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1 ITD #11 ‘Integrating IT to shared services structures’ © IT Decisions 21 October 2011 – All rights reserved
To many executives across business functions worldwide, IT is a support function that is a cost ‐ often quite high ‐ to their business. But IT is essential for just about any industry, because for almost any corporate environment the Internet, email, communication systems, and enterprise software such as ERP – imagine trying to function without this? However, many companies in Brazil and overseas have created a shared service structure for the support functions of the business, like payroll, finance, and human resources. IT is usually more strategic and important than these functions, but there are many areas where the lessons of the shared service culture can be applied to IT. Infrastructure is a good example. If various areas of your business just need storage space then why not arrange that centrally and share the service across all divisions of the business?
While sharing IT may appear logical and may introduce efficiencies, can this internal market in services disrupt workflow and make it harder to deliver efficient and innovative IT services? This week, our CIO research group shared their thoughts and experiences on IT as a shared service, and the results are supportive in general, but with a few surprises.
Many lessons of the shared service culture can be applied to IT
2 ITD #11 ‘Integrating IT to shared services structures’ © IT Decisions 21 October 2011 – All rights reserved
To explore the issue of integrating IT into a shared service function we asked four questions – three of which were multiple choice and one designed to promote an open discussion. We received answers from 22 executives from 16 industry sectors: shipbuilding, pharmaceuticals, logistics, consumer services, transportation, insurance, broadcasting, consumer goods, media, chemicals, engineering, education, food production, real estate, automotive, and telecoms. Question 1: Could you (or are you already) achieving an economy of scale by sharing IT services across the organization?
This was very much a mixed answer and perhaps it depends on the scale of sharing involved. Almost half of respondents (45.5%) confirmed that they are using a shared services model to achieve economies of scale for IT, but a further 36.4% noted that they are partially working this way. Taken together this is quite a strong vote of confidence in the shared service model working for IT, with 4 out of 5 respondents confirming that they are working partially or entirely within a shared services model for IT.
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Question 2: Do you believe that the increased efficiency of sharing IT outweighs the additional processes needed to make it work (centralization, handoffs, duplication of effort...)?
In theory, the shared service model should ensure that services are not duplicated. You should not need that same IT function in every region you operate, or in every division of the organization. In practice, even though the shared service model is designed to create efficiency, it can also create structural problems due to centralization of services, the need to hand over tasks between teams, and additional processes for management and communication – compared to delivering all services locally. Despite the potential for issues, our respondents firmly believe that the efficiency gains more than compensate for any additional complexity in managing the IT service. A full 40.9% of the participantes of this research cycle agree entirely that the gains outweigh the complexities, and a further 45.5% said that this is mostly true – this compares with the few who said that shared services actually create more problems than they resolve.
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Question 3: Does the centralization of a function, such as sharing IT across the entire organization lead to a situation where you are less able to respond to business demands because an additional layer of bureaucracy has been inserted between your team and the frontline business?
Bureaucracy can be avoided
It can be tricky when the business has been used to working with specific individuals directly, or they expect an immediate IT response without the need for prioritization against other users in the organization. By introducing a shared services culture, can you create a wall of bureaucracy between you and the business? It’s possible – 18.2% of our respondents believe that bureaucracy can be created or increased within a shared service environment. However, as with the other questions, our respondents are largely in favor of the structure. A full 50% of participantes in this research said that a shared service structure does not create additional bureaucracy and a further 31.8% said that even when moving to this new approach to IT services, bureaucracy could be avoided. Across the entire multiple choice segment of this week, there has been strong support for the potential of a shared service structure to create a more efficient IT department.
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Question 4: Please outline your own experiences of best or worst practices in implementing IT as a shared service. Shipbuilding ‐ Shared services can increase user satisfaction It is possible to achieve cost savings through the synergy of processes; quality improvements will increase user satisfaction; the focus on innovation will allow the creation of services that have a greater global reach. Logistics ‐ Strong governance can replace the benefits of sharing We do not share IT services, but we have internal governance processes that let us capture and act quickly on business demands. Being a CIO who responds to the CEO, this allows me to know and participate in strategic decisions and, therefore, have clear visibility of the criticality of the demands in the medium and long‐term. The short‐term demands are captured directly through the actions of business analysts working alongside business units. The IT portfolio and the pipeline of projects are reviewed periodically, allowing priorities to be revisited in conjunction with those in charge of the business. Consumer Services ‐ Infrastructure and support can generate many benefits when shared I created an area of shared IT services in Portugal with much success, cost reduction and more efficient SLAs. The areas of infrastructure, user support and systems are areas that generate many benefits when shared. Insurance ‐ We reduced costs and became more agile with shared services Part of our core business is the delivery of large volumes of information in real‐time, so we share infrastructure with enterprise applications. I adopted the strategy of measuring capacity through the most demanding systems, and that has totally met the need for replication of resources (hardware and some software), which resulted agility and reliability in the delivery of information, and reduced investment costs related to these activities. Consumer Goods ‐ Management culture is the biggest challenge of shared services Driving standardization of processes and purchasing, as well as more generalist staff are good practices. The greatest difficulty is a cultural one, since many business unit managers have difficulty accepting that their priorities will be queued up along with those of other areas. 6 ITD #11 ‘Integrating IT to shared services structures’ © IT Decisions 21 October 2011 – All rights reserved
Chemicals ‐ Our shared services centers are an international benchmark The sophistication of IT, the high costs of infrastructure, the need to recruit and retain specialists, the challenge of security and many other aspects leveraged the shared, centralized model of IT. Businesses, in general, give up some specifics in exchange for large economies of scale. There are very few decentralized IT departments in the world. Our experience is an international benchmark. We have maximum centralization and sharing, but with teams distributed around the world These are the famous centers of competence. To get closer to the business, the relationship begins with relationship executives within the IT team. Today, we reinforce this role by migrating these professionals into the business as the IT directors of business units. Education ‐ Sharing IT services requires maturity and ability to change The concept of shared service centers demand a high level of maturity of the organization, as well as capacity to promote change. In our current structure, we operate under a process that is a cross between conventional IT and one where IT is inserted into a service center. There is still some way to go to get there. Food Production ‐ Governance is the key to centralization of success Centralization of IT governance requires governance as opposed to bureaucracy, ie, process management and performance indicators to ensure that the services offered are in accordance with the agreed level of quality. Real Estate ‐ The greatest challenge of sharing IT is responsiveness Commenting on question 3: I do not agree that sharing reduces responsiveness, but it is common to find scaling problems in the team and failure around the processes in place, which should be, in fact, different processes to those used in an IT department focused on a single business. I have supported a shared IT department for three years now, and the challenges are linked, in fact, to responsiveness, but the solutions go through better processes and structured. The gains of sharing certainly outweigh any discomfort.
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Telecommunications ‐ Expertise in areas of the business is essential in implementing shared services For some functions, sharing IT services is fully applicable, but we always need to have staff that is specialized in specific business areas to ensure agility and adherence to the proposed solutions. What other IT leaders told us about their experiences in sharing IT services... Pharmaceuticals [According to my experience], shared services, causes loss of agility and knowledge of business areas. Consumer Services [My experience in shared services includes] "outsourcing" the activities of procurement and development.
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Conclusion and Executive Summary
We had many favorable responses from the IT leaders that took part in this collaborative research regarding the use of shared services and IT within this environment. Some of the respondents mentioned specific projects they have managed as a shared service, including the shared infrastructure for enterprise applications, technology governance, and innovation. The initial findings within this report are: • Four out of five respondents are using a shared service IT model or are at least partially delivering IT services using a shared structure. • There is an overwhelming belief that the benefits of sharing IT services far outweigh the bureaucracy of managing the structure needed to allow this. • Exactly half the respondents believe that a shared service culture does not introduce new bureaucracy, and combined with those who believe that bureaucracy can be avoided with planning there is a large majority who believe that it can be introduced without the business feeling more remote from IT. These overall messages are very positive and support the management of IT as a shared service as an approach that works and creates efficiency within the organization. There are some key lessons from the responses of our IT leaders: • Infrastructure and user support are both key areas where a shared model can be applied in a very logical way – the business can understand how it works to share both of these IT services very easily. Even if the delivery is harder than the strategy. • Sharing IT services works well when you have the scale to have several centers of excellence in different locations. In this case it is possible to share particular types of expertise from different IT groups that may be geographically dispersed. • The IT team can provide a “managed outsourcing” function, handling suppliers as well as delivering a service from within allowing more services to be offered on a shared basis, with suppliers handling what cannot be performed internally – though it always looks internal to your business user. 9 ITD #11 ‘Integrating IT to shared services structures’ © IT Decisions 21 October 2011 – All rights reserved
It is not easy to make this work. Some recurring problems were the difficulty in remaining close to the business user and agile enough to respond and change to their demand. Once you have structured a shared service and designed it for the entire organization then it is hard to meet the needs of a single business team. Scaling up can also be difficult. If you design your service for a single country and the CEO then decides it works so well that the entire global organization should go to your shared service centre, it can be hard to ramp up to meet the demand – leading to delivery failures during the time you are trying to catch up. On the whole though, our CIO respondents were very favorable on the subject of sharing. It promotes greater business efficiency and allows your IT expertise to help all areas of the business – and that has to be a good thing.
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IT Decisions Research
IT Decisions produces a report like this every Friday, based on what CIOs told us that same week. It is fast and relevant knowledge from your peers, it is only available to the CIOs in the research network, and it is free. What is the catch? You pay by participating. Every week, we will send you four simple questions that will take no more than five minutes to answer. The more participants, the better the quality of the research. So please do invite your colleagues to join! Get in touch with recommendations via firstname.lastname@example.org. Do you want to direct the research and define the topics alongside our board of founder members? We also offer Platinum memberships that allow you to steer the process, as well as other benefits including comprehensive reports, face‐to‐face focus sessions and more. The IT Decisions FutureSkills fund is a charitable, transparent fund focused on improving IT education and training in Brazil. If you recommend a Platinum member to the network, we will donate R$500 to the fund in your name – and Platinum members will get to choose which organization gets the money at the end of the year. Please contact us for more details.
11 ITD #11 ‘Integrating IT to shared services structures’ © IT Decisions 21 October 2011 – All rights reserved
About IT Decisions
IT Decisions is the premier source of insight into the technology and high‐tech service industry in Brazil. The company creates English‐language news and insight for a CIO audience with regular features and analysis that cannot be found elsewhere. We focus on decision‐makers and influencers – the “buy‐side”. Reproducing the sales pitch or adverts of suppliers is not our thing; we focus on those buying the systems. IT Decisions was founded in 2011 by Mark Hillary and Angelica Mari, two of the most respected business and technology writers in Europe ‐ with a collection of best‐selling books and industry awards between them. The IT Decisions research network is an invitation‐only group of CIOs in Brazil who work together to produce a new research report every week. Take a moment to connect with the IT Decisions management on LinkedIn and take a look at some of their books, other media, blogs, and publications: Mark Hillary, CEO http://j.mp/markhillary Angelica Mari, Publishing Director http://j.mp/angelicamari Mark, Angelica, and the whole IT Decisions team is based in São Paulo, Brasil – the biggest city in the Southern Hemisphere.
Image Credits: Stephanie Kilgast ‐ http://www.flickr.com/photos/_sk/4292858035/ (cover) Toban Black ‐ http://www.flickr.com/photos/tobanblack/3773116901/
12 ITD #11 ‘Integrating IT to shared services structures’ © IT Decisions 21 October 2011 – All rights reserved
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