). Amiruddin, Aman, Auzair, Hamzah, and Maelah (2013) found social, behavioral and outcome controls to be prevalent in a bank’s SSC: social controls through shared norms and values; behavioral controls accomplished by processes and policies governing staff behavior; and outcome controls achieved through KPIs and SLAs. Social control was found to be effective in moderating relational risks, while output control could secure the quality of service delivery. Behavioral control was added to output control when output measurement would be ambiguous due to unknown customer expectations. Problems with the outputs were also found by Burns and Yeaton (2008) with customers critical of the reliability of the measures. In a study in the public education and training sector, the most common metrics identified were cost savings, effectiveness, and customer satisfaction. Herbert and Seal (2012) identified two types of controls in shared services: inhouse management and market control, with the measurement of performance embedded in the organizational culture. In line with this, some organizations had aligned employee compensation with the performance measurement as an incentive for cost efficiency (Davis, 2005). Borman (2010) found a strong reliance on performance measurement as a means of control, its use ranging from taking the SSC as a whole down to the level of individual employee contribution. This detail of measurement is enabled by technology that can break the results, accessible through databases, down to the desired levels (Howcroft & Richardson, 2012). Legare and Bechtel (2001) found measures of customer satisfaction and of both financial and operational performance being used in their case study of private sector SSCs. Wagenaar (2006) approved of these types of measurement, arguing that a pure product orientation is insufficient in performance measurement and needs to be supplemented with additional measures such as stakeholder satisfaction. Ulrich (1995) also supported this by identifying two control areas: customer value and the cost of HR services. The former was achieved through customer satisfaction measurements and the latter through productivity measures. He emphasized the need to create measures before establishing an SSC so that one could benchmark the metrics against prior performance to establish whether HR delivery had genuinely improved.

Professionalism Research by Farndale et al. (2009) indicated that the competences of the SSC staff constitute the most critical success factor. While this finding might seem selfevident, the outcomes regarding professionalism in other studies are mixed: some argue that only low-skilled workers are required, others call for highly skilled specialists. Nasir, Abbott, and Fitzgerald (2011) and Rothwell et al. (2011) found that a variety of competences are needed, depending on which function an employee

Shared Services — Standardization, Formalization, and Control

51

takes on. Technical, business, and customer service skills may be necessary, for example, an IT-based system requires technical knowledge, whereas involvement in direct customer contacts calls for experience in customer service. Ulrich (1995) identified HR professionals as filling the key roles in an HR SSC since excellent HR skills and experience were needed given the interface role with the business. Redman, Snape, Wass, and Hamilton (2007) add that HR staff need networking and self-promoting skills. Meijerink and Bondarouk (2013) found evidence of a knowledge gap, with employees having specialized functions prior to the SSC being formed and not being retrained to fill the general functions of the SSC. Howcroft and Richardson (2012) argue that employing the right people is a challenge for SSCs, because the work is often routine leading to dissatisfaction among expert and experienced staff. To avoid high turnover rates, low-skilled workers are employed (Cooke, 2006). Standardization enables everyone to take over a task, even without experience, through job rotation. Teams are then not used to increase the knowledge base but, on the contrary, level out individual skills and education, allowing for the “complete interchangeability of labor” (p. 119).

Specialization Administrative services are generally considered as tasks for generalists, as the tasks are routine and standardized. In comparison, professional services, due to their more strategic and operational characteristics, require specialists who are better able to apply best practices in their area of expertise. Often these tasks are transferred to a special “center of excellence.” Ulrich (1995) further divides professionals into HR professionals, HR business professionals, and corporate HR professionals. The first group being generalists, who take care of the quality of work, the second being less generalistic and giving advice to managers, and the final group focusing on operational tasks to achieve efficiency. Farndale et al. (2009), in a study of HR SSCs in the Netherlands, also distinguish between three levels: self-service workers, HR specialist advisors, and corporate HR experts. The first level is made up of administrative assistants and call agents. In the Netherlands, unlike in the United States where these employees only answer standard questions, they may take on advisory roles. To increase the task spectrum of these employees, job rotation was used and back-office employees and staff dealing with customer services were trained in each other’s tasks. Staff on the other two levels also took on roles from each other, hence reducing specialization. Reilly (2000), again in a HR context, also found generalists being employed in the administration tasks, with support from some experts in specific areas. However, he also found some organizations preferring full specialization or, as an alternative to achieve a balance, all-rounders being employed but each developing expertise in one area. The use of generalists to achieve flexibility alongside the development of specialists was also reported by Borman (2010) for governmental agencies. Meijerink and Bondarouk (2013) found a desire for generalists but, due to lacking employee skills, specialist functions eventually being assigned. He and Cao (2009) and Legare and Bechtel (2001) saw

52

Tanya Bondarouk and Christina-Maria Friebe

a development from routine and basic activities through to more challenging tasks, especially in developing strategies and in strengthening cooperation with customers, and, with this, new task divisions being established between employees. Personnel Ratios Little has been written about personnel ratios in shared services. Pengluo (2011) suggests that for organizations to establish shared services, a higher proportion of employees needs to work in high cost regions rather than in low cost regions, and that management staff must outweigh clerks. Empirical findings based on 15 HR SSCs by Farndale et al. (2009) show that, on average, 42% of SSC staff work in administrative roles, 28% in specialist roles, and only 7% as HR experts. Of the remainder, 13% were managers and 10% in support functions such as technicians or secretaries. This finding is consistent with an earlier study, where the majority of staff were also found to work in administrative tasks rather than with the customer (Farndale & Paauwe, 2008).

Reflection on the Structural Dimensions Centralization, professionalism, and specialization have been discussed without achieving consensus as to whether these should be on high or low levels, or a mixture of both. In comparison, most authors agree that high standardization, high formalization, and strong control mechanisms are crucial for successful shared services. The hierarchy of authority and personnel ratios are aspects that are hardly mentioned in the literature. One would expect the structural findings to be explained by the contextual findings, as contingency theory argues that the latter have a shaping influence on the former. In line with Wang and Wang (2007), we found little literature addressing the environment of SSCs. Selden and Wooters (2011) found three statistically significant environmental factors in public sector HR that influence the implementation of SSCs: “the institutional power of the governor, the percentage of political appointees in the executive branch, and the percentage of state employees covered by a collective bargaining agreement” (p. 363). Whereas the first two factors positively influenced the adoption of shared services, the last had a negative influence. That is, the more unionized the employees, the less likely shared services are to be implemented. Aksin and Masini (2008) referred to the environmental heterogeneity and environmental dynamism of the parent organization as influencing the decision to establish shared services and what kind of shared services: for example, a homogeneous environment encourages standardization and a focus on SSC costs. Borman and Janssen (2012) identified three critical success factors concerning the characteristics of the operating environment, all of which were absent in their public sector case study: a unified organization structure, flexibility concerning the geographical organization and provision of services, and a timely approval and review process.

Shared Services — Standardization, Formalization, and Control

53

Knol et al. (2013) state that it is important to align the strategy of an SSC to the parent organization if one is to be successful in the long term, and that a choice needs to be made between innovating and improving quality on the one hand, or focusing on costs. Earlier, Strikwerda (2006) argued that shared service goals should be developed from the corporate strategy because SSCs are implemented to improve the performance of the whole company and not just of the services shared. Farndale et al. (2009) support the view that SSCs should be aligned with the corporate strategy and found that the two most important objectives for an HR SCC should be having a customer orientation with improved professionalism plus reorganizing the HR function to focus more on the customer. These objectives were followed by improving quality, reducing costs, improving control of HR processes, and standardizing HR practices. Farndale and Paauwe (2008) saw standardizing HR processes as the main driver of SSC implementation, followed by improving the quality of HR data and achieving standardized, consistent, and transparent HRM practices. Most of the studies we reviewed presented similar shared service goals as Farndale and Paauwe (2008) and Farndale et al. (2009): namely, improving customer services (Burns & Yeaton, 2008; Cooke, 2006; Goh, Prakash, & Yeo, 2007; Janssen & Joha, 2006, 2007; Pengluo, 2011; Selden & Wooters, 2011); reducing costs, for example, by achieving economies of scale (Borman, 2010; Burns & Yeaton, 2008; Davis, 2005; Goh et al., 2007; Pengluo, 2011; Selden & Wooters, 2011; Wang & Wang, 2007); focusing on the core business (Janssen & Joha, 2006, 2007; Pengluo, 2011); and/or improving efficiency and effectiveness, for example, through standardization (Burns & Yeaton, 2008; Janssen & Joha, 2006, 2007; Miskon, Bandara, Gable, & Fielt, 2011; Selden & Wooters, 2011). Ulbrich (2006), however, claimed the four most often named objectives to be: cost savings, consolidation of intellectual and capital assets, a center of excellence focusing on the customers and processes, and the possibility to make use of new technology. Other goals mentioned include risk sharing, quick decision-making, and increased experience and expertise (Janssen & Joha, 2006, 2007). In the public sector, Borman and Janssen (2012) and Becker et al. (2009) found efficiency savings to be the most important goal although politics, for example, concerning employment, needed to be taken into account. According to Wang and Wang (2007), other possible goals are reducing costs, providing more services, and sharing knowledge with SSC partners. Ulrich (1995) emphasized customer satisfaction as the most important SSC objective. Legare and Bechtel (2001) saw shared services, when established in a market model, as a means to offer customer services at market prices and to benchmark the services against external suppliers. To build shared values, it is necessary to share information across the organization: to communicate with all those involved in the SSC to define the image of the organization (Ulrich, 1995). This is essential with an HR SSC because, if HR professionals share a mind-set, then there is a good chance that their customers experience a similar mind-set. Howcroft and Richardson found the key values in an SSC to be “Honesty, Passion, Collaboration, Winning and Enjoyment” (2012, p. 119), but what initially appeared to be a team culture was actually competition,

54

Tanya Bondarouk and Christina-Maria Friebe

executed through performance metrics. This was seen as indicating that shared services need to move toward a joint vision in sharing information. Organizational Technology has two roles in shared services: it can drive and enable shared services in various functions, and it can consolidate the information systems across organizational units into an IT SSC (Miskon et al., 2011). As such, it plays an important role in shared services by standardizing the various systems into a universal system (Pengluo, 2011), enabling detailed performance monitoring (Howcroft & Richardson, 2012) and it is further argued to be a prerequisite for providing services efficiently (Wagenaar, 2006). Modern technology enables the customization of standardized products through offering modules that can be linked through standard interfaces thereby avoiding a one-size-fits-all approach (Wagenaar, 2006). Ulrich (1995) states that communication channels such as videoconferencing allow information to be shared across boundaries, helping shared services maintain relationships without the need for face-to-face communication. In line with this, Farndale et al. (2009) and Farndale and Paauwe (2008) found e-mail and telephone to be the most common communication devices used in HR shared service centers. Although many firms have struggled to find suitable HR information systems, only a few organizations seem to have seen having the appropriate technology as a critical success factor. In financial shared services, enterprise resource planning systems were found to enable centralization by providing consolidated information to top management as well as allowing decentralization by giving frontline workers access to near real-time information enabling them to manage their own projects (Herbert & Seal, 2012). Culture, organizational technology, and especially goals and strategy are often described in the literature, whereas issues related to size, interdependence, and environment are rarely discussed. In terms both of culture and of goals and strategy, either a cost-related performance or a customer service focus is often described, while organizational technology has been used in a variety of ways. Structure is indeed influenced by the context: for example, a high standardization can be a consequence of goals and strategy as well as of organizational technology. The findings are discussed in more detail in the following section.

Discussion The findings in the literature regarding organizational structure are highly dispersed but limited to certain fields. Figure 4 shows the breakdown of disciplines where this topic is addressed. Most of the literature found addresses the private sector, with the HR function (eight articles) and Accounting and Finance (four articles) the most common fields within it. In comparison, Purchasing is only integrated in a few general articles and Marketing is not represented at all, even though there are suggestions that this field establishes SSCs (Davis, 2005). The literature concerning the public sector mainly talks about governmental shared services in general, and does not specify particular functions.

Shared Services — Standardization, Formalization, and Control

Figure 4:

55

Breakdown of disciplines covered (Friebe, 2013).

The uneven distribution across fields coupled with the fact that many articles do not make a division between disciplines makes it impossible to identify individual trends for the various disciplines. Rather, it proved only possible to identify general trends for some dimensions. Although nearly all the articles mentioned centralization and standardization in their introductions, only one-third of the selected articles went on to specifically address these dimensions in the body of the paper. This perhaps reflects the importance of the two dimensions for shared services, but also that most authors now take these dimensions for granted based on earlier literature and do not consider them further in their own studies. However, the findings regarding centralization are mixed, with no consensus as to best practice or which arrangement is most useful for which type of SSCs. While some authors promote full centralization, most see the need for some decentralization in order to remain flexible in adapting to local needs. Ulrich (1995) goes further and even questions the applicability of this dimension at all. Further, one should be cautious when comparing findings related to shared services with the literature on “classical” organizational structures. All the findings related to shared services are purely descriptive and/or exploratory and, unlike with “classical” organizations, their effectiveness has not been empirically tested. As such, no real comparison or identification of best practices is possible. Agreement was found in terms of standardization, with most studies seeing it as an important step in reducing redundancies and making service provision more efficient. Most studies went as far as to consider standardization one of the main reasons for establishing shared services in the first place. Although standardization is seen as important, many stress that a certain degree of flexibility and customization is necessary to meet customers’ demands and improve service quality. One proposed solution for this was to establish two centers: an administrative center and a center

56

Tanya Bondarouk and Christina-Maria Friebe

of excellence. Such centers parallel the findings on specialization and professionalism. Especially in HR SSCs, there is often a task division, requiring different kinds of employees for administrative work and for providing professional services. Hiring the right employees is often a struggle for SSCs. For administrative work, generalists are preferred, whereas professional services require highly specialized staff. While some authors argue for only high-skilled specialists, a slight majority argue for low-skilled generalists because most work is standardized, routine, and administrative. Such work leads to dissatisfaction among high-skilled professionals and possibly to absenteeism. As with standardization, a solution is to employ specialists, that is, highly skilled workers, in a center of excellence, with generalists with fewer skills employed in administrative centers. If limiting oneself to a single center, a balance can be achieved by employing generalists but developing their skills in one area. That there is apparently no best way to use either specialists or generalists is in line with the findings presented in the organizational structure literature. Those who have investigated personnel ratios in SSCs, conclude that administrative employees are in the majority, followed by specialists. However, here, the findings are particularly scarce, and no generalizations concerning staff ratios should be drawn. In discussing the design of shared services, the reporting relationships and spans of control are rarely mentioned, suggesting that the hierarchy of authority does not play an influential role. This is in contrast to Mintzberg’s (1980) organizational types, where span of control was one of the determining features. Although the effect of formalization on performance was not consistent, and often no relationship was found, in the organizational structure literature, when it comes to shared services a need for high formalization has been demonstrated, with a lack of documentation related to SLAs and KPIs leading to problems. Such contracts and measures are needed if shared services are to function properly, as they define the tasks and provide a means to tightly control the performance of the shared services in terms of efficiency, cost savings, quality, and individual employee performance. Control in general is widely discussed, as it is important to ensure that the goals of the SSC are met. There are a variety of mechanisms for this, ranging from output to social controls with technology-enabled detailed measurements and SLAs laying down the measures and KPIs. The focus on performance was often transmitted to the culture and Reilly (2000) concluded that the monitoring process can become so dominant that the actual work takes second place to measuring it. Strong employee monitoring can lead to less commitment, as Ouchi (1979) similarly found in “classical” organizations. Strong control is also established through the interdependence of an SSC. Findings concerning interdependence are scarce, and it is likely that the fact that shared services receive inputs from and deliver outputs to the same client is seen as making discussions on interdependence unnecessary, as shared services and clients are naturally highly interdependent leaving little room for any real variation. The only variation that exists is in the spread of clients, whether they are all from a single organization, albeit from different departments, or from a range of organizations that share the services (Janssen & Joha, 2006). This steady interdependency requires informal control alongside formal control, for example, through

Shared Services — Standardization, Formalization, and Control

57

information sharing, to achieve the common goals that result from the interdependence (Meijerink & Bondarouk, 2013). Size is largely ignored in the shared service literature. Size had no clear relationship with performance in the organizational structure literature, and the same seems true with shared services. The few descriptive findings suggest that the relationship between size and performance depends on the type of tasks executed in the SSC, with standardized functions such as administration being more efficient in large centers where economies of scale can be achieved. Conversely, knowledge-intensive specialized functions require smaller centers to avoid problems such as in coordination. One reason why size has been less researched than other dimensions could be that it is strongly dependent on the size of the parent organization: larger organizations have more processes to relocate to an SSC than smaller organizations, and consequently larger SSCs, rather than a one-size-fits-all approach are being adopted. The reviewed literature is dominated by findings about the goals and strategies of shared services (the focus of 20 of the 33 articles), possibly because these determine the direction the organization is going in and the means used to get there. The goals and strategies identified were rather similar across the literature: most shared services are established for efficiency and/or cost reasons, while others emphasize improving service quality. The means adopted to achieve them were also similar and mostly concerned standardization, centralization, and extensive use of technology. This contextual requirement only partly fits with the actual structural findings: although standardization was prevalent, centralization was not always apparent. The fact that standardization, centralization, and organizational technology are rooted in the goals could be one reason why these are more often researched than other dimensions. Another discrepancy was found between employment policies and some of the identified goals. Whereas several studies indicated that improving professionalism and expertise was a goal of shared services, most seem to favor the employment of low-skilled workers due to routine tasks. This is clearly contradictory and a decision has to be made: either to accumulate knowledge and experience with highly skilled workers or to purely focus on routine tasks with low-skilled employees. This goal duality is mirrored in the organizational culture, where two types are presented: a performance-focused competitive culture and a service-oriented one. This suggests that the strategy is embedded in the culture of the organization. A performance focus in the strategy and culture also explains the use of many control mechanisms and the formalization of the SSC, as these help to monitor the performance based on defined indicators. The basis for achieving the objectives of the SSC, and one of its distinctive features, is the technology employed. Technology has been one of the most explored dimensions, possibly because it has a strong influence on shared services in various ways including in communications, in achieving standardization, and in measuring performance. The environment as a factor has only been addressed in a few articles and then mostly only the environment of the establishing company. This was described as it was seen as playing a role in deciding whether and, if so, which kind of shared services to implement. Its influence on the structural dimensions identified here and

58

Tanya Bondarouk and Christina-Maria Friebe

the environment of the SSC itself were not described. A notable exception is Borman and Janssen (2012) who identified three factors, but these were all absent in their case study. The lack of a contextual description of the environment may be linked to the unique characteristics of an SSC. An SSC is somewhere “between a function and an organization” (Borman, 2010, p. 221), serving internal clients and only sometimes external clients, and as such, compared to “traditional” organizations, is quite distant from the external environment. The immediate environment of an SCC is its clients, mostly coming from the parent organization, and it is only through these that the SSC is exposed to the external environment. The SSC structures reported do not really fit into the organizational types proposed by Mintzberg (1980). The first problem is that the structure is often described using only one or two dimensions, making it impossible to draw conclusions about the overall configuration. Moreover, the hierarchy of authority and the environment are important aspects in defining organizational arrangements, but conclusions about these two dimensions cannot be drawn due to lack of reported findings. That findings related to some “traditional” dimensions of the organizational structure are scarce when it comes to shared services suggests that these may not play as important a role as they do with “classical” organizations. This idea is encouraged by the fact that some SSCs only exist on a virtual basis linked through technology (Swagerman & van Steenis, 1998). Those who have investigated the structural arrangements of shared services mainly focus on whether the SSC is an independent organizational entity, or if sharing takes place between business units of one company or if several companies share one center, and whether a third party is involved (Miskon, Fielt, Bandara, & Gable, 2013). Here, parts of the structure of the parent organization may lead to different possibilities (Aksin & Masini, 2008). Nevertheless, the “classical” dimensions can have a strong influence on performance and they should therefore receive more research attention, especially since, to date, the findings are scattered and mixed. Moreover, this aspect has rarely been the main topic of research and has been treated as a side issue, if at all. While some articles have identified critical success factors for shared services, such as standardization (Borman & Janssen, 2012), the research to date has been purely exploratory and descriptive without any empirical evidence to determine which characteristics are most effective. In particular, we would argue that centralization, specialization, and professionalism should be investigated empirically since mixed results have been reported. Testing which characteristics lead to the best performance could guide future establishments. In addition, studies should explore the features of additional fields, such as Marketing, to gain a more comprehensive overview of how shared services are structured and implemented in specific fields and which specialties may arise, as well as identifying best practices that can ensure that shared services perform well. Loges (2013) suggests, in her study involving IT and Purchasing, that the differences between fields reflect the varying activities of the disciplines. For example, in Purchasing the selection and sourcing of suppliers is important whereas, with IT, customer support and the development of applications and processes play the major

Shared Services — Standardization, Formalization, and Control

59

roles. Consequently, research should explore whether differences across fields are mainly rooted in the activities, or whether structural elements are also field-specific. This literature review has been limited by the restricted access to resources, as some full texts could not be accessed at all, or not within the limited timeframe of the study. This narrows the basis for conclusions and a bias cannot be completely ruled out as additional articles may have led to different findings. Although the chosen dimensions were extensive, in order for the analysis of the design of shared services to be as complete as possible, the list is not exhaustive and it is possible that other factors play a role and may even be more important. As the literature was diffuse, and many articles failed to specify the investigated discipline, it proved impossible to identify specialties for each field. Given the limited number of fields, with some findings restricted to a single field, it is difficult to generalize the findings. Although our initial aim was to provide an overview that crossed disciplines, the findings are biased toward the HR function since most of the identified literature focused on that discipline.

Conclusions The chapter has reviewed the shared services literature in various fields, aiming to identify organizational structures involved in organizing shared services. An overview of the structural and contextual dimensions was first provided to establish a framework for the review. It became clear that trends specific to individual fields could not be established due to the diffuse nature of the literature. In terms of centralization and specialization, SSCs seem to have a similar mix of results as that found in the literature on “classical” organizations. However, it should be noted that different research methodologies have been employed. Although centralization was one of the most discussed dimensions in our reviewed articles, there is still no consensus as to whether SSCs should be centralized, decentralized, or a mixture of both. The importance of the control dimension was stressed, with all kinds of measures being employed, although one needs to ensure that measuring the work does not take precedence over executing the work. Standardization and formalization were both found to be high in SSCs, although the need for some customization was also emphasized. In terms of specialization and professionalism, a balance needs to be kept to ensure the right mix of skills and an ability to serve customer needs. The main goals set for shared services are either improving service quality or saving costs and boosting efficiency, and often mirror the organizational culture. Technology was generally seen as an enabler of shared services and as assisting in a variety of ways, for example, in standardizing and monitoring. There were so few findings related to the hierarchy of authority, personnel ratios, size, and environment that no conclusions can be drawn. The chapter thus concludes by emphasizing the need for further research into the structural dimensions of SSCs, and in a broader range of fields as current findings tend to be diffuse and mostly concerned with the HR function. Further, we see a need to empirically test the dimensions,

60

Tanya Bondarouk and Christina-Maria Friebe

and especially those where opinions differ the most, so as to be able to draw conclusions and make recommendations on which configuration performs best in specific circumstances.

References Acton Society Trust. (1953). Size and morale. London: AST. Aksin, O. Z., & Masini, A. (2008). Effective strategies for internal outsourcing and offshoring of business services: An empirical investigation. Journal of Operations Management, 26(2), 239 256. Amiruddin, R., Aman, A., Auzair, S. M., Hamzah, N., & Maelah, R. (2013). Mitigating risks in a shared service relationship: The case of a Malaysian bank. Qualitative Research in Accounting and Management, 10(1), 78–93. Baumgartel, H., & Sobol, R. (1959). Background and organizational factors in absenteeism. Personnel Psychology, 12(3), 431 443. Becker, J., Niehaves, B., & Krause, A. (2009). Shared service center vs. shared service network: A multiple case study analysis of factors impacting on shared service configurations. In Electronic government (pp. 115–126): Berlin: Springer. Bidwell, C. E., & Kasarda, J. D. (1975). School district organization and student achievement. American Sociological Review, 40(1), 55–70. Bondarouk, T. (2011). Theoretical approaches to e-HRM implementations. In T. Bondarouk, H. Rue¨l, & J. C. Looise (Eds.), Electronic HRM in theory and practice (pp. 1 20). Advanced Series in Management. Bingley, UK: Emerald Group Publishing Limited. Borman, M. (2008). The Design and Success of Shared Services Centres (2008). Proceedings of the 16th European Conference on Information Systems, June 9–11, 2008. Galway, Ireland, Paper 77. Borman, M. (2010). Characteristics of a successful shared services centre in the Australian public sector. Transforming Government: People, Process and Policy, 4(3), 220 231. Borman, M., & Janssen, M. (2012). Reconciling two approaches to critical success factors: The case of shared services in the public sector. International Journal of Information Management, 33(2), 390 400. doi:http://dx.doi.org/10.1016/j.ijinfomgt.2012.05.012 Bowers, D. G. (1964). Organizational control in an insurance company. Sociometry, 27, 230 244. Burns, T. J., & Yeaton, K. G. (2008). Success factors for implementing shared services in government. IBM Center for the Business of Government, Washington, DC. Child, J. (1974a). Managerial and organizational factors associated with company performance: Part I. Journal of Management Studies, 11(3), 175 189. Child, J. (1974b). What determines organization performance? The universals vs the it-alldepends. Organizational Dynamics, 3(1), 2 18. Child, J. (1975). Managerial and organizational factors associated with company performance: Part II. A contingency analysis. Journal of Management Studies, 12(1 2), 12 27. Cooke, F. L. (2006). Modeling an HR shared services center: Experience of an MNC in the United Kingdom. Human Resource Management, 45(2), 211 227. Corwin, R. G. (1970). Militant professionalism: A study of organizational conflict in schools. New York, NY: Appleton, Century, Crofts.

Shared Services — Standardization, Formalization, and Control

61

Daft, R. L. (2010). Understanding the theory and design of organizations (10th ed.). Mason, OH: South-Western Cengage Learning. Dalton, D. R., Todor, W. D., Spendolini, M. J., Fielding, G. J., & Porter, L. W. (1980). Organization structure and performance: A critical review. Academy of Management Review, 5(1), 49 64. Davis, T. R. V. (2005). Integrating shared services with the strategy and operations of MNEs. Journal of General Management, 31(2), 1 17. Delehanty, G. E. (1968). Nonproduction workers in US manufacturing. Amsterdam: NorthHolland Publishing Company. Eisenhardt, K. M. (1985). Control: Organizational and economic approaches. Management science, 31(2), 134 149. Farndale, E., & Paauwe, J. (2008). Chapter 5 — Restructuring the HR function: HR shared service centers in the Netherlands. In Technology, outsourcing and transforming HR (pp. 105 133). Oxford: Butterworth-Heinemann. Farndale, E., Paauwe, J., & Hoeksema, L. (2009). In-sourcing HR: Shared service centres in the Netherlands. The International Journal of Human Resource Management, 20(3), 544 561. Friebe, C.-M. (2013). Specialties of organizing shared services: Standardization, formalization and control. Unpublished Bachelor thesis, University of Twente, The Netherlands. Galbraith, J. R. (1973). Designing complex organizations. Boston, MA: Addison-Wesley Longman Publishing Co., Inc. Goh, M., Prakash, S., & Yeo, R. (2007). Resource-based approach to IT shared services in a manufacturing firm. Industrial Management and Data Systems, 107(2), 251 270. He, Y., & Cao, Y. (2009). The new trend of financial process reengineering: Financial shared services. Paper presented at the Second International Symposium on Electronic Commerce and Security, ISECS’09. Herbert, I. P., & Seal, W. B. (2012). Shared services as a new organisational form: Some implications for management accounting. The British Accounting Review, 44(2), 83 97. doi:http://dx.doi.org/10.1016/j.bar.2012.03.006 Herbst, P. (1957). Measurement of behaviour structures by means of input-output data. Human Relations, 10(4), 335 346. Hewitt, D., & Parfit, J. (1953). A note on working morale and size of group. Occupational Psychology, 27, 38–42. Hildebrand, G. H., Liu, T. C., & Liu, D. (1965). Manufacturing production functions in the United States, 1957: An interindustry and interstate comparison of productivity (Vol. 15), Ithaca, NY: New York State School of Industrial and Labor Relations, Cornell University. Holland, D. (1963). Costs, productivities, and the employment of salaried staff. Bulletin of the Oxford University Institute of Economics and Statistics, 25(3), 127 164. Howcroft, D., & Richardson, H. (2012). The back office goes global: Exploring connections and contradictions in shared service centres. Work, Employment and Society, 26(1), 111 127. Indik, B. P. (1968). The scope of the problem and some suggestions toward a solution. In B. P. Indik & F. K. Berrien (Eds.), People, groups, and organizations. New York, NY: Teachers College Press. Indik, B. P., & Seashore, S. E. (1961). Effects of organization size on member attitudes and behavior. Survey Research Center of the Institute for Social Research, University of Michigan, USA.

62

Tanya Bondarouk and Christina-Maria Friebe

Ingham, G. K. (1970). Size of industrial organisation and worker behaviour (No. 1). University of Cambridge, UK: CUP Archive. James, L. R., & Jones, A. P. (1976). Organizational structure: A review of structural dimensions and their conceptual relationships with individual attitudes and behavior. Organizational Behavior and Human Performance, 16(1), 74 113. Janssen, M., & Joha, A. (2006). Motives for establishing shared service centers in public administrations. International Journal of Information Management, 26(2), 102 115. Janssen, M., & Joha, A. (2007). Understanding IT governance for the operation of shared services in public service networks. International Journal of Networking and Virtual Organisations, 4(1), 20 34. Kerr, W. A., Koppelmeier, G. J., & Sullivan, J. J. (1951). Absenteeism, turnover and morale in a metals fabrication factory. Occupational Psychology, 25, 50–55. Khandwalla, P. N. (1973). Viable and effective organizational designs of firms. Academy of Management Journal, 16(3), 481 495. Knol, A., Janssen, M., & Sol, H. (2014). A taxonomy of management challenges for developing shared services arrangements. European Management Journal, 32(1), 91–103. Legare, T. L., & Bechtel, R. L. (2001). The role of change management in establishing a shared services business model at air products and chemicals. Journal of Organizational Excellence, 20(2), 33 48. Loges, M. N. A. (2013). Shared services in information technology and supply chain management. Unpublished Bachelor thesis, University of Twente, Enschede. Luke, R. A., Block, P., Davey, J. M., & Averch, V. R. (1973). A structural approach to organizational change. The Journal of Applied Behavioral Science, 9(5), 611 635. Maatman, M., Bondarouk, T., & Looise, J. K. (2010). Conceptualising the capabilities and value creation of HRM shared service models. Human Resource Management Review, 20(4), 327 339. Mahoney, T. A., Frost, P., Crandall, N. F., & Weitzel, W. (1972). The conditioning influence of organization size upon managerial practice. Organizational Behavior and Human Performance, 8(2), 230 241. Meijaard, J., Brand, M. J., & Mosselman, M. (2005). Organizational structure and performance in Dutch small firms. Small Business Economics, 25(1), 83 96. Meijerink, J., & Bondarouk, T. (2013). Exploring the central characteristics of HR shared services: Evidence from a critical case study in the Netherlands. International Journal of Human Resource Management, 24(3), 487 513. Melman, S. (1951). The rise of administrative overhead in the manufacturing industries of the United States 1899 1947. Oxford Economic Papers, 3(1), 62 112. Melman, S. (1956). Dynamic factors in industrial productivity. New York, NY: Wiley. Metzner, H., & Mann, F. (1953). Employee attitudes and absences. Personnel Psychology, 6(4), 467 485. Mintzberg, H. (1980). Structure in 5’s: A Synthesis of the research on organization design. Management Science, 26(3), 322 341. Miskon, S., Bandara, W., Gable, G., & Fielt, E. (2011). Success and failure factors of shared Services: An IS literature analysis. Kuala Lumpur. Miskon, S., Fielt, E., Bandara, W., & Gable, G. (2013). Towards a typology of structural arrangements for shared services: Evidence from the higher education sector. Electronic Markets, 23(2), 149–162. Nasir, I. N., Abbott, P., & Fitzgerald, G. (2011). Shared services centres: A case study on a dispersed services oriented organization. 5th Workshop on Global sourcing: New studies in global IT and business service outsourcing (Vol. 91, pp. 175 200). LNBIP, Courchevel.

Shared Services — Standardization, Formalization, and Control

63

Ouchi, W. G. (1979). A conceptual framework for the design of organizational control mechanisms. Management Science, 25(9), 833 848. Pengluo, L. (2011). Researches on mode of sharing service management of multinational corporation, Wuhan. Qualitative Research in Accounting and Management, 10(1), 78 93. Pondy, L. R. (1967). Organizational conflict: Concepts and models. Administrative Science Quarterly, 12, 296 320. Pugh, D. S., Hickson, D. J., Hinings, C. R., & Turner, C. (1968). Dimensions of organization structure. Administrative Science Quarterly, , 13(1), 65 105. Redman, T., Snape, E., Wass, J., & Hamilton, P. (2007). Evaluating the human resource shared services model: Evidence from the NHS. International Journal of Human Resource Management, 18(8), 1486 1506. Reilly, P. (2000). HR shared services and the realignment of HR (Vol. 368). London, UK: Institute of Employment Studies. Reimann, B. C. (1975). Organizational effectiveness and management’s public values: A canonical analysis. Academy of Management Journal, 18(2), 224 241. Reimann, B. C., & Negandhi, A. R. (1976). Organization structure and effectiveness: A canonical analysis. The Management of Organization Design, 2, 191 210. Revans, R. (1958). Human relations, management and size. Human relations and modern management (pp. 177 220). Amsterdam: North-Holland. Rothwell, A., Herbert, I., & Seal, W. (2011). Shared service centers and professional employability. Journal of Vocational Behavior, 79(1), 241 252. Scott, W. R. (1975). Organizational structure. Annual Review of Sociology, 1, 1 20. Selden, S. C., & Wooters, R. (2011). Structures in public human resource management: Shared services in state governments. Review of Public Personnel Administration, 31(4), 349 368. Sorensen, P. F., & Baum, B. H. (1975). Organizational control and effectiveness in a voluntary association. The Journal of Social Psychology, 95(1), 125 126. Strikwerda, J. (2006). The Shared Service Centre: Change, Governance and Strategy. Retrieved from ftp://www.pasaja.nl/Shared%20Service%20Centers.pdf. Accessed on October 30, 2009. Swagerman, D., & van Steenis, J. (1998). Shared services in Accounting and Finance. Proceedings of the VoNet – Workshop, April 27–28, 1998, University of Bern. Tannenbaum, A. S. (1961, July). Control and effectiveness in a voluntary organization. American Journal of Sociology, 67(1), 33–46. Tushman, & Nadler (1978). The Academy of Management Review, 3(3), 613–624. Ulbrich, F. (2006). Improving shared service implementation: Adopting lessons from the BPR movement. Business Process Management Journal, 12(2), 191 205. Ulrich, D. (1995). Shared services: From vogue to value. Human Resource Planning, 18, 12 23. Wagenaar, R. W. (2006). Governance of shared service centers in public administration: Dilemma’s and trade-offs. Fredericton, NB. Wang, S., & Wang, H. (2007). Shared services beyond sourcing the back offices: Organizational design. Human Systems Management, 26(4), 281 290. Webster, J., & Watson, R. T. (2002). Analyzing the past to prepare for the future: Writing a literature review. MIS Quarterly, 26(2), xiii xxiii.

64

Tanya Bondarouk and Christina-Maria Friebe

Appendix: Reviewed Articles Aksin, O. Z., & Masini, A. (2008). Effective strategies for internal outsourcing and offshoring of business services: An empirical investigation. Journal of Operations Management, 26(2), 239 256. Amiruddin, R., Aman, A., Auzair, S. M., Hamzah, N., & Maelah, R. (2013). Mitigating risks in a shared service relationship: The case of a Malaysian bank. Becker, J., Niehaves, B., & Krause, A. (2009). Shared service center vs. shared service network: A multiple case study analysis of factors impacting on shared service configurations. In Electronic Government (pp. 115 126). Springer. Borman, M. (2010). Characteristics of a successful shared services centre in the Australian public sector. Transforming Government: People, Process and Policy, 4(3), 220 231. Borman, M., & Janssen, M. (2013). Reconciling two approaches to critical success factors: The case of shared services in the public sector. International Journal of Information Management, 33(2), 390 400. doi:http://dx.doi.org10.1016/j. ijinfomgt.2012.05.012 Burns, T. J., & Yeaton, K. G. (2008). Success factors for implementing shared services in government. IBM Center for the Business of Government. Cooke, F. L. (2006). Modeling an HR shared services center: Experience of an MNC in the United Kingdom. Human Resource Management, 45(2), 211 227. Davis, T. R. V. (2005). Integrating shared services with the strategy and operations of MNEs. Journal of General Management, 31(2), 1 17. Farndale, E., & Paauwe, J. (2008). Chapter 5 — Restructuring the HR Function: HR shared service centers in the Netherlands. In Technology, Outsourcing and Transforming HR (pp. 105 133). Oxford: Butterworth-Heinemann. Farndale, E., Paauwe, J., & Hoeksema, L. (2009). In-sourcing HR: Shared service centres in the Netherlands. International Journal of Human Resource Management, 20(3), 544 561. Goh, M., Prakash, S., & Yeo, R. (2007). Resource-based approach to IT shared services in a manufacturing firm. Industrial Management and Data Systems, 107(2), 251 270. He, Y., & Cao, Y. (2009). The new trend of financial process reengineering: Financial shared services. Paper presented at the Second International Symposium on Electronic Commerce and Security, ISECS’09. Herbert, I. P., & Seal, W. B. (2012). Shared services as a new organisational form: Some implications for management accounting. The British Accounting Review, 44(2), 83 97. doi:http://dx.doi.org/10.1016/j.bar.2012.03.006 Howcroft, D., & Richardson, H. (2012). The back office goes global: Exploring connections and contradictions in shared service centres. Work, Employment and Society, 26(1), 111 127. Janssen, M., & Joha, A. (2006). Motives for establishing shared service centers in public administrations. International Journal of Information Management, 26(2), 102 115.

Shared Services — Standardization, Formalization, and Control

65

Janssen, M., & Joha, A. (2007). Understanding IT governance for the operation of shared services in public service networks. International Journal of Networking and Virtual Organisations, 4(1), 20 34. Knol, A., Janssen, M., & Sol, H. (2013). A taxonomy of management challenges for developing shared services arrangements. European Management Journal. Legare, T. L., & Bechtel, R. L. (2001). The role of change management in establishing a shared services business model at air products and chemicals. Journal of Organizational Excellence, 20(2), 33 48. Maatman, M., Bondarouk, T., & Looise, J. K. (2010). Conceptualising the capabilities and value creation of HRM shared service models. Human Resource Management Review, 20(4), 327 339. Meijerink, J., & Bondarouk, T. (2013). Exploring the central characteristics of HR shared services: Evidence from a critical case study in the Netherlands. International Journal of Human Resource Management, 24(3), 487 513. Miskon, S., Bandara, W., Gable, G., & Fielt, E. (2011). Success and failure factors of shared services: An IS literature analysis. Kuala Lumpur. Nasir, I. N., Abbott, P., & Fitzgerald, G. (2011). Shared services centres: A case study on a dispersed services oriented organization. 5th workshop on global sourcing: New studies in global IT and business service outsourcing (Vol. 91, pp. 175 200). LNBIP, Courchevel. Pengluo. (2011). Researches on mode of sharing service management of multinational corporation, Wuhan. Qualitative Research in Accounting and Management, 10(1), 78 93. Redman, T., Snape, E., Wass, J., & Hamilton, P. (2007). Evaluating the human resource shared services model: Evidence from the NHS. International Journal of Human Resource Management, 18(8), 1486 1506. Reilly, P. (2000). HR shared services and the realignment of HR (Vol. 368). Institute of Employment Studies. Rothwell, A., Herbert, I., & Seal, W. (2011). Shared service centers and professional employability. Journal of Vocational Behavior, 79(1), 241 252. Selden, S. C., & Wooters, R. (2011). Structures in public human resource management: Shared services in state governments. Review of Public Personnel Administration, 31(4), 349 368. Strikwerda, J. (2009). The shared service centre: Change, governance and strategy. Retrieved October 30. Swagerman, D., & van Steenis, J. (1998). Shared services in accounting and finance. Organizational Virtualness, 173. Ulbrich, F. (2006). Improving shared service implementation: Adopting lessons from the BPR movement. Business Process Management Journal, 12(2), 191 205. Ulrich, D. (1995). Shared services: From vogue to value. Human Resource Planning, 18, 12 23. Wagenaar, R. W. (2006). Governance of shared service centers in public administration: Dilemma’s and trade-offs. Fredericton, NB. Wang, S., & Wang, H. (2007). Shared services beyond sourcing the back offices: Organizational design. Human Systems Management, 26(4), 281 290.

Chapter 4

What is Shared Services? Joseph Soalheira and Greg Timbrell

Abstract Purpose — This chapter discusses the constitution of Shared Services and the value of a consensual agreement of a definition for academe and practice. It explores the operating principles and services, the concepts of internal customer and internal service, and their importance for the practitioner and research communities. Methodology/approach — This chapter employed a broad review of the literature to examine Shared Services. The research team used NVivo as a tool to create a database of key articles and books to analyze the key concepts and topics. Findings — There is a lack of consensus on the definition of Shared Services in the research and practitioner community. Additionally, the concept of internal customer requires greater exploration and understanding within the context of Shared Services. How Shared Services provides competitive advantage to organizations is also not well understood. Research limitations/implications — This discussion provides a challenge to the research community to focus on the contributions of shared services to business management theory. This requires a consensus that is currently nonexistent, to ensure the correct use of the terminology and model. Practical implications — By establishing a clearer understanding of what is Shared Services, the academic and the practitioner community, in particular, will gain greater competencies on Shared Services to support change management programs during the implementation phases and minimize implementation costs by lowering organizational and people resistance. The variants in shared services terminology create confusion which is likely to result in ambiguity during implementation and have practical implications on governance, customers and service, benefits realization and performance.

Shared Services as a New Organizational Form Advanced Series in Management, Volume 13, 67 84 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1877-6361/doi:10.1108/S1877-636120140000013004

68

Joseph Soalheira and Greg Timbrell

Originality/value of chapter — This chapter addresses the lack of agreed definition of the term Shared Services and the role of the internal customer and consequent internal service delivery. Keywords: Shared Services; Shared Services Center; internal customer; internal service delivery; conceptual definition; operating principles

Introduction The first enactment of Shared Services as a mechanism to manage resources, workflow, and costs can be traced back to the old typing pool, where typists were centralized and the typing work process streamlined and organized to deliver economies of scale and improve internal service. More recently, Shared Services Centers (SSCs) have emulated these traditional objectives of efficiency and centralization. Today, many firms have successfully trimmed costs by establishing SSCs and a majority of Fortune 500 companies now operate Shared Services in one or multiple functions (Santosh, 2013). By employing Shared Services, over 85% of Fortune 500 companies have captured a variety of benefits from cost reduction and capability enhancements to global delivery and business transformation (Kearney, 2013). Firms also claim benefits such as organizational flexibility, consolidation of expertise, and higher levels of customer satisfaction (Forst, 2001; Kearney, 2004). While firms claim these benefits from the implementation of a common term (Shared Services), different conceptions of this phenomenon exist across industry and the literature. Furthermore, there is no publicly identifiable process to audit or validate the claims of “benefits” achieved. Typically consulting firms identify and “quantify” Shared Services through practitioner surveys. Schulman, Harmer, Dunleavy, and Lusk (1999) suggested Shared Services was a “tactical technique” that can be used to achieve competitive advantage. However, Schulman’s et al. study did not pursue this proposition or demonstrate how Shared Services contribute to a firm’s competitive advantage. The research team has not been able to locate literature that validates this claim. Rather, the literature streams tend to focus either on the different theories of competitive advantage (Barney, 1991; Chen & Hsieh, 2008; Porter, 1990); the internal customer and internal service provision (Adler, 2003; Albrecht, 1992; Cavalcante, 2012; Davis, 1992); or the systems facilitating the management of business functions (Miskon, Bandara, Gable, & Fielt, 2010; Wang & Wang, 2007); but they do not come together in a holistic way to further the understanding of Shared Services or introduce applicable theory. The concept of Shared Services has been evolving for nearly three decades and many firms have entered the “maturity phase of Shared Services” (Bangemann, 2005).

What is Shared Services?

69

Although universities have adopted SSCs (Miskon, Bandara, Fielt, & Gable, 2011), shared services education at Universities is not widespread.1 There seem to be gaps in the research and in understanding between practitioners/managers and academics in most areas of Shared Services, for example, Human Resources (HR) Management. This research gap can be characterized as a “knowing-versus-doing gap” (Pfeffer & Sutton, 1999, as in Deadrick & Gibson, 2007, p. 131). Cooke (2006, p. 212) also confirms that “despite the hype of the HR shared services model, few academic studies have been carried out to investigate the challenges of implementing a successful HR services center,” and that “there exists a burgeoning body of prescriptive literature espousing the value of these delivery models and methods for starting one. As a result, a significant gap remains between literature espousing the efficacy and utility of HR shared services and the extent to which the adoption of such a model proves to be successful.” Van Balen and Bondarouk (2009, p. 421) state that “the magnitude and span of the gap is thus of considerable size. This was confirmed when we looked at the subject of this research, HR SSCs. Searches in several scientific databases gave one single hit on the keywords shared service(s) center. A search with the same keywords within the professional database of Business Source Elite gave us 158 hits.” It is clear that despite the use of Shared Services and benefits claimed, “there is no unique understanding of Shared Services in science and practice,” and “a standardized definition is not established” (Schulz & Brenner, 2010, p. 210).

Problem Definition: What is Shared Services? In extant literature there is broad agreement (Aguirre, Couto, Disher, & Neilson, 1998; Quinn, Cooke, & Kris, 2000; Santosh, 2013; Schulman et al., 1999) with the proposition that Shared Services can bring substantial benefits to the modern enterprise. However, there is much less agreement around what constitutes Shared Services; what are its attributes; whether it is a concept, a model, or a management theory; or, on how and why it has successively evolved. SSCs have become popular because they combine the advantages of centralization and decentralization, potentially delivering a range of advantages including cost savings, service improvement, and technology consolidation (Janssen & Joha, 2006). Herbert and Seal (2009, p. 44) conceive SSCs as an alternative to outsourcing “for which it is claimed that by concentrating service activities in one site, specially chosen for the purpose, the SSC can also reduce costs, improve service quality, justify better IT and engender a quasi-market orientation.” Corporations can also use a multitude of methods including centralization, outsourcing, and offshoring to reduce their unit costs, achieve economies of scale, and become more competitive globally.

1

Canterbury Christ Church University (UK) offers a PG Certificate in Shared Services.

70

Joseph Soalheira and Greg Timbrell

In the public sector, governments reduce the size of support functions to achieve savings or redirect resources to front-line service delivery. The motives for establishing Shared Services in the public sector may include strategic (increase productivity), organizational (reduction of complexity/uncertainty), political (enhance credibility), technical (standardization of IT platforms), and economic (lower costs) (Janssen & Joha, 2006). Competing in a more globalized world “to accelerate business benefits such as lower cost of operations and improved business processes, the vast majority of organizations centralize some functions into shared services and outsource various others to third-party service providers” (Fersht, Filippone, Aird, & Sappenfield, 2011, p. 3). Malcolm (1999, p. 33) argues that the emergence of the SSC is simply a part of global corporate restructuring which “includes three distinct and overlapping phases, centralization (1950 1986), decentralization (1980 1999), and Shared Services Centers (From 1985).” As the SSC continues to evolve as an organizational form, “in today’s business environment, nine out of every ten enterprises have shared services” (Fersht et al., 2011, p. 1). This chapter discusses the constitution of Shared Services and the value of a consensual agreement of a definition for academe and practice. It explores the operating principles and services, the concepts of internal customer and internal service, and their importance for the practitioner and research communities.

Research Approach The research approach is illustrated in Figure 1. Three steps and four stages were used to identify literature that enabled a review of the topics: literature inputs and outputs, process stages, and programs/tools used in the analysis. In stage 1, we identified and extracted articles, books, and reports that addressed the terms “Shared Services,” “Shared Services Centers,” Shared Services Organiz(s) ations,” “conceptual definition,” “role of shared services,” “principles and characteristics of shared services,” “internal customers,” “internal services,” “back office support functions,” and “internal customer service.” Examples of key databases used include Emerald, ProQuest, ABI/Inform, SAGE, Ebscohort (e.g., ERIC, Business Elite, Academic Elite), company databases such as AT Kearney, Accenture, Genpact, KPMG, IBM, Chartered Institute of Management Accountants (CIMA), and Government web sites. We covered disciplines such as management, strategy, business, education, and information technology among others. Articles were converted into PDF documents, stored in the Endnote library using the APA citation style, establishing an information database in readiness for analysis. The search produced approximately 400 articles, reports, and books. In stage 2, we transferred the information into NVivo and used an initial high-level structure to select the information: main papers, secondary papers, books, reports, and conferences. Papers were then coded by author (and year), journal ranking where appropriate, citations (using Google Scholar functionality), and the frequency of the terms used,

Programs and Tools supporting the Analysis

Figure 1:

NVivo Program

EndNote Software

Stage 1 Identification & extraction of articles from Databases

Business, Technical & Scientific Databases

Primary and Secondary Papers, Reports & Books

Stage 2 Preparing information for Analysis

EndNote Library

Preliminary High level codification structure

Stage 4 Analysis & Literature Review Writing

Stage 3 Information Coding

EndNote Library

Four Level Nodes

Coded Literature

Final Literature Review Report

Literature review approach. Source: Adapted from Bandara, Miskon, and Fielt (2011, p. 3).

What is Shared Services?

Literature Inputs and Outputs

Literature Review Process Stages

Adobe Acrobat, PDF documents

71

72

Joseph Soalheira and Greg Timbrell

enabling us to check for redundancies and establishing a priority list. We identified the most cited books (e.g., Bangemann, 2005; Bergeron, 2003; Kris & Fahy, 2003; Quinn et al., 2000; Schulman et al., 1999). For the main articles, we created four high-level nodes: shared services, internal customers, external services, and customer service. This structure was the basis for further filtering and analysis. We introduced coding schemes and scanned the literature for definitions, characteristics, framework, principles, internal customer, services, and internal service. All books identified were used in the analysis, and a sample of main and secondary articles/reports were used. We excluded all literature where the terms searched were not related to internal support functions. The main focus of the existing literature is on implementation of shared services, advantages, and improvements. The most frequently used terms about shared services are “centralization,” “transaction(s),” and “cost reduction(s).” During this process we discovered that a consensus on a shared services definition, principles, and/or framework does not exist, in academe or in practice. It is also clear that internal customers, internal services, and internal customer service, as well as its links with external customers, are not addressed in the context of Shared Services, or alternatively a direct link with Shared Services is not well established. The purpose of this literature review is to discuss the importance of a consensual definition of Shared Services, its principles and framework(s), and to highlight the need for research that establishes shared services in business management theory.

Why a Good Definition is Critical Each Shared Services practitioner, academic or author, will have their own interpretation of what constitutes Shared Services. From the available literature, there appears to be little consensus on the definition of the term “Shared Services” (Singh & Craike, 2008). Definitions may differ in many ways and “characteristics” with practical implications on the understanding and application of the concept (Schulz & Brenner, 2010). However, to measure the value of Shared Services to contemporary management theory it requires a “good” conceptual definition (Wacker, 2004). “Good formal conceptual definitions are a necessary condition for construct validity (content validity, criterion validity, convergent validity, and discriminant validity)” (Wacker, 2004, p. 629), thereby supporting good empirical theory building. Establishing a construct framework for Shared Services is not possible without a consensual definition. Existing definitions of the concept of shared services can be classified as multifaceted, ambiguous, confusing, and vague. Diverse multiple metrics for a single concept creates inconsistency in the measurement of the concept and its value. “Without consistent meaningful measurements of concepts, any subsequent statistical tests cannot lead to the development of significant theory” (Wacker, 2004, p. 635). From a practical viewpoint, a “good” definition is a “concise, clear verbal expression of a unique concept that can be used for strict empirical testing”

What is Shared Services?

73

(Hempel, 1970, p. 654). This is not the case with the multiple and varied “definitions” of Shared Services and other associated terms. Schulman et al. (1999, p. 9) define Shared Services as: the concentration of company resources performing like activities typically spread across the organisation, in order to service multiple internal partners at a lower cost and with higher service levels, with the common goal of delighting external customers and enhancing corporate value.

Schulman’s et al. (1999) connects Shared Services with external customers while internal customers are referred to as “partners.” They argue that Shared Services are “driven by market competitiveness” and that its focus is on service and support to “business partners,” which goes beyond even the traditional notion of “customer service” or “client support.” Within the Shared Services environment, what is sometimes described as a “partner” is effectively the internal customer. Using the term “partner” is an attempt to influence the organization’s internal thinking that the company can achieve better results if the new internal service provider (the SSC) and the new customers (“partners”) work in partnership to optimize the firm’s operational results. This is also a reason why firms prefer the term Partnership Agreement to the term Service Level Agreement. The new customers must now define the services they require and pay a price without directly controlling the resources and their service delivery. In Schulman’s et al. (1999) definition, individual employees who are the recipients of the organization’s payroll or desktop services are not considered customers but partners. Aguirre et al. (1998, p. 2) define Shared Services in a more integrated way: “a new model for delivering corporate support combining and consolidating services from headquarters and business units into a distinct, market efficient entity.” They argue that the SSC “must be able to compete vigorously with outside vendors” and that the internal customers can specify their service needs whilst the SSC abides by a set of Shared Services principles. Bergeron (2003, p. 3) states that Shared Services is: a collaborative strategy in which a subset of existing business functions are concentrated in a new, semi-autonomous, business unit that has a management structure designed to promote efficiency, value generation, cost savings and improved service for internal customers of the parent corporation, like a business competing in the open market.

Unlike Schulman et al. (1999), Bergeron’s (2003) definition clearly establishes internal customers (not “partners”) as the recipients of services provided by functions that are “concentrated.” This is a clear distinction from Schulman et al. (1999) who also determine that the SSC is an autonomous business unit competing in an open market, with the potential to increase the competitive advantage of the firm. Schulz and Brenner (2010) identified the characteristics associated with the terms “Shared Services Centers,” “Shared Services Organization,” and “Shared Services” from a variety of sources. Their literature review methodology identified a number of “characteristics” and the number of times quoted. Table 1 identifies the key characteristics.

74

Joseph Soalheira and Greg Timbrell

Table 1: Most often cited characteristics of shared services. Characteristics … is the result of the consolidation/concentration process within an organization … is engaged in support services/staff functions/internal services … reduces costs/competitive costs … has a focus on internal clients/delivery to internal customers … is aligned with external competitors … is a separate organization within the group … is operated like a “normal business unit” … improves service quality/competitive quality … makes us of “best practices”

Number of citations 9 9 8 8 7 7 7 5 5

Source: Adapted from Table I, Analyzed definitions of “SSC,” Schulz and Brenner (2010, p. 213).

After analyzing those characteristics, Schulz and Brenner (2010) conclude that “there is no unique understanding of SSCs in science and practice” and that “a standardised definition of SSCs is not established.” They agree that future research must not only include the perceptions of practitioners but also academic publications. While Schulman’s et al. (1999) definition includes vague terms such as “company resources performing like activities” and subjective terms like “delighting external customers,” Aguirre et al.’s (1998) introduces the term “model,” while Bergeron (2003) uses terms like “collaborative strategy” broadening the definition and scope of the concept. Kris and Fahy (2003, p. xvi) argue that one of the key ideas for the future of Shared Services is to “be rigorous in defining and talking about shared services — always stress it is not simply about consolidation, it must be run as a business whether it is internal to the organization or outsourced.” Establishing a conceptual definition that reflects practitioners’ views, including customers, management, and employees, and meets the criterion of “good” definition (Wacker, 2004) will help to clarify the role of Shared Services in an organization. A “good” definition without considering customers and services will fail to understand the potential impacts of Shared Services on competitive advantage. Ulrich and Lake (1991, p. 89) view competitive advantage as “having two elements: perceived customer value and uniqueness. All the uniqueness in the world does not build competitiveness unless it meets customer values.”

Customers and Services “What differentiates shared services from the simple consolidation of transactional services is the focus on the client” (Kris & Fahy, 2003, p. 5). But Kris and Fahy

What is Shared Services?

75

(2003) do not expand on this statement in their work. If the concept of internal customer (or client) is critical to the definition of Shared Services the available literature does not address this issue in a comprehensive analytical manner. The term “Customer” has always meant the external public that purchases the products or services produced by a company, and to support their customers a firm establishes internal activities and systems to monitor the quality of service provided (Adler, 2003). Within the company’s internal operations it “became the responsibility of some employees to serve other employees (i.e. internal customers), or have to depend on the services of others (i.e. internal providers)” (Adler, 2003, p. 20) in a similar way that marketing stresses the importance of meeting external customer needs. Other departments and employees are now seen as “internal customers,” whose requirements need to be met. So “internal providers” become just as important as the “external providers.” The concept of “customers” and “providers” has been “internalized” (Adler, 2003, p. 20). Farner, Luthans, and Sommer (2001) claim that the concept of “internal customer” emerged in the mid-1980s when reducing costs often resulted from eliminating people’s jobs through downsizing; quality was often sacrificed for short-term cost savings. While the existing literature on internal customer service “is largely anecdotal” (Farner et al., 2001), Davis (1992, p. 34) claims that: in the Eighties, U.S. business learned important new skills for identifying and satisfying external customers. Inevitably, this experience led to a recognition that the needs of internal work processes and internal customers were critical to external service delivery.

The “internal customer service model” emerged to counter the negative impact of downsizing and became a central focus for enhancing the company’s quality efforts. The term “internal customer” evolved in part from both the process and continuous improvement perspectives, and serves as a useful framework for implementing a process approach to quality management on a continuous basis (Farner et al., 2001). Bergeron (2003, p. 35) states that “in the Shared Services model customers are of three types: external-corporate, external Shared Services business unit and internal”. He adds that “internal customers are employees of the parent corporation.” Regardless of type, all customers have expectations about service, quality, price, and delivery, however, if Bergeron’s (2003) definition of “internal customers are employees of the parent corporation” is to be accepted, how are they paying for the services provided by the SSC? On the other hand, Schulman et al. (1999, p. 9) define customers as “internal partners,” and that “business units partners participate in defining the services required from the Shared Services operations and the service levels that are expected of it.” Partnership and service levels become the key differentiators between a consolidated shared service environment and a centralized corporate staff environment. The management of business units, which provide a service to external customers, is freed up

76

Joseph Soalheira and Greg Timbrell

from managing the time-consuming, internal transactions so they may focus on customer-facing activities integral to external customer satisfaction. Reilly and Williams (2003) suggest that, in Shared Services, the customer determines the nature of the services that are available to a number of users under a common provision. They argue that the “user is chooser” (Ulrich, 1995, p. 13) and unlike conventional service provision, the internal customer defines the level and type of services to take up. The power and leverage shifts from the provider to the customer. If it is reasonable to assume that there are “internal customers” in the firms that have established SSCs, then it is important that the concept of internal customer service is also considered. But should internal customers really exist at all? The importance of the internal customer is presented by Albrecht (1992, p. 101) thus: If you’re not serving the customer, your job is to serve somebody who is. The concept of internal service — the idea that the whole organization must serve those who serve — has emerged as one of the most important principles of the service management approach. It is, truly, a management idea whose time has come.

While the internal customer and internal customer service concept have evolved, some critics can be found. Harari (1991, p. 43) claims that the focus on internal customers “diverts attention away from those folks who pay the bills,” and “often justifies or even fosters narrow-vision turfism and fiefdoms overstaffed by people who are divorced from intimate knowledge of the folks who pay the bills.” Furthermore, Harari (1993, p. 32) is also of the view that “if you insist on keeping people who serve internal customers, then insist that they charge those internal customers for their services. Real customers pay for goods and services.” The issue of charging for internal services is a key principle of the concept of Shared Services; however, it is one of the issues least addressed in the literature and by practitioners. Harari (1993) argues that the only way to use the term “customer” inside a company is if a market rate is charged for the services provided, and the internal customer has the freedom to procure the services from other providers outside the company. Harari (1993, p. 32) defends that the internal providers should charge “prevailing market rates” and they should be able to sell their services to others outside the company. He noted: … but at the same time, smash in-house monopolies by allowing internal customers the right to scan the marketplace worldwide to see if they can buy better services at better prices. Injecting these market realities into your organization will guarantee immediate quantum leaps in internal customer service — from those internal vendors that survive. The removal of protectionism will quickly uncover whether or not the internal customers currently perceive their internal vendors to be offering anything of value.

Finally, Harari (1991, p. 43) sums up his opposing views to the concept of internal customer by stating that “if you’re not serving a customer, you’d better start,” and “because when all is said and done there are no internal customers. There are just

What is Shared Services?

77

customers.” This is a very exciting proposition as it can be argued that unless the SSC is able to integrate its internal and external customer (consumer) business processes to enable the company to deliver products and services seamlessly, the role of the SSC in the company is diminished in its contribution to the company’s competitiveness. In the Shared Services context, the firm’s internal business units purchase services from the SSC, the employees may also use the SSC services, and the employees who deliver services to internal customers may also provide services to external customers. This expands the opportunities for further research to include internal customer service. Davis (1991, p. 6) argues that it is possible to “broadly divide the internal operations of a company into manufacturing operations (or pre-service delivery processes in a service company) and clerical, professional, and administrative support.” This is somewhat similar to Porter’s value chain of the firm that includes “support activities” and “primary activities” (Porter, 1990, p. 40). The firm’s effectiveness may depend on how well the internal services are coordinated among different departments and, where necessary, linked with outside services (Davis, 1991). “A SSC is positioned closer to the customer and the customers do have a degree of ownership over the service delivery” (Janssen & Joha, 2006, p. 103). Aguirre et al. (1998, p. 2) state that “Shared Services is rapidly becoming a model for providing corporate support services,” and that Shared Services help firms build “critical capabilities” that can be segmented into “transaction-based, expertisebased and strategy-based.” These may need different approaches in the way they are managed and delivered. In the context of the firm, the “basic tenet of internal service is that each department either receives work from, or processes work for another department, as the process management approach emphasizes” (Farner et al., 2001, p. 351). In other words, some internal departments or SSCs work for internal customers. If it is agreed that an SSC delivers internal services that the concept of internal service requires some level of attention.

Internal Customer Service If it is agreed that within the context of Shared Services, internal customers do exist, then the issue of internal customer service is also valid. Therefore, an immediate question will arise: “How important is providing quality service to internal customers? Simply put, it is critical” (Pfau, Detzel, & Geller, 1991, p. 9). They state that “the lack of close attention to internal supplier-customer relationships can jeopardize external customer satisfaction. Companies must ensure that all customers are satisfied — both within and outside of the firm.” Their hypothesis is that a “firm’s ability to meet its external customer needs depends directly on how well it satisfies the needs of these internal customers.”

78

Joseph Soalheira and Greg Timbrell Cavalcante (2012, p. 27) supports this view by stating that: most companies that have developed a reputation for excellent customer service did not achieve it without everyone in the organization adopting a customer service attitude. They have achieved it by fostering a customer service culture throughout the organization, one that supports the belief that customer service is not just a department.

This view is also consistent with Aguirre et al.’s (1998, p. 3) principle of “Service Culture: Treat the business units like customers, offering services they value and charging for each.” An internal provider can increase its value to the company by focusing on internal customer service, providing value, and strategically marketing its services. This may also reduce the likelihood that it will become a candidate for outsourcing (McDermott & Emerson, 1991). The introduction of internal service and improvement quality programs by companies also encourages innovation, productivity improvement, and cost control in the same way that external providers do as part of their work to remain competitive. Pfau et al. (1991, p. 10) state that: strengthening relationships with internal customers improves relations with external ones. External customer satisfaction is really the outcome of excellent teamwork and close, cooperative relationships among various departments and people within the organization.

A company that delivers excellent external service but lags in internal service reveals a serious gap in quality that is linked to wasted time, errors, extra quality control costs, and added overhead costs. A renewed focus on internal service delivery can enhance a unit’s strategic value to the company, and in a highly competitive and global economy, cost-conscious companies want their internal units to be competitive with the services and prices of outside suppliers, because they know that “service and quality must be built from within the organization” (Pfau et al., 1991, p. 10). In the main, the literature on internal customer and internal service does not focus on these topics from a Shared Services perspective. This link is not clear nor is deliberate and can only be made in the context that an SSC is an internal provider of services to internal customers. This connection and alignment of internal/external customers is a critical aspect for future research to demonstrate the role and its contribution to the firm’s competitiveness.

What Is the Role of Shared Services? The role of Shared Services within the firm is a topic that, similar to the definition, depends on who is trying to establish it and “at best, offered companies a way to cut costs” (Kearney, 2004, p. 2). The available literature seldom focuses directly on the role and its importance within an organizational model of a firm. Aguirre et al. (1998, p. 4) identify the role of Shared Services as that of “a business unit perceived and managed as an outside vendor with no choice but to be

What is Shared Services?

79

price and service level competitive.” From Aguirre et al.’s (1998) viewpoint, it is quite clear that the SSC not only implements the policies of the corporation generally, provides services to the firm’s business units whose work is focused on external customers, but it also manages the business relationships with external providers and may also compete directly with them. In Aguirre et al.’s (1998, p. 4) view the role of SSC is to “provide cost effective client-driven services including transaction services realizing economies of scale, and centers of expertise services realizing economies of scope, and to manage outsource relationships according to business requirements and for cost competitiveness.” Herbert and Seal (2009, p. 46) argue that managers “need to market the concept of the Shared Services Center and more actively sell its services.” For the SSC to succeed, management needs to “sell” and “market” the benefits, but for team leaders or functional managers to grasp the concepts of internal selling and marketing is not an easy task because traditionally their roles have been of managing employees to deliver results. An SSC needs to “deliver service support with minimum hassle; that is, the routine, reactive, transaction processing work,” for example, paying invoices, recruitment, and other typical transaction-based activities sometimes described as the “bread and butter” of the SSC (Herbert & Seal, 2009). To implement successful SSC, managers need to change their roles and undertake selling and marketing activities within the company to gain management support and buy-in. Herbert and Seal (2009, p. 46) define this “selling” as being “to really know the customer and sorting any service issues before they become a problem, whilst marketing is about anticipating needs and then providing appropriate services to fulfil those needs.” These are key distinctions between the “passive, bureaucratic head office disposition and the SSC customer approach” (Herbert & Seal, 2009, p. 46). To arrive at a better understanding of the role of Shared Services it is necessary to examine the operating principles that underpin Shared Services.

Shared Services Principles The available literature is rather sparse when describing Shared Services operating principles in a systematic manner or as part of a Shared Services framework. Aguirre et al. (1998) identify six key principles that should define and characterize any Shared Services model and are linked to its success, while flexibility and local service delivery at lower cost are critical in a Shared Services environment. Their principles include “Price transparency, Business management, Market responsiveness, Best practices proliferation, Process standardization and Service culture” (Aguirre et al., 1998, p. 3). To establish a Shared Services framework, a set of principles are required to support this framework but consensus is hard to find. Principles are critical to establish a universal view and to develop a model that supports management theory.

80

Joseph Soalheira and Greg Timbrell

From Schulz and Brenner’s (2010) study it is possible to establish a number of potential principles underpinning the Shared Services environment. They may include: • Manage the SSC like an independent business unit: if this were the case then the SSC should have the opportunity to service both internal and external customers. The latter is now being adopted by some SSCs and Global Business Services (GBS) as part of their competitive drive to enhance the revenue base of the firm. • Standardize processes and establish end-to-end process owners: this is key to the SSC concept, as it facilitates the delivery of economies of scale, with decisions to change processes centralized on a single rather than multiple process owners. • Employ service levels in the delivery to internal customers: should the SSC deliver what the internal customers want or what is required to support their line of business? The response to this question implies working close together with internal customers to ensure that their forward planning is a driver in the operational priorities of the SSC. • Create customer focus: to develop internal customer focus it has to be accepted that there are internal customers. This new paradigm requires the development of a service culture in the SSC employees’ minds and an effective change management program. • Price the services: if the SSC is to be an independent business unit delivering services to internal customers and potentially to external corporate customers, it requires a pricing mechanism for its services. This will enable not only benchmarking with external service providers but also identifying the real value to internal stakeholders. • Create competitiveness: If an SSC wants to be seen as a commercial entity then it is imperative that it adopts business best practices to ensure its value is transparent to the internal stakeholders and customers alike. It might also be constituted as a hybrid model managing partnerships with external providers, using outsourcing and/or offshoring to enhance the company’s competitive position. Aguirre et al.’s (1998) principles support Shared Services as a “market-efficient entity” that should be able to compete with other external providers. In accepting that their principles are part of a Shared Services model an important question arises: should the term Shared Services be used if the SSC does not follow one or more of the principles? If “each service should have its price” the implication is that the SSC must charge for its services to recover the costs. If the SSC is to be managed “like a business” then it must charge for the services it provides, however, if the SSC does not have in place a pricing structure for its services is the use of the term Shared Services legitimate? These are critical issues that Aguirre et al. (1998) do not address, and for that matter, the available literature is silent about. Irrespective of the maturity stage in the evolution of a SSC, the future and value of Shared Services requires a consensual definition, and a framework with agreed operating principles, that will enhance the role of an SSC as a new organizational form.

What is Shared Services?

81

Conclusion Throughout this chapter the authors have identified a range of challenges for the Shared Service research community to address. These challenges arise both from extant literature and preliminary observations from practice. The first gap identified is a lack of a general consensus on a conceptual definition of Shared Services, its role, principles, and framework. Although having different views provides greater richness to the topic, having “good” conceptual definitions are a “necessary condition for construct validity, which comprises content, criterion, convergent and discriminant validities” (Wacker, 2004, p. 624). Terms such as strategy, characteristics, resources, activities, processes, partners, and model seem to be used in different ways to define Shared Services, but Schulz and Brenner (2010) conclude that “there is no unique understanding of SSCs in science and practice” and that “a standardised definition of SSCs is not established.” This theme has been identified as an area where more research is required. Aguirre et al.’s (1998) definition that “Shared Services, is rapidly becoming a model for providing corporate support services” is simple and appears to meet the “eight rules for a good conceptual definition” (Wacker, 2004). However, this is a proposition that requires further analysis. The type of services, how efficiently or effectively they need to be managed, internal customer, service delivery, and the links with external customers are central to the Shared Services concept and its links with competitive advantage. Again, the terminology and literature do not offer integrated views within the Shared Services context. There are other research areas in the field of Shared Services not explored in the literature. For example, the links with competitive advantage, the strategic determinants affecting the adoption of Shared Services, the scope and type of Shared Services arrangements, the cost benefits and risks assessment as well as implementation models represent opportunities and challenges for the research community.

About the Authors Joseph Soalheira is a PhD Candidate and Researcher with the Faculty of Science and Technology, Queensland University of Technology (QUT), Brisbane, Australia. He has been a Shared Services practitioner for over 15 years, both in the public and commercial sectors covering typical Shared Services functions such as HRM, Finance, Procurement, Information Technology, and multiservices. He is also an internationally acknowledged speaker and workshop facilitator on a variety of Shared Services topics. Joseph Soalheira is the corresponding author and can be contacted at [email protected]. Greg Timbrell is a Senior Lecturer of Information Systems, at Queensland University of Technology (QUT), Brisbane, Australia. His areas of research include

82

Joseph Soalheira and Greg Timbrell

information systems consulting; organizational knowledge management; outsourcing; e-health; IT governance and government IT. Greg Timbrell can be contacted at [email protected].

References Adler, I. (2003). Internal customers. Business Mexico, 13(2), 20. Aguirre, D., Couto, V., Disher, C., & Neilson, G. (1998). Shared services: Management fad or real value? In A. B. Pasternack & A. J. Viscio (Eds.), Viewpoint, Booz, Allen & Hamilton, based on the centerless corporation: A new model for transforming your organization for growth and prosperity. New York, NY: Simon & Schuster. Albrecht, K. (1992). The only thing that matters: Bringing the power of the customer into the centre of your business. New York, NY: Harper Business. Bandara, W., Miskon, S., & Fielt, E. (2011). A systematic, tool-supported method for conducting literature reviews in information systems. In V. Tuunainen, J. Nandhakumar, M. Rossi, & W. Soliman (Eds.), Proceedings of the 19th European conference on information systems (ECIS, 2011). Bangemann, T. O. (2005). Shared services in finance and accounting. Aldershot, UK: Gower Publishing. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99 120. Bergeron, B. (2003). Essentials of shared services. Hoboken, NJ: Wiley. Cavalcante, D. A. (2012). Customer service: Internal and external. Aircraft Maintenance Technology, 23(8), 24 27. Retrieved from http://search.proquest.com/docview/1044706061? accountid=13380 Chen, Y. G., & Hsieh, P. F. (2008). A service-based view of Porter’s model of competitive advantage. International Journal of Management, 25(1), 38 53. Cooke, F. L. (2006). Modelling an HR shared services center: Experience of an MNC in the United Kingdom. Human Resource Management, 45(2), 211 227. Davis, T. R. V. (1991). Internal service operations: Strategies for increasing their effectiveness and controlling their cost. Organisational Dynamics, 20(2), 5 23. Davis, T. R. V. (1992). Satisfying internal customers. Planning Review, 20(1), 34 37. Deadrick, D. L. D., & Gibson, P. A. P. (2007). An examination of the research practice gap in HR: Comparing topics of interest to HR academics and HR professionals. Human Resource Management Review, 17(2), 131. Farner, S., Luthans, F., & Sommer, S. M. (2001). An empirical assessment of internal customer service. Managing Service Quality, 11(5), 350 358. Fersht, P., Filippone, T., Aird, C., & Sappenfield, D. (2011). The evolution of global business services: Enhancing the benefits of shared services and outsourcing. HfS Research Ltd. Retrieved from http://hfsresearch.com Forst, L. I. (2001). Shared services grows up. The Journal of Business Strategy, 22(4), 13 15. Harari, O. (1991). Should internal customers exist? Management Review, 80(7), 41 43. Harari, O. (1993). Internal customer, R.I.P. Management Review, 82(6), 30 32. Hempel, C. G. (1970). Fundamentals of concept formation in empirical science. In O. Neurath, R. Carnap, & C. Morris (Eds.), Foundations of the unity of science (pp. 653 745). Chicago, IL: University of Chicago Press.

What is Shared Services?

83

Herbert, I., & Seal, W. (2009). The role of shared services. Management Services, 53(1), 43 47. Janssen, M., & Joha, A. (2006). Motives for establishing shared service centers in public administrations. International Journal of Information Management, 26, 102 115. Kearney, A. T. (2004). Success through shared services: From back-office functions to strategic drivers. Chicago, IL: A.T. Kearney. Kearney, A. T. (2013). Rewriting India’s shared services playbook. Confederation of Indian industry. Gurgaon, India: A.T. Kearney. Retrieved from http://www.atkearney.com/ documents/10192/844413/Rewriting+Indias+Shared+Services+Playbook.pdf/7d8fbb39-705544fd-94c8-4ab5d4b216b5 Kris, A., & Fahy, M. (2003). Shared services centres: Delivering value from effective finance and business processes. London, UK: FT/Prentice Hall, Pearson Education. Malcolm, I. (1999). Shared services: Re-run of an old movie or part of a continuing revolution? Management accounting, December, Chartered Institute of Management Accountants (CIMA). McDermott, L. C., & Emerson, M. (1991). Quality and service for internal customers. Training & Development Journal, 45(1), 61 64. Miskon, S., Bandara, W., Fielt, E., & Gable, G. (2011). An exploration of shared services types in higher education. AMCIS 2011 proceedings. all submissions, paper 343, Detroit, MI. Retrieved from http://aisel.aisnet.org/amcis2011_submissions/343 Miskon, S., Bandara, W., Gable, G., & Fielt, E. (2010). Understanding shared services: An exploration of the IS literature. International Journal of E-Services and Mobile Applications, 2(4), 60 75. Pfau, B., Detzel, D., & Geller, A. (1991). Satisfy your internal customers. Journal of Business Strategy, 12(6), 9 13. Pfeffer, J., & Sutton, R. (1999). Knowing “what” to do is not enough: Turning knowledge into action. California Management Review, 42(1), 83–109. Porter, M. E. (1990). The competitive advantage of nations. London, UK: The MacMillan Press Ltd. Quinn, B., Cooke, R., & Kris, A. (2000). Shared services: Mining for corporate gold. London, UK: Prentice Hall. Reilly, P., & Williams, T. (2003). How to get best value from HR: The shared services option. Aldershot, UK: Gower Publishing. Santosh, K. P. (2013). Shared services center optimisation: From cost reduction to strategic partnership. Genpact Europe. Retrieved from http://www.genpact.com/gbs Schulman, D. S., Harmer, M. J., Dunleavy, J. R., & Lusk, J. S. (1999). Shared services: Adding value to the business units. New York, NY: Wiley. Schulz, V., & Brenner, W. (2010). Characteristics of shared services centres. Transforming Government: People, Process and Policy, 4(3), 210 219. Singh, P. J., & Craike, A. (2008). Shared services: Towards a more holistic conceptual definition. International Journal of Business Information Systems and Change Management, 3(3), 217 230. Ulrich, D. (1995). Shared services: From vogue to value. Human Resource Planning, 18(3), 12 23. Ulrich, D., & Lake, D. (1991). Organizational capability: Creating competitive advantage. The Executive, 5(1), 77 92. Van Balen, M., & Bondarouk, T. (2009). HR shared service centers: From brand management towards success. In T. Bondarouk, H. Ruel, K. Guiderdoni-Jourdain, & E. Oiry (Eds.), Handbook of research on e-transformation and human resources management

84

Joseph Soalheira and Greg Timbrell

technologies: Organizational outcomes and challenges (pp. 1 520). Hershey, PA: IGI Global. doi: 10.4018/978-1-60566-304-3. Wacker, J. G. (2004). A theory of formal conceptual definitions: Developing theory-building measurement instruments. Journal of Operations Management, 22(6), 629 650. Wang, S., & Wang, H. (2007). Shared services beyond sourcing the back offices: Organizational design. Human Systems Management, 26(4), 281 290.

Chapter 5

Governance and Control of Shared Service Centers$ Reinald Minnaar

Abstract Purpose — The study aims to add to the knowledge of governance and control aspects of intrafirm relationships by exploring a transaction costs economics perspective (TCE perspective) on governance and management control structure choices related to the development of a shared service center (SSC). Design/methodology/approach — The notion of governance and control in SSC organizations is explored and a TCE model is developed to analyze management control structure choices for SSC governance. The nature of internal transactions is related to the dimensions of transactions. Then an example case study is used to illustrate the application of the theoretical model. Findings — The theoretical analysis broadens existing frameworks of management control structures by particularly pointing to the possibility of including governance structures for internal transactions and exit threats (connected to a market mechanism) in the management control structure of an organization. Confrontation with the case example illustrates that the possibility of an exit threat was not explicitly considered by top management (“the designer” of management control). Although the TCE model may be a useful tool for analysis purposes, it has little explanatory power in this particular case. Organizational change processes toward SSCs are complex and can only partly be examined with conventional economics-based approaches such as TCE.

$

Some parts of this chapter are derived from the paper of Minnaar and Vosselman (2013) and of the PhD thesis of Minnaar (2014).

Shared Services as a New Organizational Form Advanced Series in Management, Volume 13, 85 103 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1877-6361/doi:10.1108/S1877-636120140000013005

86

Reinald Minnaar

Research limitations/implications — Governance and control of SSCs is conceptually theorized, using an instrumental economics approach. The case study is not generalizable but illustrates the use of the model in a particular situation. To understand governance and control change within SSC organizations, more longitudinal case studies are needed. Practical implications — A TCE approach to governance and control choices regarding SSCs might provide practitioners with insights into the efficiency of specific management control structures. Originality/value — This chapter contributes to the extant knowledge by both exploring and challenging a TCE perspective on SSC-related changes in management control. Keywords: Transaction Cost Economics; Exit threat; Management control; Shared services; case study

Introduction Emerging new organizational forms gives rise to interesting research opportunities in the scientific management accounting and control discipline. One of these opportunities is the study of governance and control in lateral relations (Busco, Quattrone, & Riccaboni, 2007; Scapens & Bromwich, 2001; Van der MeerKooistra & Scapens, 2008). Lateral relations are connected to rather flat structures in which managers mainly work with other managers at similar levels within the organization (i.e., other business unit managers) or with managers at similar levels in other organizations (Van der Meer-Kooistra & Scapens, 2008). One of the new organizational forms involving lateral relations is a shared service center (SSC). Although the first SSCs already started in the mid-1990s, today organizations still struggle with the introduction of this construct and the way to govern it (Herbert & Seal, 2012). Management accounting and control research is traditionally preoccupied with hierarchical and vertical relations, rather than more horizontal relations. Hopwood (1996, p. 589) therefore made a call for “looking across rather than up and down.” He proclaimed a need to explore the lateral processing of information within organizations (intrafirm) and between organizations (interfirm). Since then a number of studies have been conducted but in-depth studies that focus on control and governance structures for such lateral organizational forms are still scarce (see Caglio & Ditillo, 2008; Van der Meer-Kooistra & Vosselman, 2006; Vosselman & Van der Meer-Kooistra, 2006a for reviews). This chapter focuses on the governance and control of lateral relations within organizations and particularly on relationships between business units and SSCs. In general, this chapter aims to add to the knowledge of governance and control aspects of SSC relationships within firms.

Governance and Control of Shared Service Centers

87

The main contribution of this chapter is twofold. First, in order to fully accommodate for management control of an SSC the chapter aims to make a case for a broader concept of management control. Such concept allows for the incorporation of a market mechanism in influencing SSC managers, thus extending extant management control frameworks as for instance developed by Anthony (1965, 1988), Zimmerman (2011), and Simons (1995) and further contributing to a line of research that was set out by Spekle´ (2001) and Vosselman (2002). Second, it applies the transaction cost economics (TCE) approach in analyzing governance and control choices that are related to the development of an SSC. The chapter links the development of an SSC with the creation of internal client supplier relationships and, consequently, with the horizontalization of management control. It demonstrates how vertical control relationships between top management and management of the SSC is complemented with horizontal control relationships between the SSC and its internal clients, and how bureaucratic controls may be complemented with market controls. The remainder of this chapter is organized as follows. Subsequently the concept of SSCs and both the distinctiveness and interconnectedness of governance and management control will be discussed. Then a framework will be developed using a TCE approach to analyze management control choices for the governance of SSCs. Next an example is given of a Dutch newspaper publisher called PCM that faces significant changes in its management control structure and the governance of services. This case is used to illustrate how a TCE viewpoint is helpful in analyzing the governance and control of SSCs. The chapter ends with a discussion and conclusion.

Shared Service Centers An SSC is a rather independent organizational unit that provides services to various other organizational units. This concept solves the problem that each business unit is engaged in tasks that do not belong to its core business. Inter alia because of the rapid development of Enterprise Resource Planning systems, SSCs enable efficiency improvement by standardization and concentration of services such as administration, customer service, finance, human resources, information technology, real estate and physical plant, and sales and marketing (Bergeron, 2003). It is now possible to concentrate these kinds of tasks in a separate service unit and to realize economies of scale. By introducing an SSC, the benefits of a divisional business organization are kept, but without the cost disadvantages (Strikwerda, 2005). Noncommercial organizations, such as ministries, municipalities, hospitals, and universities, have also started to embrace the concept and set up SSCs for supporting tasks (Janssen & Joha, 2006). The main motives to establish an SSC are cost reductions and service improvement (Bergeron, 2003; Fahy, Curry, & Cacciaguidi-Fahy, 2002; Janssen & Joha, 2006; Strikwerda, 2005). Other reasons can be: focus on core business, more control

88

Reinald Minnaar

and transparency of costs, better performance of staff, and elimination of redundant functions (Janssen & Joha, 2006). Also, IT developments can make market transactions more efficient and can develop SSCs into an essential part of the infrastructure of businesses (Strikwerda, 2005). According to Janssen and Joha (2006) a distinction should be made between a central staff department, an SSC, and outsourcing. A central staff department (centralized model) provides top management with relatively much influence and does not entail the creation of internal client supplier relationships, whereas outsourcing implies a client supplier relationship between business units and external market parties based on formal contracts (e.g., Bergeron, 2003). An SSC, however, is standing close to the internal customers (the business units); the internal customers have a degree of ownership over the service (Janssen & Joha, 2006, p. 103). According to professional journals,1 the adoption of the concept of an SSC is perceived as an essential business strategy decision. As a consequence of an increased (internal) client-oriented attitude not only the costs decrease, but also the quality of the services increases. Therefore, for a large population of organizations, adoption of the concept is expected to be a matter of time (Strikwerda, 2005). In order to assist practitioners in developing the construct, the articles in these professional journals merely focus on the steps that have to be taken to implement SSCs. The question how governance and control changes as a consequence of an SSC is not answered. When an SSC is introduced, control changes from vertical hierarchical control to a more horizontal relationship (Van der Meer-Kooistra & Scapens, 2008; Vosselman, 2002). In horizontal relations managers work primarily with other managers at similar hierarchal levels and essentially involve cooperation and coordination, rather than command and control. The relationship between the SSC and its clients are of a nonhierarchical or nonvertical nature. There is no subordination involved. As a consequence of such horizontalizing, the task of influencing SSC management so that the SSC performs effectively and efficiently is, at least partly, delegated to business unit managers. This has the potential to economize on the transaction costs connected to the governance structure of the hierarchy. It even opens up possibilities to introduce a market mechanism in the management control of the organization. These possibilities are discussed in the next section.

Governance and Control Transaction Cost Economics A starting point for analyzing governance and control in SSC relations is TCE, a theory that approaches control and governance structures as the result of rational

1

For instance Management control en accounting, Chief Financial Officer, Financieel-Management.nl, Jaarboek Financial Shared Service Centers.

Governance and Control of Shared Service Centers

89

decision making by individual human beings (see review of Caglio & Ditillo, 2008). By taking a TCE perspective the focus is on the design and choice of structures (governance structures and control structures) that involve the relationship between an SSC and other departments or business units. Coase (1937) already stated that firms exist because of transaction costs, as transaction cannot take place at zero costs. This is a reaction to neoclassical economics thinking, that assumes full transparency of present and future market conditions. Factors like reliability and delivery times play little or no role, and only the price counts. Termination has no consequences, as a new relation for a certain product or service can be found at any time under the same conditions (Van der Meer-Kooistra & Vosselman, 2000). TCE is to a large extent developed by Williamson (1979, 1981, 1996) and offers an ex ante calculative choice perspective on the structuring of governance in transactional relationships. It suggests that the relationships are governed by contracts incorporating control structures that provide solutions for coordination problems and anticipated opportunism. In TCE terms, the basic unit of analysis is the transaction. Transactions “contain in itself the three principles of conflict, mutuality and order” (Commons, 1932, p. 4). Building on this idea Williamson (1979, 1981, 1996, 2000) described governance as the institutional frameworks to craft order, mitigate conflicts, and realize mutual gains. Within this framework “transactions are negotiated and executed” (Williamson, 1979, p. 239). In a generic sense, such transactions may be governed by a hierarchy (an organization), but may alternatively also be governed by a market or a hybrid form between a market and a hierarchy. Markets, hierarchies, and hybrids are thus conceived of as alternative generic governance structures, each having its own transaction costs. In essence TCE states that organizations should economize on the sum of production and transaction costs. The transaction attributes influencing the cost of the transaction are frequency, asset specificity (idiosyncratic nature of investments), and uncertainty. These attributes will lead to low or high transaction complexity and that complexity needs to be governed by an appropriate structure. Mutual coordination is necessary in the buy decision, as both partners are dependent on each other and carry the risk of opportunistic behavior by the other party. This risk of opportunistic behavior is high when the transactions involve asset specificity, when they are subject to uncertainty, or when the transaction is frequent. Asset specificity includes specific investments, where a contractor invests in specific assets for the outsourcing party. The outsourcing party can take advantage of this by forcing a price reduction, which the contractor must accept, because it cannot sell the assets to another party or only for a lower price. Uncertainty involves transactions that are subject to disturbances. Due to these risks, ending a transactional relationship can involve high switching costs. Therefore, TCE explains that parties involved in transactions should not only consider the makeor-buy costs, but coordination and control costs connected to the risk of poor performance and opportunistic behavior as well (Van der Meer-Kooistra & Vosselman, 2000).

90

Reinald Minnaar

Governance and Control at Different Levels within an Organization In a specific situation, a governance structure is considered to be the result of a purposeful choice by rational human actors who are efficiency seeking (Vosselman & Van der Meer-Kooistra, 2006b). Given that choice, there is a need for systems, procedures, and processes that influence different managers to act effectively and efficiently, which are called management control structures (Anthony, 1965, 1988). As a consequence the concepts of governance and management control should be treated distinctively. Extant research is not always clear about how governance and control refer to each other. Van der Meer-Kooistra and Scapens (2008) follow Nooteboom (2002) and use the term governance for lateral intrafirm relationships because senior management is not in the position to exercise control, since knowledge about the processes is present at the parties in the relationship. Subordinates are expected to “govern” their own lateral relationship and senior management facilitates this process. Van Veen-Dirks and Verdaasdonk (2009) use the concept of governance for interfirm control in a supply chain and include local management control of the participating companies as part of the overall governance. In both cases management control is subordinate or a part of governance. To distinct governance and control within SSC organizations, the remainder of this section develops these constructs further. The result is visual in Figure 1 and will be explained accordingly.

Governance structure choice

Hierarchy

Management control structure choice

Control by design of vertical relationships

Governance of transactional relations

Management control of transactional relations

Figure 1:

Control in vertical relationships

Market

Hybrid

Control by design of horizontal relationships SSC with Captive b/s

SSC with Free b/s

Internal arrangements

External arrangements

Control in horizontal relationships

Governance and control in SSC organizations (Minnaar, Forthcoming).

Governance and Control of Shared Service Centers

91

Figure 1 starts from the generic TCE distinction of Williamson where the governance structure is a choice between a hierarchy, a hybrid, or a market. Governance is related to transactions and is a generic solution meant for coping with coordination requirements and appropriation concerns (Dekker, 2004; Gulati & Singh, 1998). The basic question here is if the transactions are executed only by the organizations itself or together with third parties. When organizations are considering lateral relations on a long-term contractual basis, the choice for market governance is not prevalent. Market governance is the main governance structure for nonspecific transaction, that can easily be purchased elsewhere, simply called a sale (Williamson, 1979). So the main governance structure solutions for lateral relations are the hierarchy or the hybrid. When a hierarchy is chosen as a generic governance structure subsequently a management control structure has to be designed that drives the behavior of the managers of the organization toward goal congruence. The management control structure choice concerns whether top management will exclusively exercise topdown control by the design of vertical relationships or whether control is also exercised through horizontal client buyer relationships. When SSCs are established, there is an inherent choice for the design of horizontal client buyer relationships. An important additional choice problem then is if the transactions are with captive buying or selling (b/s) or free b/s. Or in other words, if the divisions are obliged to buy products or services from the SSC or if they are free to purchase their goods or services from another party outside the organization. After these management control structure choices, the horizontal transactions need to be governed again which lead to a new level of governance of transactional relations. This is only necessary for the horizontal transactions, because the horizontal transactions have to be negotiated between equal partners. In a vertical management control design, top management can make its own decisions. The horizontal transactional relations between an SSC and other divisions are in general governed by contractual frameworks called service-level agreements (SLAs). The horizontal management control design within the hierarchy as a generic governance structure may move further into the direction of a hybrid between a hierarchy and a market whenever top management decides that business unit management is also allowed to buy services from external parties. The development toward a hybrid generic governance structure would thus be a consequence of a design choice in the management control structure by top management. At core, top management then decides to introduce a market mechanism in the management control of the SSC, therefore creating more distance for itself toward the SSC and putting itself even more in a position of exercising “arm’s length control” (Spekle´, 2001). This implies the introduction of an exit threat in the management control of the service unit, provided that the right incentives for business unit managers are in place. Whenever the price quality ratio of the services is below the expectations of the internal clients, the SSC management runs the risk that the business unit managers decide to buy from an outside company. Business units thus put market pressure on SSC management. As soon as business unit managers decide to opt for external transactions, they are in need of negotiating a contract (a governance structure) with

92

Reinald Minnaar

the external supplier. This form of market control is, however, still subordinate to the management control system of the organization the business unit manager belongs to. The final layer at the bottom of Figure 1 is the specific management control of the vertical or horizontal relationship. For vertical management control, top management has to make choices regarding the decentralization of decision rights, the measurement of performance and the setting of targets (Zimmerman, 2011). Also within horizontal arrangements, such as an SLA, similar management control structures can be agreed on, for example, in the form of key performance indicators and certain incentive systems. Thus, both governance structures and control structures can be present at different levels within an organization.

Management Control Choices for the Governance of SSCs: A TCE Approach In this section a model will be developed to analyze SSC control structure choices based on Vosselman’s (2002) TCE reasoning which assumes that choices in management control structures depend on dimensions of transactions. Following Williamson (1979) three of such dimensions can be distinguished: the nature of the services, the frequency and volume of the transactions, and the uncertainty and complexity of the transactions. More concrete, on the basis of TCE it is claimed that top management’s choices for both the creation of lateral transactions between the SSC and business units and the introduction of a market mechanism (exit threats) depend on the nature of the transactions, the frequency and volume of the transactions, and the uncertainty and complexity regarding the transactions. The model is depicted in Figure 2. The degree of standardization of transactions (characteristics of the services) is important because it heavily influences both the distance between the providers and the users of services, and the degree to which a market mechanism in transactions might be efficient. A longer distance between service providers and users becomes efficient as services are more standardized. Concentration of services in an SSC with accompanying transactions, with business units then, is not only efficient from the perspective of economies of scale, but also from a governance (and transaction costs) point of view. The more standardized the services are, the more an introduction of an exit threat (with possible future external transactions) gets efficient because there will be less problems with “small numbers” and so, there will be switching possibilities. It is proposed, then, that standardized services (that will automatically be relatively certain and simple), regardless of their volume/ frequency, will be concentrated in an SSC and that the internal transactions will also be governed by market-like controls (exit threats). In other words, an SSC with free buying and selling is the efficient option then. This is also true for more customized services that are only needed at an occasional basis, because the vulnerability

Governance and Control of Shared Service Centers Characteristics of the services

Frequency and volume

Degree of uncertainty/ complexity

93

Management control structure choices SSC free b/s

Standard services Occasional Customized services

Low to intermediate Recurring High

SSC captive b/s

Low to intermediate Occasional Highly specialised services

High Recurring

Deconcentration

Figure 2: Management control structure choices for service transactions (Minnaar & Vosselman, 2013).

to potential opportunistic behavior is relatively small and does not outweigh the potential economies of scale connected to a concentration of service provision. As the frequency and volume of customized services rise, the vulnerability to opportunistic behavior of potential external suppliers may rise, thus making the option for an SSC with captive buying and selling more efficient. In case of a recurring customized need for services that are highly complex and/or uncertain, top management may even opt for deconcentration in the business units. A shorter distance between the providers and users of services becomes efficient as the services get more specialized (i.e., more idiosyncratic) because the knowledge required for the service provision is more strongly located in the business unit in need of such services, thus making the alternative of deconcentration of service providing in the business unit more efficient. So, for specialized and idiosyncratic services the efficient choice will be deconcentration of services. This is particularly a valid and efficient option if the business unit has a recurring and high-volume need for the services. Where the need for highly specialized services is occasional, the choice for either deconcentration or a distanced service provision without a market mechanism (an SSC with captive buying and selling) depends on the level of uncertainty and complexity. As complexity and uncertainty rise, the choice for deconcentration will become more efficient because of lower information asymmetry.

94

Reinald Minnaar

An Example: Advertisement Shared Services at PCM This section uses a concrete empirical example, based on a case study of Minnaar and Vosselman (2013) to illustrate the abstract theorizing in this chapter. It shows, based on the TCE modeling, how transaction characteristics influence governance and control choices. To understand how and why a certain control and governance structure comes into place, a qualitative research approach is appropriate. It preserves complexity and integrity of the phenomenon under study, offers views and experiences of the study participants, and examines the views and perceptions in an interpretive manner. The study is a response to calls for in depth and process studies on lateral relationships (e.g., Caglio & Ditillo, 2008). The choice for a case study is based on the nature of the research questions (how and why questions), the absence of a need or desire to control behavioral events as well as a focus on a contemporary phenomenon in a real-life context (Silverman, 2005; Yin, 2003). Chua (1986, p. 615) states that for interpretive understanding, “‘thick’ case studies conducted in the life-world of actors are preferred to distant large-scale sampling or mathematical modeling of human intention.” The research involves such activities as the review of contracts, the analysis of other documents, the participation in meetings, open interviews, presentations, and reflections. By gaining understanding of the changes in governance and control structures, and of the way in which they can be related to TCE, this study tries to make a contribution to theory. The case dates back to 2007 and concerned PCM, a publisher of daily newspapers and books with approximately an annual sales of 650 million euros and 2600 employees.2 PCM was in the middle of a reorganization toward decentralization and a rearrangement of their supporting services. More autonomy for the divisions and their SSC were the intended outcomes. This organization had to make difficult decisions about the division of tasks between the divisions and the SSC and made a good case for analyzing if the choices could be explained by TCE reasoning. The focus of the case is on the main newspaper divisions of PCM, that is, De Volkskrant, NRC, and Trouw, and on the SSC division called PCM-Media. The SSC is responsible for the advertisements revenues. The core activities of the business units are the gathering and reporting of news, and the selling of the newspaper. The most important sources of income are the revenues from selling the paper, and the revenues from selling advertisement space. This example does not intend to shed light on the management control structure and the management control processes within the SSC nor on operational control issues within the SSC. The focus is on changes in the management control structure in the organization at large (PCM). The outcomes are not generalizable but offer

2

PCM-Publishers, annual report 2007 and 2008.

Governance and Control of Shared Service Centers

95

an empirical insight in management control structure change related to the development of an SSC.

Changing SSC Governance and Control The newspaper divisions originally operated as departments that were only responsible for making the newspaper and for consumer marketing. Other business processes such as sales, HRM, and strategic planning were centrally controlled. The sale of advertisements was organized in a separate department (PCM-Media), that, from the point of view of the newspaper business units, was seen as a centrally controlled unit rather than as a business partner that delivered services (as an SSC would do). During 2007, a committee consisting of selected executives prepared a plan for a further decentralization within PCM. An important reason for this was that due to increasing competition by other media such as television and internet, revenues from advertisements decreased. The business unit managers were faced with a decrease in profits and felt dissatisfied with this. They were of the opinion that PCM-Media was underperforming. The CEO noticed that “cooperation between the newspaper business units and PCM-Media was far from optimal” and that “there wasn’t much accountability. When sales dropped they immediately blamed PCM-Media.” The main reason to change the structure into the direction of an SSC was that the executives of the newspapers were held responsible for their profits but couldn’t control the advertisements revenues and costs. PCM-Media operated very independently and cooperation with the newspapers was rather poor. The publishers were not happy with this arrangement. In the new situation the newspaper units were transformed from mere departments to autonomous units with profit and loss responsibilities. The business units and the SSC had to negotiate an SLA with clear agreements on services, costs, and revenues. They agreed that PCM-Media could sell advertisements to big clients, but the newspaper managers wanted to keep control over smaller clients sales. They argued that they could generate more sales for their divisions than the SSC. A problem was the feeling that they didn’t receive complete information from PCM-Media. They felt a need for more transparency. As a publisher expressed it: We as publishers didn’t have direct contacts with the market. PCM-media was in between as an intermediary. And that’s okay as long as the information coming from the marked is correct and accurate, but that was definitely not the case.

The business units and PCM-Media made a classification in their advertising clients’ database. All parties agreed on a list of 200 big clients, who were exclusively for PCM-Media. These clients represents approximately 80% of sales. It was agreed that the other, approximately 13,000 remaining smaller clients could also be approached by the business units. PCM-Media continued to perform the back-office activities, such as accounting, billing, and page layout, for all business units.

96

Reinald Minnaar

The business units established “unit sales” teams who approached the other small customers themselves. This will, according to business unit management, create an improved alignment between the themes in their newspapers and the interests of the clients: We have our own story and are better equipped to sell that. Also towards the business market, so they understand what unique market share they purchase, because that is what counts. You reach a unique audience.

The SLA-terms include a clause that the business units are not allowed to outsource the advertisements sales to outside parties. So, at least for the short term, there is captive buying and selling. From PCM’s strategic plan it is not clear whether this will continue to be the case in the future. Quotes, such as “it is not specifically forbidden” (Publisher), “maybe in the future” or “we did not look into that yet” (CEO), indicate that it is not an option at the moment. For the moment it proves that the business units have no other choice than to rely on PCM-Media for the “big clients” advertisements sales and back-office activities. In sum it may be concluded that PCM’s management control structure changed from concentrating the sales of advertisements in a central department with relatively little influence by internal customers toward a structure that implies a (partial) freedom of business units to sell advertisements “in house” (i.e., in the business unit) or they can choose to make agreements with the SSC (PCM-Media) about the sales of advertisements. Up till now, publishers are not allowed to approach external agencies for the sales of advertisements. So, for advertisement sales, the management control structure is based on captive buying and selling. The next section confronts this change with the theoretical model developed in the previous sections.

Analysis of PCM’s Management Control Structure This section illustrates how the management control choices within PCM can be described with the dimensions of the service transactions of the theoretical TCE model. First is analyzed which management control structure for the different services is optimal, based on the TCE model and then this is compared with the actual choice of PCM. Three services can be distinguished: (1) corporation-wide ads sales; (2) specific ads sales; and (3) administrative, back-office services. For each service the amount of customization, the frequency/volume, and the degree of uncertainty/ complexity will be considered. Corporation-Wide Ads Sales The largest part of the advertisements sales is corporation wide, which means that the ads can be sold for all business units, i.e., for all newspapers. This service is relatively standard. Although publishers acknowledge that PCM-Media has the

Governance and Control of Shared Service Centers

97

best competences to sell the bigger accounts, they also think they can find other outside agencies who have these competencies as well. However, some asset specificity, in terms of knowledge or experience, is characterizing the advertisements sales. All advertisement services needed by the business units are recurring and of high volumes as it represents a major part of revenues. The corporation-wide advertisements sales are daily transactions. Uncertainty is not mentioned in the case, but the degree of complexity depends on the advertisers’ demands. The more specific the advertisement has to be, the more complex it will become. For corporation-wide ads sales the degree of complexity can be described as low to intermediate. In the new structure the relatively standardized ads are sold by PCM-Media. Our model indicates that concentration of these services in an SSC rather than deconcentration of the sales activities in the three business units is an efficient choice. This enables a more efficient use of resources, and, thus, minimizes production costs and incurs economies of scale. It does so without incurring relatively high coordination costs and/or costs related to potential opportunistic behavior. So, the decision to opt for an SSC is consistent with our modeling. However, the decision to introduce the concept of an SSC is accompanied by captiveness between the business units and PCM-Media. In other words, there will be no free buying and selling. Yet, the model indicates that an SSC without captive buying or selling, and therefore, a further shift into the direction of market-based control would also be an option. Abolishing captive buying and selling is efficient whenever services are standardized, because the risk of a lock-in effect is minimal and there is no “small number bargaining.” This would enable the business units to switch to other suppliers in case of relatively bad performance and therefore would introduce an exit threat in the management control of services. As a consequence, business unit management would be further empowered to control the price quality ratio of the services and would get more controllability on its economic results. Furthermore, as a consequence of increased market control PCM-Media would be incentivized to be more competitive.

Specific Ads Sales A smaller part of the ads sales is customized; for instance when advertisers have to be found for a specific theme in one of the newspapers. This is for instance the case for special weekly newspaper sections of De Volkskrant, for instance about health or traveling. For customized ads, more knowledge about the contents of the theme is required, and, therefore, more specific agreements have to be made. It is however not a highly specialized task. The specific ads sales for campaigns or weekend newspapers do occur less frequently, but many of them are nevertheless recurring. They are however more complex, because internal coordination is needed regarding the advertisement strategy in specific media or campaigns. In the case study the sale of specific ads is in themselves not seen as very complex by the publishers. It just calls for a specific professional focus at PCM-Media. For this service an SSC with captive buying and selling appears to be the optimal choice.

98

Reinald Minnaar

The publishers choose to locate the sales activities of specific advertisements within the business units where they are the responsibility of so called unit teams. They state that PCM-Media eventually will only serve a few hundred of their largest clients, and that the other thousands of “smaller” clients will be approached by the business units themselves. In the terms of our modeling this would be labeled deconcentration. Is this an efficient choice? If ads sales is customized, it is still a relatively simple job. In terms of the theoretical model, customized and relatively simple services would imply a management control structure based on an SSC with captive buying and selling. In case the services are hardly customized, the sales will be efficiently governed by a market-based structure. Particularly since PCM already has an SSC running for the corporation-wide ads sales, it makes a concentration of the sales of advertisements to smaller customers in the SSC even more efficient. Deconcentration and the freedom this entails for the business units have led to a structure incorporating both an SSC and unit teams within the business units. A potential disadvantage is that diseconomies of scale might result, as different sales persons start approaching the same customers.

Back Office The back-office activities could be labeled a standardized service. In terms of our theoretical model the efficient management control structure would be an SSC with free buying and selling. This would lead to the lowest production and transaction costs. However, until now PCM chooses to concentrate these activities in an SSC with captive buying and selling. The option of free buying and selling is not explicitly considered.

Discussion The framework developed in this chapter adds to Vosselman’s (2002) framework of the horizontalization of management control and is geared to the specifics of SSCs. A TCE perspective on management control structure change related to the development of an SSC broadens existing frameworks of management control by particularly pointing to the possibility of including governance structures for internal transactions and exit threats (connected to a market mechanism) in the management control structure of an organization. To illustrate the abstract TCE model, the governance and control choices of PCM, a newspaper publisher, are examined. It appears that PCM’s top management did not take all the alternatives stemming from a TCE approach into account, particularly, the possibility of the introduction of an exit threat. To the extent that there was economic reasoning behind the concentration of services in an SSC, it was reasoning regarding economies of scale and not reasoning regarding transaction costs connected to specific management control structures.

Governance and Control of Shared Service Centers

99

The case example is however not meant as a test of the TCE model. The TCE model is an instrumental model, based on economic assumptions which simplify the problem to a set of variables. It is very well expected that cases in practice deviate from this model. Real-life situations tend to be more complex and solutions are based on more than just economic variables. Furthermore, in practice solutions might also be suboptimal. Conventional economics-based approaches such as TCE approaches do not study the real processes of change but focus on equilibrium and optimal solutions. Although such approaches might be useful in analyzing why a certain management control structure is rational, they will not explain the real-life processes that bring about this structure (Burns & Scapens, 2000). Thus, a TCE approach in SSC control choices has the potential to guide management in rational behavior, but they should be aware of the limitations of the model.

Limitations of a TCE Approach A TCE approach perceives governance choices in itself as relatively unproblematic (Vosselman & Van der Meer-Kooistra, 2006b). It is the result of a decision taken by a farsighted individual. The idea lying behind TCE governance and control choices is that a rational top manager takes an efficient decision on the structure and that the decision is then implemented almost automatically. At best, choice is conceived of as guided action based on farsighted decision making. The notion of “farsightedness” enables access to “one of the most important ‘tricks’ in the economist’s bag, namely the assumption that economic actors have the ability to look ahead, to discern problems and prospects, and factor these back into organisational/ contractual design” (Williamson, 1993b, p. 129). Critiques have challenged the notion of farsightedness. It is argued how both cognitive and institutional constraints impact on farsighted decision making. For instance, Roberts and Greenwood (1997) integrate a TCE approach and institutional approaches into a unified constrained-efficiency framework for the adoption of certain management control structures. They state that, indeed, decision makers are driven by efficiency-seeking behavior, forced by competition or institutional pressure of powerful actors. However, the cognitive and institutional constraints often result in design choices that are not efficient. In some cases not all design choices regarding management control structures are taken in consideration, while in yet other cases a management control structure is simply copied for legitimacy reasons. According to Quattrone and Hopper change has the characteristics of a “drift,” it is “an incomplete attempt of organising” (Quattrone & Hopper, 2001, p. 482). The notion of a drift reflects that in the process of reaching desired ends the decision maker is not able to control all contextual factors. Also at PCM the organizational changes toward an SSC proved to have some characteristics of a drift and thus challenged a view of change as a calculative, linear, and guided process. In the case, it were the interconnected actions of top management, newspaper business unit management, and SSC management that resulted in a relatively fluid changing management control structure.

100

Reinald Minnaar

Another critique of TCE is the absence of the dimension of trust. According to Williamson (1993a, 1996) the choice for a governance structure is based on calculated risks and trust does not add anything to that analysis. However, other authors argue that trust should play an important role in theorizing about governance and management control (De Man & Roijakkers, 2009; Nooteboom, 1996, 2004; Van der Meer-Kooistra & Scapens, 2008; Van der Meer-Kooistra & Vosselman, 2000; Vosselman & Van der Meer-Kooistra, 2006b). However, these limitations do not make a TCE approach to management control structure choice invalid. Researchers may demonstrate this approach to practitioners and, in doing so, may enhance rational economic reasoning concerning management control structure choice in practice. In a sense this implies that they contribute to the “performativity” (e.g., Callon, 2007) of TCE, that is that they help bringing the theory into life. For, as researchers have convincingly argued, a strict distinction between “positive” and “normative” theories is untenable (e.g., Ferraro, Pfeffer, & Sutton, 2005).

Conclusion Both the terms governance structure and management control structure are used in management control literature. This chapter illustrates that the decision to implement an SSC entails a management control structure choice within a hierarchical governance structure. Once this choice is made, an additional choice regarding the governance structure of transactional relationships between the SSC and the internal clients (business units) has to be made. In fact, this concerns the choice of a governance structure on a lower level. This “lower level” governance structure is reflected in a contract and/or an SLA. When business unit managers are free to buy services from third parties rather than from the internal SSC, the lower level governance structure moves into the direction of a hybrid. In this way business unit managers can put market pressure on SSC management; the market mechanism then becomes a powerful (horizontal) management control instrument. Based on TCE assumptions different SSC control structures can be chosen. To illustrate this TCE framework a real-life example is presented. The framework seemed helpful in describing practice and different SSC structures were identified. The case also revealed that the search for overall efficiency apparently is not the dominant force for developing a relatively stable structure. Although it may very well be that future interactions, through which divergent interests are levelled out, pull the management control structure further into the direction as predicted by the TCE-based model. An economic TCE approach might be a helpful tool for managers making governance and control choices concerning SSCs, but it has its limitations. Decision makers should be aware of these limitations and understand that an organizational design, based on instrumental economic frameworks, may lead to very different

Governance and Control of Shared Service Centers

101

outcomes in practice. In order to further explore governance and control change processes and their different outcomes in practice, more longitudinal case studies that enable to study changes in the long run should be conducted.

References Anthony, R. N. (1965). Planning and control systems: A framework for analysis. Boston, MA: Graduate School of Business Administration, Harvard University. Anthony, R. N. (1988). The management control function. Boston, MA: Harvard Business School Press. Bergeron, B. (2003). Essentials of shared services. Hoboken, NJ: Wiley. Burns, J., & Scapens, R. W. (2000). Conceptualizing management accounting change: An institutional framework. Management Accounting Research, 11(1), 3 25. Busco, C., Quattrone, P., & Riccaboni, A. (2007). Management accounting: Issues in interpreting its nature and change. Management Accounting Research, 18(2), 125 149. Caglio, A., & Ditillo, A. (2008). A review and discussion of management control in inter-firm relationships: Achievements and future directions. Accounting, Organizations and Society, 33(7 8), 865 898. Callon, M. (2007). An essay on the growing contribution of economic markets to the proliferation of the social. Theory, Culture & Society, 24(7 8), 139 163. Chua, W. F. (1986). Radical developments in accounting thought. The Accounting Review, 61(4), 601 631. Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386 405. Commons, J. R. (1932). The problem of correlating law, economics, and ethics. Wisconsin Law Review, 8, 3 26. Dekker, H. C. (2004). Control of inter-organizational relationships: Evidence on appropriation concerns and coordination requirements. Accounting, Organizations and Society, 29(1), 27 49. De Man, A. P., & Roijakkers, N. (2009). Alliance governance: Balancing control and trust in dealing with risk. Long Range Planning, 42(1), 75 95. doi: 10.1016/j.lrp.2008.10.006 Fahy, M., Curry, J., & Cacciaguidi-Fahy, S. (2002). Financial shared services centres: Opportunities and challenges for the accounting profession. ACCA Research Report no. 79 (p. 120). Certified Accountants Educational Trust, London. Ferraro, F., Pfeffer, J., & Sutton, R. I. (2005). Economic language and assumpions: How theories can become self-fulfilling. Academy of Management Review, 30(1), 8 24. Gulati, R., & Singh, H. (1998). The architecture of cooperation: Managing coordination costs and appropriation concerns in strategic alliances. Administrative Science Quarterly, 43(4), 781 814. Herbert, I., & Seal, W. (2012). Shared services as a new organisational form: Some implications for management accounting. The British Accounting Review, 44(2), 83 97. doi: 10.1016/j. bar.2012.03.006 Hopwood, A. G. (1996). Looking across rather than up and down: On the need to explore the lateral processing of information. Accounting, Organizations and Society, 21(6), 589 590. Janssen, M., & Joha, A. (2006). Motives for establishing shared service centers in public administrations. International Journal of Information Management, 26(2), 102 115.

102

Reinald Minnaar

Minnaar, R. (2014). Control and governance of internal and external outsourcing. Doctoral Dissertation, Radboud University, Nijmegen. Minnaar, R., & Vosselman, E. (2013). Shared service centres and management control structure change: Exploring the scope and limitations of a transaction cost economics approach. Journal of Accounting and Organizational Change, 9(1), 74 98. Nooteboom, B. (1996). Trust, opportunism and governance: A process and control model. Organization Studies, 17(6), 985 1010. Nooteboom, B. (2002). Trust: Forms, foundations, functions, failures and figures. Cheltenham: Edward Elgar. Nooteboom, B. (2004). Governance and competence: How can they be combined? Cambridge Journal of Economics, 28(4), 505 525. Quattrone, P., & Hopper, T. (2001). What does organizational change mean? Speculations on a taken for granted category. Management Accounting Research, 12(4), 403 435. Roberts, P. W., & Greenwood, R. (1997). Integrating transaction cost and institutional theories: Toward a constrained-efficiency framework for understanding organizational design adoption. The Academy of Management Review, 22(2), 346 373. Scapens, R. W., & Bromwich, M. (2001). Editorial report-management accounting research: The first decade. Management Accounting Research, 12(2), 245 254. Silverman, D. (2005). Doing qualitative research (2nd ed.). London: Sage. Simons, R. (1995). Control in an age of empowerment. Harvard Business Review, 73(2), 80 88. Spekle´, R. F. (2001). Explaining management control structure variety: A transaction cost economics perspective. Accounting, Organizations and Society, 26(4 5), 419 441. Strikwerda, J. (2005). Shared service centers, van kostenbesparing naar waardecreatie (5th ed.). Assen: Koninklijke van Gorcum. Van der Meer-Kooistra, J., & Scapens, R. W. (2008). The governance of lateral relations between and within organisations. Management Accounting Research, 19(4), 365 384. Van der Meer-Kooistra, J., & Vosselman, E. G. J. (2000). Management control of interfirm transactional relationships: The case of industrial renovation and maintenance. Accounting, Organizations and Society, 25(1), 51 77. Van der Meer-Kooistra, J., & Vosselman, E. G. J. (2006). Research on management control of interfirm transactional relationships: Whence and whither. Management Accounting Research, 17(3), 227 237. Van Veen-Dirks, P. M. G., & Verdaasdonk, P. J. A. (2009). The dynamic relation between management control and governance structure in a supply chain context. Supply Chain Management: An International Journal, 14(6), 466 478. Vosselman, E. G. J. (2002). Towards horizontal archetypes of management control: A transaction cost economics perspective. Management Accounting Research, 13(1), 131 148. Vosselman, E. G. J., & Van der Meer-Kooistra, J. (2006a). Changing the boundaries of the firm: Adopting and designing efficient management control structures. Journal of Organizational Change Management, 19(3), 318 334. Vosselman, E. G. J., & Van der Meer-Kooistra, J. (2006b). Efficiency seeking behaviour in changing management control in interfirm transactional relationships: An extended transaction cost economics perspective. Journal of Accounting & Organizational Change, 2(2), 123 143. Williamson, O. E. (1979). Transaction cost economics: The governance of transactional relations. Journal of Law and Economics, 22, 233 261. Williamson, O. E. (1981). The economics of organization: The transaction cost approach. The American Journal of Sociology, 87(3), 548 577.

Governance and Control of Shared Service Centers

103

Williamson, O. E. (1993a). Calculativeness, trust, and economic organization. Journal of Law and Economics, 36(1), 453 486. Williamson, O. E. (1993b). Transaction cost economics and organization theory. Industrial and Corporate Change, 2, 107 156. Williamson, O. E. (1996). The mechanisms of governance. New York, NY: Oxford University Press. Williamson, O. E. (2000). The new institutional economics: Taking stock, looking ahead. Journal of Economic Literature, 38(3), 595 613. Yin, R. K. (2003). Case study research: Design and methods. London: Sage. Zimmerman, J. L. (2011). Accounting for decision making and control (International Edition). New York, NY: McGraw-Hill.

Chapter 6

Structuring Shared Services: Realizing SSC Benefits Through End-Users’ Usage of an HR Portal Jeroen Meijerink, Joost ten Kattelaar and Michel Ehrenhard

Abstract Purpose — The purpose of this study is to explore the use of shared services by end-users and why this may conflict with the use as intended by the shared service center (SSC) management. Methodology/approach — By applying structuration theory, this empirical study draws on qualitative data obtained from semi-structured interviews with managers and end-users of an SSC. This SSC is part of a Dutch subsidiary of a multinational corporation that produces professional electronics for the defense and security market. Findings — We find two main types of shared services usage by end-users which were not intended by the SSC management: avoidance and window-dressing. These forms of unintended usage were the result of contradictions in social structures related to the centralization and decentralization models as appropriated by endusers and management. Implications — Our findings show that the benefits of shared services depends on how well contradictions in managers’ and end-users’ interpretive schemes, resources, and norms associated with centralization and decentralization models are resolved. Originality/value — A popular argument in existing studies is that the benefit of shared services follows from the design of the SSC’s organizational structure.

Shared Services as a New Organizational Form Advanced Series in Management, Volume 13, 105 131 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1877-6361/doi:10.1108/S1877-636120140000013006

106

Jeroen Meijerink et al.

These studies overlook the fact that shared services are not always used as their designers intended and, therefore, that success depends on how the SSC’s organizational structure is appropriated by end-users. As such, the originality of this study is our focus on the way shared services are used by their end-users in order to explain why SSCs succeed or fail in reaping their promised benefits. Keywords: Shared service centers; structuration theory; appropriation; portal; human resource management

Introduction Driven by anticipated benefits such as costs savings and quality improvement, organizations increasingly establish a shared service center (SSC) to consolidate support services such as human resource management (HRM), information technologies, or procurement. The popularity of the SSC is seen as originating in its hybrid organizational structure, which integrates centralization and decentralization models (Janssen & Joha, 2006). On the one hand, SSCs centrally bundle knowledge and expertise, and employ professionals who offer services from a single location, while on the other, they decentralize control to local business units through servicelevel agreements, information technologies, or installing user boards (Maatman, Bondarouk, & Looise, 2010; Meijerink, Bondarouk, & Maatman, 2013). Ultimately, integrating both models should allow SSCs to reap the advantages of both centralization (e.g., efficiency, integration) and decentralization (e.g., user responsiveness), while at the same time reducing their drawbacks. Research shows, however, that SSCs do not deliver these promised benefits (Cooke, 2006; Janssen & Joha, 2006; Redman, Snape, Wass, & Hamilton, 2007). In fact, even SSCs which are designed as an “ideal” hybrid organization diminish service levels and experience low levels of efficiency (Meijerink & Bondarouk, 2013). Instead, research suggests that the effective functioning of SSCs is dependent on those they serve: the end-users (i.e., employees and line managers). Several studies find that end-users do not use centralized services and instead keep “shadow administrations,” run parallel information technologies, or remain inquiring noncentralized service providers (Cooke, 2006; McCracken & McIvor, 2013; Meijerink & Bondarouk, 2013; Redman et al., 2007). In other words, end-users can undermine the hybrid organizational structure of SSCs. On the one hand, they may bypass or idiosyncratically use centralized services and, on the other, maintain local control through other means than those provided by the SSC. This shows that the organizational structure of an SSC only exists “in use” in a way that its actual organizational structure may not resemble the designed structure. Therefore, the benefits of SSCs do not depend on its designed or intended organizational structure, but on how end-users appropriate and engage with its organizational structure in practice. Remarkably though, those that aimed to explain the benefits of SSCs mainly focused on their design and blueprints (Bondarouk, 2011; Knol, Janssen, & Sol,

Structuring Shared Services

107

in press), in terms of the positioning of the SSCs in the overall organizational structure (Farndale, Paauwe, & Hoeksema, 2009; Meijerink et al., 2013), formal control relationships, or the intended use of the governance mechanism (Farndale, Paauwe, & Boselie, 2010). As a result, limited attention is paid to whether and why end-users actually work according to the formal organizational structure. This focus is needed, however, in order to explain the reported problems associated with SSCs. Therefore, to find better explanations for why an organization does or does not manage to reap the promised benefits of SSCs, this study aims to explore the use of shared services by end-users and why this may conflict with the use as intended by the SSC management. We restrict our focus to the usage of the SSC’s online portal, for two reasons. First, this online portal is representative of the SSC’s hybrid organizational structure. On the one hand, it allows centralization as it enables organizations to bundle and standardize processes, information, and data (Dewett & Jones, 2001; Farndale et al., 2009) which can be offered by the SSC as centralized services from a remote location through employee or management self-services. On the other hand and at the same time, online portals allow decentralization because they enable local users to maintain, update, and thus control the information, data, and processes which are centralized in the SSC (Meijerink & Bondarouk, 2013). Therefore, studying the usage of the SSC’s portal by end-users offers a lens for exploring the way in which the hybrid organizational structure of the SSC materializes the promised benefits. Second, the online portal is the “tier 0” of SSCs and offered by the majority of SSCs (Farndale et al., 2009), meaning that it is the primary interface between users and the SSC, and therefore pivotal for studying the appropriation of SSC organizational structures by end-users. The rest of this chapter is organized as follows. First, we review the literature on SSCs with a particular focus on their organizational structure and online portal. We propose to study them from a structuration theoretical perspective because of its explicit focus on the appropriation by human agents, which refers to the selection of the way in which an online portal is used (Orlikowski, 2000) and thus helps us to study how users engage with shared services as intended by the SSC management. This is followed by the presentation of a case study conducted at a Dutch subsidiary of a multinational corporation, which produces electrical systems. After presenting the case results on the conflicts in intended and actual use of the SSC portal, we conclude with a discussion that elaborates on how the hybrid organizational structure of SSC causes end-users to deviate from the intended use by management.

Theoretical Background The Hybrid Organizational Structure of SSCs and Its Potential Benefits Shared service centers are seen as a response to the question of whether organizations should centralize or decentralize support functions (Farndale et al., 2009; Meijerink & Bondarouk, 2013; Quinn, Cooke, & Kris, 2000). Centralization involves

108

Jeroen Meijerink et al.

the extensive corporate-level governance of activities and resources which are often concentrated in corporate units to reduce costs and secure strategic alignment. However, this form of concentration jeopardizes business unit responsiveness and slows down decision-making (Strikwerda, 2004; Ulrich, 1995). Decentralization, which refers to the delegation of decision-making to the business units and their managers or employees, mitigates these risks, but makes service delivery more costly due to resource duplication (Janssen & Joha, 2006; Reilly, 2000). Shared services intend to integrate both centralization and decentralization models to reap their advantages, while reducing their drawbacks (Maatman et al., 2010). When establishing an SSC, organizations concentrate the provision of services and associated resources into a single location that is situated remotely from its users. One of the primary motives for centralizing services is the standardization of operational processes, which allows organizations to reduce costs and guarantee the alignment of operations across business units (Janssen & Joha, 2006; Schulman, Dunleavy, Harmer, & Lusk, 1999). As such, the centralization component of shared services relates to integration, which refers to “the process of achieving unity of effort among the various subsystems in the accomplishment of the organization’s tasks” (Lawrence & Lorsch, 1967, p. 4). In a shared services environment, these tasks include the design and production of support services like HRM (Farndale et al., 2009; Meijerink et al., 2013), procurement (Murray, Rentell, & Geere, 2008), or information technology support services (Janssen & Joha, 2006). Following an information processing approach (Galbraith, 1973), SSCs support integration because different business units are more likely to perform HRM, procurement, or IT activities similarly when offered common information and standardized operating processes which are centrally bundled in the SSC (Lawrence & Lorsch, 1967). Although the SSC centralizes services, the control over the SSC is decentralized to the business units and their employees. This involves the business units choosing “the type, level and quality of services they want from the center, at the price they are willing to pay” (Quinn et al., 2000, p. 13). Previous studies have studied SSC control relationships in two respects. The first relates to the positioning of the SSC vis-a`-vis those who control it (Maatman et al., 2010; Quinn et al., 2000; Strikwerda, 2004). Strikwerda (2004) for example describes various positioning structures including: the central service (i.e., only the corporate headquarters determines and controls SSC activities), separate business unit (i.e., local business units and corporate headquarters jointly determine and control the SSC’s activities), and internal joint venture (i.e., the SSC only reports to the local business units). Quinn et al. (2000) propose a comparative typology ranging from the basic model (i.e., centralization of services as a staff function) and the (advanced) marketplace model (i.e., the SSC is an independent unit which can have relationships with different business units) to the independent business model (i.e., the SSC is a spin-off from the mother company). Meijerink et al. (2013) found that the most popular organizational structure is the separate business unit, followed by the internal joint venture, which shows that the control over SSCs is either entirely decentralized or combined with centralized control. The second perspective helps to describe the mechanisms that decentralize control to the business units. In doing so, it builds on agency

Structuring Shared Services

109

theory (Eisenhardt, 1989) and discusses the control mechanisms which the business units use to align the interests of the SSC with their own. Several studies have shown that business units rely on formal control mechanisms such as service-level agreements (SLAs) and process controls (Farndale et al., 2009; Minnaar & Vosselman, 2013) and informal controls encouraging business units to partner with the SSC to discuss the scope of shared service provision, design service delivery processes, and solve deficiencies in shared services (Knol et al., in press; McCracken & McIvor, 2013; Meijerink & Bondarouk, 2013). Ultimately, as predicted by agency theory, these control mechanisms should ensure that the SSC complies and meets the needs of the local business units and its employees (Farndale et al., 2010). In conclusion, the two defining features of the SSC are centralization in the form of the consolidation and bundling of support services, information, and processes with the aim to achieve integration and cost reduction, combined with decentralization as reflected in the use of control mechanisms by the business units to secure business unit responsiveness. As a result, by centrally bundling support activities which are partially controlled by the local business units and users they serve, SSCs are said to have a hybrid organizational structure that integrates centralization and decentralization models (Bondarouk, 2011). Ultimately, this should allow SSCS to reap the advantages of both models, while reducing their individual drawbacks (see Table 1 for an overview of SSC benefits).

Online Portals and the SSC’s Hybrid Organizational Structure: Opportunities and Challenges For many organizations, one way of implementing the hybrid organizational structure of SSCs is by relying on online portals (Farndale et al., 2009; Meijerink et al., 2013; Shilakes & Tylman, 1998). Shilakes and Tylman (1998) view an online portal as an application that enables companies to unlock information and provide users with a single gateway to personalized information. Research shows that most SSCs rely on an online portal, which allows employees and managers to obtain information and operate self-services for enrolling in benefit plans, posting job vacancies, or applying for new job opportunities (Cooke, 2006; Farndale et al., 2009; Feng, Ehrenhard, Hicks, & Maathuis, 2010; Meijerink et al., 2013; Reilly, 2000). Using an online portal provides the SSC with the possibility to reap the benefits of both centralization and decentralization models. In terms of centralization, online portals allow SSCs to standardize and bundle organizational capital (i.e., codified knowledge, processes, and data) which is provided through a single gateway to local users (Meijerink & Bondarouk, 2013; Ruta, 2005, 2009). Examples of organizational capital which is bundled in online portals include best practices, payroll data, and standardized operating procedures (Dias, 2001; Ruta, 2009). As noted by Dias (2001), online portals support decision-making by providing relevant information to employees and managers, which fosters strategic integration when users rely on common information. Furthermore, by standardizing operating procedures in online portals, SSCs may ensure that users from different business

110 Jeroen Meijerink et al.

Table 1: Benefits of shared services. Shared services Centralization

Decentralization

Disadvantages

Advantages

Unresponsive to business units No business unit control

Consistent standards Cross-group learning Extensive business unit control Common systems Best practice sharing Recognition of local priorities Economies of scale Pooled experience Business unit responsiveness and efficiency Critical skill mass Synergies Flexibility

Inflexible to business unit needs Remote from business Large distance to business unit

Strategic alignment

Lean, flat organization

Source: Adapted from Reilly (2000) and Schulman et al. (1999).

Disadvantages

Responsiveness to end-user needs

Higher costs Variable standards Duplication of effort and resources Inconsistent HR service delivery

Structuring Shared Services

111

units operate alike in terms of conducting performance appraisal or recruiting new employees (Ruta, 2005). Therefore, online portals allow SSCs to implement a centralization model and guarantee integration, because they offer centrally bundled information and processes that ultimately should result in uniformity in operations. At the same time, online portals provide opportunities for decentralization. First, their users are responsible for maintaining the data stored in the SSC’s portal (Guiderdoni-Jourdain & Oiry, 2011; Ruta, 2009), and so the control over centralized organizational capital is partially in the hands of end-users (Meijerink & Bondarouk, 2013). Second, end-users can use online self-service applications as process controls to monitor the progress of processes undertaken by the SSC (Eisenhardt, 1989; Meijerink & Bondarouk, 2013). Finally, online portals allow end-users to personalize their use of the portal by tailoring information or setting the portal functionalities in accordance with their own needs and requirements (Guiderdoni-Jourdain & Oiry, 2011; Ruta, 2009). Online portals thus support organizations in establishing the hybrid organizational structure that characterizes SSCs, by centralizing information and processes while simultaneously allowing decentralized end-users to locally update, control, and personalize centralized organizational capital. This implies that an online portal “inscribes” the hybrid organizational structure of an SSC, where inscribing refers to the notion that the organizational structure of an SSC is embodied by the online portal (Orlikowski, 2000). At this point, we want to stress that centralization and decentralization models are not exclusively embodied in online portals, while contracts and social capital may also inscribe decentralization models by offering control mechanisms that decentralize control to the business units (Eisenhardt, 1989). However, while other mechanisms inscribe either centralization or decentralization models, online portals embody both and, therefore, are the focus of this study to explain how shared services usage affects the benefits of shared services. Research shows that online portal usage can undermine the realization of shared services benefits when users do not work with the online portal as intended by the management. Several studies find that end-users avoid using the centralized online portal and instead keep shadow administrations by running parallel systems (Cooke, 2006; McCracken & McIvor, 2013). They also turn to local professionals such as embedded HRM advisors or IT specialists rather than use the centralized information sources provided by the SSC (Meijerink & Bondarouk, 2013; Redman et al., 2007). As a result, users duplicate resources or do not rely on standardized information and processes, which prevents the SSC from reaping the advantages of centralization. The same goes for the advantages of decentralization. For example, end-users mainly use SSC portals to conduct mundane administrative functions, but hardly use process control mechanisms inscribed in the portal, which would allow them to monitor whether the SSC is handling their request in time (Eisenhardt, 1989). Also, using an online portal often does more harm than good because users may fail to maintain the databases of the SSC adequately and therefore are provided later with unreliable information (Meijerink & Bondarouk, 2013). As a result, whether control

112

Jeroen Meijerink et al.

is effectively decentralized and organizations reap the advantages of decentralization depends on whether and how users make use of the SSC’s online portal. That is, end-users utilize portals in unintended ways and so facilitate or undermine the hybridization of SSC. We argue that the benefits of SSCs follow from the way in which users utilize the online portal of the SSC. Remarkably, existing studies mainly focused on the design of SSCs from a managerial perspective (Maatman et al., 2010; Meijerink et al., 2013) and, as a result, overlooked the way in which end-users work in accordance with the formal organizational structure. In practice, the top (SSC) management designs these organizational structures as inscribed in online portals, and therefore, this study examines whether the actions of end-users correspond with the use of the SSC portal as intended by the SSC management in order to explain whether SSCs provide their promised benefits.

A Structuration Perspective for Explaining SSC Benefits To understand whether and how end-users utilize the SSC’s portal as intended for reaping the promised benefits of shared services, we apply Giddens’ (1984) structuration theory, because it places human action at the center stage of analysis. The starting point of structuration theory is the idea of duality of structure, which holds that social structure and human agency mutually constrain and enable each other (Jones & Karsten, 2008; Taylor, 1993; Whittington, 1992). At this point, we want to stress that social structure is different from the organizational structure of an SSC, while the former refers to the “rules and resources organized as social properties of social systems” (Giddens, 1984, p. 25). According to Giddens (1984), these rules define how activities are or should be performed. Rules can therefore be regarded as the generalized techniques, norms, or procedures (Orlikowski, 1992; Whittington, 1992) on which humans draw to understand and legitimate their actions. Resources, on the other hand, refer to the “transformative capacity generating commands” over objects and people (Giddens, 1984, p. 25). This transformative capacity implies that resources, in our case the online portal, have to be used in action if they are to be considered social structures. As such, social structures only structure action when resources and rules are actually being used. This relates to human agency, which refers to the capacity of individuals to act purposefully in the social world (Giddens, 1984; Janssens, Cappellen, & Zanoni, 2006; Veliquette, 2012). Structuration theory views humans as being knowledgeable such that their knowledge of social structures makes them capable of action and acting differently if necessary (Whittington, 1992). Given that humans have agency, they may also choose not to draw on resources and rules. Therefore, social structures can be viewed as created by human agents through their actions, because those actions produce and reproduce rules and resources (Bondarouk & Ruel, 2009). Yet structuration theory rejects the notion that human actions are independent of social structures. Instead, social structures are seen as influencing action through rules and resources that structure action, but at the same time and as a result of human agency, social structures only exist through actions that produce and reproduce rules and resources. According to

Structuring Shared Services

113

Giddens (1984), this is the duality of social structure: social structures are both the medium and outcome of the actions of humans they recursively organize. In order to empirically study the duality of structure, Giddens (1984) distinguishes between social structures, human actions, and modalities (see Figure 1). He proposed three dimensions of social structure: signification, domination, and legitimation. The corresponding dimensions of human action, or interaction, are, respectively: meaning, power, and sanction. Social structures and human (inter) action are linked through modalities (interpretive schemes, resources, and norms) which help to empirically study the duality of structure. The first dimension, signification, represents social structures that people use to interpret human behavior and social events. They do so through the modality of interpretive schemes. These are standardized, shared stocks of knowledge that actors draw upon to make sense of themselves and the world (Bondarouk, Looise, & Lempsink, 2009; Orlikowski, 2000). Examples of interpretive schemes can be the assumptions of users and management about the potential benefits of shared services, the perceived rationale for establishing an SSC, or the understanding of the functionalities of online portals. By interactions, such as making meaning and communication, these interpretive schemes are shared among individuals and so reproduce social structures of signification. Social structures of domination are linked with the action of power. Power is not seen as a type of act (such as making people do something against their will) or as a stock of capital (such as land or money), but as a capability manifested in action (Jones & Karsten, 2008). In other words, humans have the power to transform the social and material world through applying resources in action. For example, in the case of shared services, the SSC might have the power to captivate and enforce the usage of the online portal when users are dependent on resources centralized in the SSC, but at the same time, users may have the power to avoid using shared

Social structures (which may contradict)

Signification

Domination

Legitimation

Modalities

Interpretive schemes

Resources

Norms

Human actions (which may conflict)

Meaning

Power

Sanctions

Figure 1: Interactions among the dimensions of duality of structure. Source: Adapted from Giddens (1984).

114

Jeroen Meijerink et al.

services when they are able to obtain knowledge or expertise from local professionals (McCracken & McIvor, 2013). Therefore, whether resources materialize into power is dependent on people’s ability to allocate facilities such as knowledge, materials, financial resources, and human resources (Ehrenhard, Muntslag, & Wilderom, 2012). The third dimension is legitimation. Human beings sanction their actions and others’ actions by drawing on norms of morality (Ehrenhard et al., 2012). These norms can be seen as rules or conventions that govern legitimate behavior that is considered appropriate. Social structures of legitimation not only guide human behavior, they are also an outcome of the continuous use of sanctions by agents in human actions which reproduce the social structures of legitimation. Therefore, similarly to resources, norms only legitimize human action as long as they are put to use by sanctioning behavior that is considered inappropriate. Following these ideas of duality of structure, it can be argued that online portals and the organizational structure of an SSC do not determine the actions of endusers. Instead, Orlikowski (1992) argues that information technologies, such as online portals, are characterized by interpretive flexibility, which refers to the degree to which users are engaged in producing and reproducing technologies in use. Given that human agents are able to act differently, users may decide not to utilize an online portal or work around the formal organizational structure of the SSC. Therefore, according to Orlikowski (1992), users may engage in appropriation, which refers to the selection of the way in which an online portal is used (Orlikowski, 2000). Given the interpretive flexibility of technology, users have the freedom to decide how they wish to appropriate the SSC’s organizational structure and, thus, how this organizational structure influences their actions. Although the SSC management may inscribe a range of functionalities in an online portal, they only become resources and thus social structures when being used by end-users. For example, an online portal decentralizes control to end-users and thus inscribes the desired hybrid organizational structure of an SSC only when end-users utilize it as a process control for monitoring the progress of processes undertaken by the SSC. End-users may appropriate the organizational structure of an SSC by selecting how they utilize its online portal, that is, the organizational structure only gives meaning and becomes socially relevant as a result of how end-users utilize an online portal. This shows that the organizational structure of SSCs is characterized by duality: SSCs centralize organizational capital to achieve integration and decentralize control to increase local responsiveness, as long as users appropriate the centralization and decentralization possibilities which are inscribed in the online portal by those who designed it: the SSC management. Therefore, although the SSC managers may design an ideal SSC, which integrates centralization and decentralization models, and develop an online portal that inscribes this hybrid organizational structure, the benefits of shared services that managers envision only materialize when local users work in accordance with the intentions of the SSC management. Although end-users may receive the same training, intended to harmonize interpretive schemes, they might nevertheless draw on different technological properties (resources) or have different norms, and thus can use an online portal in extremely

Structuring Shared Services

115

different ways (Orlikowski, 2000). Also, users might differ in interpretive schemes related to the motives behind shared services and, hence, deviate from centralized processes and processes or comply strictly with them (Cooke, 2006). These dissimilarities in appropriation can be the result of divergent modes of life and can result in contradictory social structures between individuals or groups and eventually lead to conflict (Giddens, 1984). Giddens sees conflict as the actual struggle between actors or groups that can be the result of contradictory social structures (Walsham, 2002). As such, contradictions are the properties of a collection of social structures, while the potentially resulting conflict concerns dissimilarities in human actions of individuals or groups of individuals (see Figure 1). In the case of an SSC, this would mean that a conflict between the appropriation by users and the intended use by the SSC management occurs because the SSC management draws on social structures that contradict those drawn upon by end-users. For example, Bondarouk and Ruel (2009), who studied an e-HRM tool, found that conflicts in usage were rooted in differences in signification: top management viewed the online tool as empowering end-users, while the end-users interpreted it as centralizing power. Therefore, to compare the appropriation of users and the intended usage of shared services by the SSC management to explain why SSCs reap the promised benefits, this study examines the agency of individual end-users and uncovers the social structures drawn upon by end-users and the SSC management.

Methodology To study the appropriation by end-users of the organizational structure of an SSC as inscribed in its online portal, we selected the SSC of a company that designs and produces professional electronics for the defense and security market, hereafter called “SecurCo.” The SSC of SecurCo was recently established and therefore only offered consolidated services in the form of an online portal. Inscribed in this portal were online HRM self-services allowing employees to apply for job opportunities or compose personal development plans. The strong reliance by the SSC on an online HR portal and thus its dependency on user appropriation allowed us to examine how the SSC’s organizational structure develops from the usage of the online portal by end-users and thus results in SSC benefits. Furthermore, the SSC was established in 2012 and was designed to have a hybrid organizational structure that centralizes HRM services while simultaneously decentralizing control through SLA reporting relationships with business unit representatives, user boards, and online portal functionalities. The SSC of SecurCo thus offered end-users the resources to appropriate the hybrid organizational structure, which allowed us to examine whether the use of the online portal by local employees matches the hybrid organizational structure of SSCs as described in the literature. We analyzed the appropriation of two portals called “Taleo” and “eHRTogether.” These portals were selected because they meet the three defining characteristics of online portals: they integrate information, allow for personalization, and

116

Jeroen Meijerink et al.

have interactive features (Ruta, 2009). Taleo is an online HR portal for creating, publishing, and managing vacancies. The tool is designed to be used by recruiters and hiring managers to integrate job openings into a central database and select job applicants. Furthermore, employees can personalize Taleo to find job opportunities that are relevant to them and interact with the system to apply for a new job. As such, Taleo inscribes both centralization and decentralization models while it bundles information and processes and allows employees to control recruitment processes, respectively. The other online tool, eHR-Together, is a web-based application for conducting professional development and performance appraisal activities. It enables employees and their supervisors to administer performance evaluations, obtain information on past performance, and compose personal development plans. Therefore, eHR-Together inscribes the hybrid organizational structure of an SSC: it centralizes information and processes, but at the same time allows employees to locally control the organizational capital that is stored in the SSC’s databases. While eHR-Together was introduced in 2007 and thus 5 years before the SSC was established, Taleo was introduced more recently in 2013. This enabled us to explore differences in current stabilization-for-now (Orlikowski, 2000). The empirical study was carried out from February 2013 till October 2013. In line with other empirical studies using structuration theory (Ehrenhard et al., 2012; Orlikowski, 2000; Walsham, 2002), we conducted semi-structured interviews to uncover the appropriation of the SSC’s organizational structure. To examine the contradictions in the social structures drawn upon by the SSC management and end-users as explanations for potential conflict, we conducted interviews with 14 representatives from both groups. Interviewees that represented the management included the HR director, an HR manager, and the HR SSC director, because they are responsible for the design of the online portals and HRM processes embedded in them. The end-users that we interviewed consisted of three groups: (1) five nonmanagerial employees, (2) three line managers, and (3) four HR professionals who use Taleo in their daily operations. In all, the interviews lasted between 1 and 1.5 hours each. In line with the three modalities identified by Giddens (1984), we asked questions on users’ interpretive schemes (What are the reasons for implementing Taleo? How would you describe your experiences with eHR-Together?), resources (Which functions of Taleo do you use, and what do you use them for? Which features are missing in e-HR Together?), and norms (Why do or don’t you use Taleo? Are there any consequences for not using e-HR Together?). Also, questions like “Do you know of any employees that knowingly avoid using Taleo or work around it?” were asked to explore contradictions and conflicts among the SSC management and employees. Furthermore, by tapping into the interpretive schemes of the SSC management and end-users (e.g., To which extent are the goals of the SSC realized?), we could obtain insights into the realization of SSC benefits. All interviews were audiotaped, fully transcribed, and returned to the interviewees for verification to strengthen the trustworthiness of our data (Lincoln & Guba, 1985). The data analysis consisted of four phases. First, we deductively coded the materials using descriptive codes that followed from the social structures, modalities,

Structuring Shared Services

117

and interactions identified by Giddens (1984). Second, we examined the codes coming from the SSC management and users to identify conflicts in the intended and actual use of the online portal. After that, using visual mapping (Langley, 1999) in a computer-assisted data analysis application called Atlas.ti, we visually linked the codes which represented a source of conflict (i.e., contradictions in social structures) with the selected conflict. The appropriation of Taleo and e-HRT were analyzed separately, and during the last step, the visual maps for both functionalities were compared to find common themes of contradiction which were identified inductively. This resulted in four different types of contradiction, with each form of conflict in intended and actual use of the online portal being rooted in one or more of these contradictions. To strengthen the validity of our findings, one of the authors held several intermediate discussions with the SSC’s management and endusers to debrief the organization by presenting and discussing the research findings.

Findings Our research findings are presented as follows. We first identify the observed conflicts by presenting the differences and similarities in the use of the online portal as intended by the SSC management versus the appropriation by end-users. This is followed by an overview of four different types of contradictions in social structure and how they caused the observed conflicts among the SSC’s management and employees. Conflicts in the Intended and Actual Online Portal Usage The interview analysis revealed conflicts in the usage of the HR portals as intended by the SSC management and the appropriation by the local employees. In the case of the recruitment and selection tool (Taleo), its introduction led to misunderstanding and resistance among employees. Some employees did not know where they could find posted job opportunities. Others stated that they would like to have the old bulletin boards back where the vacancies used to be published in print. The SSC management stated that all job applications had to go through Taleo. However, the employees reported that both internal and external applicants worked around the tool by contacting the hiring manager via e-mail. In fact, the hiring managers and some local HR professionals motivated applicants to avoid using Taleo and instead send applications directly to them. To satisfy the SSC management, one employee stated that he formally applied through Taleo, even though he had already been accepted for the job. We thus found two types of usage that conflicted with the intended usage by the SSC management: (1) avoidance reflecting the reluctant use of Taleo by employees and hiring managers, and (2) window-dressing reflecting post-hiring actions of employees to conform to centralized HR processes. There was less resistance among employees toward the online performance management tool (eHR-Together). Having used eHR-Together for more than five years,

118

Jeroen Meijerink et al.

respondents stated that the tool had improved over time. The SSC management reported that more than 90 percent of the employees at SecureCo completed both processes of annual review and professional development “inscribed” in eHRTogether. Therefore, the tool did what the SSC management wanted it to do: formalizing the processes of the annual performance reviews. During interviews with the employees, we did not encounter any significant reluctance, which shows that avoidance of eHR-Together was hardly the case. However, the employees and their supervisors mentioned that the quality of the annual performance review reports and professional development plans varied. For instance, several respondents stated that they uploaded the information from their self-appraisal reports of previous years in eHR-Together: If I look back at the previous years, then everything is a copy from the year before. The information that was entered in e-HR Together last year is just copied and entered into the system next year. (Employee)

Each year the same self-appraisal report was also signed off by the supervisors, who therefore did not motivate their employees to use eHR-Together differently. Although several supervisors and employees discussed personal development plans on an annual basis, some of them did not and instead inserted random information in eHR-Together as a form of window-dressing. An additional form of windowdressing was found among those who nevertheless regularly held development talks. Rather than using eHR-Together, line managers ran parallel systems such as Word files which included summaries of the various development conversations. At the end of the year, these supervisors would then insert some excerpts from these summaries into eHR-T for the sake of appearances: Once every eight weeks I have a talk with my younger employees about their professional development. I document this in a Word-file on my laptop. I only take the main points and input these in eHR-Together. (Line manager)

Therefore, besides usage as intended by the SSC management, we also observed conflicts in the form of window-dressing as far as the usage of eHR-Together was concerned. Contradictions that Cause the Conflicts in Shared Service Usage In all, we observed four themes of structural contradictions in which the conflicts in portal usage are rooted and, hence, why the SSC and/or its users failed to reap the benefits of combining centralization and decentralization models. To provide an explanation for these conflicts, we describe each of these forms of contradictions below. For an overview of the contradiction interpretive schemes, resources, and norms, we refer to Table 2. Avoidance of Taleo among employees: organizational capital development versus user value. The avoidance of Taleo by employees was the result of contradictions in structures drawn upon by the SSC management and users. On the one hand, the

Table 2: Explaining the intended use and appropriation of shared services. Intended use by: SSC management Interpretive schemes

Taleo

• SSC for bundling organization capital • SSC provides custom-made information • Line managers lack expertise

Avoidance by: end-users • Centralized processes too complex • SSC already has relevant information • Timely decision-making need

eHR-Together • SSC for standardizing performance management • SSC for saving costs

Resources

• SSC database supports • Line managers do not recruitment process have access to Taleo eHR-Together • Tool available for one month • Standardized evaluation process Taleo • Job postings should be • Searching information consistent should be efficient • Publishing information should • Vacancies should be be cost-efficient filled quickly eHR-Together • Evaluation should be standardized • Employees are responsible for career planning

• HR professionals help with career planning • HR management is reactive tool only for reporting on evaluation

Taleo

• Tool available for one month • SSC should guide, rather than determine evaluation

119

• Management should lead career planning • Corporate HQ should have evaluation reports • Performance management should be an ongoing process

Structuring Shared Services

Norms

Window-dressing by: end-users

120

Jeroen Meijerink et al.

SSC management legitimized the use of Taleo by referring to its benefits for both the organization and its employees. They regarded Taleo as the tool that helps to create organizational capital by centrally bundling information and re´sume´s from past and current job applications, which previously were scattered over different e-mail inboxes of HRM staff and supervisors. Thus, Taleo was framed as a resource to efficiently retrieve previously rejected candidates: Imagine that someone does not get the job, but might be a match for another job that becomes available in six months. With Taleo, we can do a search if he is in the database. (SSC employee)

Furthermore, the management of the SSC argued that Taleo provides employees with the option to set up vacancy alerts. Employees could — in theory — benefit from being informed about new vacancies that fit the criteria (e.g., level of education or past experiences) which the employee him/herself could enter into Taleo. The perceived rationale behind the introduction of Taleo thus was that employees could benefit from obtaining customized, centralized organizational capital: You have to sign-up once in order to receive e-mails that include a relevant vacancy. A one-time action that might take a bit of time, but in the end it will benefit [the employee]. (HR SSC director)

The employees did not share these interpretive schemes and, hence, did not reap the potential benefits that SSC management intended to offer. They argued against using Taleo, because according to them, the one-time provision of personal information did not weigh up against the benefit of accessing centralized information. Using Taleo was seen as being time-consuming, and they did not personalize and use Taleo because they did not want to change jobs or did so infrequently. Thus, the low levels of perceived value (benefits vs. nonmonetary costs) of Taleo made employees avoid using it: We joke about this sometimes: “If someone has completed the sign-up process, then you better hire him on the spot.” […] If I was applying, this would be a real deal breaker for me. (HR professional) I haven’t created a profile [in Taleo] yet, but from what I’ve heard, people find it unnecessary. People say: “Do we really have to complete the entire form or can we just email our re´sume´?” They don’t see the added value. Taleo is just putting up a barrier instead of making things clearer. (Employee)

In the past, employees could e-mail their re´sume´ to either the hiring manager or local HR professional. Employees felt that using Taleo now would be redundant because in their eyes all the information they had to insert in Taleo was already available to the SSC and the HRM department: In my opinion, you should be able to apply with one click and then they [the SSC] can check my file. Why do I have to input that information? They know exactly what I’ve done in the past. (Employee)

Structuring Shared Services

121

Hiring managers further stimulated the avoidance of Taleo by asking suitable candidates to e-mail their re´sume´s. This occurred because line managers did not have access to Taleo and instead received relevant information from their HR counterparts. For line managers, the recruitment process did not significantly change, so they had no opportunity to experience the potential benefits of Taleo and, therefore, did not have any incentive to direct potential job candidates to Taleo. As these examples show, the modalities of the SSC management and users (both employees and management) resulted in conflict in the form of the avoidance of Taleo. On the one hand, the SSC management interpreted Taleo as a resource for bundling organization capital that enables employees to obtain what might be considered relevant information. On the other hand, line managers could not even draw on the resources inscribed by Taleo and so did not motivate employees to use it. Employees themselves did not see the potential benefit of Taleo and instead drew upon the norm of efficiency and interpretive schemes that information has to be provided which they feel the HR SSC already has, which suggested that their usage of Taleo would be redundant and thus legitimized their avoidance of Taleo. As a result, the potential benefit of offering centralized organizational capital was not realized, so local users did not obtain customized information about job openings, and the SSC management had no overview of previously rejected candidates. Avoidance of Taleo among line managers: efficiency versus timely decisionmaking. There was a second contradiction in social structures that caused the avoidance of Taleo. Initially, the top HR management decided to decentralize the responsibility of publishing vacancies in Taleo to local HR staff in the business units. However, this decision was reversed by the SSC when its management realized that the vacancies lacked consistency in formatting. The SSC management felt that efficiency levels dropped as the SSC had to redo much of the work. Instead, they decided that the SSC itself would publish the vacancies in Taleo, and then send a shortlist of applicants and their re´sume´s to the hiring manager via e-mail. According to the HR management, Taleo was not intuitive enough for line managers who were seen as lacking user expertise, and therefore the HR management decided to centralize the activity to the SSC where the staff uses the tool on a daily basis. To legitimize their decision to deny line managers access to Taleo, the HR management thus drew on the norm of efficiency and decided that line managers were incapable of operating Taleo: We might have focused too much on decentralization which resulted in people not having enough experience with Taleo. But if you centralize these tasks, you will have HR professionals who have more knowledge and can perform the tasks much faster. (HR SSC director)

Although the SSC aimed to improve efficiency and reduce operating time, the line managers had opposing views and argued that the denial of access to Taleo jeopardized timely decision-making. For example, line managers now did not have updated information on the status of recruitment processes. The hiring manager did not have an indication of the status of his vacancy until the SSC created and e-mailed

122

Jeroen Meijerink et al.

a shortlist of candidates. Instead, the line managers drew on a norm stating that vacancies have to be filled quickly, combined with the interpretive scheme that timely decision-making is needed for this: Why would you create such a complex process? Why can’t we just log into Taleo? In this way I can see which applicants HR has rejected and why, which allows me to quickly decide and choose who I want to invite [for a job talk]. (Line manager)

As a result, line managers did not appropriate the recruitment and selection processes that Taleo was intended to support. Instead, they accepted applications from job candidates who did not use Taleo or contacted eligible candidates in their personal network. This caused conflict with the SSC management which wanted, but was not able, to develop the SSC as an efficient caretaker of standardized recruitment processes. As these examples show, the main source of conflict arose due to incongruences in interpretive schemes and norms appropriated by the SSC management and line managers. On the one hand, the SSC drew on the norm of consistency and cost reduction and the interpretive scheme that devolving recruitment responsibilities to line managers would harm such norms. On the other hand, the line managers drew on the norm that vacancies should be filled quickly, which they viewed as being effectuated through making timely selection decisions. Window-dressing eHR-Together: standardization versus flexibility. For the HR and SSC management, the standardization of the performance management process was an important potential benefit that could result from introducing eHR-Together. For example, a month was selected when eHR-Together would be accessible and thus when the performance evaluation conversations had to be completed. Additionally, the interface included a guideline in the form of standardized questions which the supervisor and employee had to address and then report on online. According to the HR director, the introduction of eHR-Together motivated managers to measure similar performance criteria, conduct performance evaluations at the moment selected by the HR management, and report on this using eHR-Together: The performance discussions are now performed in the same format. Before, every line manager would do it in his or her own way. Now we have this guideline [in eHR-Together] that signals “this is how we conduct these discussions.” (HR director)

While the HR director emphasized the need for standardizing performance management processes, a local HR manager drew on a different interpretive scheme stating that performance management is a more flexible and ongoing process. As a result, he saw eHR-Together as a tool that could aid employees and managers to conduct performance management talks, rather than determine and standardize it. Therefore, among the HR management, there were contradictions in structure: As an employee you should see eHR-Together as something that helps you. The fact that the tool is closed in January should not be seen as a barrier if I want to talk about your professional development then. (HR manager)

Structuring Shared Services

123

The supervisors and employees drew on similar social structures to those presented by the local HR manager, which contradicted those of the SSC and therefore caused window-dressing by the users of the SSC. For example, several line managers stated that they discuss personal development issues with their employees throughout the year. However, they did not want to standardize this process and strictly comply with the procedures inscribed in eHR-Together. Instead, they saw eHR-Together as a facilitating tool that provides guidelines which inform managers about how to conduct performance management, rather than determining how to do it, because they want to have flexibility and be able to adapt the performance management practices: I do not understand why eHR-Together closes in January. Performance management is a continuous process. You do not develop an employee by having a conversation once a year. However, eHR-Together is nothing more an aid to conduct performance management talks. (…) For example, some of my employees do not want to change jobs — which you have to respect. With these employees I want to have a different kind of performance talk and so, I skip guidelines in eHR-Together. (Line manager)

eHR-Together was used by the line managers, but not to guide their performance management talks. Instead, supervisors structured the ongoing processes of performance management as they saw fit, and therefore, eHR-Together did not help to standardize the performance management conversations as intended by the HR director. The line managers kept their own records of the performance management conversations in parallel systems like Word files and “copy-pasted” the main excerpts from these files into eHR-Together. This way of using eHR-Together was further strengthened by the fact that line managers and employees saw eHRTogether merely as a reporting system: It is a tool to record information on what has been discussed and agreed upon during the performance talks. This information should not be kept for myself, but also for future managers. (Line manager) eHR-Together is a website where I can store information. (Employee)

When asked why they and their employees nevertheless inserted information into eHR-Together, one line manager reported doing so in order to please the global headquarters of SecureCo: Employees see the usage of eHR-Together as being enforced. Again, it is one of the various systems we have had. We use it to please a couple of corporate officers. (Line manager)

As these examples show, contradictions in the structures of the SSC management/ HR director and those of the end-users resulted in conflict. The norm to be imposed by the HR director was to standardize performance management processes, and so eHR-Together was accessible to managers for only one month. This restricted availability of resources, combined with a norm of flexibility (i.e., performance management should be an ongoing process) and interpretive schemes (i.e., eHR-Together is

124

Jeroen Meijerink et al.

a recording tool) among end-users, resulted in the fact that eHR-Together did not standardize performance management processes. Instead, line managers engaged in window-dressing by uploading information stored in parallel systems, for the sake of complying with the SSC management’s desire to record information centrally. Avoidance and window-dressing of Taleo and eHR-Together: proactive HR SSC versus autonomous employees. According to the SSC management, one of the main goals for establishing an SSC was to save costs. In order to achieve this, they decided to implement self-services to devolve responsibilities to end-users which would enable reductions in HR staff. In order to legitimize the use of Taleo and eHR-Together, HR managers drew on the norms that employees should be responsible and may gain support from their supervisor for their career development: We have to make it clear that employees are responsible for their own career, that employees should be in control, and that they can rely their manager to help them. (HR manager)

However, employees did not share this norm; instead, many of them did not actively engage in performance development activities and, as a result, did not use Taleo to search for job opportunities or only inserted random information in eHRTogether. When a line-manager was asked about whether his employees took the initiative to talk to him about their career planning, he answered: No. Let me put it this way. I think maybe 10 or 20 percent of my employees come to me to talk about their career path. (Line manager)

Those employees that were motivated to develop themselves, and hence shared the SSC’s norm that employees are responsible for their career advancement, also drew on a norm that the organization should play a leading role in supporting and motivating employees to plan their personal development: Personal development should be the responsibility of an employee. You are responsible yourself for your way of acting. On the other hand, the organization should also trigger us employees in doing so. (Employee) I grew towards my new role as a project manager because my line manager motivated me to do so. It was because of his vision that I had the capabilities to become a project manager. It was his idea and those of other project managers to promote me, I never thought about that. (Employee)

In other words, although some employees felt responsible for their career development, they either let others (e.g., their supervisor) take the lead in this or expected the HRM department to be jointly responsible. These interpretive schemes were reproduced by employees, because in the past, employees would walk into the HR manager’s office when faced with an HR-related question or issue. To illustrate this, the HR director exaggeratedly stated that “employees are being pampered by the HRM department.”

Structuring Shared Services

125

A consequence of making employees autonomous was that it made HR managers more reactive. This was not seen as a downside by the SSC director, as the goal was to reduce HR staff and devolve responsibilities to employees. However, employees and line managers stated that a reactive HR department could cause staffing problems, even though they believed that the employee is primarily responsible for his/her own career. For instance, one interviewed employee stated that HR did not have any contingency plans in place to cope when an essential employee decided to leave the organization. He assumed that “HR would start thinking about a replacement only when employees actually leave.” In the eyes of the respondent, this reactive attitude could have serious implications for the organization because there might not be a suitable successor. This strengthened the norms reproduced by employees and line managers that the SSC also has to initiate and stimulate personnel and career planning. Therefore, they used eHR-Together only when the SSC took the lead in informing them to use the online portal: I only use eHR-Together when the SSC triggers me to do so. I noticed that I do not make inquiries in it spontaneously. (Employee)

As these examples show, although some interpretive schemes and norms were shared among the SSC management/HR director and end-users (i.e., employees are responsible for their career planning), conflicts in the usage of Taleo and eHRTogether nevertheless emerged. This occurred because employees and line managers simultaneously drew on other, incongruent interpretive schemes and norms. The end-users either reported that the SSC is also responsible for initiating employee development or appropriated existing routines in which employees could turn to local HRM professionals to find help. Therefore, although the SSC intended to devolve control over career opportunities to the users to reduce costs and provide them with possibilities to lead and control their career advancement, in reality, the users remained reactive, and instead the SSC had to become more proactive, at the risk of increasing costs.

Discussion and Conclusion In the literature, the shared services model is trumpeted as the organizational model which helps to reap the advantages of the centralization and decentralization models while reducing their drawbacks, through introducing a hybrid organizational structure that centrally bundles resources and activities, while simultaneously decentralizing control to local business units and their employees (Farndale et al., 2009; Strikwerda, 2004; Ulrich, 1995). As a result, existing studies adopted an organizational design perspective that examines SSCs in terms of blueprints (of control mechanisms, reporting relationships, or organization structures) in order to explain how SSCs realize their anticipated benefits. In doing so, however, they overlooked the fact that the users of shared services have the ability to undermine the SSC’s hybrid organizational structure by running parallel services or bypassing centralized

126

Jeroen Meijerink et al.

services (Meijerink & Bondarouk, 2013). In this study, we therefore explored the congruence in intended use by management and appropriation of shared services by end-users, as well as the sources of observed (in)congruencies. The results obtained from our study have the following implications.

Implications of the Research Findings The most important implication of our study is that the benefits of shared services are not rooted in the structural design of an SSC — as previously assumed by others — but in the way the organizational structure of shared services is appropriated by their end-users. We found different types of shared service appropriation among end-users (including acceptance, avoidance, and window-dressing). Some of these forms of appropriation contradicted the usage intended by the SSC management and so caused a suboptimal realization of shared services benefits. For example, we observed window-dressing behavior among end-users, with employees officially applying for a job using Taleo after they had been hired by their manager. This prevented the SSC from effectively integrating a centralization model into the organization structure of the SSC by centralizing organizational capital in the form of overviews of rejected job candidates. Also, although end-users were given the possibility to control the centralized organizational capital locally by obtaining customized information on job openings, the avoidance of Taleo prevented them from reaping this potential benefit. Remarkably, although previous studies argued that online portal inscribed decentralization through offering process control mechanisms, none of interviewees reported to appropriate these possibilities. Another form of window-dressing occurred when employees updated random or outdated performance data in eHR-Together, and therefore did not conduct a performance appraisal in a structured way as intended by the HR management. As these examples show, although shared services are designed to provide benefits (e.g., consolidated organizational capital or harmonized processes) and are also used by end-users, the way in which end-users appropriate shared services (e.g., windowdressing) meant the benefits remained unrealized. Therefore, if we intend to study SSCs’ structures and wish to understand better how the benefits of shared services are realized, we have to pay attention to the actions of end-users and the social structures (i.e., interpretive schemes, resources, and norms) they draw upon for appropriating organizational structure as intended by the SSC management. A second implication of our study is that conflicts between management and endusers in terms of shared services usage are rooted in the traditional contradiction between centralization and decentralization. As can be seen in Table 3, which presents the empirically derived contradictions, the social structures drawn upon by the SSC management and end-users related to either centralization or decentralization. Remarkably, although one might expect end-users and SSC management to draw consistently upon one of these two sets of structures, this was not the case. Instead, local end-users also appropriated social structures associated with centralization (e.g., proactive HR) and the SSC management reported drawing upon

Structuring Shared Services

127

Table 3: Contradictions in social structures appropriated by end-users and SSC managementa.

Contradiction 1 Contradiction 2 Contradiction 3 Contradiction 4 a

Centralization structure

Decentralization structure

Organizational capital development Efficiency Standardization Proactive HR

User value Timely decision-making Flexibility Autonomous employees

Social structures given in italics are drawn upon by users, others by SSC management.

“decentralization” social structures (e.g., autonomous employees). In other words, both groups did not necessarily have a tendency to favor interpretive schemes, resources, and norms which are associated with either centralization or decentralization. However, when one group of actors drew upon one of these two social structures, the other group appropriated the opposing one. Therefore, although the shared services model might resolve the conflict in centralization and decentralization models by blending them into a hybrid model (Maatman et al., 2010), it certainly does not eliminate the contradiction in social structures associated with centralization and decentralization. In fact, the shared services model might even strengthen these contradictions. This implies that the benefits of shared services depends on how well contradictions in social structures associated with the centralization and decentralization models are resolved and perhaps how social structures associated with both models are blended. We nevertheless found instances of congruent social structures among end-users and SSC management, but this did not prevent conflict. Both employees and management agreed that employees are responsible for their personal career planning, reflecting a congruence in interpretive schemes. These interpretive schemes might reflect institutionalized liberal structures holding that employees are responsible for their own advancement (Kalleberg, 2009). However, some employees did not use eHR-Together as a tool for advancing their development and securing long-term career success. This action was informed by the employees’ interpretive scheme stating that HR managers should take a proactive role in stimulating employees to develop, which reflects the appropriation of a more neo-liberal structure (Kalleberg, 2009). These examples show that different stakeholders can appropriate different social structures and, more importantly, draw on other modalities (e.g., economic norms) besides those associated with centralization versus decentralization. Therefore, if we wish to understand the use of shared services and explain their effectiveness, research might benefit from studying social structures besides those associated with shared services, because social structures are never situated in a vacuum (Orlikowski, 2000; Whittington, 1992). Lastly, we found that line managers did not use Taleo because they were denied access to it and, as a result, motivated employees to send their re´sume´s directly to the hiring managers. Thus, the line managers did appropriate the social structure

128

Jeroen Meijerink et al.

“imposed” by the SSC (i.e., Taleo was not used), but in doing so, they legitimized the actions of employees who also avoided using Taleo. In other words, the social structures appropriated by line managers affected the appropriation of social structures by employees, through legitimizing their avoidance of Taleo. Previous studies found that the SSC and end-users are interdependent and that these interdependencies influence the effective functioning of the SSC (McCracken & McIvor, 2013; Meijerink & Bondarouk, 2013). This study adds to this knowledge by revealing interdependencies in the appropriation of social structures by different end-users. All in all, this implies that the effectiveness of shared services (usage) depends on the congruency in the social structures appropriated by all the different SSC stakeholders (i.e., the SSC management, line managers, HR professionals, and employees).

Limitations and Future Research The implications of our study have to be seen in the light of its limitations, which we hope provide input for future studies. First, in order to uncover contradictions in social structures, our interviews were mainly restricted to the social structures associated with shared services, centralization, and decentralization. However, individuals are situated in a variety of social structures, which provides them with possibilities to appropriate different interpretive schemes, resources, and norms, and thus practice their agency (Janssens et al., 2006; Whittington, 1992). We could have found additional sources of conflict in shared services usage by examining other social structures drawn upon by end-users. Therefore, future research can benefit from exploring social structures such as those associated with HRM, hierarchy, or politics in order to explain the structuring of (HR) shared services. Second, although time plays a central role in structuration theory (Barley & Tolbert, 1997; Pozzebon & Pinsonneault, 2005) and social structures are only “stabilized-for-now” (Orlikowski, 2000), we limited ourselves to taking a snapshot of SSC’s structure-in-use. In other words, we studied social practices at a single moment in time, which may have provided different results if we had conducted our study some years after the establishment of SecurCo’s SSC. Although we partially tackled this limitation by studying two HR portal functionalities which differed in years of use and thus differed in “stabilized-for-now,” future research may benefit from adopting a longitudinal design in order to uncover how shared services structuring develops or how conflicts disappear or (re)generate over time. Lastly, we can question whether our results are generalizable beyond the Dutch and for-profit setting in which our study was conducted. For example, end-users in nonprofit settings might draw upon other social structures than those in for-profit organizations (Ehrenhard et al., 2012). Furthermore, as noted by Meijerink et al. (2013), multinational corporations have a longer tradition of utilizing shared services, and therefore, the structure-in-use of their SSCs might differ from those of indigenous organizations. Although we want to stress that our purpose was to find theoretical rather than statistical generalizations, we nevertheless encourage future

Structuring Shared Services

129

studies to study shared services structuring in different settings in order to uncover additional contradictions in social structures and different ways of appropriation by end-users.

Conclusion Besides congruencies in intended use by management and use of shared services by end-users, we also found two forms of conflicts in usage: end-users either avoided using shared services or engaged in window-dressing by using online portals indifferently for the sake of pleasing the SSC management. These forms of conflicts were the result of contradictions in social structures related to centralization and decentralization as appropriated by end-users and SSC management. Based on this, we conclude that the benefits of shared services materialize only when congruencies in social structures associated with centralization and decentralization occur and not when SSCs blends decentralization and centralization models to design a hybrid organizational structure. We hope that this insight motivates future studies to explore the social structures drawn upon by SSC end-users further in order to explain the value of the shared services model.

References Barley, S. R., & Tolbert, P. S. (1997). Institutionalization and structuration: Studying the links between action and institution. Organization Studies, 18(1), 93 117. Bondarouk, T. V. (2011). A framework for the comparative analysis of HR shared service models. In T. V. Bondarouk, H. J. M. Ruel, & J. C. Looise (Eds.), Electronic HRM in theory and practice (pp. 83 104). Bingley, UK: Emerald Group Publishing Limited. Bondarouk, T. V., Looise, J. C., & Lempsink, B. (2009). Framing the implementation of HRM innovation. Personnel Review, 38(5), 472 491. Bondarouk, T. V., & Ruel, H. J. M. (2009). Structuring the IT-enabled transformation of the HR function: An HRM frames analysis in an international company. In P. Sparrow (Ed.), Handbook of international human resource management: Integrating people, process, and context (pp. 271 292). Chichester: Wiley. Cooke, F. L. (2006). Modeling an HR shared service center: Experience of an MNC in the United Kingdom. Human Resource Management, 45(2), 211 227. Dewett, T., & Jones, G. R. (2001). The role of information technology in the organization: A review, model, and assessment. Journal of Management, 37(3), 313 346. Dias, C. (2001). Corporate portals: A literature review of a new concept in Information Management. International Journal of Information Management, 21(4), 269 287. Ehrenhard, M. L., Muntslag, D. R., & Wilderom, C. P. M. (2012). Challenges to the implementation of fiscal sustainability measures. Journal of Organizational Change Management, 25(4), 612 629. Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57 74.

130

Jeroen Meijerink et al.

Farndale, E., Paauwe, J., & Boselie, P. (2010). An exploratory study of governance in the intra-firm human resources supply chain. Human Resource Management, 49(5), 849 868. Farndale, E., Paauwe, J., & Hoeksema, L. (2009). In-sourcing HR: Shared service centres in the Netherlands. International Journal of Human Resource Management, 20(3), 544 561. Feng, X., Ehrenhard, M. L., Hicks, J. N., & Maathuis, S. J. (2010). A user-oriented model for global enterprise portal design. International Journal of Networking and Virtual Organizations, 7(4), 308 322. Galbraith, J. R. (1973). Designing complex organizations. Reading, MA: Addison-Wesley. Giddens, A. (1984). The constitution of society: Outline of the theory of structuration. Cambridge, UK: Polity Press. Guiderdoni-Jourdain, K., & Oiry, E. (2011). “Local universe” and uses of an HR intranet: Discursive results from the case of middle management. In T. V. Bondarouk, H. J. M. Ruel, & J. C. Looise (Eds.), Electronic HRM in theory and practice. Bingley, UK: Emerald Group Publishing Ltd. Janssen, M., & Joha, A. (2006). Motives for establishing shared service centers in public administrations. International Journal of Information Management, 26(2), 102 115. Janssens, M., Cappellen, T., & Zanoni, P. (2006). Successful female expatriates as agents: Positioning oneself through gender, hierarchy and culture. Journal of World Business, 41, 133 148. Jones, M. R., & Karsten, H. (2008). Giddens’ structuration theory and information systems research. MIS Quarterly, 32(1), 127 157. Kalleberg, A. (2009). Precarious work, insecure workers: Employment relationships in transition. American Sociological Review, 74(1), 1 22. Knol, A., Janssen, M., & Sol, H. (2014). A taxonomy of management challenges for developing shared service arrangements. European Management Journal, 32(1), 91 103. Langley, A. (1999). Strategies for theorizing from process data. Academy of Management Review, 24(4), 691 710. Lawrence, P. R., & Lorsch, J. W. (1967). Organization and environment: Managing differentiation and integration. Reading, MA: Harvard Business School. Lincoln, Y. S., & Guba, E. G. (1985). Naturalistic inquiry. Beverly Hills, CA: Sage. Maatman, M., Bondarouk, T. V., & Looise, J. C. (2010). Conceptualising the capabilities and value creation of HRM shared services models. Human Resource Management Review, 20(4), 327 339. McCracken, M., & McIvor, R. (2013). Transforming the HR function through outsourced shared services: Insights from the public sector. International Journal of Human Resource Management, 24(8), 1685 1707. Meijerink, J. G., & Bondarouk, T. V. (2013). Exploring the central characteristics of HR shared services: Evidence from a critical case study in the Netherlands. International Journal of Human Resource Management, 24(3), 487 513. Meijerink, J. G., Bondarouk, T. V., & Maatman, M. (2013). Exploring and comparing HR shared services in subsidiaries of multinational corporations and indigenous organisations in the Netherlands: A strategic response analysis. European Journal of International Management, 7(4), 469 491. Minnaar, R. A., & Vosselman, E. G. J. (2013). Shared service centres and management control structure change: Exploring the scope and limitations of a transaction cost economics approach. Journal of Accounting & Organizational Change, 9(1), 74 98. Murray, J. G., Rentell, P. G., & Geere, D. (2008). Procurement as a shared service in English local government. International Journal of Public Sector Management, 21(5), 540 555.

Structuring Shared Services

131

Orlikowski, W. J. (1992). The duality of technology: Rethinking the concept of technology in organizations. Organization Science, 3(3), 398 427. Orlikowski, W. J. (2000). Using technology and constituting structures: A practice lens for studying technology in organizations. Organization Science, 11(4), 404 428. Pozzebon, M., & Pinsonneault, A. (2005). Challenges in conducting empirical work using structuration theory: Learning from IT research. Organization Studies, 26(9), 1353 1376. Quinn, B. E., Cooke, R. S., & Kris, A. (2000). Shared services: Mining for corporate gold. Harlow: Financial Times. Redman, R., Snape, E., Wass, J., & Hamilton, P. (2007). Evaluating the human resource shared services model: Evidence from the NHS. International Journal of Human Resource Management, 18(8), 1486 1506. Reilly, P. (2000). HR shared services and the realignment of HR (Vol. 368). Brighton: Institute for Employment Studies. Ruta, C. D. (2005). The application of change management theory to HR portal implementation in subsidiaries of multinational corporations. Human Resource Management, 44(1), 35 53. Ruta, C. D. (2009). HR portal alignment for the creation and development of intellectual capital. International Journal of Human Resource Management, 20(3), 562 577. Schulman, D. S., Dunleavy, J. R., Harmer, M. J., & Lusk, J. S. (1999). Shared services: Adding value to the business units. New York, NY: Wiley. Shilakes, C. C., & Tylman, J. (1998). Enterprise information portals. New York, NY: Merrill Lynch, Inc. Strikwerda, J. (2004). Shared service centers: Van kostenbesparing naar waardecreatie. Assen: Koninklijke Van Gorcum BV. Taylor, C. (1993). To follow a rule … . In C. Calhoun, E. LiPuma, & M. Postone (Eds.), Bourdieu: Critical perspectives (pp. 45 60). Chicago, IL: University of Michigan Press. Ulrich, D. (1995). Shared services: From vogue to value. Human Resource Planning, 18(3), 12 23. Veliquette, A. J. (2012). Structuration theory’s relevance to HRD: A review and application. Human Resource Development Review, 12(2), 200 220. Walsham, G. (2002). Cross-cultural software production and use: A structurational analysis. MIS Quarterly, 26(4), 359 380. Whittington, R. (1992). Putting Giddens into action: Social systems and managerial agency. Journal of Management Studies, 29(6), 693 712.

Chapter 7

A Knowledge Management Perspective to Shared Service Centers: A Case Study of a Finance SSC Ian Herbert and Will Seal

Abstract Purpose — The chapter presents case evidence to argue that rather than comprising noncore, back-office business support services, shared service centers (SSCs), when viewed from a knowledge management perspective, can create both valuable and firm-specific resources and dynamic capabilities. Design/methodology/approach — Literatures in strategic management, knowledge management, and business process sourcing are drawn on as a prelude to a longitudinal case study conducted by the authors in a large private sector utility company. Findings — A knowledge management perspective demonstrates how the SSCs, as a hybrid organizational form, may help to redefine core versus noncore activities and thus, to play a role in the creation and protection of firm-specific resource and dynamic capabilities. Research limitations/implications — The SSC model is an emerging phenomenon and the field work is restricted to a single case study. Further field research is suggested. Practical implications — The findings should be useful to those organizations embarking on the reconfiguration of back-office support services which might gain from further consideration of what activities might be seen as constituting core enterprise architecture. The case study demonstrates that when the traditional core activities of the organization become commoditized over time, a core competence

Shared Services as a New Organizational Form Advanced Series in Management, Volume 13, 133 151 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1877-6361/doi:10.1108/S1877-636120140000013007

134

Ian Herbert and Will Seal

becomes the management and administration of a bundle of technical projects premised on the processes and information systems of the SSC. Originality/value — Shared services is an emerging phenomena and scholar literature is nascent. The chapter explores potential benefits of the SSC model beyond the headline agenda of cost reduction through efficiency savings and labor arbitrage. Keywords: Shared service centers; outsourcing; knowledge management

Introduction In the second half of the 20th century, the multidivisional corporation (M-form) emerged as the dominant force in the design of large Western industrial organizations; the main imperative being to increase production volumes. From the early 1980s onwards, global competition created a need to focus on: first, production efficiency to compete with lower priced imports, and second, output effectiveness to deliver products more attuned to rapidly changing consumer preferences. In response, New Working Practices, for example, delayering, rightsizing, BPR, outsourcing, and value chain analysis (Otley, 1994, p. 289), were adopted to reorient divisional business units from a production mind-set, premised on the scientific school of management, to a more adaptive, market-focused, orientation. A further thrust was to challenge the fundamental value proposition of the organization by defining and then focusing on its core competence(s). Noncore activities might typically be those peripheral service activities that, while essential to the overall functioning of the enterprise, are not within the natural scope of management’s expertise, for example, cleaning, security, HRM, payroll, accounts transaction processing, IT, etc. (cf. Smith, Morris, & Ezzamel, 2005, p. 427). However, Prahalad and Hamel (1990) urged firms to identify and nurture those competences that were common across strategic business units (SBUs) and then build these into the organizational architecture of the company (p. 89). They counseled against unwittingly surrendering through outsourcing core skills by mistakenly viewing indirect activities as overhead cost (p. 84). While usually predicated on cost reduction, the shared service center (SSC) is an alternative approach whereby the noncore support activities are taken out of business divisions and consolidated in a new unit with a separate “arm’s length” management structure, typically at a new and lower cost location. Compared with outsourcing, the SSC has the advantage of continued management direction and control within the organization’s own hierarchy while also retaining knowledge and skills that when put together can become a key component of organizational design. Drawing on case data from a UK company, the aims of this chapter are twofold. First, to explore the nature of SSCs within a continuum of alternative arrangements to undertaking support activities. Second, to consider how

A Case Study of a Finance SSC

135

a knowledge management (KM) perspective might provide insights into the potential for SSCs to redefine as “core” those activities that might otherwise be regarded as merely peripheral support activities and thus create new firm-specific resources (Barney, 1991) and dynamic capabilities (Teece, Pisano, & Schuen, 1997). The chapter is presented in six sections as follows. First, the nature of outsourcing noncore activities is described followed by some insights provided by KM theory. Second, some emerging issues in outsourcing are discussed in the context of examples from the public domain. Third, the concept of the SSC as a hybrid form is introduced within a continuum of possible approaches to the organization of service activities. Fourth, a case study describes the development and operation of an SSC in the United Kingdom and the development of new competencies. Finally, there is a discussion of the findings followed by some concluding remarks.

Outsourcing Noncore Activities In recent years, outsourcing noncore service activities has become a key feature of many organizations’ drive to improve performance (Barnes, 2004). Outsourcing is usually applied to lower level, noncore business support activities, such as cleaning, security, catering, payroll processing, etc. (cf. Smith et al., 2005, p. 427), but may also include more specialist and/or higher level functions such as accountancy and internal audit (Rittenberg & Covaleski, 2001). The motives for outsourcing can be various (Smith et al., 2005, pp. 417 418) but, might include typically: cost and headcount reduction, access to greater expertise and technology, a reoriented focus on core activities, and better operational flexibility (Barnes, 2004; Bromage, 2000; CIMA, 2001; Langfield-Smith & Smith, 2003; Venkatesan, 1992, respectively). While, efficiency gains and cost savings are often the headline justification for change, in a survey of companies in the United States, Renner and Tebbe (1998) found that while 42% of respondents reported that outsourcing lowered the administration costs of the accounting function they also noted that 39% of respondents did not have accurate data on cost savings. Perhaps this is not surprising given that it is likely to be difficult to accurately determine either, the full economic cost or the benefits of activities that might previously have been regarded as peripheral and entangled within the operations of various business units. If financial precision is elusive then the fall back is to appeal to more philosophical notions that outsourcing creates the discipline of open markets (Caulkin, 2003). By replacing the “dead hand” of bureaucracy with the “invisible hand” of the market, the visibility of otherwise peripheral costs is raised. Moving to a transactional orientation from an embedded one focuses management on the need to minimize cost and maximize value for money in each decision. Successive UK governments have favored outsourcing, and its associated forms, in reshaping public services. For example, Compulsory Competitive Tendering (CCT) and the Private Finance Initiative (PFI), were key strategies based on a government ideology of “marketizing” both the sourcing and delivery of public services

136

Ian Herbert and Will Seal

aimed at stimulating change and improvement (Broadbent, Gill, & Laughlin, 2004). Yet, such a market-based approach to outsourcing ultimately relies on the extent to which activities can be commoditized and then performance benchmarked. Delineating what is core and noncore in business support services may not be straightforward. Prahalad and Hamel (1990) argued that core competencies are the collective learning in the organization, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies. (p. 82)

Enterprise-level competencies are integrative, “the glue that binds existing businesses” (p. 82). Prahalad and Hamel urged caution in outsourcing decisions (p. 84). In the context of outsourcing, Quinn (1992) envisaged a notion of the “intelligent enterprise” in which the removal of noncore activities could lever core knowledge.

A Knowledge Management Perspective There has been significant interest in KM in recent years (Serenko & Bontis, 2004). Four themes significant to this study emerge in the literature. First, how organizational knowledge might be created, stored, shared, and applied (e.g., Choo & Bontis, 2002; Nonaka & Takeuchi, 1995; Tsoukas & Mylonopoulos, 2004; Tsoukas & Vladimirou, 2001). Second, how categories of knowledge might be structured and classified between taxonomic and integrative approaches. The taxonomic approach began with Polanyi (1962) delineating tacit from explicit knowledge, while the integrative approach sees knowledge as a product of social construction within a situated context, and is thus essentially indefinable (see Tsoukas, 1996 for a review of both fields). Third, how a repository of knowledge might explain a firm’s existence with Penrose arguing that firms could be viewed as a bundle of services created by their material resources through the knowledge of their personnel (1959, pp. 25, 76). For an overview of knowledge-based theories of the firm see Spender and Grant (1996). Fourth, how knowledge might become a contingent variable in organization structure (Birkinshaw, Nobel, & Ridderstra˚le, 2002). Yet, whatever the approach, there remains the problem of being able to identify the existence and nature of knowledge in situated practice, especially in the categorization of knowledge inherent in the taxonomic approach. Penrose (1959) cautioned that delineations between explicit versus tacit knowledge, what she termed experience versus objective knowledge respectively, can be “slippery” and Nelson and Winter (1982, p. 88) remind us that definitions of “skill” can suffer from both semantic and operational ambiguity and the same applies to knowledge. Other authors have attempted to clarify certain categorizations to better align with situated practice. For example, Grant (1996) distinguishes between tacit knowledge as knowing how and explicit knowledge as knowing about, suggesting that in the case of the latter, ease of communication is its fundamental property. Similarly, in defining objective knowledge Penrose (1959) suggested that it is the “transmissibility” of knowledge that is the key characteristic. Birkinshaw et al. (2002) distinguished

A Case Study of a Finance SSC

137

between observable and embedded organization knowledge, the suggesting that tacit knowledge is an inherent part of the structural knowledge of the firm and this may not be readily apparent when making decisions to extract and relocate longstanding embedded business support functions. Grant (1996, pp. 110 111) identifies the characteristics of knowledge that have critical implications for organizational management, viz: transferability, capacity for aggregation, appropriability, specialization in knowledge acquisition, and the knowledge requirements of production. It is with these caveats to the “knowability” of knowledge that the nested model proposed by Matusik and Hill (1998) (M&H) is now introduced. Their model, based upon the taxonomic approach, was developed in the context of informing the utilization of contingent workers. The M&H knowledge framework sensitizes researchers and practitioners to the possibilities for both the acquisition and loss of knowledge across permeable boundaries of the firm. It is in that regard that Rittenberg and Covaleski (2001) applied the M&H framework in exploring the internalization versus externalization of internal audit functions. M&H argued that in deciding which activities might be appropriate contingent workers it is helpful to classify in a hierarchy the knowledge inherent in performing each task as either: (1) public or private, (2) architectural (tacit understanding of the organization’s culture and systems) or component (discrete operation of organization subsystems), (3) collective or individual, and (4) tacit or explicit. As an example, albeit somewhat contrived, is the payment of a supplier’s invoice. Before writing a check a clerk is “programmed” to check details such as, did the work get done? Is the amount charged in line with the order? Has the line manager approved the invoice? etc. Such instructions for a component task might be defined explicitly in a procedures manual. Component knowledge is necessary for those tasks (a repertoire of routines, Nelson & Winter, 1982, p. 98) which can be performed satisfactorily under normal conditions, without undue management intervention. The skill to do the job is mostly public knowledge in that such routines are common practice and any appropriately qualified clerk could step in and do the task. However, if a wider situation arose, say, quality problems had occurred with other projects handled by that particular supplier, then the company might wish to hold payment of all that suppliers invoices until further checks have been made. The clerk might know this as a result of conversations with coworkers and decide to defer the immediate payment and request for managerial action. This exception to the standard routines would involve knowledge that was private to the firm, it would be tacit and require a collective mind-set to resolve. Furthermore, the actors involved might be guided by past precedents with that supplier, or a certain category of supplier, such that they would be drawing upon the firm’s architectural knowledge. Tsoukas and Vladimirou (2001, pp. 981 985) also describe how routines in a call-center, while highly programmable, still require access to an element of heuristic knowledge embedded within the organization and this further requires operators to use tacit skills in selecting and applying such additional knowledge to those tasks falling outside of the programmed parameters. Such operational flexibility might not be possible if the process has been outsourced.

138

Ian Herbert and Will Seal

However, if the performance of workers is substandard, or if the component routines themselves are flawed, then the knowledge that is required to identify and correct the situation is architectural (structural) in nature. In other words, component knowledge is sufficient to maintain a steady state, while architectural knowledge is required to monitor, rectify, adapt, and improve operations. M&H conclude that rather than the simple motive of cost reduction in outsourcing … the most significant impact of contingent work may be on the knowledge stock of the firm and, through that, on its long-term competitive position. (p. 681)

This aspect is likely to be particularly pertinent at the level of outsourcing or insourcing whole service functions and SSCs may have a role to play in the development and protection of private knowledge, such that the sum of all the knowledge resources manifests as economic value to the corporation, what Grant (1996) referred to as “appropriability.” Other authors, such as Stewart (1997, p. 67) and Choo and Bontis (2002), prefer the term Intellectual Property (IP) to evoke a sense of the aggregate knowledge stock having a coherent form that creates a competitive edge, thus becoming an intangible asset of the organization that can somehow add to the capital base of the firm,1 ultimately being evaluated by shareholders. Another perspective from the strategic management literature is the question of imitation or replication. If an organization outsources its support services, then it may lose some of the non-replicable and idiosyncratic elements of its organizational capital and there is the danger that those services represent an easily copied agency nexus of contract model (Teece et al., 1997).

Outsourcing — Potential Limitations Some recent failures of outsourcing initiatives in the United Kingdom have highlighted the risks of entering into contracts with third parties for the supply of key support services especially, when those relationships are difficult to unwind from. For example, when the contract period is long term, say 5 10 years or the workers and assets that may be transferred to a contractor are highly specific and difficult to replace. Another factor might be that the contract may be lop-sided and favor of the contracting company, one of whose core competences will be negotiating contracts in respect of activities that the buying organization undertaking does not know very much about; hence its desire to untangle itself from doing it (Caulkin, 2003). Furthermore, where a particular activity is inappropriately chosen because the outputs are difficult to verify and monitor (cf. Smith et al., 2005) then outsourcing can increase costs, or at best achieve minimal savings. Moreover, it can reduce

1

“Capital base” implies a latent value rather than suggesting that any value needs to have crystallized in accounting terms.

A Case Study of a Finance SSC

139

service flexibility and even lead to reduced quality (Caulkin, 2003; Davies, 2005). Difficulties might also occur when a primary contractor might subsequently subcontract to other contractors. Railtrack was formed as a component of the privatization of British Railways in the mid-1990s and it was a decision at government level that the field engineering function, which might ordinarily be viewed as a core function, should be outsourced to specialist contractors thus creating a “virtual” organization with a relatively small nucleus of core technicians and managers. The intention was to create a new service model and avoid the sort of bureaucratic mind-set that was associated with the former public sector British Railways. However, after a series of high profile accidents it was apparent that the new company did not have sufficient technical resources to negotiate or oversee the contracts it was placing with third parties for infrastructure maintenance. In 2003, when Railtrack became insolvent, its successor, Network Rail plc, reversed the outsourcing policy, bringing in-house a total of 18,500 staff from the private engineering contractors (Caulkin, 2005). This experience suggests that certain activities that might formerly have been viewed as commoditizable at a strategic level cannot, in practice, be so readily routinized, standardized, performance benchmarked, and farmed out to third-party contractors. While such routines might be capable of codification, and thus represent explicit knowledge, perhaps there are other (tacit) aspects in how the job is done that are not being captured? The Railtrack example begs the question: what factors should inform tomorrow’s outsourcing decisions if existing notions of core versus noncore skills and explicit versus tacit knowledge are ambiguous? Moreover, is there a better way which combines the benefits of market discipline with the retention of knowledge and control?

The SSC as a Hybrid Approach to Organizing Activities The motives for both SSC and BPO approaches are typically twofold. First, to improve efficiency — through cost savings, the concentration of expertise, and to facilitate incremental change through Business Process Reengineering (Quinn, Cooke, & Kris, 2000). Second, to increase effectiveness allowing the SBUs to focus on their core activities (Prahalad & Hamel, 1990; Smith et al., 2005). While there may be a range of other, usually secondary motives, Janssen and Joha (2006) found that many planned benefits of their case SSC (public sector courts) did not arise, although other unplanned benefits arose serendipitously. Whether planned or unplanned the chief benefits of adopting the SSC model over outsourcing are: control over processes and outputs is maintained; the risk of choosing an inappropriate supplier (or being “gamed” by the supplier); and most pertinent to this chapter, knowledge is retained within the firm. SSCs should also facilitate change by “breaking the mold” with previous operating regimes and personnel. Standardization of systems and technology may allow the SSC to employ more junior and thus cheaper staff but, conversely, the scale and new focus of the SSC

140

Ian Herbert and Will Seal

should also enable it to recruit and concentrate top experts and professionals, thereby increasing the knowledge resources of the firm (Herbert & Seal, 2012). Bergeron (2003) suggests that a knowledge perspective might see the SSC as an opportunity to rethink and repackage the intellectual capital of the company. Priyan Fernando, Executive Vice President and Chief Operating Officer, American Express Business, describes the company’s SSCs as “truly a strategic asset of American Express” (Fernando, 2008). The SSC can be viewed as a halfway-house to eventual outsourcing (Gospel & Sako, 2010) in which processes are unbundled from SBUs and then reengineered within the SSC. In an alternative framing, the SSC may be established as a permanent and hybrid approach combining the best features of both market and hierarchy (Williamson, 1975). In this model, the SSC might act as a gateway to a range of third-party services for both routine and specialist services on a best-case basis once the reengineered processes have been stabilized, and performance metrics have been established and benchmarked. The SSC model can be positioned within a continuum of possible approaches to undertaking service activities (see Figure 1). At one end, is the traditional approach (1) in which service activities are embedded within the role of multidisciplined frontline (core) operators, located within SBUs. Here knowledge is mainly tacit. It is embodied within operator skill sets and embedded with organizational task routines, there is an emphasis on knowing how to do things. Next, is the creation of specialist employees working within frontline teams (2). This is similar to (1) but there is a difference in the knowledge/skill sets between employees allowing for greater expertise but with perhaps less opportunity for flexible working. At point 3, is the formation of a function-based department of specialist workers but still located within the overall hierarchy of each SBU (3). In each of these three approaches, direction and control of activity remains within the hierarchy of individual divisions. At the opposite end (7), is the market-oriented approach in which the modus operandi concerns governance of a bundle of transactions, which in aggregate fulfill the mission of the firm (Penrose, 1959). In this model, activities are outsourced to a third party, with process knowledge being regarded as explicit and knowable, that is, knowing about things. Thus, the contracting firm has confidence that the outputs can be specified contractually and verified in practice. At its extreme it is the virtual organization model such as, Railtrack. Within this continuum the SSC can be positioned between the in-house and outhouse modes at point (5). The M&H model is based upon the use of contingent workers and these are now depicted either side of the SSC as follows. First, point (4) represents individual workers with specialist skill sets. In practice, these workers are likely integrated within core work teams in positions (1), (2), and (3) as process methods and personal behaviors are important operational concerns. Payment will likely be time related. Position (6) represents small scale, self-directed, teams of contingent workers who might work alongside in-house workers but with responsibility for defined tasks which are subject to output-based specifications, controls, and rewards. These workers will have similar skills to individual workers but, may also have a degree of collective and architectural knowledge in that they will be able to

A Case Study of a Finance SSC

141

Contingent workers (4) (1) embedded activities

(2) specialist team members

Internalisation Hierarchy Effectiveness

(3) discipline function

Dimensions Governance model Objective

External, end customer

Focus

Processes & behaviours

Performances measures

Variable, customised Private, tacit, embedded, experience Integrated

Figure 1:

Task styles Knowledge management Knowledge scheme

(6) (5) SSC (hybrid)

(7) outsourced (third party)

Externalisation Market (TCE) Efficiency Internal, process rationalisation Output vs. Specification Routine, mass Public, explicit, observable, objective Taxonomic

A continuum of approaches to service activities.

organize a repertoire of activities and monitor their own progress. Underneath the continuum is depicted certain dimensions of the management of operations and knowledge with the operational emphasis shown at each end point. In sum, the advantage of the SSC is that it should be possible to improve both efficiency and effectiveness of service delivery without either the loss of control that may result from full outsourcing, or onerous monitoring of suppliers (Smith et al., 2005, p. 438). Both outsourcing and SSCs provide an opportunity to rethink and change business processes but, additionally, the SSC may allow a firm to develop the role of service activities beyond simply playing a support function to SBUs. The next section considers longitudinal evidence from a finance SSC.

Case Context Utilityco2 is the UK division of a German multinational company. It has five operating subdivisions including the Distribution Division (called here “Cables”) whose

2

The names of the company, individuals, and locations have been disguised.

142

Ian Herbert and Will Seal

physical asset base consists of wiring, switchgear, transformers, etc. The SSC employs around 400 people primarily engaged in providing HR, IT, accountancy, and purchasing services. Since privatization in 1990, the company’s business environment had changed significantly as a result of various phases of changing government regulation, in continual restructuring within the industry. There had also been continual downward pressure on revenue as a result of price control by the industry regulator and competition from new entrants in the market (cf. Tyler, 2000). Research Method The field research took place between 2003 and 2013 and comprised a series of interviews involving key participants in the SSC, the corporate Head Office (HO), and the accounting department within Cables. Additionally, documents produced in the course of the monthly performance reporting and customer liaison cycle were reviewed. Formation and Development of the SSC Malcolm (1999) describes the development of SSCs as a part of the wider process of corporate restructuring comprising three distinct but overlapping phases, centralization (1950 1986), decentralization (1980 1999), and SSCs (1985 1999). This scheme fits well with Utilityco as the company had been something of a monolithic, centralized, bureaucracy until 1990 when the UK electricity industry was privatized in the form of a number of publicly quoted companies including Utilityco. From the outset, Utilityco pursued a long-term business transformation program comprising a range of New Working Practices to reduce costs and improve operating flexibility. A key feature was the creation of semi-autonomous SBUs together with individual employee empowerment encouraging the bottom-up development of better working methods and at the same time underpinning a significant flattening of the management hierarchy (see Herbert, 2009). The first conversation with two managers (QB and NG) took place in Autumn 2003 in the offices of the recently established SSC. The primary motivation appeared to be a reduction in direct headcount from which monetary savings could be assumed to flow, although the net monetary benefits (cost and cash flow) were apparently difficult to quantify, either ex ante or even ex post. The first theme sought to explore the SSC as an established routine and to ask whether there had been efficiency gains in terms of the SSC’s own KPIs. It was reported that there had been gradual improvement in some areas and significant improvement in others. Such improvements had arisen through the focused approach that the SSC was able to apply to tasks that had previously been peripheral to the work of individual divisions, such as managing the receivables ledger in the non-retail divisions, what NG described as “good housekeeping.” The following interview extract captures the flavor of the way in which a proactive approach had

A Case Study of a Finance SSC

143

been applied by the SSC to managing and improving low-level activities, seemingly noncore. NG. There have been areas where we have measured [activities] for the first time. There’s been areas that we’ve taken over and [have] made steady state improvements beyond what we inherited from the divisions. But there has also been areas where we have inherited a junk activity and said “Look this is a nonsense”. Maybe it was an activity [say, bank reconciliations] which wasn’t their [the division’s] number one priority, but now of course it becomes a main stream activity for the SSC. Perhaps it was always treated as a Cinderella activity, just an evil necessity that had to be done so that they could get their month-end numbers. Now it comes across to us [the SSC] and it’s a main stream business, the sort of thing that we are good at and we staff it up, not with temporary people, as a sort of after thought, but we put good people in there and do it [properly]. That has shown through in the results that we have got.

This process of evolutionary improvement and the development of new competencies may be less likely to happen in an outsourcing arrangement as there is usually little incentive for the supplier to improve efficiency for the benefit of the outsourcer, unless negotiated ex ante. At Utilityco, tacit collective knowledge might have been lost now that the SSC workers were remote from the frontline workers but it was reported that better systems (explicit routines) and the interchangeability of staff within SSC teams allowed a continuous service to the client, independent of knowledge embedded within individuals. This had compensated for the lack of physical proximity to divisional staff but it was a moot point as to whether the interpersonal “glue” (cf. Prahalad & Hamel, 1990) had been replaced by the improved formal routines. A user perspective on the SSC. Our interviewee (AC) was qualified accountant with the Cables Division and one of his roles was managing the relationship with the SSC. He described how the SSC had “picked up” the division’s former support systems and staff and moved them to the new location (20 miles). He added For the staff concerned it represented a potential for advancement as previously, in say, Accounts Payable/Receipts there had been teams of three to five people but now, at the SSC, the scale of those departments had increased by perhaps a factor of ten and thus individual employees had better chances for promotion.

In terms of benefits from the SSC, AC felt that there was little advantage to the division either financially or operationally, because the SSC now did exactly what they had done before. The SSC was geographically close to the administration offices for Cables and most staff could easily transfer to the SSC. However, Cable’s staff at more distant offices might not have been able to move to the SSC for personal reasons. From a company-wide perspective, although there had been some standardization of procedures and processes, AC felt real pay back was expected in the next “three or four years” with further standardization. The basis of the relationship with the SSC was the Service Level Agreement (SLA) and it was reported that this worked well.

144

Ian Herbert and Will Seal

The significance of Enterprise Resource Planning in the change process. It became evident that our interviewee at Cables regarded the main driver of change in the company’s accounting system to be the introduction and implementation of a new Enterprise Resource Planning (ERP) system and we wondered about the significance of this with regard to the SSC. Was the SSC simply a convenient arrangement for co-coordinating the standardized systems and processes of the ERP, or was the role of the SSC more fundamental? Might not the SSC have been more problematic if each division had continued to use a variety of legacy systems? AC confirmed that the ERP approach was indeed driving the further reengineering of processes toward efficiency and that the ERP is now inextricably linked with the development of the SSC. He also explained how the ERP’s proprietary systems had progressively been customized to the company’s requirements. Evidence of a mixed approach to sourcing services. AC explained that the development of the SSC and its information systems were now resulting in a slow but continual evolution of the business. Other changes in the wider organization had often been more sudden, usually driven by changing strategic imperatives. He gave an example of how, following the acquisition of another large company in 1998/1999, the Cables division had reduced its permanent workforce of field-based craftsmen by around 50% through the use of individual or small groups of contingent workers, often former employees. Individual field engineering projects (e.g., install new substation) could now be structured as a discrete repertoire of component routines, thus effectively marketizing them such that each project can be assigned to the most appropriate workers, whether internal or external. In this industry, while engineering work is specialized and there is significant variability between jobs in the field, because safety is such a significant factor, contractors have to be certified to appropriate national standards and this, public knowledge, provides a standardized regime of conformity in the specification and control of work processes/outputs, thus guiding both the tacit and explicit processes involved in the field work. Safety is a good example of both explicit routines (specified practices and outputs) and tacit understanding (the culture of safety codes). AC explained how this had changed the management style. Running a contractor requires a different mind set than with your own guys and so we had to increase our skills in project management … because, if you don’t manage them correctly, contractors will rip you off.

This reference to the outsourcing of engineering services is interesting, especially the reference to the risk of being “ripped off.” Perhaps this was a further factor in the decision to pursue the SSC model with such conviction. It is also interesting to note how some of the skilled “frontline” engineering activities, which were traditionally seen as a core competence and largely defined the company, are now outsourced, with the SSC now focusing on what were formerly noncore support activities. AC also noted that with a significant expansion in Utilityco’s capital expenditure plans coinciding with competition for workers rising due to other major

A Case Study of a Finance SSC

145

infrastructure projects (e.g., the 2012 London Olympics), there was a trend to pull engineering resources back inhouse and to make major investments in training once again. The Head Office perspective Two interviews were undertaken with another manager (CM) from the HO of Utilityco. CM described herself as a strategic change manager who had a role within the SSC Business Improvement Team, as well as a reporting line to one of the senior HO directors. Her position allowed HO to understand the situation of the SSC and to drive further process improvements. CM explained that while the SSC is treated as a central cost within the UK corporate umbrella, there was a clear visibility through the comparison of budgeted and actual cost. She gave an example of how a recent acquisition had resulted in a 20% overshoot in the SSC’s annual expenditure due to unforeseen costs of handling transaction processes for the acquired operation. She suggested that such an underestimation in costs of the acquisition would normally have been “lost” within the operating division. Thus the SSC had enabled visibility of an otherwise peripheral activity, albeit one that was still a significant financial concern. A knowledge management perspective During a further visit to Cables in 2010, a picture started to emerge whereby the competence that now defined the company was essentially the ability to deal with the incremental pressure of the regulatory regime. AC described how very detailed financial and operating information needed to be provided to allow the regulator authority (OFGEM3) to judge the level of the company’s efficiency, relative to competitors and to inform negotiations between the company and the Regulator in respect of service “deliverables” and capital expenditure levels — given the company’s specific geographical and customer profile and the Regulator’s targets for moderating selling prices in line with the Retail Price Index (RPI4). Essentially, the field engineering function now comprises the application of mainly explicit knowledge in the public domain to perform component activities. It is the planning and control of individual projects and tasks across the organization that requires private, architectural, knowledge. This comprises two overlapping forms. First, project management skills requiring mainly tacit knowledge, and second, administration routines within the SSC, supported by the ERP system. While this latter aspect concerns mostly explicit knowledge encoded in the operating systems, manuals, and staff routines, a full picture of this knowledge and its significance within the wider organization requires both higher level access to the ERP, combination with other perspectives, and tacit sense making among top management. Such a view is probably beyond the scope of any one individual and thus we argue is architectural in nature. This new private knowledge defines the company and needs to be protected. In addition to contributing to this organizationwide architectural knowledge, the SSC also undertakes a collection of routines

3 4

OFGEM: Office of Gas and Electricity Markets. See OFGEM financial statements for background on target setting processes (OFGEM, 2006/2007).

146

Ian Herbert and Will Seal

which while individually requiring component knowledge, in aggregate they become a core competence of the SSC and thus of the whole organization. The final episode in the study (2013) involved the presentation of the research findings and an interview with a senior management accountant in the company. BC had held a director level position in one of the SBUs but had been appointed as the Director of Shared Services (which had grown to a multifunctional organization employing over 1000 people). One of his first tasks was to relocate the SSC (Finance Operations initially) to an East European country that offered much lower labor rates than the United Kingdom. Significantly, the in-house SSC model was still central to the company’s approach to business support services. Interestingly, a number of new competitors in the energy market now bought and sold energy at the consumer’s meter. Without any production or distribution equipment, the core competencies of the new firms were price setting, marketing, and dealing with customer-driven billing administration. BC accepted that the Utilityco SSC did indeed comprise essential knowledge and systems architecture of the company, although he was also keen to point out that while many of the traditional engineering activities might now be considered as commoditized, the company had significant and specific knowledge about how an overall fuel production and supply chain worked in practice. That knowledge, he argued, would be a key advantage in driving a new energy future based on massive investment in renewable sources. For Utilityco, a KM approach intimately combined both operational and support services knowledge at an enterprise level. For example, someone had to be able to see the big picture of delivering energy to a one-off event such as the Olympics.

Discussion The emerging theme in the Utilityco case is how the evolving nature of the business and the development of an organization-wide information system are being drawn together in the most appropriate way to undertake both core and noncore activities, whether by in-house workers, individual contingent workers, third-party collectives, or the SSC. While many SSC activities might be low-level in terms of component skills, constituting a backroom rather than frontline activity, nevertheless, the company now seems to be developing a new set of core competencies, based on information systems, project management, and supplier liaison (internal and external). We suggest this “new” knowledge is architectural in the way that the standardized information systems form the means by which the company understands, controls, and improves its business, together with management’s tacit expertise in enabling the company to justify itself to the regulators, thus preserving access to its customer base. This has a resonance with the way in which Prahalad and Hamel (1990) described organization-wide competencies developing. While the ERP system itself is proprietary software and thus public knowledge, the way in which it is used and has since been modified by the company now makes it private knowledge. If the core competence of the company is now seen as the management of a bundle of

A Case Study of a Finance SSC

147

engineering projects, rather than engineering per se (cf. Penrose, 1959), then any competitive advantage arising from this organizational knowledge needs to be protected. It is interesting to note a potential comparison with Railtrack, also an engineering company that was rich in physical assets. When deficiencies in Railtrack’s private architectural knowledge, the glue that held the “virtual” organization structure together, was exposed under a welter of safety concerns, the market value of Railtrack (including the physical assets most of which were highly specific and readily saleable) simply withered away to nothing as day-to-day cash flow became stretched. M&H observed how knowledge could be acquired or lost through more permeable boundaries of the firm as the use of contingent workers increased (see also Yanow, 2004). At Utilityco, the operational skills and component knowledge of elements of the traditional engineering activities had become readily available in the market. Consequently, the emerging imperative for the firm is the creation, protection, and exploitation of its private architectural knowledge, both of engineering management and the SSC which enable field engineering projects to be planned, directed, and controlled. For the purpose of this study such organizational knowledge would not be structural knowledge in the sense that while it constitutes collective knowledge in the M&H model, it still occurs at a component level and does not in itself coordinate the action of groups of component tasks. Thus, we propose an adaptation to the M&H model whereby at the top-level the first distinction is between component versus architectural knowledge. The latter aspect may also have a public dimension in that some third-party outsourcers offer comprehensive management information systems, together with interpretative advice services such that anyone can buy (technical) systems knowledge from the public domain. The SSC can now be introduced into the M&H scheme such that it signifies the retention of control over private aspects of both component and architectural knowledge (see Figure 2).

Component

Architectural

SSC Private

Public

Public

Individual

Collective Individual

Tacit

Explicit

Tacit Tacit

Contingent Workers

Figure 2: p. 684).

Collective

Explicit

Tacit

Explicit

Explicit Outsourcing

Knowledge framework. Source: Adapted from Matusik and Hill (1998,

148

Ian Herbert and Will Seal

Smith et al. (2005) found that in their case study firms the chief motivation for outsourcing, in addition to cost reduction, was to allow a greater focus on core activities, however, the situation at Utilityco reveals a resonance with Prahalad and Hamel (1990) in that traditional distinctions between core and noncore activities are less helpful when seemingly noncore activities such as the purchase ledger can be aggregated into an overarching architectural competence. Administration support through the SSC and associated ERP system has supported project management through the standardization of routines and the creation of an information rich environment to support frontline operators, and at the same time provide financial visibility to managers. Finally, while Utilityco was keen to adopt the ethos of a market approach, as reflected in the use of an SLA, they drew back from market-based mechanisms such as charging per transaction, to avoid any adversarial attitudes that might negatively affect operational cooperation and knowledge sharing. The formation of the SSC in 2002 was initially premised on extending the original cost reduction programme (from privatisation in the 1990) although it seems to have also played a leading role in a new phase of the company’s development, the reconsolidation of the business (see also Seal and Herbert, 2013). The emerging “joined-up” organization enabled economies of scale and coordination to be achieved again across the business which, we suggest, represents an additional, fourth, stage to Malcolm’s (1999) pattern of restructuring. The Utilityco SSC had accumulated both valuable and firm-specific resources (Barney, 1991) and dynamic capabilities. One of the key issues identified in the strategic management literature is the question of imitation or replication. We would argue that if Utilityco had outsourced its support services, it would have lost some of the non-replicable and idiosyncratic elements of its organizational capital. If firms simply outsource their support services then they may face the danger that they represent an easily copied agency nexus of contract model (Teece et al., 1997). Utilityco’s decision to insource its support services created a unique and difficult to imitate governance model.

Conclusions The SSC represents a hybrid form of organizing activities situated on a continuum between at one end, the conventional “do everything” and at the other, the virtual model (do the bare minimum). Thus an SSC seeks to provide the benefits associated with the external sourcing of noncore services while avoiding many of the risks associated with handing over to third-party contractors those activities that although deemed noncore individually, when taken together, could be strategically significant to the functioning of the wider organization. The case study has provided examples of how the SSC has first, disembedded a collection of otherwise disparate noncore activities from divisions, second, aggregated these as a new arm’s

A Case Study of a Finance SSC

149

length unit, and finally re-embedded those same activities but with new, improved, and standardized routines across the company. The research has reported on the feasibility and robustness of the SSC model in so far as this has been explained by the various actors involved in Utilityco. With the ERP system driving standardization and information flows across the organization, it is hard to imagine a reversion back to the old divisional model and disparate legacy systems for this company. While we accept that this is a single case and care needs to be taken in generalizing, an emerging perspective for the SSC is in its potential to aggregate and improve support services with the potential for these to become organization-wide core competences in the manner conceived by Prahalad and Hamel (1990). An adaptation of the Matusik and Hill (1998) model has been proposed to assist in understanding the role of the SSC in creating and preserving such private architectural knowledge as it seeks to support the company’s wider approach to sourcing and managing core engineering skills.

Acknowledgment The project was supported by the General Charitable Trust of the Institute of Chartered Management Accountants.

References Barnes, P. (2004). Good going. Financial Management, (October), 31 32. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99 120. Bergeron, B. (2003). Essentials of shared services. Hoboken, NJ: Wiley. Birkinshaw, J., Nobel, R., & Ridderstra˚le, J. (2002). Knowledge as a contingency variable: Do the characteristics of knowledge predict organisation structure? Organization Science, 13(3), 274 289. Broadbent, J., Gill, J., & Laughlin, R. (2004). The private finance initiative in the national health service: Nature, emergence and the role of management accounting in decision making and post-decision project evaluation. London: CIMA. Bromage, N. (2000). Outsourcing: To do, or not to do, that is the question. Management Accounting, (January), 22 23. CIMA, London. Caulkin, S. (2003). In-house and back on track. The Guardian, November 29. Caulkin, S. (2005). Outsourcing and out of control. The Observer, August 28. Choo, C. W., & Bontis, N. (2002). The strategic management of intellectual capital and organizational knowledge. New York, NY: Oxford University Press. CIMA. (2001, August). Contracting out the finance function. Technical Briefing, CIMA, London. Davies, S. (2005). Hospital contract cleaning and infection control. London: UNISON.

150

Ian Herbert and Will Seal

Fernando, P. (2008). Role of the finance function. London: CIMA. Retrieved from http:// www.avtgroup.com/clients/cima/webcast_future_finance/index.html. Accessed on April 2, 2008. Gospel, H., & Sako, M. (2010). The unbundling of corporate functions: The evolution of shared services and outsourcing. Industrial and Corporate Change, 19(5), 1367 1396. Grant, R. M. (1996). Toward a knowledge-based theory of the firm. Strategic Management Journal, 17(Winter Special Issue), 109 122. Herbert, I. P. (2009). Business transformation through empowerment and the implications for management control systems. Journal of Human Resource and Cost Accounting, 13(3), 221 244. Herbert, I. P., & Seal, W. B. (2012). Shared services as a new organisational form: Some implications for management accounting. British Accounting Review, 44(2), 83 97. Janssen, M., & Joha, A. (2006). Motives for establishing shared service centres in public administrations. International Journal of Information Management, 26, 102 115. Langfield-Smith, K., & Smith, D. (2003). Management control systems and trust in outsourcing relationships. Management Accounting Research, 14(3), 281 307. Malcolm, I. (1999). Shared services: Re-run of an old movie or part of a continuing revolution? Management Accounting, (December), 32 34. CIMA, London. Matusik, S., & Hill, C. (1998). The utilization of contingent work, knowledge creation, and competitive advantage. Academy of Management Review, 23, 680 687. Nelson, R. R., & Winter, S. G. (1982). An evolutionary theory of economic change. Cambridge, MA: Harvard University Press. Nonaka, I., & Takeuchi, H. (1995). The knowledge creating company. New York, NY: Oxford University Press. OFGEM. (2007). Financial statement 2006/07. Retrieved from http://www.ofgem.gov.uk/ About%20us/annlrprt/Documents1/Ofgem%20Annual%20Report%202006-07.pdf. Accessed on October 10, 2007. Otley, D. (1994). Management control in contemporary organizations: Towards a wider framework. Management Accounting Research, 5, 289–299. Penrose, E. T. (1959). The theory of the growth of the firm. Oxford: Basil Blackwell. Polanyi, M. (1962). Personal knowledge: Towards a post-critical philosophy. Chicago, IL: University of Chicago Press. Prahalad, C. K., & Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, (May June), 79 91. Quinn, B., Cooke, R., & Kris, A. (2000). Shared services: Mining for corporate gold. Harlow: Pearson Educational. Quinn, J. B. (1992). Leveraging knowledge — And service-based strategies through outsourcing. New York, NY: Intelligent Enterprise, Free Press. Renner, C. J., & Tebbe, D. (1998). Who is outsourcing and why? Management Accounting, 80(1), 45 47. Institute of Management Accountants, Montvale, NJ. Rittenberg, L., & Covaleski, M. A. (2001). Internalisation of the internal audit function: An examination of the professional and organizational imperatives. Accounting, Organizations and Society, 26(7 8), 617 641. Seal, W. B., & Herbert, I. P. (2013). Shared service centres and the role of the finance function: Advancing the iron cage? Journal of Organisation and Accounting Change, 9(2), 188 205. Serenko, A., & Bontis, N. (2004). Meta-review of knowledge management and intellectual capital literature: Citation impact and research productivity rankings. Knowledge and Process Management, 11(3), 185–198.

A Case Study of a Finance SSC

151

Smith, J. A., Morris, J., & Ezzamel, M. (2005). Organisational change, outsourcing and the impact on management accounting. British Accounting Review, 37(4), 415 441. Spender, J. C., & Grant, R. M. (1996). Knowledge and the firm: Overview. Strategic Management Journal, 17(Winter), 5–9. Stewart, T. A. (1997). Intellectual capital: The new wealth of organizations. New York, NY: Currency Doubleday. Teece, D., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509 533. Tsoukas, H. (1996). The firm as a distributed knowledge system: A constructionist approach. Strategic Management Journal, 17(Winter Special Issue), 11 25. Tsoukas, H., & Mylonopoulos, N. (2004). Introduction: Knowledge construction and creation in organizations. British Journal of Management, 15, S15 29. Tsoukas, H., & Vladimirou, E. (2001). What is organisational knowledge? Journal of Management Studies, 38(7), 973 993. Tyler, G. (2000). Energy is getting cheaper. Management Accounting, (February), 54 56. CIMA, London. Venkatesan, R. (1992). Strategic sourcing: To make or not to make. Harvard Business Review, (November December), 98 107. Williamson, O. E. (1975). Markets and hierarchies, analysis and antitrust implications: A study in the economics of internal organization. New York, NY: Free Press. Yanow, D. (2004). Translating local knowledge at organizational peripheries. British Journal of Management, 15, S15 S29.

Chapter 8

Value Creation by Transactional Shared Service Centers: Mapping Capabilities Marco Maatman and Tanya Bondarouk

Abstract Purpose — The purpose of this chapter is to introduce the capability map that addresses the potential of transactional Shared Service Centers (SSCs). The mapping approach represents a heuristic logic that provides means for analyzing SSC operation, connects SSCs capabilities with their value, and supports academics and practitioners in developing a transactional SSC that is of strategic importance. Design/methodology/approach — This chapter reports on findings from a longitudinal case study within an organization that has implemented a transactional Human Resource (HR) SSC. Over a period of three years, several formal and informal meetings were attended, more than 20 interviews were conducted with SSC MT and customers, over 500 pages of project documentation and memos were studied, which allowed after integration for an in-depth analysis of how resources are bundled to build different types of capabilities. Findings — We uncovered and mapped the operational and dynamic capabilities of a transactional SSC, their role in value creation, and their interdependencies. While the operational capabilities enable the HR SSC to provide day-to-day services to take care of individual end-users and support the business, the dynamic capabilities enable transformation of HR delivery throughout the organization and increase HR’s strategic contribution. Research limitations/implications — One limitation of this study is the extent to which the capabilities and their role in value creation are generalizable to transactional non-HR SSCs. SSCs providing services that cover other business functions might develop and deploy different capabilities. The use of a capability map is not limited to the capabilities uncovered in this study, however.

Shared Services as a New Organizational Form Advanced Series in Management, Volume 13, 153 174 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1877-6361/doi:10.1108/S1877-636120140000013008

154

Marco Maatman and Tanya Bondarouk

Originality/value — In the literature, the primary focus regarding transactional services is limited to cost savings and efficiency. This chapter addresses the potential of the transactional SSC and introduces the capability map as a tool to leverage its potential. Keywords: Shared Service Center; optimization; value creation; capabilities; management tools

Introduction Leveraging the full potential of concentrated and bundled resources within the transactional Shared Service Center (SSC) requires a shift in strategy toward value creation supported by the adoption of a capability development and deployment perspective. A map of capabilities visualizes the value-creating mechanisms and their interdependencies and supports management in their resource-related actions and decisions. Senior executives have multiple alternatives for sourcing back- and front-office processes and functions. As an alternative to Business Process Outsourcing and the dilemma to centralize or decentralize, senior executives go for so-called internal outsourcing when they implement the Shared Service Model (SSM) as an “in-between” sourcing mode for the delivery of a business function (Cooke, 2006; Farndale, Paauwe, & Hoeksema, 2009; Janssen & Joha, 2006). The SSM is defined as a collection of Shared Services provided by a semi-autonomous business unit — the SSC — within organizational boundaries, on the basis of agreed conditions, the characteristics of which are determined by the customers of the SSC and matched to the needs of different types of users (Maatman, Bondarouk, & Looise, 2010; Stright, 2007). “Shared” is the key characteristic for three reasons: the nature of the services provided is determined primarily by the customers of the SSC, there is a common provision of services, and the services are shared by multiple customers (Maatman et al., 2010). The promise of the SSM is that it captures the best elements and effects of both centralized and decentralized organizational models, while minimizing their drawbacks. It is therefore considered an innovative and powerful sourcing alternative for back- and front-office processes and functions (Bergeron, 2003; Farndale & Paauwe, 2006; Farndale et al., 2009; Meijerink, Bondarouk, & Looise, 2012; Meijerink & Reilly, 2010; Quinn, Cooke, & Kris, 2000; Reilly & Williams, 2003; Schulman, Dunleavy, Harmer, & Lusk, 1999). While expertise centers with a focus on change management and strategy are associated with value creation for the organization, transactional SSCs are often considered merely a solution to reduce costs. Not surprisingly, the attention paid in the management literature to them is limited to elaboration on the importance and benefits of standardization, harmonization, and economies of scale. We argue, in contrast, that even a transactional SSC with the primary task to provide

Value Creation by Transactional Shared Service Centers

155

administrative support to business has the potential to be of strategic importance for the entire organization and create value by sharing its human and organizational capital with the customers it serves (Meijerink et al., 2012). It can leverage its central position within the business function, maximize the use of its resources, and find new ways to serve its customers. Although the management literature describes the advantages and the foundation for the promised outcomes, it lacks a comprehensive framework that supports the SSC management in truly transforming the SSC into a value-adding entity with strategic importance for the entire organization. This chapter offers a capability perspective that supports optimization of the use of the available resources within the SSC and the realization of the required conditions for value creation and evaluation. We build on the Dynamic Capability Perspective, which evolved from the Resource-Based View of the Firm in a reaction to the criticism of its static and equilibrium-based approach (Ambrosini, Bowman, & Collier, 2009; Easterby-Smith, Lyles, & Peteraf, 2009; McWilliams & Smart, 1995; Priem & Butler, 2001), to illustrate how transactional SSCs can justify their existence. This chapter seeks to contribute to this literature by offering the capabilities map as a heuristic model that can inform these earlier conceptualizations. Based on our case study within a large Dutch organization, we demonstrate how a map of capabilities can be used to identify the value-creating mechanisms and support management during the implementation of a chosen strategy. In the following section we describe three different types of capabilities that are key in the process of value creation and the basis for the capability map of transactional SSCs: service delivery, engineering, and change-facilitating capabilities.

Value Creation through Capability Deployment An organizational capability represents the ability of an organization to purposefully perform a coordinated set of tasks or activities, utilizing organizational resources (Maritan & Peteraf, 2011). At the highest level, we make a distinction between operational capabilities of the SSC, which express the capacity to deliver services, and dynamic capabilities for the engineering of solutions that address opportunities and bottlenecks in the delivery of a business function and facilitate change of the business (Winter, 2003; Zott, 2003). The foundation of the transactional SSC is the capacity to provide and perform back- and front-office services and processes (Figure 1). We refer to this as the Service Delivery Capability. Through its deployment, the SSC provides administrative services to support the business units. Value is created when the output of the services provided is aligned with the needs of the different customers. The service delivery capabilities represent how well a supplier can respond to its customers’ requirements in terms of day-to-day operations (Feeny, Lacity, & Willcocks, 2005) and concern the extent to which the SSC is able to provide the services repeatedly by using its current resource base; it is therefore characterized as an operational capability.

156

Marco Maatman and Tanya Bondarouk

Figure 1:

Capability map.

A transactional SSC established for stable back- and front-office functions in a static environment requires operational service delivery capabilities and not much more (Feeny et al., 2005). The motivation behind the implementation of the transactional SSCs is often focused on efficiency gains and the reduction of costs (Janssen & Joha, 2006; Scully & Levin, 2010). The objectives are realized as the SSC benefits from centralization by bundling resources and activities, removing redundancy, and increasing standardization and economies of scale (Schulman et al., 1999). However, the SSM promises benefits from decentralization too, as its characteristics allow the SSC to be flexible and responsive to customers’ needs (Bondarouk, 2011). To do so, the SSC needs to be able to recognize its customers’ priorities and take appropriate actions. In other words, the SSC needs to be able to identify opportunities and threats for the delivery of a business function, formulate responses by developing solutions, and alter delivery by implementing the solutions, effecting change. These are functions of the so-called dynamic capabilities (Helfat et al., 2007; Teece, 2010). The activities are performed differently every time, but the routines that underlie these activities express the extent to which the organization deploys dynamic capabilities (Ambrosini et al., 2009). There is an on-going

Value Creation by Transactional Shared Service Centers

157

debate on the link between dynamic capabilities and competitive advantage, firm performance, and value creation (Helfat & Peteraf, 2009). While some scholars argue that there is an explicit and direct link (Griffith & Harvey, 2006; Helfat & Peteraf, 2009; Holcomb, Holmes, & Connelly, 2009; Lee, Lee, & Rho, 2002; Teece, Pisano, & Shuen, 1997), others stress the indirectness of such a link, emphasizing that value is created by the deployment of operational capabilities (Ambrosini & Bowman, 2009; Ambrosini et al., 2009; Bowman & Ambrosini, 2003; Drnevich & Kriauciunas, 2011; Helfat & Peteraf, 2003). The scholars who reserve the value creation link exclusively for operational capabilities argue that dynamic capabilities are deployed to change the resource base of an organization. The value created derives from their outputs, the changed or new resources. In other words, dynamic capabilities create value as the new or changed resources are valuable for customers (Bowman & Ambrosini, 2003). Other scholars who stress the indirectness of the link argue that the changed resource base itself is an insufficient condition for value creation. They feel that customer value is created when the changed resource base is deployed through the operational capabilities to produce goods or services that give an organization its competitive edge, increase its performance, and create value/wealth. In this way the characteristics of the outputs of the operational capabilities, the goods or services produced, determine value creation from the perspective of the customer and not the outputs of the dynamic capabilities (Helfat & Peteraf, 2003). Contemporary organizations increasingly face tightening margins. Support functions, and especially the back- and front-office ones, are forced to improve their efficiency and reduce costs. At the same time, the business units (customers within the SSM) increasingly expect the support functions to address their needs, while corporate headquarters is waiting for input for strategic decision-making. To address these challenges, the SSC needs Engineering Capabilities, which concern the extent to which the SSC is able to develop solutions repeatedly to improve the quality, cost, functionality, and agility of delivery throughout the organization. The engineering capabilities are deployed for different purposes with different foci for changing or developing resources. First of all, the SSC deploys them to improve its own efficiency and/or the quality of its service delivery processes and output. Second, it uses them to expand the customer base or service portfolio by providing the services to new groups of customers and end-users or by offering new services. In both cases the resource base of the SSC used for service delivery changes as the SSC requires additional operational service delivery capabilities. The engineering capabilities are also deployed to develop solutions that can be used by other stakeholders in the delivery of a business function. The solutions are both the output from the dynamic capabilities of the SSC and resources from the perspective of the stakeholders using the solutions (Bowman & Ambrosini, 2003). The Change-Facilitating Capabilities enable the SSC to deal with change. First of all, the SSC is faced with changes in the environment of the business function, including advances in technology, new legislation, and evolving customer needs. Second, delivery is in need of change when the desired outcomes are not achieved, due to inadequate policies, practices, and processes, or inconsistencies between

158

Marco Maatman and Tanya Bondarouk

the stakeholders’ interpretation and the implementation of the delivery of a business function. The change-facilitating capabilities concern the ability of the SSC to identify changes in the environment and the need for change in delivery of a business function throughout the organization. The activities create input or resources for the SSC management to take actions and address the need for change. Depending on the anticipated role of the SSC, the actions of the SSC management result to a greater or lesser extent in the development of solutions that affect the delivery of the business function throughout the organization. The change-facilitating capabilities therefore also concern the capacity of the SSC to implement the solutions, effectuating change, without disrupting the day-to-day operations of the SSC, the business function as a whole, and the customers it serves. As the different functions of a change-facilitating capability are combined, it represents the extent to which the SSC is able to repeatedly accommodate and enable the changing of the resources used for delivery throughout the organization.

Uncovering Mechanisms and Limitations for Value Creation As a capability expresses the capacity to perform a specific task or activity (Helfat & Peteraf, 2009; Helfat et al., 2007) and the outputs of the capabilities of the SSC are the antecedents for value creation, the description and definition of the different capabilities of a SSC allow us to identify the resources and activities to be performed that are required to create value (Sirmon, Hitt, & Ireland, 2007). From a capability perspective, the process of uncovering the value-creating mechanisms of the SSC starts with identifying small bundles of resources used for the performance of specific tasks and activities that fulfill a specific need of a specific customer. Together, they represent a capability of the first level. Subsequently, the concept of the capability hierarchy (Grant, 1991) integrates first-level capabilities into the second, third (and so on) level of capabilities. Moving up the hierarchy of capabilities, the span of the resources and the activities they perform broadens, and task-specific capabilities are integrated step-by-step into cross-functional capabilities (Grant, 1996). At the first level in the capability hierarchy, the capabilities are specific for that SSC as the resource bases and processes of different SSCs for a specific business function are to some extent heterogeneous. As these capabilities are integrated step-by-step into higher-level capabilities, the definitions, characteristics, and function of the identified capabilities become general to SSCs for a specific business function, or even SSCs in general. We applied the capability perspective while studying a transactional HR SSC of an organization in the public sector in the Netherlands. The organization adopted the HR SSM as it concentrated resources for the delivery of HR in several HR centers with different functions. One of these centers can be characterized as a transactional HR SSC with a primary focus on performing front- and back-office HR processes and functions. It serves different types of customers, such as corporate HR, business units, and over 70,000 individual employees, line managers, and HR

Value Creation by Transactional Shared Service Centers

159

professionals. Over a period of three years, we have attended several formal and informal meetings at the HR SSC and corporate HR, conducted over 20 interviews with MT members of the HR SSC and its customers (divisions), and studied over 500 pages of project documentation, memos, newsletters, and mission/vision statements. We used our data to identify the activities the HR SSC performed for different types of customers, the purpose of these activities, and the resources used for performing these activities. Subsequently, we applied the concept of the capability hierarchy (Grant, 1991, 1996) to uncover and map the capabilities at different levels. The care and relieve capabilities form the operational service delivery capability; the guarding and implementation capabilities form the dynamic change-facilitating capability; the expansion, modifying, and integration capabilities form the dynamic engineering capability. The Capability Perspective as a Management Toolbox The identification of capabilities and the construction of a capability map can be used for different management purposes. First of all, it enables management to visualize the use of resources (and potential bottlenecks) within the SSC. Second, as customers determine the value created by the SSC when assessing the overall utility of the outputs of the SSC as the result of the deployment of its capabilities, the identification and mapping of capabilities improve our insights and enable visualization of the specific resources and activities that lead to value creation for specific types of customers. Third, uncovering the value-creating mechanisms results in sets of different types of operational and dynamic capabilities, for different purposes, and with different outputs and resource requirements. The visualization of the capabilities and their interdependencies supports management in the process of resource orchestration and the alignment of capability development and deployment. Care and relieve capabilities. The primary function of the transactional HR SSC is the performance of the back- and front-office functions and processes through deployment of the operational service delivery capabilities. First of all through the deployment of the Care Capability: The care capability is the extent to which the HR SSC is able, by using its current resource base, to repeatedly provide end-users with information, answers, and advice in response to their needs in relation to HR.

The HR SSC takes care of the individual end-users as they struggle to perform their HR-related tasks. It does so by providing the required information and answering questions in the front office on labor legislation, HR policies and practices, systems, applications, and processes used for HR delivery. For the business, this function is valuable as it enables employees to address their uncertainties and concerns. The HR SSC uses tooling with Customer Relation Management (CRM) functionality to log all the data in relation to the service delivery and FAQ databases to address the questions of individual employees and line managers. The combination

160

Marco Maatman and Tanya Bondarouk

of the activities described requires different kinds of knowledge, expertise, and information through various communication channels such as newsletters (digital or printed), intranet, and phone. It also requires the availability of additional skills, competences, and tools. Moreover, the HR SSC needs to be able to reach the different target groups of end-users, and the individual end-users need to be aware and able to obtain and trust the HR SSC’s service delivery. Where the care capability represents the capacity to support individual end-users, the Relieve Capability represents the capacity of the HR SSC to support the customers, especially the business units. While the delivery of HR is not a core function of the business units, it is important as the business units are dependent on a properly performing workforce and are responsible for the management of HR. Many of the transactional tasks to be performed require different kinds of expertise, such as HR administration according to HR policies and legislation, payroll, generating management information, and complying with the information needs of external parties (tax offices, social security agencies, or external payroll providers). The business units are supported as they can trust the HR SSC to take on these tasks according to the agreed conditions. Value is created for the business units as the HR SSC uses its capacity by providing services and minimizing the need for the business units to maintain a base of resources for the performance of these administrative tasks. This reduces administrative pressure on the business units and enables a greater focus on the core business. The relieve capability is the extent to which the HR SSC is able, through using its current resource base, to repeatedly take on the transactional tasks of the business units in relation to HR.

Examples of the resources used during the deployment of the relieve capability are ERP systems with HR functionality, self-service applications, CRM tooling to log data in relation to the service requests and service delivery processes, and personnel and salary administration expertise. In Figure 2 we depict in detail how the capability map can be used to visualize the outcomes of capability deployment in relation to different types of customers. The outcomes can also be negative when capabilities are deployed for purposes that are not aligned with the needs of a specific type of customer; this will be demonstrated later on when we discuss the deployment of the guarding capability. With the combination of the visualization of the resources used and the activities that underlie a specific capability (see Figure 3) and the visualization of the interdependencies between capabilities (see Figure 4), the capability map gives insight into the activities and resources that need to be reconfigured to build new capabilities or align them better with customers’ needs. Guarding and implementation capabilities. The first enabler allowing the HR SSC to change its operation and service delivery or provide solutions for the different stakeholders is the ability to identify changes in the environment or in the needs of its stakeholders. We refer to this as the Guarding Capability.

Value Creation by Transactional Shared Service Centers

161

Business: employees focussed on operations as they are not distracted by indistinct HR delivery

Care Capability

Relieve Capability

Employees: carefree employees Business: focus on primary as questions in relation to the processes as personnel and personal situation are answered salary administration when needed processes run smoothly

Figure 2: Mapping outcomes of capability deployment to different types of customers. The guarding capability is the extent to which the HR SSC is able to identify opportunities and threats for the delivery of HR throughout the organization as a whole.

There are multiple sources of opportunities and threats which require the attention of the HR SSC and different methods of monitoring and evaluation. A well-designed administrative organization allows for the monitoring and evaluation of HR SSC operations. Well-chosen SLAs permit the quantification of service delivery levels experienced by customers and end-users and achieved by the HR SSC. Automation of the service delivery processes combined with a well-designed administrative organization for the HR processes enables monitoring of the implementation, execution, and progress of the HR processes. The information gathered is used to identify bottlenecks and constraints in the implementation/execution of the different processes for the different end-users at different places within the organization. Employee and management self-service applications and the use of workflow, for example, help identify bottlenecks in the transactional HR processes. CRM tooling enables the logging of data, but more importantly the categorization, monitoring, and evaluation of trends in types and number of questions asked by end-users of different business units. The data is analyzed to reveal defects in the implementation and interpretation of the HR processes. Subsequently, the analyses and evaluation of the data processed by the HR SSC reveal if and how the business units implement the HR policies and practices and how effective they were in relation to the chosen HR strategy. The different sources of opportunities and threats for HR delivery illustrate the need for the HR SSC to be able to apply different types of measurement tools to abstract data from different places and sources. Moreover, this stresses the need for a capacity to analyze and evaluate the data to reveal different kinds of opportunities and threats to HR delivery. To do so, the HR SSC needs resources to store

162

Marco Maatman and Tanya Bondarouk

and evaluate data and human resources to analyze all the information. The information retrieved is valuable for the HR SSC itself as it can be used as a starting point to improve its performance, but also for the organization as a whole to improve overall HR delivery. The information is also used as a resource by corporate HR, the HR expertise centers, and the HR business partners to monitor the implementation of HR policies and practices. From a business unit perspective, this was sometimes perceived as a negative outcome of the deployment of the HR SSC’s guarding capability. If in their perception the guarding capability was deployed primarily with the purpose to force the business units to implement HR according to set standards and policies, the HR SSC was perceived as an extension of corporate HR, limiting the space of the business units to manage their human resources. The solutions developed in response to the opportunities and threats identified affect HR delivery when implemented. Service delivery by the HR SSC is affected if the solutions concern changes in the scope and quantity of services provided and the resource base used for service delivery. Actions are required to minimize disruption of the day-to-day operation. This is achieved in several ways. First of all, it is important to make all stakeholders aware of the changes in HR delivery. This primarily involves describing and adopting the changes made in the administrative organization and internal control function of the HR SSC itself, but also the administrative organization and internal control function of the transactional HR processes in general. The HR SSC plays an important role in accomplishing this as it describes the procedures for its service employees and other stakeholders in HR delivery, anticipates the types of questions asked by individual end-users in relation to the changes made, and develops and maintains FAQ databases. Second, the HR SSC agrees with the different stakeholders on the conditions of implementation and communicates details about the changes to all stakeholders. In this way, it plays a central role in the management of change within the HR function. Finally, it makes sure the implementation process itself runs smoothly. It secures resources for changing HR delivery, such as extra capacity at the contact center to deal with a temporarily increased number of questions from individual employees. The ability of the HR SSC to perform the activities and minimize the disruption resulting from the change is represented by the Implementation Capability and is the second change-facilitating capability. The implementation capability is the extent to which the HR SSC is able to sustain day-to-day operations as it repeatedly effectuates changes in the delivery of HR by the HR SSC or throughout the organization as a whole.

The implementation capability of the HR SSC was primarily sourced externally during the implementation of the initial processes and services. External consultants helped the HR SSC management to roll out services and establish service- and nonservice-related processes. As the HR SSC matured, the need for the implementation capability decreased, and the activities were increasingly sourced internally. In Figure 3 we visualize in detail how the activities and the resources used during the performance of activities can be mapped. The capability map reveals that

Value Creation by Transactional Shared Service Centers

163

HR process Change consultants: legislation and policy managing change specialist: analyse HR delivery

Guarding Capability

Implemented Capability

CRM system: use data logged for analysis

HR process legislation and policy specialist: maintain process descriptions HRIS: use data for analysis implementation HR policies CRM system: administer procedures and maintain FAQ databases FAQ database: guidance for answering questions

Personnel and salary administration specialists: process service requests

CRM system: route and HRIS data and Call center log service requests reports: generating HR employees: answer management questions information Process Care descriptions: Relieve Capability perform service Capability delivery HRIS record: and check personnel data

Figure 3:

Mapping the use of resources.

specific resources can be used for different activities and different purposes. For example, we see that CRM tooling is used during the deployment of the guarding and implementation capabilities, but also during the deployment of the care and relieve capabilities. This provides insight into the requirements for the characteristics and capacity of specific resources. Moreover, it reveals the impact of developing or shedding a specific resource. Expansion, modifying, and integration capabilities. The HR SSC operates within the HR SSM, which has the characteristics of a market for supply and demand of HR services. Just as with any other market, supply and demand change over time. Besides the annual and monthly peaks and dips for service requests resulting from the HR process cycles, such as performance appraisal and payroll, the HR SSC is also faced with irregular occurrences that affect service delivery temporarily or permanently. Mergers, acquisitions, reorganizations, and the development of new business have an effect on the client base of the HR SSC and the quantity and types of services to be provided. The HR SSC plays a role in the temporary efforts to change the organization as a whole, as new business units are set up and/or integrated. It develops and provides solutions to support the migration and the change of the organization from an HR perspective. Second, it must be prepared to deal

164

Marco Maatman and Tanya Bondarouk

with the changed customer and end-user base and a changed demand for service delivery as a result of migrations. These changes are permanent and negatively affect service delivery to customers and end-users and their perception of it unless appropriate actions are taken by the HR SSC. The HR SSC needs to be able to change its own resource portfolio used for the delivery of day-to-day services to sustain service levels. The resource portfolio also needs to change as the HR SSC provides new services (types) on a day-to-day basis. In response to the changing needs of the customers or the changing environment, the HR SSC develops new skills, competencies, procedures, processes, and tools to prepare itself for the expansion of service delivery. Combined with the changing customer base and its temporary and permanent effects on service delivery by the HR SSC, the development of new services requires an ability of the HR SSC to change its resource base and develop solutions in response to changes in the HR SSM “market.” We refer to this ability as the Expansion Capability. The expansion capability is the extent to which the HR SSC is able to repeatedly design and develop new HR services and expand its client base.

The expansion capability expresses the flexibility of the HR SSC to change the scope of services provided. It creates value when the extent of the HR SSC’s flexibility is aligned with the customers’ needs. Along with new services, the HR SSC also requires an ability to adjust, redesign, and redevelop the existing way of doing business. We refer to this ability as the Modifying Capability. The modifying capability is the extent to which the HR SSC is able to repeatedly redesign and redevelop the characteristics of its current operation and affect quality, costs, and functionality of the services provided.

The HR SSC deploys its modifying capability to redesign and redevelop the resources it uses, such as the competencies and skills of its workforce, its procedures, processes, and systems used. By doing so, it changes the resource base used for non-service delivery-related functions as well as that for the service delivery functions. Both changes affect the HR SSC’s operation and the characteristics of and conditions for service delivery. While the latter affects the actual delivery of the services, the former affects the conditions of service delivery such as the costs of the services provided. Value is created as customers perceive the responsiveness and willingness of the HR SSC to align existing services to their needs, or when efficiency increases result in lower costs (monetary and nonmonetary) for the customer. Both the modifying and expansion capabilities change the resource base used for HR delivery by the HR SSC. These changes can be small and incremental, or radical. We have seen that small, incremental changes were designed and developed by and within the operational service delivery units of an HR SSC supported by project management/coordination capacity. For radical changes in the resource base of the HR SSC, we have seen the HR SSC introduce project teams. For different projects, different resources were extracted from the primary processes of the

Value Creation by Transactional Shared Service Centers

165

HR SSC and bundled into temporary capabilities for a specific project. The project teams were supported with resources specialized for performing projects, sometimes sourced by external consultants. While the modifying and the expansion capabilities are deployed to change the resource base of the HR SSC, the Integration Capability is deployed to change the resource base used for HR delivery throughout the organization. It is deployed when the HR SSC makes use of its network and central position within the HR function, its specialized knowledge and expertise on HR delivery, and its access to the information processed through the service delivery processes to develop solutions that are used by different stakeholders in the delivery of HR. The need for this ability is the result of the fragmentation of the HR function. HR is delivered by different stakeholders (e.g., the employees themselves, line managers, HR business partners, HR expertise centers, corporate HR, central staff departments, and the HR SSC) with different interests, responsibilities, and interpretations of HR policies (Farndale, Paauwe, & Boselie, 2010). These differences affect the effectiveness of the implementation of the HR system. For the business units, the solutions developed by the HR SSC concern the provision of the means required for the implementation of HR according to the lines chosen and set by headquarters. Examples of such means are HR training for line managers (to make them aware of their responsibilities and able to comply with these responsibilities), checklists for the execution of procedures, and reports evaluating the HR performance of separate parts of the business according to strategic objectives. In this way the business units are provided with resources that enable them to execute and improve HR delivery. The HR SSC also deploys the integration capability when it participates in the development of HR policies and preparing the organization for the future. The corporate headquarters receives consolidated feedback on the compliance with the chosen strategy, the feasibility of the policies and practices designed, and the outcomes of HR delivery. The integration capability is the extent to which the HR SSC is able to design, develop, and provide solutions to different stakeholders in HR delivery that are required for sustainable, harmonized HR delivery throughout the organization as a whole.

Figure 4 visualizes in detail the interdependencies between the change-facilitating capabilities and the engineering capabilities. Both are essential for change (Teece, 2007). The output of the guarding capability can be used as the input for the development of solutions by deploying the expansion, modifying, or engineering capabilities. Subsequently, the solutions developed are implemented to create value. The disruption of operations during the implementation of the solutions depends to some extent on the characteristics or, in other words, the output of the engineering capabilities. The service delivery and the change-facilitating capabilities are interdependent as well. When the solutions change the service delivery of the SSC itself, the implementation capability affects the care and/or relieve capability of the SSC. Moreover, the output of the guarding capability comes from the analysis of the data collected by the SSC. To some extent, these data are gathered during service

166

Marco Maatman and Tanya Bondarouk

Develop solutions: new serviecs, processes and procedures

Modifying Capabilities

Identify opportunites and threats based on analysis data

Figure 4:

Implement solutions: communicate about change and adopt changes

Mapping interdependencies between activities.

delivery by the SSC as the result of the deployment of the care and relieve capabilities. The SSC management can use the capability map to visualize interdependencies between capabilities at different levels. This is useful for the synchronization of actions during the orchestration of resources. Resource orchestration by the SSC management. Although management does not intervene directly on the level of capabilities to achieve value creation, it does influence capabilities (Bowman & Ambrosini, 2003; Foss, 2011). The role of management from a capability perspective is twofold (Holcomb et al., 2009; Kraaijenbrink, Spender, & Groen, 2010; Ndofor, Sirmon, & He, 2011; Sirmon, Gove, & Hitt, 2008; Sirmon & Hitt, 2009). First, the SSC management is responsible for the appropriate resource portfolio and the bundling of the resources into capabilities. Second, it is responsible for the leveraging of the capabilities according to a chosen leverage strategy. The endeavor of the SSC management is to create a fit between resource management-focused decisions in relation to the development of the resource portfolio and the bundling of resources into capabilities on the one hand, and the leveraging of the capabilities according to a strategy chosen on the other hand: combined asset orchestration (Sirmon & Hitt, 2009). A fit is created when the SSC management synchronizes the different actions that underlie asset orchestration. Such activities include investing in resources (hiring, acquiring, divesting, and developing), allocating resources to different activities, addressing and seizing identified opportunities and threats, choosing a strategy for capability leveraging,

Value Creation by Transactional Shared Service Centers

167

and coordinating the deployment of the different capability configurations (Holcomb et al., 2009; Maritan & Peteraf, 2011; Sirmon & Hitt, 2009; Sirmon, Hitt, Ireland, & Gilbert, 2011). In other words, the management has to synchronize investments in resources with the chosen capability leverage strategy and vice versa, thereby facilitating the change of the capability hierarchy of the organization. Its actions ultimately select the renewal, developing, replication, or retrenchment of capabilities and the resource bundles used (Helfat & Peteraf, 2003). We refer to the extent to which the SSC management is able to synchronize actions within the process of resource orchestration to build and deploy capabilities according to the chosen capability leverage strategy as the Managerial Ability. The most appealing way to demonstrate the role of management in resource orchestration and the development cycle of capabilities is to illustrate it with some observations from our case study. The HR SSC management of our case study had chosen a strategy to create value for the business units by minimizing the administrative pressure on them. When the business units the HR SSC served were confronted with the reorganization (centralization) of specific business functions announced by headquarters, the HR SSC management anticipated the potential increased need for support. To assess the opportunity for additional value creation, the HR SSC management used input of the demand management function of the HR SSC, whose role is to identify opportunities and threats for the delivery of HR throughout the organization as a whole: a Guarding Capability. The input gathered enabled the HR SSC management to assess the need for HRM capacity by the business units as employees needed to be relocated or were made redundant. The HR SSC management seized the opportunity for value creation, and demand management was used to identify the specific needs. When a decision is taken to seize an opportunity, the next step for the SSC management is to assess the required resources for the development and implementation of a solution. Subsequently, the management builds an engineering capability by bundling the resources required for the development of the solution and dedicating these resources to a project or task group. In the specific example, resources were bundled and deployed to develop new services to process mass mutations in personnel administration and follow-up for individual employees. The resources deployed for the engineering capability can be extracted temporarily from the market, developed through training, or acquired, such as software. Sometimes existing and available resources are sufficient and just need to be mobilized, bundled, and deployed. Depending on the size and skills required, we observed varied combinations of internal and external resources bundled in small task groups that developed solutions besides their day-to-day operational activities, as well as dedicated project teams. When the solution was developed (in the case of the reorganization announcement, a new administrative service), the HR SSC management had to decide what to do with the resources used for the development of the solution. They can be divested (e.g., external consultants), retained to form a permanent engineering capability, or integrated with other resources to build an implementation capability to launch the new services. During implementation of the new services, the relieve

168

Marco Maatman and Tanya Bondarouk

capability of the HR SSC was changed as new resources for service delivery (the solution) were introduced and new processes and procedures were effectuated. Moreover, the implementation of the solutions required updating the administrative organization and internal control function of the HR SSC processes and the service delivery processes, as well as the FAQ databases. With the implementation of the new service, the cycle is complete (see Figure 5), and a new one starts again through the deployment of a guarding capability with the purpose to monitor the outcomes of the new solution, which can be used by the SSC management to address the opportunity or need for improvement, or stop the provision of the service. After finalization of the reorganization, the demand for the new services decreased and subsequently the need for the deployment of the relieve capability. The HR SSC management had to decide what to do with the resources that were bundled to deploy the new administrative services. In the specific example, there was no need to maintain the service delivery capability, and it was dismantled. The resources were integrated in the remaining capabilities in such a way they could be easily re-bundled and deployed for future reorganizations. The examples demonstrate that every single capability has a life cycle (building, replication, renewal, or retrenchment), but also that the capability hierarchy changes with the management decision as a selection event (Helfat & Peteraf, 2003). It also illustrates how management has to orchestrate resources to build and deploy different capabilities to change an existing service delivery capability or develop a new one. The capability map can be used to address and plan the different phases for the development of a specific capability, and to estimate the resource requirements for the capabilities to be deployed in the different steps. The actions of management between and during the different steps have to be synchronized as

Figure 5:

Managerial ability in a resource orchestration cycle.

Value Creation by Transactional Shared Service Centers

169

they all have to contribute ultimately to the chosen capability strategy to create value for the business units. This stresses the importance and dependence of management on the change-facilitating capabilities. The change-facilitating capabilities act as a link between the operational service delivery capabilities and the dynamic engineering capabilities and are therefore key for the extent of value created by the engineering capabilities. To address and seize the opportunities and threats from a customer perspective, the SSC management uses the output of the guarding capability. Based on the information gathered through the guarding capability, the management decides to change the resource portfolio and capability configuration and/or change the capability leverage strategy. The actual solutions required for change are designed and developed through the deployment of the modifying, expansion, and integration capabilities. The SSC management deploys the implementation capability to effectuate changes and implement solutions without disturbing the day-to-day operations. Depending on the solutions developed, some of the former resources used for service delivery might become redundant if they are not part of the new solution; for example, in the case of the introduction of management and employee self-service applications that decrease the need for administrative capacity at the SSC. After the implementation of such solutions, the SSC management has to decide to divest these resources or develop them and integrate them into other existing capabilities. In the latter case the resources can also be used for the development of new or improved services and procedures.

Limitations for Capability Development and Deployment The extent to which the SSC maximizes the use of its resources and searches for new or changed activities that create value depends on its governance, the acknowledgment and addressing of its potential, and its objectives and performance measures. The management literature describes four different models for the governance of intra-organizational SSCs (Maatman et al., 2010; Meijerink, Bondarouk, & Maatman, 2013; Strikwerda, 2003, 2008). The SSC as a central service department is closely coupled to corporate headquarters and acts as its extension. The scope, characteristics, and conditions of service delivery are primarily determined topdown by corporate headquarters. Some organizations choose to integrate the SSC within a business unit when one business unit is a dominant user of the services provided, has more experience, or is better in delivering the business function. In this governance model, the SSC is “owned” by and positioned within a single business unit serving all other business units. Where the services are provided through an infrastructure, a “plug-and-play” environment is created in which the business units are free to use the services provided by the SSC. The SSC is governed in the same manner as the business units it serves and reports to corporate headquarters. The SSC as an internal joint venture is owned by the customers it serves, the business units. It is held accountable by the business units, and the hierarchical line to corporate headquarters is lacking. The different models vary regarding the extent to which the joint customers control service delivery by the SSC.

170

Marco Maatman and Tanya Bondarouk

In practice, we see that organizations apply hybrid models for the governance of the SSC as they combine the SSC as a central service with the other models (Bondarouk, 2011; Bondarouk, Maatman, & Meijerink, 2010; Maatman, 2011; Meijerink & Bondarouk, 2013; Meijerink et al., 2013). In our case-study subject, we observed a strong top-down governance relation between the corporate level and the HR SSC. Corporate HR interfered with and determined the characteristics and conditions of service delivery. Moreover, it provided the required means (financial and nonfinancial resources) for service delivery and change of service delivery, and took a prominent role in making decisions concerning the change of service delivery. As a consequence, there was no solid basis for the business units and the HR SSC to build a customer supplier relationship. In this relationship, a customer is charged for new or improved services, and the SSC is held accountable by the customer for the quality, usefulness, and amounts charged for its outputs, and appraised for the improvement and expansion of service delivery. In the case of a strong top-down dependence, the development and deployment of dynamic capabilities required for change depend on the initiatives of the headquarters, which remains in control. This comes at the cost of the business units’ perception of control over delivery and responsiveness of the SSC toward business unit needs. This is especially true when the strong top-down dependence is combined with a primary focus on cost reduction, efficiency gains, and Key Performance Indicators (KPIs) that are exclusively aligned with these objectives. In this situation, the dynamic capabilities are developed and deployed with the aim to improve the effectiveness of the operation of the back- and front-office functions and service delivery processes. The lack of a focus on creating additional value for the customers limits the SSC management to developing and deploying new capabilities out of the resources obtained through efficiency and effectiveness improvement initiatives. Poorly chosen performance indicators limit the SSC management in proactively searching for and developing solutions to serve customers and create value from a customer perspective (Hodges, Cecil, & Terra, 2007). There is no opportunity or incentive for the SSC management to expand its services or look for new ways and activities to use the concentrated knowledge, expertise, and information within the SSC to create additional value (Hodges et al., 2007). We observed this when the HR SSC identified the opportunity to develop and deploy new analytical services using the available resources, but was confronted with cost-saving targets by headquarters and therefore was not able to build the required capability. In our case-study subject, the business units themselves also limited the transactional HR SSC’s ability to develop and deploy dynamic capabilities. This was the case as some business units perceived the HR SSC merely as an administrative factory and an extension of corporate HR with the purpose of processing transactions and other service requests. Instead of partnering with the HR SSC with its concentrated knowledge, expertise, and information, they kept it at a distance. Due to a lack of awareness of the potential of the HR SSC or anxiety about corporate HR interference, business units developed their own solutions for the implementation of HR instead of relying on the HR SSC’s dynamic capabilities for developing integrated solutions.

Value Creation by Transactional Shared Service Centers

171

Discussion We have introduced the capability perspective as a framework for scholars and practitioners to study how the centralized resources within a transactional SSC are used to create business value. By categorizing resources used for specific activities, a map of capabilities can be created. The capability map enables reflection on the value-creating mechanisms of the SSC. It promotes the visualization of resource use, resource requirements, the role of specific resources in value creation, and the interdependency of the value-creating mechanisms. The ultimate role of the capability map is to ensure that the resource orchestration within SSCs by the SSC management delivers value to the customers. This is important as the implementation of a SSM and the prescribed governance structures that combine the centralized and decentralized organizational model is necessary but not sufficient to meet current and future business expectations. Another condition to justify the existence of the SSC and sustain the justification for the future from a business perspective lies in the enhanced use of capacity, knowledge, expertise, and information concentrated within the SSC to maximize value creation (Holcomb et al., 2009). The capability perspective enabled us to categorize different kinds of activities and resources into capabilities as mechanisms for value creation. We have explained how the HR SSC fulfills its promises of being responsive and flexible toward customers’ needs by developing and deploying dynamic capabilities. The dynamic change-facilitating capabilities help the SSC management to enable change by identifying the need for change and implementing changes in reaction to the needs of the customers. The change-facilitating capabilities link between the traditional operational service delivery capabilities that enable the SSC to provide day-to-day services and the dynamic engineering capabilities to develop solutions when the need for change is seized by the SSC management. Those solutions can be targeted to change the operations of the SSC itself by changing the operational service delivery capabilities, or to provide resources to other stakeholders in the delivery of a business function. We have explained how the capability perspective acts as a management toolbox in the orchestration of resources and aligns the capability development and deployment with the intention of justifying the existence of the SSC. The capability hierarchy map enables the management to visualize the use of resources, increasing its understanding, and to visualize the specific resources, activities, and their interdependencies that enable value creation for different types of customer. In addition, we have shown how the capability perspective can be used to address limitations and constraints, such as the governance model and poorly chosen SLAs and KPIs, to change the SSC from a factory for transactional activities into a value-adding entity within the organization. We have illustrated our arguments and reasoning with observations within an organization that has implemented a transactional SSC for HRM. Although some activities and resources, and therefore to some extent the described capabilities, are specific for HR, we do argue that our framework can be used in general for SSC. The steps to uncover the hierarchy for capabilities can be applied to any other type

172

Marco Maatman and Tanya Bondarouk

of transactional SSC, and the map of capabilities can be used by the SSC management to support its actions in the resource orchestration process. A key aspect is that management must choose a capability leverage strategy and synchronize its resource-related actions according to the strategy. Positive outcomes as the result of completing the development cycle of capabilities, such as increased effectiveness and efficiency, should be used for the next development cycle with the purpose of complying even better to the chosen leverage strategy. The future of the transactional SSC depends on the ability and willingness of the SSC management and its incentives to search for new ways of maximizing the use of resources. With the use of the capability perspective and the capability map, organizations that have implemented the SSC can advance further and change their transactional SSC into a value-adding entity for different types of customers and users of the services.

References Ambrosini, V., & Bowman, C. (2009). What are dynamic capabilities and are they a useful construct in strategic management. International Journal of Management Review, 11(1), 29 49. Ambrosini, V., Bowman, C., & Collier, N. (2009). Dynamic capabilities: An exploration of how firms renew their resource base. British Journal of Management, 20(S1), 9 24. Bergeron, B. (2003). Essentials of shared services. Hoboken, NJ: Wiley. Bondarouk, T. (2011). A framework for the comparative analysis of HR shared services model. In T. Bondarouk, H. Rue¨l, & J. K. Looise (Eds.), Electronic HRM in theory and practice (Vol. 8, pp. 83 104). Bingley, UK: Emerald Group Publishing Limited. Bondarouk, T., Maatman, M., & Meijerink, J. G. (2010). Human resource shared services: Business models and value creation. Results of a qualitative benchmark study. Technical Report 266809, University of Twente, School of Management and Governance. Bowman, C., & Ambrosini, V. (2003). How the resource-based and the dynamic capability views of the firm inform corporate-level strategy. British Journal of Management, 14(4), 289 303. Cooke, F. L. (2006). Modeling an HR shared services center: Experience of an MNC in the United Kingdom. Human Resource Management, 45(2), 211 227. Drnevich, P. L., & Kriauciunas, A. P. (2011). Clarifying the conditions and limits of the contributions of ordinary and dynamic capabilities to relative firm performance. Strategic Management Journal, 32, 254 279. Easterby-Smith, M., Lyles, M. A., & Peteraf, M. A. (2009). Dynamic capabilities: Current debates and future directions. British Journal of Management, 20(S1), 1 8. Farndale, E., & Paauwe, J. (2006). HR shared service centres in the Netherlands: Restructuring the HR function. Paper presented at the First European Academic Workshop on Electronic Human Resource Management, University of Twente, Enschede. Farndale, E., Paauwe, J., & Boselie, P. (2010). An explorative study of the governance in the intra-firm human resources supply chain. Human Resource Management, 49(5), 849 868. Farndale, E., Paauwe, J., & Hoeksema, L. (2009). In-sourcing HR: Shared service centres in the Netherlands. The International Journal of Human Resource Management, 20(3), 544 561.

Value Creation by Transactional Shared Service Centers

173

Feeny, D., Lacity, M., & Willcocks, L. P. (2005). Taking the measure of outsourcing providers. MIT Sloan Management Review, 46(3), 41 48. Foss, N. J. (2011). Why micro-foundations for resource-based theory are needed and what they may look like. Journal of Management, 37(5), 1413 1428. Grant, R. M. (1991). The resource-based theory of competitive advantage: Implication for strategy formulation. California Management Review, 33(3), 114 135. Grant, R. M. (1996). Prospering in dynamically competitive environments: Organizational capability as knowledge integration. Organization Science, 7(4), 375 387. Griffith, D. A., & Harvey, M. G. (2006). A resource perspective of global dynamic capabilities. Journal of International Business Studies, 32(3), 597 606. Helfat, C. E., Finkelstein, S., Mitchell, W., Peteraf, M. A., Singh, H., Teece, D. J., & Winter, S. G. (2007). Dynamic capabilities: Foundations. In R. Nixon (Ed.), Dynamic capabilities: Understanding strategic change in organizations (pp. 1–18). Oxford: Blackwell Publishing. Helfat, C. E., & Peteraf, M. A. (2003). The dynamic resource-based view: Capability lifecycles. Strategic Management Journal, 24(10), 997 1010. Helfat, C. E., & Peteraf, M. A. (2009). Understanding dynamic capabilities: Progress along a developmental path. Strategic Organization, 7(1), 91 102. Hodges, M., Cecil, B., & Terra, E. (2007). Strategy: Laying the foundation for success. In K. V. Beaman (Ed.), Common cause: Shared services for human resources (pp. 1 20). Austin, Texas, USA: Futura Publishing LLC. Holcomb, T. R., Holmes, J. R. M., & Connelly, B. L. (2009). Making the most of what you have: Managerial ability as a source of value creation. Strategic Management Journal, 32, 457 485. Janssen, M., & Joha, A. (2006). Motives for establishing Shared Service Centers in public administrations. International Journal of Information Management, 26(2), 102 115. Kraaijenbrink, J., Spender, J.-C., & Groen, A. J. (2010). The resource-based view: A review and assessment of its critiques. Journal of Management, 36(1), 349 372. Lee, J., Lee, K., & Rho, S. (2002). An evolutionary perspective on strategic group emergence: A genetic algorithm-based model. Strategic Management Journal, 23(May), 727 746. Maatman, M. (2011). Diensten centrum human resources en andere HR Shared Service Centers in Nederland. In A. Brouwer & H. Leeuwen van (Eds.), Het HR Shared Service Center in de praktijk (pp. 59 80). Assen: Koninklijke Van Gorcum. Maatman, M., Bondarouk, T., & Looise, J. K. (2010). Conceptualising the capabilities and value creation of HRM shared service models. Human Resource Management Review, 27(4), 469 492. Maritan, C. A., & Peteraf, M. A. (2011). Building a bridge between resource acquisition and resource accumulation. Journal of Management, 37(5), 1374 1389. McWilliams, A., & Smart, D. L. (1995). The resource-based view of the firm: Does it go far enough in shedding the assumptions of the assumptions of the S-C-P paradigm? Journal of Management Inquiry, 4(4), 309 316. Meijerink, J. G., & Bondarouk, T. (2013). Exploring the central characteristics of HR shared services: Evidence from a critical case study in the Netherlands. The International Journal of Human Resource Management, 24(3), 487 513. Meijerink, J. G., Bondarouk, T., & Looise, J. C. (2012). Value creation through HR shared services: Towards a conceptual framework. Personnel Review, 42(1), 83 104. Meijerink, J. G., Bondarouk, T., & Maatman, M. (2013). Exploring and comparing HR shared services in subsidiaries of multinational corporations and indigenous organisations in the Netherlands: A strategic response analysis. European Journal of International Management, 7(4), 469 492.

174

Marco Maatman and Tanya Bondarouk

Meijerink, J. G., & Reilly, P. (2010). Going Dutch: HR shared services in the Dutch Government. People Management, 30(September), 24 27. Ndofor, H. A., Sirmon, D. G., & He, X. (2011). Firm resources, competitive actions and performance: Investigating a mediated model with evidence from the in-vitro diagnostics industry. Strategic Management Journal, 32, 640 657. Priem, R. l., & Butler, J. E. (2001). Is the resource-based “view” a useful perspective for strategic management research? Academy of Management Review, 26(1), 22 40. Quinn, B., Cooke, R., & Kris, A. (2000). Shared services: Mining for corporate gold. London: Pearson Education Limited. Reilly, P., & Williams, T. (2003). How to get best value from HR: The shared services option. Aldershot: Gower Publishing Limited. Schulman, D. S., Dunleavy, J. R., Harmer, M. J., & Lusk, J. S. (1999). Shared services: Adding value to the business units. New York, NY: Wiley. Scully, J., & Levin, B. (2010). HR Shared services is hot and getting hotter. Employment Relations Today, 37(2), 23 30. Sirmon, D. G., Gove, S., & Hitt, M. A. (2008). Resource management in dyadic competitive rivalry: The effects of resource bundling and deployment. Academy of Management Review, 51(5), 919 935. Sirmon, D. G., & Hitt, M. A. (2009). Contingencies within dynamic managerial capabilities: Interdependent effects of resource management investment and deployment on firm performance. Strategic Management Journal, 30, 1375 1394. Sirmon, D. G., Hitt, M. A., & Ireland, R. D. (2007). Managing firm resources in dynamic environments to create value: Looking inside the black box. Academy of Management Review, 32(1), 273 292. Sirmon, D. G., Hitt, M. A., Ireland, R. D., & Gilbert, B. A. (2011). Resources orchestration to create competitive advantage: Breadth, depth, and life cycle effects. Journal of Management, 37(5), 1390 1412. Stright, J. (2007). Organization: Focusing on the customer. In K. V. Beaman (Ed.), Common cause: Shared services for human resources (pp. 21 44). Austin, Texas, USA: Futura Publishing LLC. Strikwerda, J. (2003). Shared Service Centers: Van kostenbesparing naar waardecreatie. Assen, The Netherlands: Koninklijke Van Gorcum. Strikwerda, J. (2008). Shared Service Centers. Retrieved from http://www.tql.nl/ 82598CB302a9d20D6EJpRIBA5E34/tql/details/169/2343/30401/1/0//Welke_typen_ssc’s_ kunnen_worden_onderscheiden.html. Accessed on January 9, 2009. Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28, 1319 1350. Teece, D. J. (2010). Alfred Chandler and “capabilities” theories of strategy and management. Industrial and Corporate Change, 19(2), 297 316. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509 533. Winter, S. G. (2003). Understanding dynamic capabilities. Strategic Management Journal, 24, 991 995. Zott, C. (2003). Dynamic capabilities and the emergence of intra-industry differential firm performance: Insights from a simulation study. Strategic Management Journal, 24(November), 97 125.

Chapter 9

Interorganizational Shared Services: Creating Value across Organizational Boundaries Paul C. van Fenema, Bianca Keers and Henk Zijm

Abstract Purpose — Sharing services increasingly extends beyond intraorganizational concentration of service delivery. Organizations have started to promote cooperation across their boundaries to deal with strategic tensions in their value ecosystem, moving beyond traditional outsourcing. This chapter addresses two research questions geared to the challenge of interorganizational shared services (ISS): why would organizations want to get and remain involved in ISS? And: what are the implications of ISS for (inter)organizational value creation? Design/methodology/approach — The conceptual chapter reviews literature pertaining to ISS from public, commercial, and nongovernmental sectors. ISS is understood as a multistakeholder organizational innovation. In order to analyze ISS and conduct empirical research, we developed a taxonomy and research framework. Findings — The chapter shows how ISS can be positioned in value chains, distinguishing vertical, horizontal, and hybrid ISS. It outlines ISS implications for developing business models, structures, and relationships. Success factors and barriers are presented that epitomize the dynamic interplay of organizational autonomy and interorganizational dependence. Research limitations/implications — The research framework offers conceptual ideas for theoretical and empirical work. Researchers involved in ISS studies may adopt strategic, strategic innovation, and organizational innovation perspectives. Practical implications — ISS phases are distinguished to focus innovation management — initiation, enactment, and evaluation. Furthermore, insights are provided

Shared Services as a New Organizational Form Advanced Series in Management, Volume 13, 175 217 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1877-6361/doi:10.1108/S1877-636120140000013009

176

Paul C. van Fenema et al.

into processes and interventions aimed at making ISS a success for participating organizations. Originality/value — Cross-sectoral perspective on ISS; taxonomy of ISS; research framework built on organization and strategic management literature. Keywords: Shared services; interorganizational shared services; interorganizational relationships; value creation; value chains; innovation

Introduction Large organizations, both private and public, have invested in shared service initiatives to improve the internal use of scarce resources, increase quality, and offer new products and services (Janssen & Joha, 2008; Kamal, 2012). For instance, they have concentrated facility management, logistics, and R&D, financial, IT, and HR services in onshore, near shore, or offshore centers1 (Howcroft & Richardson, 2012; Vlaar et al., 2008). Intraorganizational shared services imply bundling of services while delegating control to the organization’s business units, i.e., not centralization (Meijerink & Bondarouk, 2013). Sharing services within an organization often proves to be a dynamic process in terms of organizational boundaries and governance. Organizations may stress their core competencies and consider services bundled in a shared service center as belonging to their core business. The shared service center, staying within organizational boundaries, may start serving other customers in addition to the parent organization.2 It could outsource delivery of (parts of) its services, plugging in efforts from vendors while serving its internal customers and retaining an orchestrating role (Janssen & Joha, 2008). The center as a whole could be divested and become a business of its own (McIvor et al., 2011). Or the center’s work package and labor force could be outsourced to another vendor, possibly terminating intraorganizational responsibility for the actual delivery of services in due time (Gospel & Sako, 2010). Sharing services within organizations tends to originate in intraorganizational efficiencies: business units are serviced by a common center that can achieve economies of scale. In addition, organizations improve their performance by investing in interorganizational shared services (ISS). Demand for complex services drives new sourcing strategies (Caldwell & Howard, 2010; van Fenema & Beeres, 2010). Service customers tend to focus on their core competencies to improve positioning in their end-markets. They rely on service suppliers to partially take over or support with services that appear peripheral to

1

Researchers refer to shared service centers (SSC), shared service organizations (SSO), e.g., Herbert and Seal (2012), or service-oriented enterprises (Janssen & Joha, 2008). 2 See for instance engineering and maintenance services in aviation: http://www.klm.com/csr/en/floating/ engineering_maintenance.html, or banks’ payment processing organization serving other banks.

Interorganizational Shared Services

177

the customer’s business model. As an example, consider the maintenance of complex technological systems that often require a large variety of skills seldom present at one service provider. Hence, various service providers should cooperate and align their activities to jointly guarantee an optimal performance of the system. Like with intraorganizational shared services, economies of scale also play a role — suppliers can provide more service to customers thereby increasing their scale. Yet these supply-based factors are merely supportive to factors related to service demand and customer performance. The key motivation of ISS lies in the fact that independent service partners together may create an added value level far beyond each individual’s service. Complementing research paying attention to topics associated with sharing services within organizational boundaries, this chapter focuses on the interorganizational dimension of shared services. Specifically, ISS involving mutual involvement of organizations is investigated, i.e., a relationship that goes beyond merely contracting out or subcontracting services. Mutual involvement implies more complex and often shifting roles for organizations participating in ISS as they create value in a shared manner (Porter & Kramer, 2011). It resembles Huxham’s notion of organizational collaboration as “… a process through which organizations exchange information, change activities, share their resources and enhance capacity for mutual benefit and a common purpose by sharing risks, rewards and responsibilities” (1996). Examples include collective procurement, cocreating services between vendors and their customers, and interorganizational cooperation to deliver integrated services to common customers. Our approach excludes examples of neoclassical, hands-off contracting (outsourcing) between customers and vendors with traditional contractual organization of each organization’s roles and responsibilities. In our perception, outsourcing, of for instance IT and BPO, has been around for a while and the topic has matured in terms of research. Hence, positioned in the literature on governance, this chapter does not examine market (neoclassical contracts) or intraorganizational hierarchy (internal shared service centers), but interorganizational relationships (Bradach, 1997; Jones et al., 1997). This is also referred to as “allying” in transaction cost economics as opposed to making or buying (Geyskens et al., 2006). Another example is constituted by PPP (Joha & Janssen, 2010). These relatively new relational forms of governance represent both bilateral interorganizational relationships as well as networks (Provan & Lemaire, 2012; Van de Ven, 2005). Before we proceed with the chapter’s focus, we reflect on services as a concept. Services have become the backbone of advanced socioeconomic systems (Gro¨nroos, 2011). In addition to business-to-consumer services (personal finance, medical services, entertainment, trash collection, retail etc.), business-to-business services encompass professional services such as HR, logistics, maintenance, and R&D. Conceptually, a service is defined here as a transformational process that combines activities of value to service recipients. Service performance is intangible yet it often relies on the use of tangible products and infrastructures (Caldwell & Howard, 2010). Service encounters take place in “serviscapes,” i.e., a front stage where service recipients and providers interact, also referred to as touch points or

178

Paul C. van Fenema et al.

the engagement cycle.3 This front stage is connected to back stages of these stakeholders (Grove et al., 2000), encompassing people, equipment, and processes for delivery (supply side) as well as customer processes (Turner & Rindova, 2012). A common understanding is that organizations take on either a service delivery or service consumption role in vertical value chains (Shostack, 1984). This represents a traditional exchange-based service business model. Delivery implies designing and operationally organizing an activity system generating service elements (Oliveros et al., 2010), while consumption means that a service recipient experiences benefits from infusing its own routines with service elements (Ng et al., 2012). Service quality depends on the consumer’s impression of encounters with service elements provided and experienced (Parasuraman et al., 1985). For instance, a company hires an accounting firm for specific services. ISS changes this perspective on business models and associated role demarcations in service exchanges (Kamal, 2012). The word “shared” in ISS refers to mutual involvement of distinct organization (Goes & Park, 1997). From a service perspective it could mean: • Supply-side organizations delivering a service (e.g., integrated or comprehensive offering by diverse organizations; Kamal, 2012; Niehaves & Krause, 2010); • Demand-side organizations cooperating when buying and consuming the same service (e.g., collective procurement; Balcik et al., 2010); and/or • Organizations delivering and consuming services (e.g., shared responsibility for cocreating services and their value; Edvardsson et al., 2011; Sierra et al., 2009). For many organizations, such forms of mutual involvement represent a new way of working. Moreover, they need to redefine their product/service outputs, business model, and how they add or receive value. Following Crossan and Apaydin’s definition of innovation (2010),4 we consider ISS an example of process and output innovation which involves multiple organizations. When organizations consider innovations, a first concern for strategic managers is the extent to which an innovation will add value. Like any investment, a business case must be developed to explore specific performance areas that could be improved (Davenport, 1993). Moreover, managerial attention will be devoted to ongoing monitoring of ISS impact on the organization and its external relationships (Keil & Mann, 2000). Hence, a first research question guiding our study is: why would organizations want to get and remain involved in ISS? A subsequent challenge for organizations is to understand how their members can modify their operational ways of working and an organization’s overarching business model to improve performance. While innovation has been conceptualized

3

See for instance http://thehospitalityblog.ecornell.com/customer-engagement-touchpoints/ Innovation is: production or adoption, assimilation, and exploitation of a value-added novelty in economic and social spheres; renewal and enlargement of products, services, and markets; development of new methods of production; and establishment of new management systems. It is both a process and an outcome (Crossan & Apaydin, 2010). 4

Interorganizational Shared Services

179

as an incremental process (Feldman & Pentland, 2003; Pentland & Feldman, 2008), many organizations deliberately invest in recombining routines and promoting (Lin et al., 2013). They explore managerial processes for translating learning into better performance (Walker et al., 2011). If we define value as a variety of benefits organizations accumulate minus their costs (Jensen, 2010), then the key second research question is: what are the implications of ISS for (inter)organizational value creation? In other words, how can organizations5 draw on ISS concepts to increase value both individually and collectively, and which business model would apply and how could this be organized? Or, alternatively, what business model should we invoke to achieve additional joint benefits, and how to share these benefits proportionally among the various stakeholders? The conceptual relationship between ISS as an innovation and value increase is represented in Figure 1. To give an example, suppliers of the same customer-base could combine their logistical flows or virtually combine their stocks. ISS thus improves service experienced by the customer (e.g., single point of contact instead of dealing with all suppliers separately, fewer shipments), while reducing costs for suppliers

Figure 1:

5

Focus ISS research.

We refer to organizations as stakeholders in a service ecosystem, i.e., playing different roles (Weiller & Neely, 2013).

180

Paul C. van Fenema et al.

(limiting their shipments to the customer and the number of items they stock) (Cheng & Choi, 2010; Gomes & Dahab, 2010). Since ISS becomes popular in a variety of industries, this offers opportunities for synergetic insights. This chapter is built around a literature review and theory development to capture these insights; its scope is not limited to a particular industry. Understanding the conceptual relationship between ISS and value requires insight in: • • • • •

strategic motives and objectives for initiating ISS a taxonomy of ISS examples framing their position in value chains structures organizations can choose to shape their relationship interventions enhancing value derived from ISS success factors and barriers experienced in prior ISS

The chapter is structured accordingly, and concludes with implications and opportunities for future research.

Value Creation across Organizational Boundaries: Strategic Motives and Objectives Value in Ecosystems Why would organizations invest in ISS? These strategic motives and objectives differ across categories of organizations (public, commercial, and NGO). In many cases, ISS is positioned at the intersection of categories of organizations. Recent work advocates a value ecosystem perspective, acknowledging mutual dependence between organizations (Porter & Kramer, 2011). We start off from this perspective and elaborate on specific tensions for different categories of organizations later on. Public organizations, firms, and other non-commercial organizations such as NGOs depend on support from stakeholders in their ecosystem to continue operations (Weiller & Neely, 2013). Value creation has become a systemic challenge, rather than a go it alone endeavor (Jensen, 2010; Maull et al., 2012). ISS may take the form of private, public, and/or hybrid cooperation depending on the particular ecosystem organizations operate in. Within this system, organizations provide stakeholders valuable experiences while covering their expenses by the price they ask for products or services (private ISS), or by others means of funding and resourcing (public and NGO). Current research emphasizes the usefulness of organizational outcomes to others when defining value (Magala, 2009). Stakeholders in a particular context define value by the way they use products and services (Chandler & Vargo, 2011; Moore, 1995). This value-in-use notion replaces approaches focusing on the exchange value of products and services or their inherent value. In public management, value centers on the public’s perception of governmental outcomes

Interorganizational Shared Services

181

(Moore, 1995). In a commercial context value depends on what a customer can do with (features of) products and services (Gro¨nroos, 2011; Ng et al., 2012). What is the role of ISS? We distinguish tensions per category of organizations and at the ecosystem level. • Category-specific strategic tensions. From a strategic organizational-level perspective, creating value is offset against costs. Can the organization please stakeholders with its current operations? Increasingly, interorganizational cooperation such as ISS studied here is perceived as an opportunity to address strategic tensions specific to their category of organization. Public organizations may use ISS to better accomplish their societal role. That is, with ISS they can offer integrated services and reduce costs, e.g., combining emergency response services across municipalities. Firms can leverage the ISS concept to improve efficiency (e.g., sharing costs) or expanding markets (e.g., jointly setting up business in a new geographical area). NGOs may cooperate in their operational domain to extend service offerings and improve local embeddedness. • Ecosystem strategic tensions. Currently, organizations experience tensions on a strategic level when attempting to please stakeholders and sustaining operations (e.g., availability of clean water or labor force). Value chains (e.g., bioenergy chains) navigate “between challenges and benefits of bioenergy production with simultaneous internal supply chain management and external stakeholder management needs” (Gold, 2011). Customers, for instance, demand innovative and sustainable products and services, yet global competition and substitutes erode price levels. Public organizations and other types of non-commercial organizations face shrinking budgets at multiple levels of government (Giegerich, 2012; Palm & Ramsell, 2007; Turle, 2010). Moreover, due to globalization and media, organizations have to take more stakeholders into account. Their operations are scrutinized as recent examples concerning electronics and clothing industry in South-East Asia have shown. NGOs may challenge business models and operations with negative socioeconomic local impact. Tensions are defined as contradictory requirements (Smith & Lewis, 2011). At the strategic level, this means challenges — others would say: entrepreneurial opportunities (Goldsmith et al., 2010) — to sustain support (e.g., customer-base erodes which requires investments) and operations (e.g., lack of affordable and capable personnel, limited resources, increasing risks, failure of complex assets, and rising costs). In construction for instance, “there is constant pressure for the civil engineering industry to keep improving its cost efficiency. In the meantime, the industry has to operate within an increasingly stringent policy and regulatory environment, more recently driven by the growing commitment to sustainable development” (Zhang et al., 2011). An example emphasizing tensions in the sense of population needs is the bottom-of-the-pyramid movement (Collier, 2007). For instance, cooperation between Procter & Gamble and social marketing NGO Population Services International (PSI). This project led to a product innovation geared toward the developed world — “PUR, a sachet of powder which, mixed into a 10-litre bucket of dirty water, would make it clean and safe to drink” (Dahan

182

Paul C. van Fenema et al.

et al., 2010). Considering NGO multinational relationships in developing countries, researchers found opportunities: “By lowering costs, reaching new groups of customers, streamlining distribution and — more broadly — by filling institutional voids through new product or service offerings, these collaborative initiatives provide bundles of social and economic value that may be very difficult to disaggregate” (Dahan et al., 2010). Next, we elaborate on the strategic role of ISS in creating stakeholder value on one hand, and sustaining operations and reducing stakeholder costs on the other hand.

Creating Stakeholder Value First, organizations may collectively create additional value by increasing each other’s business and generating positive impact in the public domain. For instance, major disasters or humanitarian crises evoke (inter)national response from businesses, governments, and other types of organizations (Quarantelli, 2007). ISS, by enhancing coherence of these efforts, could contribute to positive changes in affected communities in the sense of improved socioeconomic development and security (de Coning & Friis, 2011). In developed parts of the world, ISS could activate businesses, communities, and local government to improve at a collective level the strength of their socioeconomic system while generating organization-level value such as enhanced public, business, and consumer value (Porter & Kramer, 2011). For instance, collective use of infrastructures (Hall et al., 2013), and collectively procuring new military assets may improve national industry and result in state-of-the art technology (Rasmussen, 2011; Uiterwijk et al., 2013). Similarly, cooperation between businesses, government organizations, and NGOs could result in sustainability benefits, such as new products made from recycled materials, reverse logistics, and energy independence (Gopalakrishnan et al., 2012). Moreover, organizations could share their competencies (e.g., R&D services, market segments) to improve mutual knowledge (Gebauer et al., 2011), and to develop, produce, and market products and services with innovative features and enhanced performance levels (Janssen et al., 2009; Van de Ven, 2005). These products and services may enable customers to do new things or to improve their experience. While strategic flexibility (or agility) has traditionally been defined at the organizational level, recent work points at the importance of interorganizational innovations to create new products and services and to manufacture in a flexible manner (Oke, 2012). Upstream in value chains, ISS may fuel new ideas to suppliers to improve their products and services (Ng et al., 2012). ISS could thus improve strategic performance in the sense of adaptability at the value chain level (Wycisk et al., 2008). Conceptually, organizations combine their resources not just internally but across organizational boundaries (Galunic & Rodan, 1998; Sirmon et al., 2007). “Strategic resources and knowledge come not only from within the organization’s boundaries, but also from outside”

Interorganizational Shared Services

183

(Lai et al., 2012, p. 445). This extended Resource-Based View (RBV) assumes that some organizational capabilities can be combined in a complementary manner (Caldwell & Howard, 2010; Dahan et al., 2010). For participating organizations (public or private), such combination or interorganizational specialization allows for sustainment of capabilities they consider essential to (stakeholders of) their core business, while relying on other organizations for non-core activities (Brusoni, 2013; Faleg & Giovannini, 2012). For instance, in national defense programs: “(i)nstead of pursuing costly national programmes, allies can seek more cost-effective solutions by pooling and sharing (P&S) resources” (Faleg & Giovannini, 2012).

Sustaining Operations and Reducing Stakeholder Costs Second, ISS could support sustainment of operations and reduction of stakeholders’ costs. It can improve operational efficiency, risk levels, and continuity (Janssen et al., 2009; Tsang, 2002). Costs (monetary expenditure, time, environmental impact/eco-footprint, and transaction costs) are incurred for categories such as personnel management, acquisition, operation and maintenance of assets, facility management, stock keeping, logistics, and procurement. Similarly, stakeholders benefiting from products and services may incur costs, e.g., transaction costs (Estep, 2012). For organizations and their stakeholders, costs diminish the value of their performances, both to the organization and their stakeholders. As Porter and Kramer claim “companies have overlooked opportunities to meet fundamental societal needs and misunderstood how societal harms and weaknesses affect value chains” (2011). For example, stakeholders increasingly value environmental impact and socioeconomic conditions of operations (Hall et al., 2013). From a financial point of view, organizations co-innovate with other organizations to reduce or eliminate costs. Public organizations increasingly have to follow this path since their budgets get reduced while similar or even enhanced performance is expected. Cost innovations concern reducing prices paid for resources and services (e.g., through collective procurement), standardizing spare parts to economize on stocks (Bloch, 2013), economizing on transaction costs incurred for operations (e.g., e-business), or re-allocating work across organizations (Gebauer et al., 2011). Moreover, organizations can improve on total costs of ownership by considering acquisition, maintenance, and use of assets on the longer term (use of e-maintenance technologies, self-healing technologies, and asset analytics; Hampapur et al., 2011). Organizations can cooperate across their value chain to optimize their operations in terms of timing, product availability, and reduction of risks (Graham et al., 2013; Yao et al., 2007). ISS may reduce smoothen supply chains (van der Vlist, 2004) and reduce bullwhip effects: “When an information system that allows collaborative sharing of information about the whole supply chain is introduced, the new information allows the actors to reach savings by, e.g., reaching reductions in inventory. Other benefits in reducing bullwhip effect may include decrease in production over time, increased customer satisfaction, and reduced lead times” (Bjo¨rk et al., 2012). Organizations can improve performance by sharing

184

Paul C. van Fenema et al.

back-office services and service delivery (Arya, 2011; Niehaves & Krause, 2010), or bundle incoming or outgoing logistical flows to reduce environmental impact and monetary costs. And finally, organizations may share assets, pool stocks and co-organize maintenance services to improve economies of scale, uptime, safety, and capacity use (Karsten & Basten, 2014; Van Horenbeek et al., 2013). Interorganizational cooperation could enable proactive and life-cycle based approaches to maintenance which reduce overall costs over time (van der Lei et al., 2012). In short, these two aspects of interorganizational value creation exemplify possible operationalization of network (i.e., interorganizational) effectiveness. Researchers consider network effectiveness in relation to organizational effectiveness, noting the risk of unequal distribution of value: “what may be a positive outcome for the network as a whole (e.g., improving innovation, economic activity, or community well-being) may prove detrimental to one or more individual network members, as when innovations are implemented by some firms but not others, making the innovators more competitive relative to others in the network” (Provan et al., 2007). Ideally speaking, ISS could increase value for all stakeholders involved: “enlarging the pie” of a particular business market, or improving the performance of public networks (Joha & Janssen, 2010). Public organizations may share back-office services to reduce costs and empower their service delivery. Next, we provide a taxonomy of ISS positioned in value chains; this offers a more precise understanding of how ISS could increase value.

ISS and Value Chains: A Taxonomy The increasing variety of ISS examples calls for an analytical framework to understand more specifically why organizations start off ISS initiatives, and how they use ISS to increase value for themselves and collectively. We use the notion of value chains for this purpose. Value chains refer to processes of transforming inputs into outputs (Stabell & Fjeldstad, 1998); they demarcate value-generating activities within and across organizational boundaries (Ehret & Wirtz, 2010; van Fenema & Beeres, 2010). Along the value chain, organizations add value with their business model and operations consisting of primary and support activities. Figure 2 depicts two value chains each consisting of three organizations, moving from top (upstream) to bottom (downstream). We distinguish three categories of ISS. First, examples that concern vertical relationships within a single value chain (as mentioned in the introduction, we are interested in mutual involvement, not neoclassical outsourcing). Second, ISS between organizations operating in their own value chains (with or without vertical impact). And finally, hybrid ISS that encompasses both horizontal and vertical cooperation. Next, we elaborate on specific examples of ISS across the three categories and point at challenges that we elaborate on in later sections.

Interorganizational Shared Services

Figure 2:

185

A taxonomy of ISS and value chains.

Vertical ISS Vertical ISS reorganizes services and their associated business processes and resources in supplier customer relationships.6 Demarcation and arrangement of supplier customer responsibilities shift (Sierra et al., 2009), resulting in renewed attention for specialization across the value chain (Johnston & Lawrence, 1991). This specialization and awareness of value chain partner’s potential contributions lead to new dependencies and coordination patterns, for instance programs for engaging customers or citizens in service design and delivery (Messinger, 2013). Literature on business-to-business marketing argues that suppliers should orient their operations toward their customers’ value-creating activities (Gro¨nroos, 2011), more recently referred to as cocreation (Maull et al., 2012). New technologies such as virtual reality and social media enable close contact with customers, and

6 We remain focused on mutual involvement of vertically linked organizations; this excludes shared service centers that are completely outsourced (Janssen & Joha, 2008). It could involve partial ownership, also referred to as partial vertical integration (Pishchulov et al., 2012).

186

Paul C. van Fenema et al.

increasingly customized and bundled offerings (Edvardsson et al., 2005). From a logistics perspective, suppliers gain intimate knowledge of customer operations and they use knowledge of local markets. This allows suppliers (e.g., service providers) to tailor and contextualize their services. Activities can be dynamically divided between suppliers and customers to make the best use of capabilities and resources (Gebauer et al., 2011; Rollins et al., 2011). They may take over some of their customers’ business processes (Vendor Managed Inventory (VMI); Collaborative Planning, Forecasting, and Replenishment (CPFR); Vendor Stocking; Bloch, 2013), or some echelons (levels) of maintenance (Sherbrooke, 2004; Tsang, 2002). Suppliers and customer can ex ante synchronize their ordering delivery cycles to optimize supplier operations (van der Vlist, 2004; van Fenema & Koeiman, 2003). Suppliers may transform their product offering into services (Performance-Based Contracting), thus concentrating on the (potential) functionality a product provides instead of on the product itself. Supplier services thus become part of customer operations. Conversely, customer resources and services could empower a supplier’s operations. For instance, when maintaining major assets, a supplier depends on access to and use of customer facilities and services. ISS may involve dyadic relationships, or cover an entire value chain (Jayaram et al., 2010). Examples of the latter include standardization, supply chain redesign, and sustainability initiatives (Porter & Kramer, 2011). Public Private Partnerships (PPP) could be considered a heterogeneous example of vertical ISS. Private companies may design, build, finance, maintain, and/or operate infrastructures and facilities for public customers (Brinkerhoff & Brinkerhoff, 2011). “The idea is that the private sector can provide the services in a more cost-efficient way, including financing” (Joha & Janssen, 2010). Why would vertical ISS add value? Value chains become more predictable, reliable, and proactive (Van Horenbeek et al., 2013); this may enhance value chain adaptability, and capacity use while reducing costs and risks (Shirodkar & Kempf, 2006). Advantages work both sides. For instance, in the dredging business, “(i)n case this data (from the customer — authors) is shared with IHC (supplier — authors), it is able to give advice on pending failures and the need for parts. It also helps IHC to keep track of the regions the ships move to in order to adapt their part stocking decisions in the depots in these regions” (Dekker et al., 2013). In addition to such exploitation enhancement strategies (Raisch et al., 2009), from an exploration point of view, vertical ISS could foster product and service innovations and accelerate time to market (Busquets, 2010; Oke, 2012). From a customer perspective, suppliers can take care of operations that typically are non-core to the customer’s operations. This concentrates managerial attention toward activities supporting the customer organization’s business model (Penrose, 1959). Customers, retaining an orchestrating role for ISS activities, receive functions (“solutions”) rather than products. They can focus on what suppliers’ products could do for them in terms of their own value-creating processes (Gro¨nroos, 2011). To this end, suppliers are granted room for innovations as long as functions are guaranteed. Suppliers extend their offering and develop closer relationships. For VMI this win win has been described as follows: “The customer benefits from higher

Interorganizational Shared Services

187

product availability and lower inventory costs. The supplier benefits from lower overall costs (especially through reduction of the ‘bullwhip’ effect), marketplace differentiation, and increased customer retention and sales due to the value-added services it provides” (Tatikonda et al., 2005). A supplier can execute activities at lower costs, especially when these represent its core business (e.g., Rolls-Royce engines). Vertical ISS thus could foster innovation and increase the “size of the pie” of (segments of) the value chain (Priem & Swink, 2007). Yet for vertical ISS to work, drivers of innovation, distribution of value, and costs for customers and suppliers are a concern. These call for ex ante concepts and boundary conditions that sufficiently align interests (Ng et al., 2012; Tatham, 2013; Yadav et al., 2003). Suppliers may experience cost increase when customers deviate from these ex ante agreements, or their operations call for substantial investments in new expertise. Customers, on the other hand, may incur costs for enabling suppliers to do their job and controlling them. They may get nervous from depending on supplier commitment and delivery quality. Suppliers may be tempted to put their least valuable resources on the contract to optimize their margin. Moreover, customers may experience inflexibility and lock-in when suppliers take over operations, accumulate expertise, and become more difficult to replace.

Horizontal ISS With horizontal ISS organizations that are part of distinct value chains cooperate. This distinction could refer to merely different organizations being part of similar value chains (coopetition; Richardson, 1998; Rod & Spinler, 2011), to geographical areas (e.g., public organizations from different jurisdictions, water companies from different countries, or public transportation companies operating similar assets in adjacent regions; Karsten & Basten, 2014), or to value chain work content (local firefighting organizations and police sharing facilities). Conversely, reasons for horizontal cooperation could stem from similarity of value chain content across geographical areas or proximity advantages (Richardson, 1998). We distinguish horizontal ISS without up- or downstream impact, versus ISS where this impact is at the core of what organizations seek to achieve collectively. • Horizontal ISS without vertical focus concerns mutual involvement in primary or support activities. It encompasses common ownership, utilization, and maintenance of resources. For instance US Army Materiel Command and US Marine Corps Logistics Command seek cooperation in terms of stocking, depot maintenance, and in-theater services: “Our collective goal in supporting the joint warfighter calls for us to establish more interoperable capabilities” (US Army, 2013). International military and other organizations have collectively operated Kandahar airport in Afghanistan (Soeters & Tresch, 2010). European countries share a pool of military strategic transportation assets. Organizations exchange (expensive) spares and share information to enjoy better economies of capacity use (e.g., shared warehousing, shared databases). Some may merge and collocate

188

Paul C. van Fenema et al.

parts of their back offices or primary business processes to economize on costs. For instance, national government’s Ministries increasingly share services; locally, emergency management or healthcare organizations operating in adjacent regions do the same (Arya, 2011; Niehaves & Krause, 2010; Palm & Ramsell, 2007). Another example would be international cooperation of the military for training purposes or in crisis areas, or cooperation between the military and NGOs (Rietjens et al., 2013). And finally, organizations can initiate interorganizational programs for mutual learning (e.g., users of the same assets) and link their complementary R&D units (Feller et al., 2013). An example would be NATO Centers of Excellence serving NATO members. Over time, with sustained cooperation programs, organizations may setup shared facilities (Niehaves & Krause, 2010) or specialize, thereby increasing mutual dependence (Faleg & Giovannini, 2012). • Horizontal ISS with upstream focus aims at combining demand of organizations for similar products and services. Such shared (also referred to as joint) procurement projects strengthen their position vis-a`-vis suppliers. This may lead to lower prices, lower transaction costs, more innovative products, and better services quality. In short, this form of ISS translates into better service to internal customers. Suppliers could be pushed to improve their performance. Examples include national or local government, NGOs (Balcik et al., 2010), and businesses combining their procurement. Internationally, smart defense programs at NATO and EU7 combine or even mutually adjust their demand for military assets: “Mart Laar, defense minister of Estonia, … contends that the future for European defense lies with shared procurement and pooling resources. Recently, Estonia and Finland … bought 12 Thales-Raytheon radar systems, which meant that Estonia effectively got two radars for the price of one” (Fidler & MacDonald, 2011). The value of horizontal ISS with upstream focus depends on similarity of required products, services, and functions across organizations (Uiterwijk et al., 2013); their willingness to invest in horizontal coordination; opportunities to lower internal costs; limited internal capacity to handle procurement processes (Janssen et al., 2009; Murray & Rentell, 2008); and limited conflicting interests within horizontal relationship (e.g., not serving the same customers downstream). Public organizations, including hospitals and emergency services, often participate in networks and tend to meet these criteria. Contrary to retailers experiencing commercial tension for instance (Comez et al., 2012), they do not compete for instance in their respective “markets.” Costs for cooperation tend to increase the more assets and services appear complex and require customization (Uiterwijk et al., 2013). And second, vertically, organizations depend on opportunities to obtain better deals (for instance “more bang for the buck” (Fidler & MacDonald, 2011), more advanced products (Uiterwijk et al., 2013), or shorter lead times (Ghaderi & Dullaert, 2012) when negotiating with suppliers.

7

See for instance http://www.eda.europa.eu/

Interorganizational Shared Services

189

• Horizontal ISS with downstream focus concerns cooperation between public and/ or private organizations to better serve their customers and lower costs. For instance, NGOs and multinationals cooperate in developing markets: “Doctors Without Borders” extensive on-the-ground networks in developing countries make it a reliable, efficient and trustworthy partner for pharmaceutical companies for distributing medications in such environments. New products targeted for developing markets are often distributed as a bundle with an array of complementary services — such as technical assistance, service, and financing — that are critical to the success of the venture. Providing this product/service bundle on the ground can be a shared responsibility between the firms and NGOs (Dahan et al., 2010). In emergency and crisis response, organizations combine their services to effectively address threats (van Opdorp, 2005).8 In the public domain, local government improves their service offering (Janssen et al., 2009). In the private domain, companies share stocks physically or virtually, exchange expertise, and they coordinate their services for mutual customers. Examples of these services include maintenance, warehousing, and logistics. Horizontally, organizations can draw on competencies that complement or reinforce each other. Moreover, they can improve capacity use and reduce costs, for instance when sharing transportation from plants to warehouses or retailers. Since this type of ISS concerns customers, commercial tensions may rise in case of private sector ISS delivering similar products or services. Organization A, partnering for horizontal ISS, may provide services to organization B’s customers (for instance delivering spare parts from organization A’s site). Organization A’s initial customers may benchmark performances from organization B and reconsider choices thereby hurting organization A’s market. The value of horizontal ISS with downstream impact comes from increasing customer value experience (e.g., offering complete solutions,9 product/service extension, customization, ensuring flexible delivery from a horizontal network of suppliers, offering multisite access to services; Estep, 2012), improving market access, while better allocating and economizing business processes horizontally. Horizontal ISS may lead to more value when it reduces strategic tensions, while evoking limited levels of new tensions. “Smart Defence can … help nations meet two challenges they face today: how to get more security for the limited resources they devote to defence, and how to invest enough to prepare for the future” (Rasmussen, 2011). More generally speaking, horizontal ISS can provide new benefits (interorganizational learning, new services, and power) and reduce costs (transactions, prices).

8

NATO uses the concept “connected forces” (Schaub & Breitenbauch, 2012), and earlier Network Centric Operations or Warfare (Wilson, 2007). 9 See for instance http://www.cambridgeservicealliance.org/news/106/61/Successfully-Making-the-Shift-toServices—Service-Week-2013-Write-Up.htmlFirefoxHTML%5CShell%5COpen%5CCommand

190

Paul C. van Fenema et al.

Hybrid ISS (Mixture of Horizontal and Vertical ISS) Finally, we refer to hybrid ISS when categorization as either vertical or horizontal cannot be made. Often, this involves a heterogeneous network of organizations, such as universities, public organizations, and businesses (Zhang et al., 2011). Organizations cooperate in a relational setting where they take on different roles, as in “team” interdependence (Grandori, 1997; Van de Ven et al., 1976). Having identified overlapping interests, they engage in a complex network of stakeholders. Different types of hybrid ISS seem to emerge. First, organizations could have interests associated with a particular geographical domain or transportation infrastructure, such as a site (retail center or industrial zone), a city (neighborhood), a region, or a transportation infrastructure (rail, water, and road). Increasingly, the role of clusters is recognized, i.e., “… geographic concentrations of firms, related businesses, suppliers, service providers, and logistical infrastructure in a particular field — such as IT in Silicon Valley, cut flowers in Kenya, and diamond cutting in Surat, India” (Porter & Kramer, 2011). Stakeholders coinvest in improving value for themselves and collectively, enhancing socioeconomic activities within and beyond the geographical domain. Infrastructures such as roads and bridges (Zhang et al., 2011), sea, and airports continue to be developed. Through sometimes PPP (Joha & Janssen, 2010), organizations invest in their technical-economic potential and environmental performance to better serve public, private, and societal stakeholders (De Martino et al., 2013; Hall et al., 2013; Pestana et al., 2012). The Silicon valley technical-economic success has led to new concepts such as “maintenance valley,” cluster policy, and campuses that are experimented across the globe (Hospers et al., 2009). Other examples include redevelopment of office spaces, e-commerce hubs, development of regional economic clusters (Lincoln Business School, 2012), or multistakeholder involvement for innovative tourism: “a supportive environment is conducive to growth and expansion of niche tourism” (Carlisle et al., 2013). Local government (and NGOs in developing countries) tend to play a facilitating role as they encourage socioeconomic development and sustainability within the geographical domain and promote external networking. Second, some vital global-local value chains (food, forest, water, energy, and transportation) and critical societal processes (healthcare, education) warrant hybrid ISS. Scarcity and tensions tend to increase due to economic growth and scarce resources. Globalization of food chains requires hybrid ISS due to demand supply mismatches (e.g., excess fishing; Bergho¨fer et al., 2008). New agricultural development and new initiatives for sustainability engage multiple stakeholders (Devaux et al., 2011). Public institutions (at both a national and international level) and multinationals usually take the lead to improve network value creation (Gopalakrishnan et al., 2012). Similarly, combating piracy and securing or innovating energy supply chains encourage stakeholder cooperation, often with different perspectives and interests (Gold, 2011). In the area of health care and education, stakeholders develop new network-level concepts and technologies to improve standardization and quality (Matlay, 2011); sharing technologies and implementing innovations

Interorganizational Shared Services

191

such as telecare may offer service delivery advantages while reducing costs (Barlow et al., 2006; Estep, 2012). Third, hybrid ISS are formed to serve collective interests in security, humanitarian crisis response, and emergency management. Over the past decades, international civilian military operations have rallied military from multiple countries, international agencies, NGOs, and businesses (de Coning and Friis, 2011). They have addressed short-term needs due to natural disasters, and worked with local stakeholders to improve socioeconomic development in fragile states (Voorhoeve, 2010). To counter new risks in the cyber domain national governments have initiated task forces and centers that merge public, military, and private expertise (van Fenema & Soeters, 2012). Moreover, organizations share information to counter fraud, e.g., banks, insurance companies, and police. They cooperate to secure borders, such as the European Frontex organization.10 A final example is community policing; police organizations cooperate with stakeholders such as businesses and social organizations to improve security and socioeconomic stability (Morabito, 2010). Fourth, hybrid ISS concerns service logistics, supply chains, and asset-centric networks due to pressure to improve economic and environmental performance (Gopalakrishnan et al., 2012). Companies are developing and implementing collaborative concepts that horizontally and vertically span value chains (Mason et al., 2007), such as 4C (Cross Chain Control Centers, or Cross Chain Coordination Centers). These concepts seek to coordinate stocks, optimize business processes and services, and they bundle logistics across multiple organizations (Graham et al., 2013) across even competing organizations (Franklin & Spinler, 2011). Suppliers with the same downstream customer may ship to a shared Consumer Goods Consolidation Center (CGCC) and contract the same logistics service provider. High value assets in aviation, space, offshore, and the military bring together universities, businesses, and governments. They collectively develop (Berends et al., 2011), use (Faleg & Giovannini, 2012), and maintain assets based on innovative expertise and IT (e.g., prognostics) (Candell et al., 2009). Horizontal relationships (between asset users) interrelate with vertical upstream relationships (Bloch, 2013). Moreover, third parties may get involved with complementary services: “As there is a trend (e.g., in the aviation industry) toward outsourcing the MRO (Maintenance, Repair, and Overhaul) operations, pooling will move more into a vendor or thirdparty model where a neutral independent company or pooling provider (at the first echelon) will offer component pooling options to companies (at the second echelon)” (Wong et al., 2007). Another ISS example would be the new production and service logistics network for the Joint Strike Fighter which involves governmental organizations at national and regional levels, in addition to educational institutes and international or national companies. Asset-related roles may switch or be extended. For instance organizations using and maintaining assets may share their expertise with other users. Multiple asset users may share their information

10

See http://frontex.europa.eu/

192

Paul C. van Fenema et al.

horizontally and vertically (upstream). Stakeholders thus better utilize expertise and capacity; they increase flexibility at the network level, while potentially lowering costs and risks. To conclude, these forms of hybrid ISS may overlap and coincide, for instance a regional UK government organization writes on supporting agricultural supply chains: “… there are not only potential cost savings, but also environmental benefits from using shared facilities for produce going to the same retailers, or using shared transport to deliver linked products such as food and flowers” (LBS, 2012). Hence, they combine the first, second, and fourth type. Hybrid ISS refers to innovation networks and collaborative commerce and communities (Bøllingtoft et al., 2012); these broaden the scope of organizations involved, and they provide room for new value adding roles (Boudreau & Lakhani, 2009; Busquets, 2010). Stakeholders increasingly recognize the importance of their ecosystems from both a sustainability and technology innovation point of view (Porter & Kramer, 2011; Van de Ven, 2005; Weiller & Neely, 2013). For instance, “innovation by semiconductor makers must overcome technological and commercial hurdles to provide lower cost chips with more features … Chipmakers are ‘critically dependent’ on the industry’s ecosystem to create value in their offerings” (Wharton, 2013). Across value chains, they strive for standardization and value enhancement, e.g., sustainability certification and branding (McDermot, 2011). Value creation in hybrid ISS appears less straightforward compared to vertical or horizontal ISS. Networks tend to be very heterogeneous and objectives vague and at times grand. Stakeholders may agree on common objectives. Yet operationalizing these often takes considerable time and effort, and meets with resistance. Innovation tends to be incremental and long term. Overcoming these constraints depends on the felt urgency to act as a network, or the feasibility of creating new benefits.

Foundations for Creating Value across Organizational Boundaries In conjunction with ISS focus and value chain positioning, organizations shape the foundations of their cooperation. They interrelate various aspects of their own processes, suggesting a multilevel (Markand & Truffer, 2008) or nested perspective (Perlow et al., 2004). We elaborate such a perspective on foundations in three ways: nested structures, process management, and success factors and barriers. Nested Structures: Strategy, Governance, and Operations Structures refer to patterns of organizational practices (Perlow et al., 2004), they reflect the interplay of human understanding and action. Structures are represented or shaped using overarching concepts (e.g., the very idea of “shared services”; Herbert & Seal, 2012), and description or prescription of structural elements (Pentland & Feldman, 2008). These structural elements result from choices on applicable dimensions, e.g., a centralized or decentralized style of decision making

Interorganizational Shared Services

193

(DeSanctis & Poole, 1994). A concept can be understood by its philosophy (also referred to as “spirit”; DeSanctis & Poole, 1994) and structural elements. An example of the latter: “The three components of smart defence are prioritization (aligning national capability priorities more closely with NATO’s capability goals), cooperation (pooling of military capability among Allies to generate economies of scale and improve interoperability), and specialization” (Giegerich, 2012). Concepts emerge from and influence practice. Their role can be evaluated, i.e., the extent to which they play a role in enhancing value creation (Figure 1). As a source of structure, concepts play a key role in ISS. Organizations involved in ISS draw on generic concepts that get interpreted, adjusted, and applied in a particular context (Woywood, 2002). Examples of a few concepts applicable to ISS include Vendor Managed Inventory (Tatikonda et al., 2005), supply chain synchronization (van der Vlist, 2004), new logistics service providers concepts (Mason et al., 2007), or the Comprehensive Approach (Moelker, 2014). Such concepts concern multiple stakeholders; they move beyond organizational-level innovation. By considering ISS, organizations choose from and combine concepts available in international discourses (Wong et al., 2007). These concepts concern strategy, governance, and operations. First, in a strategic sense, organizations reconsider their business model when getting involved with ISS. A business model, commonly defined at the organizational level, articulates by which value propositions an organization will serve which stakeholders, and which operations are associated with value propositions and stakeholders (Weiller & Neely, 2013). Business models change (Cinquini et al., 2013), e.g., an organization shifting from a luxury airline model toward a low cost model, or from good dominant logic toward service dominant logic (Ng et al., 2012); this obviously requires internal adjustment (Bacharach et al., 1996). ISS asks organizations to think about the extent to which their current business models match or maybe compete (Weiller & Neely, 2013). As earlier elaborated upon, ISS offers organizations new strategic motives and objectives to deal with tensions and opportunities (see also Figure 1). Depending on the positioning of ISS in value chains (Figure 2), organizations may need to adjust their business models, and negotiate which organization is making which adjustments (Dahan et al., 2010). In fact, ISS demand business models at the value chain level, i.e., how the value chain and its constituents will relate and create value (Weiller & Neely, 2013). Organizations have developed strategic logistics concepts (“solutions”) containing features that reinforce business models of multiple organizations (Gebauer et al., 2011). As they collectively develop business scenarios, they need to balance collective “win wins” and their own interests and prospects. That is, on the one hand business models ought to be “flexible enough to accommodate shared service arrangements,” while on the other hand “every established individual business is unique and operates based on its autonomously defined aim and objectives” (Kamal, 2012). Business models from one particular organization, even those aimed at ISS, cannot prevail in interorganizational relationships. More applied, strategic structures refer to high-level choices with respect to specialization and service design across organizations (Brusoni, 2013). This involves topics such as which organization becomes responsible for

194

Paul C. van Fenema et al.

which service modules (Janssen & Joha, 2008) or level of maintenance (Wong et al., 2007; Van Horenbeek et al., 2013). Second, governance structures embed ISS in organizational and institutional structures. They express strategic focus and structures in contracts, and enable cooperation and control. Xu and Beamon (2006), using the term coordination mechanism, distinguish resource sharing structure, level of control, risk and reward sharing, and decision style (Xu & Beamon, 2006). This chapter’s focus on ISS excludes neoclassical outsourcing. Forms of ISS mentioned in the earlier introduced taxonomy are of relational type. They often rely on contracts or high-level agreements such as a Memorandum of Understanding (Uiterwijk et al., 2013). These define how ISS fits in legal regulations (in particular when public organizations are involved; Brinkerhoff & Brinkerhoff, 2011). Moreover, contracts explicate commitments in the sense of funding (Giegerich, 2012), mutual obligations and rights (e.g., intellectual property, disclosure policies) (Turle, 2010), and performance measurement (Keebler & Plank, 2009). This is especially the case when ISS concerns operational, “exploitative” processes such as participating in the European Air Transport Command. Another example would be maintenance and inventory policies when sharing spare parts stocks (Larsen et al., 2012). “The financial details for being able to use and replace co-owned spares should be well defined in advance as part of the shared ownership pool. Vendor stocking arrangements place the vendor under contractual obligation to have certain machines or parts available on very short notice. In return, the potential user of these parts or machines accepts the contractual obligation to purchase vendor-stocked assets at a predefined premium cost” (Bloch, 2013). Contracts may contain service level agreements and Key Performance Indicators (Howcroft & Richardson, 2012), risk sharing agreements (Inderfurth & Clemens, 2012), and stipulations for calculating and sharing revenues and costs (Karsten & Basten, 2014). Valuing mutual performances tend to prove a daunting challenge; for instance what is the value of VMI for a supplier and how does this value benefit the customer? Moreover, cost sharing is challenging, requiring insight in organizational-level costs and investments in the ISS (Wong et al., 2007). Frequently, especially with large numbers of ISS participants or an innovative (“explorative”) orientation, contracts remain fairly incomplete (Hart, 1991). They resemble agreements befitting a relational form of governance (Jones et al., 1997). Governance structures also regulate who participates, how organizations make decisions (Bergho¨fer et al., 2008), what policies they apply, and how mutual relationships and power are kept in balance. Taken from research on service dominant logic (SDL), researchers state: “However in SDL, no one economic actor owns the value network. Therefore, this issue includes considerations of: what power sources will be the most effective in value networks; what is the responsibility of the customer; and what or who dictates who enters and leaves the value network?” (Maull et al., 2012). Moreover, strategic control of ISS operations introduces a governance challenge. For instance, hybrid ISS in crisis response has led to network-level concepts for command and control (Bigley & Roberts, 2001; Boersma et al., 2012). ISS governance may be a shared responsibility, or assigned to a lead organization (e.g., territorial responsibility in humanitarian operations) or a

Interorganizational Shared Services

195

dedicated organization such as the US Federal Emergency Management Agency (Provan & Kenis, 2008). Research on regional healthcare ISS suggests: “The move from decentralization to centralization (or vice versa) is often an attempt for the system to become more effective and efficient. There is a tendency to centralize if and when it is recognized that there are not enough economies of scale or the size of the Health District presents critical mass issues to enable efficiencies to be achieved. Similarly decentralization occurs when the span of responsibility appears to be too large to manage the business of delivering healthcare” (Arya, 2011). Third, to generate value, ISS connects existing operations of participating organizations and may introduce new ones. Operational structures thus encompass organizational design initiatives to define roles, procedures, and infrastructures (Janssen et al., 2009). These structures operationalize strategic and governance concepts; structural elements of strategic concepts can be compared with patterns of “on the ground” activities (Moelker, 2014). Structures at the operational level involve planning methods and workflow (re)design to optimize business processes and associated roles. Moreover, IT is a ubiquitous conceptual (e.g., business process modeling) and technical infrastructure (Graham et al., 2013). While organizations have invested in enterprise architectures to enhance consistency of IT investments (Ross et al., 2006), recent work extends this thinking to interorganizational cooperation (Janssen et al., 2010). Organizations may have to standardize their operations, product data, and technical infrastructures in order to share information (Candell et al., 2009; Lia et al., 2006).11 They connect their ERP systems or introduce new technologies such as RFID (LBS, 2012). Other examples of technologies include Service Oriented Architectures (SOA) to support “business process synchronization” of virtual organizations (Danesh et al., 2013). In crisis response, “new information technology (IT) infrastructures or systems have been introduced … in order to facilitate shared situational awareness” (Boersma et al., 2012); these infrastructures enact so-called Netcentric Working concepts of interorganizational cooperation. In some cases, ISS organizations introduce new physical facilities to support their connected operations, e.g., collocated control rooms with crisis response. They may have to take local transportation, warehousing, and legal infrastructures into account (Gebauer et al., 2011), especially in case ISS is located in developing countries (Dahan et al., 2010) or concerns offshore/off-road or mobile serviscapes.

Process Management: Business, Relationship, and Organizational Development This chapter deals with ISS that involve mutual involvement and relational governance. This form of shared services differs from intraorganizational shared services and also from neoclassical outsourcing contracts where suppliers take over IT or

11

For instance, NATO and its partner nations have invested in standardization of technologies and operational processes.

196

Paul C. van Fenema et al.

business processes from the customer. The interorganizational and relational character of ISS influences, as can be expected, process management. In our understanding of process management it involves management of stakeholders involved in ISS, and program-based management of the sequential phases of an ISS lifespan. Process management in ISS concerns three dimensions: business, relationship, and organizational development (Table 1). Business development. Organizations participating in ISS work according to a particular business model. They have positioned themselves in their industry’s value chains. ISS challenges organizations to reflect on how they deliver, create, and explore value (IMP, 2013). Specifically, such business development calls for awareness of current business models and operational concepts participants use, as well as generic conceptual trends (e.g., VMI, control towers, supply chain ERP, or smart defense). Operational concepts may apply to their primary or supportive value-creating activities such as their business, IT, and logistics (Porter, 1998). Organizations can choose from various concepts for these value-creating activities. Once chosen, these concepts are to be aligned across primary and supportive activities (Tallon, 2012). With ISS, participants develop business cases for new operational concepts (Janssen et al., 2009). They translate generic concepts (for instance the very idea of shared services) into ones that are useful to them. “The translation process Table 1: A process management approach to ISS. Stakeholder management Managing phases Initiation ▸

Adjustment, closure

• Organizational • Business model business model adjustment, or return to • Interorganizational business model autonomous business model Relationship • Emerging core • Broadening • Continuity or development network: contacts intraorganizational closure at higher involvement management levels • Inter-team contacts Organizational • Exploring • Intraorganizational • Reconsidering development interorganizational adjustments organizational opportunities • Interorganizational adjustments, projects, mutual possibly closing learning interorganizational ISS cooperation

Business development

• ISS business case development

Setup and operations ▸

Interorganizational Shared Services

197

considered people and policy aspects and transformed the general management idea of shared services into a specific configuration reflecting the organization’s individual conditions” (Ulbrich, 2010). Such a concept-centric process affects their business model and relationships with ISS partners. In an example of vertical ISS, a European manufacturing company redefined its logistics concept parameters (e.g., roles and responsibilities) in cooperation with Asian partner organizations (Gebauer et al., 2011). In a hybrid example, organizations selected promising academic and technological innovations to pursue (Bakker et al., 2011). Organizations, taking generic concepts into account, thus develop new concepts for their own business and relationships with value chain partners. Together, they dynamically craft their business models (Demil & Lecocq, 2010). These models have been defined as “a conceptual framework that expresses the underlying economic logic and system that proves how a business can deliver value to customers at an appropriate cost and make money” (Van Horenbeek et al., 2012). While ISS offers new opportunities, autonomous functioning of organizations and value delivery remains paramount (Dahan et al., 2010). Hence, organizations are expected to develop interorganizational concepts as negotiated structures that relate to their own business models in a coherent and synergetic manner. With ISS relating to participating organizations’ business models, and business models are likely to differ between organizations,12 organizations face a strategic alignment challenge. Building new concepts serves strategic value improvements, and yields conceptelements that change operations (Gebauer et al., 2011). In fact, organizational operations become strategically embedded in a dual manner: participating organizations’ own business model and their ISS cooperation. While promising new strategic opportunities, this duality — which echoes the individual collective dimension in our guiding research questions — adds to the complexity of operations management. Relationship development. To individuals at participating organizations, ISS represents a challenge to simultaneously innovate and develop new interpersonal relationships. Focusing on relationship development, individuals may have already worked together before. Yet the ISS network is likely to introduce new themes and to engage people who have not worked together before (Uiterwijk et al., 2013). New personal network structures emerge in conjunction with the business-content of work. Researchers increasingly point at the role of trust in interorganizational relationships. Trust implies that individuals allow for mutual vulnerability, risk, and positive expectations (Edelenbos & Klijn, 2007). Studies also show that vulnerability of relationships makes interorganizational innovation challenging (Berends et al., 2011). Relationships interplay with interorganizational power. They may not last due to factors such as a lack of personal chemistry or limited perceived mutual interests. Moreover, within partner organizations people may move on to new roles or leave their organization. Relationship development evolves as a dynamic process.

12

Depending on their position in the value chain and the ISS configuration adopted.

198

Paul C. van Fenema et al.

It also benefits from deliberate interventions such as group meetings, especially when individuals work at different sites (Kumar et al., 2009). Over time, individuals can develop a shared language, set of concepts, and style of communication.

Organizational development. ISS innovations depend on professionals with different backgrounds, e.g., legal, business, IT, finance, and procurement. Within participating organizations, multidisciplinary teams are to be formed to handle external contacts and interface with those responsible for internal business processes. Internal understanding of ISS and commitment are to be encouraged. Changes to business processes are likely across internal value chains, for instance the way organizations order products and services, how they produce, and how they deliver products and services (see organizational-level value chains in Figure 2). ISS impacts internal business processes that may have operated in a fragmented manner. Between organizations, ISS requires development and use of coordination mechanisms such as liaisons, teams, meetings, and procedures (Gittell & Weiss, 2004). These mechanisms keep partners informed and support dynamic management of stakeholders (Uiterwijk et al., 2013). For both intra- and interorganizational cooperation, awareness of external dimensions is likely to increase. Such an extended awareness is pivotal for managing stakeholders expectations (Ancona & Bresman, 2007), and for developing and translating concepts between communities (Carlile, 2004; Levina & Vaast, 2005). To sum up, process management integrates these three dimensions, encompassing (1) the management of stakeholders involved in ISS and (2) phases of the ISS lifespan. (1) The number of stakeholders, their involvement, and influence may vary over time (de Vries, 2012). Stakeholder interests have to be dynamically monitored and managed to deliver them value (El-Gohary et al., 2006; Johansson, 2008). Moreover, as a cooperative effort, their roles, direct partners, in and contributions to ISS need attention (Janssen et al., 2007). This value stems from generating innovations that match their demands (Hall et al., 2013). In addition, for broader ISS legitimacy, it may be useful to keep external stakeholders updated (Messinger, 2013). (2) Managing phases is a process that interacts with stakeholder management and organizational contexts (Barlow et al., 2006). Several parameters of phase-based management are to be defined, such as how fast the project progresses, who gets involved in the project, how the project is structured, and how radical the innovations are that stakeholders strive for. It is a formal and informal process. On the formal side, ISS requires project plans with implementation plans, milestones, contracts, and financial agreements (Faleg & Giovannini, 2012; Zhang et al., 2011). Moreover, formal methods can be used for simulating, developing, and experimenting with ISS scenarios (Janssen et al., 2009; Voinov & Bousquet, 2010). Informally, representatives of participating organizations cooperate on a personal basis, in conjunction with their intraorganizational responsibilities and networks. Between organizations, representatives are to develop mutual understanding as well as shared insights in the potential and application of ISS concepts (Barlow et al., 2006).

Interorganizational Shared Services

199

Success Factors and Barriers: Autonomy versus Mutual Dependence Finally, researchers have reported numerous success factors and barriers when studying various forms of ISS. These echo challenges of balancing processes within organizations participating in ISS (autonomy) and between them (mutual dependence). Organizations are drawn to ISS to achieve strategic objectives and reduce strategic tensions (Oliver, 1990; Smith & Lewis, 2011). An example is smart defense. While this concept addresses austerity and capability challenges at the level of NATO, this innovation itself introduces new challenges and possibly tensions (Faleg & Giovannini, 2012). First, organizational logics (their way of thinking and working) and interests may diverge (Dahan et al., 2010). Even without mutual adaptation ISS could be possible. Yet the dynamics of cooperation may move ISS in a direction that offers limited value to one of the participants. For instance, multinationals’ “partnerships with NGOs may sometimes open a path to escalating (and potentially unrealistic) demands for firms to upgrade their commitment to social development” (Dahan et al., 2010). Second, ISS partners face dynamics of who to include, and how to deal with organizations that join or those leaving (Busquets, 2010). Moreover, within ISS, questions can be raised — in particular in ISS with large numbers of participants — such as how to engage participants (Zhang et al., 2011) and how to manage interorganizational dynamics (Bergho¨fer et al., 2008). While increasingly “innovation is a collective process which increasingly depends on the formation of collaborations and alliances” (De Martino et al., 2013), selecting and building actual ISS relationships are delicate processes. Some ISS remain limited to bilateral horizontal or vertical cooperation. Others involve industry-wide participants, such as multistakeholder coalitions (MSC) in agri-food, defined as “a long-term partnership involving multiple participants from two or more categories of stakeholders (government, business, societal organizations, and knowledge institutions) with the objective of jointly defining and reaching sustainability objectives” (Peterson, 2013). Moreover, ISS may be subject to external influence and have societal impact (Gold, 2011). Organizations may join such hybrid ISS purely based on their activities. In other cases, ISS organizations could be selective in allowing others to join or stay. In order for ISS to increase value for participants, expectations and joint interests are to be strategically managed over time: which innovation projects get initiated, invested in, and terminated? (Bakker et al., 2011; Berends et al., 2011). This could turn out to be a complex, sensitive, and at times political process (Hall et al., 2013; Lorell, 1980; Uiterwijk et al., 2013). Third, organizations open up their “black box” to ISS cooperation processes (“white boxing”13). Providing access to information and knowledge underpins generative processes of innovation (Rollins et al., 2011; Tsoukas, 2009). Information visibility and transparency increase (Wang & Wei, 2007), supply chains are optimized (Bjo¨rk et al., 2012), and new knowledge networks and solutions are

13

A term coined by Tim Grant, Netherlands Defence Academy.

200

Paul C. van Fenema et al.

developed (Gebauer et al., 2011; Majchrzak et al., 2007). Yet this open and relational approach could be naı¨ vely oriented toward collective ISS advantages. Opening up organizations also raises new questions such as: how much is enough, which boundaries should be defined, who invests in information and knowledge infrastructures? And: how valuable are our resources to another organization and vice versa? These questions correlate with the extent to which organizations have worked together before and how tacit (specifiable) certain knowledge is. The more knowledge is tacit and evolving, the harder interorganizational control becomes (Loebbecke et al., 2000). Organizations may feel this tension in particular when their businesses overlap, for instance in horizontal ISS (Doz, 1996; Hamel et al., 1989). ISS participants may hold divergent value perceptions and set different priorities (Arya, 2011). They may experience intraorganizational constraints when ISS impacts how professionals work. For instance, a partner organization may take over service delivery and use facilities in exchange for other types of resources. Fourth, from a strategic perspective, interdependence between ISS organizations increases (Pfeffer & Salancik, 1978); this may exacerbate negative emotions and change the role of trust. With respect to smart defense for instance, “if nations specialize in some areas but withdraw from others, the accompanying increase in mutual dependency will give rise to fears of abandonment and entrapment” (Giegerich, 2012). ISS organizations may encounter new challenges when dealing with their own stakeholders. For instance, nations participating in smart defense have to interface with their national political arena. ISS thus involves a network of participants’ stakeholders, demanding attention for ISS-external control and communication. Conversely, depending on the ISS environment and level of uncertainty, ISS organizations need to consider how decision making and governance at the ISS level is organized in relation to external stakeholders (van Bortel, 2009). To what extent do they formalize contractual obligations and governance procedures (Arya, 2011), and/or do they rely on trust (De Martino et al., 2013; Edelenbos & Klijn, 2007)? Compared with neoclassical outsourcing relationships based on exchange and market mechanisms, ISS’ dependence on shared ownership and relational governance may prove more difficult to control (Maull et al., 2012). Actors face competing challenges in negotiating between institutional demands of their parent organization and the joint project (Agterberg et al., 2010). There is no clear division of labor or shared means of addressing these boundaries, requiring actors to negotiate what it is that they are doing within and across practices (EGOS, 2013). Finally, ISS alters revenues, benefits, costs allocation, and financial performance (Bhaskaran & Krishnan, 2009; Janssen et al., 2009; Wong et al., 2007). For instance, bundling transportation or sharing spares on one hand reduces direct costs, yet it may also incur new costs for coordination and extending capacity. ISS partners may have limited insight in their performance (Keebler & Plank, 2009). Moreover, they may set boundaries to the extent to which they share their own performance information, especially when commercial interests are at stake (Forslund, 2012) and incentives work in different directions (Yadav et al., 2003). Yet especially with horizontal and vertical ISS, organizations develop contracts and tools for calculating changes to revenues and costs (Inderfurth & Clemens, 2012;

Interorganizational Shared Services

201

Karsten & Basten, 2014). This may lead to changes to ISS business processes (e.g., when to order) and rules for distributing benefits and investments. Original business case calculations and financial policies may need adjustment once the dynamics of ISS come into play. “It is likely that not all strategic intents can be accomplished and that certain strategic intents can only be accomplished at the expense of others. Therefore, it is recommended to compare the strategic intents with the accomplished benefits” (Joha & Janssen, 2010). This is likely to remain an informal process of negotiations.

Discussion and Conclusion Answering the Research Questions Two research questions have guided this chapter: a strategic question (why organizations would want to get and remain involved in ISS), and a strategic organization question (what are the implications of ISS for (inter)organizational value creation). We can now address these questions. Referring to the first research question, organizations face new tensions and opportunities in their dynamically evolving ecosystem. ISS offers the potential of achieving a new equilibrium among diverse interdependence stakeholders. These can realize additional joint benefits that are not available when they pursue their own business model. To improve their core performance, ISS offers opportunities to co-improve with other organizations inputs (sourcing) and outputs (co-serving customers). Moreover, they consider related domains, such as product companies getting involved in services and multinationals looking at developing countries as markets. Exploring the second research question showed the complexity of (1) achieving collective and individual benefits for organizations (interorganizational innovation), and (2) how to reach a fair share (interorganizational value distribution). This chapter partially addressed the second research question which appears to consist of two separate topics. Structural, process, and factors-based perspectives were proposed to explore these topics. ISS calls for structural innovations in a strategic, governance, and operational sense. From a process perspective, organizations are to develop new business concepts, interpersonal relationships, and (inter)organizational mechanisms. A common thread characterizing critical success/fail factors is how organizations deal with autonomy and mutual dependence. A strategic question is when an ISS-driven increase of mutual dependence is warranted, and when interests based on autonomy prevail. Theory Development and Future ISS Research From a theory development point of view, our findings can be summarized in an ISS research framework (Figure 3). The framework considers organizational and

202

Paul C. van Fenema et al.

Figure 3:

ISS research framework.

interorganizational value creation across three phases of ISS (initiation, enactment, and evaluation). Research on ISS has only a recent history. It complements scholarly work on intraorganizational shared services and interorganizational outsourcing. Thus far, most attention has been devoted to the ISS initiation phase, i.e., strategic and objectives, context, and generic properties of ISS concepts (Figure 3). Studies on initial experiences have led to insights in interorganizational value creation, governance modes, relationships, and challenges of interpersonal cooperation across organizational boundaries. ISS is increasingly understood as an example of multidimensional innovation, combining innovation content (business model and business process concepts), process (actors, relationships), and context (Crossan & Apaydin, 2010). Moreover, it extends organizational-level innovation such as implementing LEAN concepts or technologies such as ERP systems. New research streams on interorganizational/network innovation challenges researchers to build understandings of innovation as a dynamic multistakeholder process. Actors representing different organizations make sense of their interests and opportunities for cooperation (Berends et al., 2011; Carlisle et al., 2013; Hall et al., 2013). We presume future research will move on to ISS enactment and evaluation phases. Moreover, we encourage researchers to draw on and contribute to three streams

Interorganizational Shared Services

203

of research: interorganizational value creation, strategic innovation, and routines, services, and performance. Each of these streams expands on particular dimensions of the two guiding questions. First, literature on interorganizational value creation is concerned with value dimensions of interorganizational relationships (Gro¨nroos, 2011). While value creation has been understood as a fairly static process of developing an organizational business model, recent work emphasizes the dynamic and innovative nature of business models. Since value takes on an ephemeral quality (Magala, 2009), business models become less useful as reified concepts. They are reframed as evolving, intersubjective constructions for substantiating paths of innovation in search for new value (Chesbrough et al., 2013; Demil & Lecocq, 2010; Merli, 2013). ISS research will elaborate on interorganizational conjunctions of these paths of innovation, building on the context and background (e.g., public vs. private) of stakeholders and their organizations (Dahan et al., 2010; Gold, 2011; Yaziji & Doh, 2009). Tensions and opportunities characterizing ISS in practice call for research that strives for dialectic processes to create new realities within and between organizations (Tsoukas, 2009). Examples of reframing interorganizational exchanges must be expanded, e.g., shift from transactive to relational exchanges (Gutek et al., 1999), from supply chains to demand chains (Ju¨ttner et al., 2006), from product to service logics (Ng et al., 2012), and from purchasing to supply chain management (Priem & Swink, 2007). Such strategic reframing implies new ways of thinking about content and its relationship to strategic processes (De Wit & Meyer, 2010). In addition to value creation, the distribution of value warrants attention (see the two topics emanating from the second research question). Research on value creation (Lepak et al., 2007), interorganizational interests and appropriation (Dekker, 2004), and multiagent and (strategic) game theory could offer starting points for understanding how organizations achieve a fair share (Chatain, 2014; Myerson, 1991). Second, literature on strategic innovation offers a backdrop for rethinking (inter)organizational management of resources and capabilities. The RBV is a strategic management theory that theorizes on the absorption and combination of unique resources. Recently, this thinking on organizational capabilities has been extended to interorganizational relationships (Lai et al., 2012, p. 445). This earlier mentioned Extended Resource-Based View (ERBV) enables new insights on the use of unique organizational resources across organizations, i.e., network-level value creation and innovation (Busquets, 2010). Similarly, Priem and Swink (2007) note that “R-A (resource advantage) theory may also be more useful to SCM if it is applied to value creation by the entire value system rather than to value capture by a specific firm. Considering the complete value system brings to the fore opportunities for value cocreation by suppliers and buyers up and down the value system, which thereby highlights the potential of cooperative efforts like user innovation.” An entrepreneurial approach following this line of thought stretches beyond organizational innovation. It calls as its counterpart for research on interorganizational governance and control (Dekker & Van den Abbeele, 2010; Marcum et al., 2012; Uiterwijk et al., 2013). Which structures have organizations in place to govern ISS? How do they communicate among each other? To what extent do they share

204

Paul C. van Fenema et al.

information and knowledge? Questions like these probe for mechanisms that can structure the process of realizing ISS benefits even if organizational interests overlap only to a limited extent (Gnyawali & Park, 2011; Wang & Wei, 2007). A third and final research stream concerns routines, services, and performance. Increasingly, researchers open the “black box” of how organizations structure, bundle, and leverage resources for value creation (Sirmon et al., 2007). This approach represents micro-RBV theorizing which complements extended RBV we just discussed. Other theories also provide insight in the internal operations of organizations, for instance literature on routines (Pentland & Feldman, 2005) and knowledge cycles (Nonaka, 1994). Like RBV, these literatures could be extended to interorganizational cooperation. That is, routines have become increasingly infused with external elements due to sourcing and internationalization of value chains (Turner & Rindova, 2012). And concentration on organizational core competencies results in knowledge cycles crossing organizational boundaries (Gupta & Polonsky, 2013; Rollins et al., 2011). Micro-level theorizing and interorganizational cooperation will provide fruitful opportunities for further ISS research. Given the importance of knowledge for ISS, we briefly elaborate on knowledge cycles as an example (Figure 4). Knowledge cycles have been understood as processes for exchanging, internalizing, and using expertise (Carlile & Rebentisch, 2003). Nonaka (1994) emphasizes the explicit (articulated) and tacit (implicit) nature of knowledge, abstracting from the particular content and context of knowledge. At individual, group and organizational levels, organizations engage in processes of socialization, externalization, combination, and internalization. Organizations engaging in ISS projects connect their knowledge cycles with those of the ISS partner. For instance, a supplier learns from a customer’s operations to provide better or new services (Gebauer et al., 2011). For ISS researchers specific domains warrant attention. They may explore interorganizational knowledge cycles in the area of strategic framing (business model adjustment), service and performance (re)definition, organization of business processes, benefits, and costs (e.g., fair share), and Information Systems (connecting organizational systems, role of third-party systems). We envision research based on both contingency theorizing (which factors influence the role of the four knowledge cycles processes between organizations), as well as process-based research (how do these processes change over time) (Mohr, 1982). For instance, in some cases organizations may prefer to cooperate in an informal manner when competitive tensions are low and complexity is high. In other cases, elaborate contractual stipulations are required to safeguard organizations’ interests.

Conclusion: Interventions for ISS Success In this concluding section we reflect on interventions aimed at implementing ISS and making it successful. On one hand, ISS represents a concept for innovating interorganizational cooperation (Kumar & Van Hillegersberg, 2008). On the other hand, seemingly ready-made concepts for innovation need to be unpacked, both

Interorganizational Shared Services ISS: interorganizational routines and services. Source: Adapted from Nonaka (1994) and Armbrecht et al. (2001).

205

Figure 4:

206

Paul C. van Fenema et al.

during their development and organizational implementation stages. Their success depends on interventions that engage professionals working in organizations. Organizational change is effectuated when these professionals rethink the way they organize and do business. Interventions concern both organizational and interorganizational processes. Their specific content and measure of success depends on organizations and their position in value chains: “The specific type of network-level outcome considered is not, however, defined by us but depends on the particular constituency assessing the functioning of the network … This implies that we do not consider a certain outcome a priori as the correct one because each presents a potentially valid point of view” (Provan et al., 2007). At a generic level, interventions can be studied and tried out. As a primary philosophy, we suggest a social, exploratory approach to ISS implementation advocated by (action research) academics and consultants (James et al., 2011; Pentland & Feldman, 2008). Interventions build on subjective and bounded understandings of actors in a social context as well as actors’ interactions. These social processes are focused on ISS and managed to ensure commitment and commonality of understandings, both within and between organizations. In addition, rational intervention methods have a place. Design science research proposes a method for understanding field problems and mechanisms that link interventions with outcomes (Denyer et al., 2008). Interventions are designed by means of a creative process with the potential of achieving desirable outcomes (Jelinek et al., 2008). The impact of intervention can be evaluated, leading to possible adjustment to the ISS implementation process. While interventions tend to be interpreted as operational challenges, we stress a complementary strategic dimension (see also Figure 4). Due to the often delicate nature of ISS, the role of strategic interventions and strategic aspects of operational interventions need managerial attention throughout the ISS process.

Acknowledgments The authors would like to thank Iris Koeiman, Alexander Alexiev, Ard-Pieter de Man, Joan van Aken, Arjen Ros, Jan Willem Rustenburg, Nick van Ommen, and other participants in the ISS-project Maselma (Integrated Maintenance and Service Logistic Concepts for Maritime Assets14) for their valuable insights.

References Agterberg, M., Van den Hooff, B., Huysman, M., & Soekijad, M. (2010). Keeping the wheels turning: The dynamics of managing networks of practice. Journal of Management Studies, 47(1), 85 108.

14

For more information see http://www.dinalog.nl/en/projects/r_d_projects/maselma/

Interorganizational Shared Services

207

Ancona, D. G., & Bresman, H. (2007). X-teams: How to build teams that lead, innovate and succeed. Boston, MA: Harvard Business School Press. Armbrecht Jr., F. M. R., Chapas, R. B., Chappelow, C. C., Farris, G. F., Friga, P. N., Hartz, C. A. … Whitwell, G. E. (2001). Knowledge management in research and development. Research-Technology Management, 44(4), 28–48. Arya, D. (2011). Shared services arrangement in a decentralising healthcare environment — Will it work? Australian Health Review, 35, 290 293. Bacharach, S. B., Bamberger, P., et al. (1996). The organizational transformation process: The micropolitics of dissonance reduction and the alignment of logics of action. Administrative Science Quarterly, 41(3), 477 506. Bakker, S., van Lente, H., et al. (2011). Arenas of expectations for hydrogen technologies. Technological Forecasting and Social Change, 78(1), 152 162. Balcik, B., Beamon, B. M., et al. (2010). Coordination in humanitarian relief chains: Practices, challenges and opportunities. International Journal Production Economics, 126, 22 34. Barlow, J., Bayer, S., et al. (2006). Implementing complex innovations in fluid multistakeholder environments: Experiences of ‘telecare’. Technovation, 26(3), 396 406. Berends, J. J., van Burg, E., et al. (2011). Contacts and contracts: Cross-level network dynamics in the development of an aircraft material. Organization Science, 22(4), 940 960. Bergho¨fer, A., Wittmer, H., et al. (2008). Stakeholder participation in ecosystem-based approaches to fisheries management: A synthesis from European research projects. Marine Policy, 32(2), 243 253. Bhaskaran, S. R., & Krishnan, V. (2009). Effort, revenue, and cost sharing mechanisms for collaborative new product development. Management Science, 55(7), 1152 1169. Bigley, G. A., & Roberts, K. H. (2001). The incident command system: High reliability organizing for complex and volatile task environments. Academy of Management Journal, 44(6), 1281 1299. Bjo¨rk, K.-M., Collan, M., et al. (2012). Evaluation of an information systems investment into reducing the bullwhip effect. 17th international symposium on inventories, Budapest, Hungary. Bloch, H. P. (2013). Consider both actual and virtual spare parts inventory. Retrieved from http://www.hydrocarbonprocessing.com; http://www.hydrocarbonprocessing.com/Article/ 3198969/Consider-both-actual-and-virtual-spare-parts-inventory.html?ArticleId=3198969. Accessed on May 1, 2013. Boersma, K., Wagenaar, P., et al. (2012). Negotiating the ‘trading zone’. Creating a shared information infrastructure in the Dutch public safety sector. Journal of Homeland Security and Emergency Management, 9(2). doi: 10.1515/1547-7355.1965 Bøllingtoft, A., Mu¨ller, S., et al. (2012). Collaborative communities of firms: Role of the shared services provider. In A. Bøllingtoft, L. Donaldson, G. P. Huber, D. D. Ha˚konsson, & C. C. Snow (Eds.), Collaborative communities of firms. Information and Organization Design Series. New York, NY: Springer. Boudreau, K. J., & Lakhani, K. R. (2009). How to manage outside innovation. Sloan Management Review, (July 1). Available online http://sloanreview.mit.edu/article/how-tomanage-outside-innovation/ Bradach, J. L. (1997). Using the plural form in the management of restaurant chains. Administrative Science Quarterly, 42(2), 276 303. Brinkerhoff, D. W., & Brinkerhoff, J. M. (2011). Public-private partnerships: Perspectives on purposes, publicness, and good governance. Public Administration and Development, 31, 2 14.

208

Paul C. van Fenema et al.

Brusoni, S. (2013). The limits to specialization: Problem solving and coordination in ‘modular networks’. Organization Studies, 26(12), 1885 1907. Busquets, J. (2010). Orchestrating smart business network dynamics for innovation. European Journal of Information Systems, 19, 481 493. Caldwell, N., & Howard, M. (Eds.). (2010). Procuring complex performance: Studies of innovation in product-service management. Oxford: Routledge. Candell, O., Karim, R., et al. (2009). eMaintenance — Information logistics for maintenance support. Robotics and Computer-Integrated Manufacturing, 25, 37 944. Carlile, P. R. (2004). Transferring, translating, and transforming: An integrative framework for managing knowledge across boundaries. Organization Science, 15(5), 555 568. Carlile, P. R., & Rebentisch, E. S. (2003). Into the black box: The knowledge transformation cycle. Organization Science, 49(9), 1180 1195. Carlisle, S., Kunc, M., et al. (2013). Supporting innovation for tourism development through multi-stakeholder approaches: Experiences from Africa. Tourism Management, 35, 59 69. Chandler, J. D., & Vargo, S. L. (2011). Contextualization and value-in-context: How context frames exchange. Marketing Theory, 11(1), 35 49. Chatain, O. (2014). Cooperative and non-cooperative game theory. In M. Augier & D. J. Teece (Eds.), The Palgrave encyclopedia of strategic management. Houndmills, Basingstoke, UK: Macmillan Publishers. Cheng, T. C. E., & Choi, T.-M. (2010). Innovative quick response programs in logistics and supply chain management. Heidelberg: Springer. Chesbrough, H., Di Minin, A., et al. (2013). Business model innovation paths. In L. Cinquini, A. Di Minin, & R. Varaldo (Eds.), New business models and value creation: A service science perspective. Milan: Springer. Cinquini, L., Di Minin, A., et al. (2013). New business models and value creation: A service science perspective. Milan: Springer. Collier, P. (2007). The bottom billion: Why the poorest countries are failing and what can be done about it. New York, NY: Oxford University Press. Comez, N., Cakanyildirim, M., et al. (2012). Negotiated transshipment prices. 17th international symposium on inventories, Budapest, Hungary. Crossan, M. M., & Apaydin, M. (2010). A multi-dimensional framework of organizational innovation: A systematic review of the literature. Journal of Management Studies, 47(6), 1154 1191. Dahan, N. M., Doh, J. P., et al. (2010). Corporate-NGO collaboration: Co-creating new business models for developing markets. Long Range Planning, 43, 326 342. Danesh, M. H., Raahemi, B., et al. (2013). A framework for process and performance management in service oriented virtual organizations. International Journal of Computer Information Systems and Industrial Management Applications, 5, 203 215. Davenport, T. (1993). Process innovation: Reengineering work through information technology. Boston, MA: Harvard University Press. de Coning, C., & Friis, K. (2011). Coherence and coordination: The limits of the comprehensive approach. Journal of International Peacekeeping, 15(1 2), 243 272. Dekker, H. C. (2004). Control of inter-organizational relationships: Evidence on appropriation concerns and coordination requirements. Accounting, Organizations and Society, 29(1), 27 49. Dekker, H. C., & Van den Abbeele, A. (2010). Organizational learning and interfirm control: The effects of partner search and prior exchange experiences. Organization Science, 21(6), 1233 1250.

Interorganizational Shared Services

209

Dekker, R., Pince, C., Zuidwijk, R., & Jalil, M. N. (2013). On the use of installed base information for spare parts logistics: A review of ideas and industry practice. International Journal Production Economics, 143(143), 536–545. De Martino, M., Errichiello, L., et al. (2013). Logistics innovation in seaports: An interorganizational perspective. Research in Transportation Business & Management, 8, 123 133. de Vries, J. (2012). Organisational barriers and enablers to vendor-managed inventory. 17th international symposium on inventories, Budapest, Hungary. De Wit, B., & Meyer, R. (2010). Strategy: Process, content, context. An international perspective. Hampshire, UK: South-Western. Demil, B., & Lecocq, X. (2010). Business model evolution: In search of dynamic consistency. Long Range Planning, 43, 227 246. Denyer, D., Tranfield, D., et al. (2008). Developing design propositions through research synthesis. Organization Studies, 29(2), 249 269. DeSanctis, G., & Poole, M. S. (1994). Capturing the complexity in advanced technology use: Adaptive structuration theory. Organization Science, 5(2), 121 147. Devaux, A., Ordinola, M., et al. (2011). Innovation for development: The Papa Andina experience. Lima, Peru: International Potato Center. Doz, Y. L. (1996). The evolution of cooperation in strategic alliances: Initial conditions or learning processes? Strategic Management Journal, 17, 55 83. Edelenbos, J., & Klijn, E.-H. (2007). Trust in complex decision-making networks: A theoretical and empirical exploration. Administration & Society, 39(1), 25 50. Edvardsson, B., Enquist, B., et al. (2005). Cocreating customer value through hyperreality in the prepurchase service experience. Journal of Service Research, 8(2), 149 161. Edvardsson, B., Tronvoll, B., et al. (2011). Expanding understanding of service exchange and value co-creation: A social construction approach. Journal of the Academy of Marketing Science, 39(2), 327 339. EGOS. (2013). EGOS 2014 call for papers sub-theme 28. Retrieved from http://www.egosnet. org/jart/prj3/egos/main.jart?rel=de&reserve-mode=active&content-id=1368705858152& subtheme_id=1334581237452 Ehret, M., & Wirtz, J. (2010). Division of labor between firms: Business services, nonownership-value and the rise of the service economy. Service Science, 2(3), 136 145. El-Gohary, N. M., Osman, H., et al. (2006). Stakeholder management for public private partnerships. International Journal of Project Management, 24(7), 595 604. Estep, D. (2012). Shared services: Enhanced care. Navy Medicine, 2(4), 36 37. Faleg, G., & Giovannini, A. (2012). The EU between pooling & sharing and smart defence: Making a virtue of necessity? Working Paper. Centre for European Policy Studies (CEPS). Retrieved from http://shop.ceps.be/system/files/book/2012/05/P%2526S%20and%20Smart %20Defence.pdf. Accessed on June 21, 2012. Feldman, M. S., & Pentland, B. T. (2003). Reconceptualizing organizational routines as a source of flexibility and change. Administrative Science Quarterly, 48(1), 94 118. Feller, J., Parhankangas, A., et al. (2013). How companies learn to collaborate: Emergence of improved inter-organizational processes in R&D alliances. Organization Studies, 34(3), 313 343. Fidler, S., & MacDonald, A. (2011). Europeans retreat on defense spending. Wall Street Journal, August 24. Forslund, H. (2012). Performance management in supply chains: Logistics service providers’ perspective. International Journal of Physical Distribution & Logistics Management, 42(3), 296 311.

210

Paul C. van Fenema et al.

Franklin, R., & Spinler, S. (2011). Shared warehouses — Sharing risks and increasing eco-efficiency. International Commerce Review, 10(March), 22 31. Galunic, D. C., & Rodan, S. (1998). Resource recombinations in the firm: Knowledge structures and the potential for Schumpeterian innovation. Strategic Management Journal, 19(12), 1193 1201. Gebauer, H., Kucza, G., et al. (2011). Spare parts logistics for the Chinese market. Benchmarking: An International Journal, 18(6), 748 768. Geyskens, I., Steenkamp, J.-B. E. M., et al. (2006). Make, buy, or ally: A transaction cost theory meta-analysis. Academy of Management Journal, 49(3), 519 543. Ghaderi, H., & Dullaert, W. (2012). An empirical investigation of lead-time reduction in purchasing groups: Evidence from SMEs. International Journal of Logistics Systems and Management, 13(3), 379 392. Giegerich, B. (2012). NATO’s smart defence: Who’s buying? Survival: Global Politics and Strategy, 54(3), 69 77. Gittell, J. H., & Weiss, L. (2004). Coordination networks within and across organizations: A multi-level framework. Journal of Management Studies, 41(1), 127 153. Gnyawali, D. R., & Park, B.-J. (2011). Co-opetition between giants: Collaboration with competitors for technological innovation. Research Policy, 40(5), 650 663. Goes, J. B., & Park, S. H. (1997). Interorganizational links and innovation: The case of hospital services. Academy of Management Journal, 40(3), 673 696. Gold, S. (2011). Bio-energy supply chains and stakeholders. Mitigation and Adaptation Strategies for Global Change, 16(4), 439 462. Goldsmith, S., Georges, G., et al. (2010). The power of social innovation: How civic entrepreneurs ignite community networks for good. San Francisco, CA: Jossey-Bass. Gomes, P. J., & Dahab, S. (2010). Bundling resources across supply chain dyads: The role of modularity and coordination capabilities. Journal of Operations & Production Management, 30(1), 57 74. Gopalakrishnan, K., Yusuf, Y. Y., et al. (2012). Sustainable supply chain management: A case study of British Aerospace (BAe) systems. International Journal of Production Economics, 140, 193 203. Gospel, H., & Sako, M. (2010). The unbundling of corporate functions: The evolution of shared services and outsourcing in human resource management. Industrial and Corporate Change, 19(5), 1367 1396. Graham, D., Manikas, I., et al. (2013). E-logistics and e-supply chain management: Applications for evolving business. Hershey, PA: IGI Global. Grandori, A. (1997). An organizational assessment of interfirm coordination modes. Organization Studies, 18(6), 897 925. Gro¨nroos, C. (2011). A service perspective on business relationships: The value creation, interaction and marketing interface. Industrial Marketing Management, 40(2), 240 247. Grove, S. J., Fisk, R. P., et al. (2000). Service as theater: Guidelines and implications. In T. A. Swartz & D. Iacobucci (Eds.), Handbook of services marketing and management. Thousand Oaks, CA: Sage. Gupta, S., & Polonsky, M. (2013). Inter-firm learning and knowledge-sharing in multinational networks: An outsourced organization’s perspective. Journal of Business Research, 67(4), 615 622. Gutek, B. A., Bhappu, A. D., et al. (1999). Distinguishing between service relationships and encounters. Journal of Applied Psychology, 84(2), 218 233.

Interorganizational Shared Services

211

Hall, P. V., O’Brien, T., et al. (2013). Environmental innovation and the role of stakeholder collaboration in West Coast Port Gateways. Freight Transport and Sustainability, 42(1), 87 96. Hamel, G., Doz, Y., et al. (1989). Collaborate with your competitors — and win. Harvard Business Review, (January February), 133 139. Hampapur, A., Cao, H., et al. (2011). Analytics-driven asset management. IBM Journal of Research & Development, 55(1 2), 138 156. Hart, O. D. (1991). Incomplete contracts and the theory of the firm. In O. E. Williamson, & S. G. Winter (Eds.), The nature of the firm: Origins, evolution, and development. New York, NY: Oxford University Press. Herbert, I. P., & Seal, W. B. (2012). Shared services as a new organisational form: Some implications for management accounting. The British Accounting Review, 44(2), 83 97. Hospers, G.-J., Desrochers, P., et al. (2009). The next silicon valley? On the relationship between geographical clustering and public policy. International Entrepreneurship and Management Journal, 5(3), 285 299. Howcroft, D., & Richardson, H. (2012). The back office goes global: Exploring connections and contradictions in shared service centres. Work, Employment and Society, 26(1), 111 127. Huxham, C. (1996). Creating collaborative advantage. London: Sage. IMP. (2013). B2B value chains — The way we see them. Retrieved from http://www.teollinen markkinointi.fi/en/imp-services/value-chains Inderfurth, K., & Clemens, J. (2012). Supply chain coordination through risk sharing contracts under different forms of yield uncertainty. 17th international symposium on inventories, Budapest, Hungary. James, E. A., Slater, T., et al. (2011). Action research for business, nonprofit, and public administration: A tool for complex times. Thousand Oaks, CA: Sage. Janssen, M., Joha, A., et al. (2007). Exploring relationships of shared service arrangements in local government. Transforming Government: People, Process and Policy, 1(3), 271 284. Janssen, M., & Joha, A. (2008). Emerging shared service organizations and the serviceoriented enterprise: Critical management issues. Strategic Organization, 1(1), 35 49. Janssen, M., Joha, A., et al. (2009). Simulation and animation for adopting shared services: Evaluating and comparing alternative arrangements. Government Information Quarterly, 26, 15 24. Janssen, M., Lee, J., et al. (2010). Advances in multi-agency disaster management: Key elements in disaster research. Information Systems Frontiers, 12(1), 1 7. Jayaram, J., Tan, K.-C., et al. (2010). Examining the interrelationships between supply chain integration scope and supply chain management efforts. International Journal of Production Research, 48(22), 6837 6857. Jelinek, M., Romme, A. G. L., et al. (2008). Introduction to the special issue “organization studies as a science for design”: Creating collaborative artifacts and research. Organization Studies, 29, 317 329. Jensen, M. C. (2010). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 22(1), 32 42. Joha, A., & Janssen, M. (2010). Public-private partnerships, outsourcing or shared service centres? Motives and intents for selecting sourcing configurations. Transforming Government: People, Process and Policy, 4(3), 232 248. Johansson, P. (2008). Implementing stakeholder management: A case study at a microenterprise. Measuring Business Excellence, 12(3), 33 41.

212

Paul C. van Fenema et al.

Johnston, R., & Lawrence, P. R. (1991). Beyond vertical integration — The rise of valueadding partnerships. In G. Thompson, J. Frances, R. Levacic, & J. Mitchell (Eds.), Markets, hierarchies, and networks: The coordination of social life. London: Sage. Jones, C., Hesterly, W. S., et al. (1997). A general theory of network governance: Exchange conditions and social mechanisms. Academy of Management Review, 22(4), 911 945. Ju¨ttner, U., Godsell, J., et al. (2006). Demand chain alignment competence — Delivering value through product life cycle management. Industrial Marketing Management, 35, 989 1001. Kamal, M. M. (2012). Shared services: Lessons from private sector for public sector domain. Journal of Enterprise Information Management, 25(5), 431 440. Karsten, F., & Basten, R. J. I. (2014). Pooling of spare parts between multiple users: How to share the benefits? European Journal of Operational Research, 233(1), 94 104. Keebler, J. S., & Plank, R. E. (2009). Logistics performance measurement in the supply chain: A benchmark. Benchmarking: An International Journal, 16(6), 785 798. Keil, M., & Mann, J. (2000). Why software projects escalate: An empirical analysis and test of four theoretical models. MIS Quarterly, 24(4), 631 664. Kumar, K., van Fenema, P. C., et al. (2009). Offshoring and the global distribution of work: Implications for task interdependence theory and practice. Journal of International Business Studies, 40(4), 642 667. Kumar, K., & Van Hillegersberg, J. (2008). Bank-in-a-box: An ICT architecture for enabling agile transformation of financial services. Managerial Finance, 34(6), 413 422. Lai, F., Zhang, M., et al. (2012). The impact of supply chain integration on mass customization capability: An extended resource-based view. IEEE Transactions on Engineering Management, 59(3), 443 456. Larsen, C., Nielsen, L. R., et al. (2012). Spare parts sharing with joint optimization of maintenance and inventory policies. 17th international symposium on inventories, Budapest, Hungary. LBS. (2012). Opportunities for Greater Lincolnshire supply chains. Lincoln Business School, ADA. Retrieved from http://www.greaterlincolnshirelep.co.uk/assets/downloads/Supply_ Chains_FINAL_report_full.pdf Lepak, D. P., Smith, K. G., et al. (2007). Value creation and value capture: A multilevel perspective. Academy of Management Review, 32(1), 180 194. Levina, N., & Vaast, E. (2005). The emergence of boundary spanning competence in practice: Implications for implementation and use of information systems. MIS Quarterly, 29(2), 335 363. Lia, J., Sikorab, R., et al. (2006). A strategic analysis of interorganizational information sharing. Decision Support Systems, 42(1), 251 266. Lin, H.-E., McDonough, III, E. F., et al. (2013). Managing the exploitation/exploration paradox: The role of a learning capability and innovation ambidexterity. Journal of Product Innovation Management, 30(2), 262 278. Loebbecke, C., van Fenema, P. C., et al. (2000). Towards a theory of IS-supported inter-organisational knowledge exchange. In C. Murphy & P. Finnegan (Eds.), Information systems at the core: European perspectives on deploying and managing information systems in business (pp. 88 99). Dublin: Blackhall. Lorell, M. A. (1980). Multinational development of large aircraft: The European experience. Santa Monica, CA: RAND Corporation. Magala, S. (2009). The management of meaning in organizations. Hampshire, UK: Palgrave Macmillan.

Interorganizational Shared Services

213

Majchrzak, A., Jarvenpaa, S. L., et al. (2007). Coordinating expertise among emergent groups responding to disasters. Organization Science, 18(1), 147 161. Marcum, C. S., Bevc, C. A., et al. (2012). Mechanisms of control in emergent interorganizational networks. The Policy Studies Journal, 40(3), 516 546. Markand, J., & Truffer, B. (2008). Technological innovation systems and the multi-level perspective: Towards an integrated framework. Research Policy, 37(4), 596 615. Mason, R., Lalwani, C., et al. (2007). Combining vertical and horizontal collaboration for transport optimisation. Supply Chain Management: An International Journal, 12(3), 187 199. Matlay, H. (2011). The influence of stakeholders on developing enterprising graduates in UK HEIs. International Journal of Entrepreneurial Behaviour & Research, 17(2), 166 182. Maull, R., Geraldi, J., et al. (2012). Service supply chains: A customer perspective. Journal of Supply Chain Management, 48(4), 72 86. McDermot, C. L. (2011). Trust, legitimacy and power in forest certification: A case study of the FSC in British Columbia. Geoforum, 43(3), 634 644. McIvor, R., McCracken, M., et al. (2011). Creating outsourced shared services arrangements: Lessons from the public sector. European Management Journal, 29(6), 448 461. Meijerink, J. G., & Bondarouk, T. V. (2013). Exploring the central characteristics of HR shared services: Evidence from a critical case study in the Netherlands. International Journal of Human Resource Management, 24(3), 487 513. Merli, G. (2013). The transformation of the business model: Business modelling. In L. Cinquini, A. Di Minin, & R. Varaldo (Eds.), New business models and value creation: A service science perspective. Milan: Springer. Messinger, P. R. (2013). Municipal service delivery: A multi-stakeholder framework. Human Factors and Ergonomics in Manufacturing & Service Industries, 23(1), 37 46. Moelker, R. (2014). The genesis of the “Dutch approach” to asymmetric conflicts: Operations in Uruzgan and the “softly, softly” manner of approaching the Taleban. Armed Forces & Society, 40(1), 96 117. Mohr, L. B. (1982). Explaining organizational behavior: The limits and possibilities of theory and research. San Francisco, CA: Jossey-Bass. Moore, M. H. (1995). Creating public value: Strategic management in government. London: Harvard University Press. Morabito, M. S. (2010). Understanding community policing as an innovation: Patterns of adoption. Criminology & Penology, 56(4), 564 587. Murray, D. J., & Rentell, P. G. (2008). Procurement as a shared service in English local government. International Journal of Public Sector Management, 21(5), 540–555. Myerson, R. B. (1991). Game theory: Analysis of conflict. Harvard, MA: Harvard University Press. Ng, I., Parry, G., et al. (2012). Transitioning from a goods-dominant to a service-dominant logic: Visualising the value proposition of Rolls-Royce. Journal of Service Management, 23(3), 416 439. Niehaves, B., & Krause, A. (2010). Shared service strategies in local government — A multiple case study exploration. Transforming Government: People, Process and Policy, 4(3), 266 279. Nonaka, I. (1994). A dynamic theory of organizational knowledge creation. Organization Science, 5, 14 37.

214

Paul C. van Fenema et al.

Oke, A. (2012). An investigation of the relationship between supply chain integration, flexibility, and business performance in manufacturing firms. 17th international symposium on inventories, Budapest, Hungary. Oliver, C. (1990). Determinants of interorganizational relationship: Integration and future directions. Academy of Management Review, 15(2), 241 265. Oliveros, M. E. G., Halliday, S. V., & Posada, M. M. B. (2010). Contradictions and power play in service encounters: An activity theory approach. Cadernos EBAPE, 8(2), 353–369. Retrieved from http://www.scielo.br/pdf/cebape/v8n2/v8n2a11.pdf Palm, J., & Ramsell, E. (2007). Developing local emergency management by co-ordination between municipalities in policy networks: Experiences from Sweden. Journal of Contingencies and Crisis Management, 15(4), 173 182. Parasuraman, A., Zeithaml, V. A., et al. (1985). A conceptual model of service quality and its implications for future research. Journal of Marketing, 49(Fall), 41 50. Penrose, E. (1959). The theory of the growth of the firm. Oxford: Oxford University Press. Pentland, B. T., & Feldman, M. S. (2005). Organizational routines as a unit of analysis. Industrial and Corporate Change, 14(5), 793 815. Pentland, B. T., & Feldman, M. S. (2008). Designing routines: On the folly of designing artifacts, while hoping for pattern of action. Information and Organization, 18(4), 235 250. Perlow, L. A., Gittell, J. H., et al. (2004). Contextualizing patterns of work group interaction: Toward a nested theory of structuration. Organization Science, 15(5), 520 536. Pestana, G., Rebelo, I., et al. (2012). Addressing stakeholders coordination for airport efficiency and decision-support requirements. Journal of Aerospace Operations, 1(3), 267 280. Peterson, H. C. (2013). Fundamental principles of managing multi-stakeholder engagement. International Food and Agribusiness Management Review, 16(A), 11 22. Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. New York, NY: Harper & Row. Pishchulov, G., Richter, K., et al. (2012). A single supplier — Single buyer bargaining model with asymmetric information and partial vertical integration. 17th international symposium on inventories, Budapest, Hungary. Porter, M. E. (1998). Competitive advantage: Creating and sustaining superior performance. New York, NY: Free Press. Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review, (January February). Available online http://hbr.org/2011/01/the-big-idea-creating-sharedvalue Priem, R. L., & Swink, M. (2007). A demand-side perspective on supply chain management. Journal of Supply Chain Management, (April), 7 13. Provan, K. G., Fish, A., et al. (2007). Interorganizational networks at the network level: A review of the empirical literature on whole networks. Journal of Management, 33(3), 479 516. Provan, K. G., & Kenis, P. N. (2008). Modes of network governance: Structure, management, and effectiveness. Journal of Public Administration Research and Theory, 18(2), 229 252. Provan, K. G., & Lemaire, R. H. (2012). Core concepts and key ideas for understanding public sector organizational networks: Using research to inform scholarship and practice. Public Administration Review, 72(5), 638 648. Quarantelli, E. L. (2007). Disaster crisis management: A summary of research findings. Journal of Management Studies, 25(4), 373 385.

Interorganizational Shared Services

215

Raisch, S., Birkinshaw, J., et al. (2009). Organizational ambidexterity: Balancing exploitation and exploration for sustained performance. Organization Science, 20(4), 685 695. Rasmussen, A. F. (2011). Smart defence can help nations to build greater security with fewer resources but more coordination and coherence. European Security and Defence. Retrieved from http://www.europeansecurityanddefence.info/Ausgaben/2011/01_2011/01_Rasmussen/ Rasmussen.pdf Richardson, H. L. (1998). Pooling with competitors. Transportation & Distribution, 39(11), 105 110. Rietjens, S. J. H., van Fenema, P. C., et al. (2013). ‘Train as you fight’ revisited: Preparing for a comprehensive approach. PRISM, 4(2), 17 29. Retrieved from http://www.ndu.edu/ press/prism.html Rod, F., & Spinler, S. (2011). Shared warehouses — Sharing risks and increasing eco-efficiency. International Commerce Review, 10(1), 22 31. Rollins, M., Pekkarinen, S., et al. (2011). Inter-firm customer knowledge sharing in logistics services: An empirical study. International Journal of Physical Distribution & Logistics Management, 41(10), 956 971. Ross, J., Weill, P., et al. (2006). Enterprise architecture as strategy: Creating a foundation for business execution. Boston, MA: Harvard Business Press. Schaub, G. J., Jr., & Breitenbauch, H. O. (2012). Connected forces military education: A NATO market for staff courses. Euro-Atlantic Quarterly, 9 10. Sherbrooke, C. C. (2004). Optimal inventory modeling of systems: Multi-echelon techniques. New York, NY: Springer. Shirodkar, S., & Kempf, K. (2006). Supply chain collaboration through shared capacity models. Interfaces, 36(5), 420 432. Shostack, G. L. (1984). Designing services that deliver. Harvard Business Review, (January February), 133 139. Sierra, J. J., Heiser, R. S., et al. (2009). Exploring determinants and effects of shared responsibility in service exchanges. Journal of Marketing Theory and Practice, 17(2), 111 128. Sirmon, D. G., Hitt, M. A., & Ireland, R. D. (2007). Managing firm resources in dynamic environments to create value: Looking inside the black box. Academy of Management Review, 32(1), 273–292. Smith, W. K., & Lewis, M. (2011). Toward a theory of paradox: A dynamic equilibrium model of organizing. Academy of Management Review, 36(2), 381 403. Soeters, J. M. M. L., & Tresch, T. S. (2010). Towards cultural integration in multinational peace operations. Defence Studies, 10(1 2), 272 287. Stabell, C. B., & Fjeldstad, O. D. (1998). Configuring value for competitive advantage: On chains, shops, and networks. Strategic Management Journal, 19, 413 437. Tallon, P. P. (2012). Value chain linkages and the spillover effects of strategic information technology alignment. Journal of Management Information Systems, 28(3), 9 44. Tatham, P. (2013). An exploration of trust and shared values in UK defence supply networks. International Journal of Physical Distribution & Logistics Management, 43(2), 148 166. Tatikonda, M. V., Brown, C. V., et al. (2005). ERP as a platform for vendor managed inventory. In E. Bendoly & F. R. Jacobs (Eds.), Strategic ERP extension and use. Stanford: Stanford University Press. Tsang, A. H. C. (2002). Strategic dimensions of maintenance management. Journal of Quality in Maintenance Engineering, 8(1), 7 39.

216

Paul C. van Fenema et al.

Tsoukas, H. (2009). A dialogical approach to the creation of new knowledge in organizations. Organization Science, 20(6), 941 957. Turle, M. (2010). Shared services: An outline of key contractual issues. Computer Law & Security Review, 26(2), 178 184. Turner, S. F., & Rindova, V. (2012). A balancing act: How organizations pursue consistency in routine functioning in the face of ongoing change. Organization Science, 23(1), 24 46. Uiterwijk, D. J. W. B., Soeters, J. M. M. L., et al. (2013). Aligning national ‘logics’ in a European military helicopter program. Defense & Security Analysis, 29(1), 54 67. Ulbrich, F. (2010). Adopting shared services in a public-sector organization. Transforming Government: People, Process and Policy, 4(3), 249 265. US Army. (2013). Army materiel command and marine corps logistics command collaborate to support joint warfighter. Retrieved from http://www.army.mil/article/111869/Army_ Materiel_Command_and_Marine_Corps_Logistics_Command_collaborate_to_support_ joint_warfighter/ van Bortel, G. (2009). Network governance in action: The case of Groningen complex decision-making in urban regeneration. Journal of Housing and the Built Environment, 24(2), 167 183. Van de Ven, A. H. (2005). Running in packs to develop knowledge-intensive technologies. MIS Quarterly, 29(2), 365 377. Van de Ven, A. H., Delbecq, A. L., et al. (1976). Determinants of coordination modes within organizations. American Sociological Review, 41(April), 322 338. van der Lei, T., & Herder, P., et al. (2012). Asset management: The state of the art in Europe from a life cycle perspective. Dordrecht, Netherlands: Springer. van der Vlist, P. (2004). Supply chain synchronization: Retailing beyond ECR. Amsterdam: Deloitte Consumer Business and Retail. van Fenema, P. C., & Beeres, R. (2010). (Re-)drawing the boundaries: Sourcing operational and supportive services in military organizations. In J. M. M. L. Soeters, P. C. van Fenema, & R. Beeres (Eds.), Managing military organizations: Theory and practice. London: Routledge. van Fenema, P. C., & Koeiman, I. (2003). Implementing the ‘supply chain synchronization’ concept in the Dutch retail: Pointers for successful inter-organizational innovation. Rotterdam: Erasmus University Rotterdam. van Fenema, P. C., & Soeters, J. M. M. L. (2012). Addressing cyber threats: Will strategic network management do the job? In F. P. B. Osinga, P. Ducheine, & J. M. M. L. Soeters (Eds.), Cyber warfare: Critical perspectives. The Hague: TMC Asser. Van Horenbeek, A., Bure´, J., et al. (2013). Joint maintenance and inventory optimization systems: A review. International Journal of Production Economics, 143(2), 499 508. Van Horenbeek, A., Van Ostaeyen, J., et al. (2012). Maintenance service contracts and business models: A review. Seventeenth international working seminar on production economics, Innsbruck, Austria. van Opdorp, H. (2005). The joint interagency coordination group. Small Wars Journal, 2, 1 12. Vlaar, P. W. L., van Fenema, P. C., et al. (2008). Cocreating understanding and value in distributed work: How members of onsite and offshore ISD vendor teams give, make, demand and break sense. MIS Quarterly, 32(2), 227 255. Voinov, A., & Bousquet, F. (2010). Modelling with stakeholders. Environmental Modelling & Software, 25(11), 1267 1488.

Interorganizational Shared Services

217

Voorhoeve, J. J. C. (2010). From war to the rule of law: Peacebuilding after violent conflicts. Amsterdam: Amsterdam University Press. Walker, R. M., Damanpour, F., et al. (2011). Management innovation and organizational performance: The mediating effect of performance management. Journal of Public Administration Research and Theory, 21(2), 367 386. Wang, E. T. G., & Wei, H.-L. (2007). Interorganizational governance value creation: Coordinating for information visibility and flexibility in supply chains. Decision Sciences, 38(4), 647 674. Weiller, C. & Neely, A. (2013). Business model design in an ecosystem context. Working Paper, June. Cambridge Service Alliance. Retrieved from www.cambridgeservicealliance.org Wharton. (2013). Collaborative innovation holds key to semiconductor industry growth. Knowledge@Wharton. Retrieved from http://knowledge.wharton.upenn.edu Wilson, C. (2007). Network centric operations: Background and oversight issues for congress. CRS Report for Congress Order Code RL32411. Wong, H., van Oudheusden, D., et al. (2007). Cost allocation in spare parts inventory pooling. Transportation Research Part E: Logistics and Transportation Review, 43(4), 370 386. Woywood, M. (2002). Global management concepts and local adaptations: Working groups in the French and German car manufacturing industry. Organization Studies, 23(4), 497 524. Wycisk, C., McKelvey, B., et al. (2008). “Smart parts” supply networks as complex adaptive systems: Analysis and implications. International Journal of Physical Distribution & Logistics Management, 38(2), 108 125. Xu, L., & Beamon, B. M. (2006). Supply chain coordination and cooperation mechanisms: An attribute-based approach. Journal of Supply Chain Management, 42(1), 4 12. Yadav, P., Miller, D. M., et al. (2003). McGriff trading company implements service contracts with shared savings. Interfaces, 33(6), 18 29. Yao, Y., Evers, P. T., et al. (2007). Supply chain integration in vendor-managed inventory. Decision Support Systems, 43(2), 663 674. Yaziji, M., & Doh, J. (2009). NGOs and corporations: Conflict and collaboration. Cambridge: Cambridge University Press. Zhang, C., Canning, L., et al. (2011). Multi-stakeholder engagement for sustainable bridge delivery. Engineering Sustainability, 163(ES3), 197 211.