Learn To Share Not in the altruistic way, but in the save-big-bucks-through-shared-services way

For most of Buck's Unpainted Furniture Inc.'s 41 yearsof operation, the manager of each location has done the hiring forhis or her store. But things at the 40-employee retailer inMinnesota's Twin Cities area have recently changed. Now allhiring is done by a new human resources department operating out ofBuck's Bloomington headquarters.

"We had some industry people come in and look at us, andthis was one of the first things they recommended," says vicepresident Ray Buck, 50, one of four brothers who together run thecompany their parents founded.

The advice isn't surprising. Centralizing companyfunctions-in a manner now known as the "shared services"model-is one of the hottest trends in business today. Those whopractice it say they can cut costs while improving the quality ofthe services shared. The latter of those effects is the impetusbehind Buck's move to share human resources among its threestores.

"In the past, with each store handling its own hiring, ifyou were looking for a new sales-person and some-body came in, youbegan talking to them and maybe it worked out," Buck says.Most of the time, that was fine. But as employment regulations andissues grew more and more complex, the brothers realized that ashared-services setup would make it far more likely things wouldcontinue to work out over the long haul. "There are so manylaws now, there are a lot of things that store managers simplyaren't going to know," says Buck. "Just the way youhandle somebody's application could become a huge thing downthe road if somebody says they never got a fair shot at a job. Toward off things like that, human resources was something we felt weneeded to have a handle on."

Mark Henricks is an Austin, Texas, writer who specializes inbusiness topics and has written for Entrepreneur for 11years.

More To Go Around

Shared services is a quickly growing business strategy in manyFortune 500 companies, according to Earl S. Landesman, an AnnArbor, Michigan, management consultant specializing in thetechnique. Introduced in the 1980s when companies such as GeneralElectric and AT&T were looking for a way to cut administrativecosts for multiple business units, shared services has evolved intoa more comprehensive and flexible tool for improving processes,enabling technology investment, generating profits and reducingcosts.

In essence, shared services is a simple idea: Centralizeadministrative chores ranging from finance to document copying thatare done in several different divisions of a company. Somecompanies charge their divisions for these services, setting pricesand service levels competitive with outside suppliers. Others evenallow internal service providers to peddle their offerings in theopen market to other companies. The big payoff, though, is inoverall cost savings.

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

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

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

Sharing services may also help entrepreneurs exploitunderutilized internal resources by sharing them with strategicpartners. For example, a pizza restaurant located next to a videostore can share its in-house delivery service with its neighbor.Entrepreneurial firms can set up similar shared services amongother tenants of a building or office park. Cooperatives-such asthe Ocean Spray Cranberries Inc. organization, which is owned bymore than 900 cranberry growers-represent a further step in theshared-services approach, using a centralized effort to accomplisha function that would be impossible for the constituent companiesor departments.

Where To Share?

There are a number of things to remember to effectively useshared services. First, not every business function is suitable forsharing with other companies. Generally, don't try to sharewith another company any service that is a core competency. Forexample, a software company probably would not share its softwaredevelopment skill because it would risk losing its competitive edgewhen other companies learned its hard-won secrets. Also, avoidsharing any function that involves direct customer contact. Forexample, you generally would not want to use shared marketingservices with another company. Even when services are only sharedwith others in the company, shared services can involve risk.People at other divisions or locations who formerly used andprovided the services may well be very unhappy under the newregime. "Many people feel disenfranchised as a result ofshared services," says Kris. "They feel that they losecontrol." The fact is, they do lose control.

Business units or locations that once handled their own servicesare now dependent on a central location. The headquarters employeeswho will be providing the services to the separate units may alsobe discomfited. That's because, under the true shared-servicesmodel, other units or locations have to be treated as if they werecustomers, not underlings. For instance, instead of a home-officepurchasing department telling store man-agers that all requisitionsmust be submitted on the 15th of the month, a shared-servicesapproach would have the home office asking store managers when theywould like to submit requisitions. It's a subtle butsignificant mind shift that not everyone can accommodate.

As a result of a need for different skills, implementing sharedservices often involves replacing a number of managers. Heads ofremote locations who can't stand losing control may have to besupplanted by people with more flexible personalities. It'seven more likely that the people who ran the services before theywere shared will be replaced. That's because a shared-servicesoperation is run more like an independent business than a typicalinternal fiefdom. "General management skills, not technicalability, are the key to running shared services," explainsKris.

The costs for putting shared services in place can come fromseveral sources. Financial outlays will have to be made for hiringnew people, training existing ones and often installing newtechnology. The good news is, investments in technology, trainingand process improvement are easier to justify and more likely toyield positive returns with the help of economies of scale whenservices are centralized.

Time is another resource shared services consumes. If you'relucky, you could get everything running smoothly in a year. Andeven after some time has passed, shared services is likely to addto senior management's burden. For many companies, sharedservices will remain an intriguing concept that just doesn'tfit their needs. For others, it will represent exactly the rightmodel to take advantage of a promising opportunity to make the mostof home-office skills that other divisions, locations and evenother companies can also use.

Buck's has just begun to share services. The company hasplans to implement a shared online inventory system that will leteach store know not only how many unfinished barstools it has onhand, but also how many stools are in the company's totalinventory and where they might be. It's all part of an effortto make the company run better, says Buck. "Number one,we're hoping to be more efficient," he says. "Ifwe're more efficient for [ourselves], we're going to bemore efficient for our customers."

		The Shared Services Forum at www.akris.com is a large and expandingonline source of news, opinions, tips, resources and otherinformation on the subject of shared services for companies atvarying levels of sophistication.

Contact Sources

• Buck's Unpainted Furniture Inc., (952) 881-3945,www.bucksunpainted.com
• Strategic Financial Partners, (734) 971-7907, www.sfpa2.com