Learn To Share

More To Go Around

Shared services is a quickly growing business strategy in many Fortune 500 companies, according to Earl S. Landesman, an Ann Arbor, Michigan, management consultant specializing in the technique. Introduced in the 1980s when companies such as General Electric and AT&T were looking for a way to cut administrative costs for multiple business units, shared services has evolved into a more comprehensive and flexible tool for improving processes, enabling technology investment, generating profits and reducing costs.

In essence, shared services is a simple idea: Centralize administrative chores ranging from finance to document copying that are done in several different divisions of a company. Some companies charge their divisions for these services, setting prices and service levels competitive with outside suppliers. Others even allow internal service providers to peddle their offerings in the open market to other companies. The big payoff, though, is in overall cost savings.

Cost savings can be 50 percent or more, according to Landesman. Shared services does this by creating a critical mass that justifies larger investment in technology, such as computer systems, by allowing for economies of scale and by allowing companies to standardize such things as hiring procedures.

"This is a very fast-developing trend," says Andrew Kris, CEO of Belgian executive search firm Search Xpertise S.A. and an expert on shared services. "It's difficult to find a company that has not either begun to develop shared services or has had it for some time."

You can apply the shared services concept to any administrative function that would benefit from centralization. Any firm that, like Buck's, has more than one location separately handling payroll, purchasing, inventory or hiring could probably centralize those functions at a headquarters office. Administrative tasks that are clumped together can be handled with fewer people.

Sharing services may also help entrepreneurs exploit underutilized internal resources by sharing them with strategic partners. For example, a pizza restaurant located next to a video store can share its in-house delivery service with its neighbor. Entrepreneurial firms can set up similar shared services among other tenants of a building or office park. Cooperatives-such as the Ocean Spray Cranberries Inc. organization, which is owned by more than 900 cranberry growers-represent a further step in the shared-services approach, using a centralized effort to accomplish a function that would be impossible for the constituent companies or departments.

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This article was originally published in the March 2001 print edition of Entrepreneur with the headline: Learn To Share.

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