SAP: Shared services gaining wider acceptance

SINGAPORE--Shared services might be limited in use for human resource functionalities currently but this is set to change as companies look to consolidate their internal processes under a single management and governance system for increased transparency and employee satisfaction, a SAP executive pointed out.

Franz Deitering, vice president of corporate shared services solutions at SAP, said the shared services model of consolidating and automating the provision of internal services for employees around a set of governance guidelines continues to mature. In the process, there is an increasing interest in adapting the model beyond the human resources department, to other functions within the organization, he added during a press briefing Tuesday.

The executive, who was in town for the annual Asian Shared Services and Outsourcing Week event, believes that the global deployment of a shared services system should be driven be the equivalent of a COO. This system, he noted, will be "run like a factory" in terms of achieving operational efficiencies and employee satisfaction.

With regard to cost considerations, Deitering said that the ideal company size on the lower end in order to reap efficiencies with the shared services model would be in the range of 5,000 to 10,000 employees.

That said, he pointed to British Waterways as an atypical customer, as it reaped about 30 percent cost savings through implementing shared services for its financial business processes even though its employee count was only 1,950.

Asked how shared services compare with those offered by business process outsourcing (BPO) vendors, the vice president said in Europe, 98 percent of companies would implement a shared services model for their internal processes to discover the cost of automating their processes. With this knowledge, they can then identify portions of their business processes that make more sense being outsourced and ask third-party BPO vendors to match or improve on the cost aspect of managing these processes, he explained.

John Gigerich, senior director of application solutions at Kellogg Company, agreed. As a customer of SAP, the consumer foods retailer most famous for its breakfast cereals utilized the software company's human capital management system to "transform" its human resource processes in 2008. This initiative applies only to Kellogg's North and Latin America offices, he said.

The department subsequently reaped 18 percent return on investment (ROI) on its initial expenditure a year into the deployment, he said, adding that this figure has "regressed slightly" as it fine-tuned the system. He declined to reveal the initial investment, simply noting that it was "a lot".

However, Gigerich said the company is currently relooking its overall human resources setup to see if there are parts of it that are more suited to be outsourced. Health and wellness, for example, is an area that they are considering to outsource. This is because as the regulatory environment in this area in the United States becomes increasingly complex, it might be prohibitively costly to have in-house expertise equipped to handle the processes, he explained.

Within the Asia-Pacific region, Deitering pointed out that cost savings are not the primary attraction for enterprise customers. Rather, the main draw is "setting the foundations right" in terms of pulling together disparate systems and processes and establishing best practices in governance, he said.

China's Lenovo, for example, is one company that SAP is providing consultation with regard to shared services, he said. The upside for deploying such a system would be that this would make the company more agile and scalable, as well as setting the stage for future acquisitions, he elaborated.

Given the minimum employee count needed to reap the efficiencies offered by shared services offerings, Deitering said public sector agencies and governments are also showing increased interest.

The Singapore government's back-office shared services arm, Vital, is one such example of how governments can look to benefit from consolidating their internal IT resources, Deitering noted. According to its Web site, Vital is the "fruition of the public sector's efforts to aggregate common services to leverage economies of scale, improve efficiency and effectiveness".

Local broadsheet Business Times reported in August that Vital added SAP to its range of capabilities for human resources and finance processes. A Vital spokesperson said in the report that this expansion to include SAP will bring more government systems into its fold.

About a million transactions are conducted via Vital's systems each year, which translates to 15 percent net savings across the government, the report noted.

While the tangible benefits are clear, Deitering noted that how quickly public sector agencies embrace the shared services model depend on whether they face "big cost pressures" and "how smart the top management officials are" in noticing the benefits of creating a leaner, more efficient organization.