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Understand the principles of shared services, how they work, and the benefits they can bring to an organisation
Organisations use shared services as a way of organising their HR activities, typically concentrating administrative activities into a centralised 'hub'. The shared service model can help businesses reduce costs, avoid duplication of effort, and allow a greater focus on HR strategy. Often shared services are seen as supporting strategic business partners and centres of expertise in HR.
This factsheet outlines how shared services work and the benefits of introducing them in an organisation. It takes a closer look at the typical tier structures and provides guidance on planning and implementing shared services across an organisation. It also highlights factors to consider for ongoing shared services management.
HR shared services refers to concentrating administrative HR activities into a centralised ‘hub’ within an organisation. They are service-focused, enabling the customers of the shared service to specify the level and nature of the service, and are therefore flexible to the needs of the business. The origins of shared services come from finance but there are many different models of providing centralised services across an organisation (or sometimes, across several partner organisations), for example, just HR, or across multiple services, for example, finance, IT and HR.
A shared services approach is one way to organise activities within a broader HR operating model. There’s no single model for delivering HR that’s suited to all organisations. An organisation should structure its HR activities based upon its organisational strategy, wider organisational structure and current business needs.
The different HR shared services models can be defined by their ‘sourcing’ (resourced internally – ‘in-sourced’, or resourced externally – ‘outsourced’), and ‘shoring’ design (whether they are located ‘on-shore’ or ‘off-shore’).
Within organisations there are also options around whether the service is provided to multiple business units and, for multinational organisations, how many countries are within the scope of the services provided. HR shared services are mainly found in large organisations.
Traditionally, the benefits of using HR shared services model include:
Reducing costs and avoiding duplication of effort. Achieving economies of scale and eliminating duplicated effort can streamline and simplify services, also reducing costs. For example, the potential to exploit Achieving economies of scale and eliminating duplicated effort can streamline and simplify services, as well as reduce costs. For example, the potential to exploit common buying power, such as with training and development providers. Cheaper relative wage costs are also a factor in shared services in certain offshore locations (for example, the Indian sub-continent and Eastern Europe).
Improving quality of service to customers. Using more efficient processes can deliver greater consistency, and more timely and accurate information and advice to the service centre’s customers (for instance, individual employees or line managers). With the increasing requirements for organisations to better understand their workforce, such improvements in information availability are increasingly important. See our factsheets on workforce reporting and people analytics.
Greater HR focus on strategy. Greater structural flexibility, improving organisational learning, and freeing up people professionals from the more day-to-day routine enquiries are important levers for re-positioning the contribution of HR as a business-driven function, focused on its strategic role in facilitating and supporting organisational change. See more on strategic HRM in our factsheet.
Shared know-how. A centralised service allows the pooling of knowledge about what works across different parts of the organisation and different geographical regions, and the sharing of insight about customers and markets.
As a precursor to outsourcing It might be easier to argue the business case for outsourcing when it is possible to clearly demonstrate the efficiencies that can be achieved internally by adopting shared services. See our factsheet on HR outsourcing.
As a possible profit centre. Organisations sometimes actively seek to become a shared service provider for other organisations, using their shared services expertise and /or any spare capacity within their own service.
HR shared services typically provide routine administrative service such as recruitment, new starters, leavers, payroll, changes to roles/contracts, working time in organisations where relevant, absences, or learning and development procurement. In some organisations, services could range from lower-level administrative duties to supplying specialist HR information and advice on HR policy and practice. The exact nature of the service will vary between employers.
Some organisations using HR shared services to drive value might also include more strategic services such as workforce planning. The increasingly important role of people analytics could also see a greater role for shared service teams who have extensive access to HR data.
HR shared services are typically organised around a number of ‘Tiers’:
Introducing shared services is often just one element of a wider change to the way that HR operates and is structured. One driving force is the ‘three-legged model’ developed by US business academic Dave Ulrich, based on the deployment of higher-level strategic ‘business partners’ and centres of expertise in HR, backed up by shared services for more routine duties. See more in our factsheet on business partnering.
The decision to implement shared services is often as part of a wider restructure of HR. It’s often accompanied by adopting new technology which typically enables self-service by employees and managers, and centralised or integrated HR systems that hold HR data.
To enable smooth running of the shared services, customer relationship management systems are often used. These keep a record of the customers’ (employees and line managers) interactions with the service to ensure a quality service is provided.
The shared service is typically measured using service level agreements (SLAs), particularly when the service is outsourced to a third party. SLAs are defined and agreed measures, reported regularly, to ensure that the service quality of service remains at the level required. These are often embedded into a contract with penalties applied if the SLAs are not met.
SSpecific components for successfully implementing shared HR services include:
Clear objectives and a view on how its success will be measured.
Explore options for the structure. Establish the model best suited to the organisation. Multinational organisations, for example, need to decide whether the shared service is most effectively delivered through a number of centres based on business groups and /or regions or through one global shared service.
Specify the scale of capital and the nature of the resources required to get the right technology and organisational infrastructure in place, taking care not to underestimate.
Leadership sponsorship is vital for managing the change that will affect the rest of the organisation as well as for those moving into the shared services.
Project teams with the required capabilities to design, deliver and run the shared services. Ensure there’s broad agreement about the role, scope and accountability of the centre and the resources required for delivery. Process owners and business partners are critical to success.
Review and redevelop HR processes. Simply pulling processes together in a central hub in itself is unlikely to deliver a more streamlined, customer-driven service. Moving to a shared service needs a fundamental re-engineering of HR processes.
Clarify the role, responsibilities and accountabilities of the HR shared service between administrative and more value added services.
Piloting and phasing the transfer of activities can help to keep up the momentum for change, minimise disruption to the business and identify early problems. This is also a key opportunity to validate existing data before transferring to the new system.
Recruitment and training. The skill set required will depend on the range and level of roles in the centre, for example customer service and call handling are often seen as the minimum requirement for routine administration. Where the centre provides more specialist services, sound HR knowledge is clearly also essential.
Communication and involvement before and during the implementation both play a key part in:
Ongoing knowledge development. The service quality will be directly related to the quality of the information input from the rest of the organisation. It’s likely that there will be unexpected demands for information or clarification, so setting in place channels for ongoing communication and training are important.
A number of more general change management issues need considering when implementing any major change initiative within an organisation.
Career paths. Transferring HR activities to shared services can affect existing career paths. Involving staff in the new service design and being explicit about career development and opportunities can help to prevent resistance. While some organisations have opted to keep their HR service centre separate from the wider HR function, others have encouraged those wanting to develop a HR career to acquire wide-ranging knowledge in the shared centre through, for example, rotating around different business streams, and then moving to specialist roles in HR or elsewhere in the organisation. For many, HR shared services is emerging as a new area of specialism.
Skill requirements. Skills needed for the new roles must be clearly defined. Traditional HR skills will be supplemented by the need for project management, contracting skills and an aptitude for customer service, which may not previously have been in the domain of people professionals.
Job design. It's important to maintain a level of skill and variety in the design of the jobs in the shared services, particularly if people working in the service centre have previously undertaken a wide range of tasks. Read more in our job design factsheet.
Maintaining close relationships across HR. Building a cohesive relationship between the shared services and other parts of the HR team are crucial in creating a ‘one HR’ team mentality.
Maintaining close relationships with the business. Shared service delivery can result in fewer opportunities for face-to-face contact and more remote relationships with the business. It’s critical that opportunities for fostering close relations with the business are built into the wider HR plan.
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REILLY, P, and WILLIAM, T. (2017) How to get best value from HR: the shared services option. London: Routledge.
HOWCROFT, D. and RICHARDSON, H. (2012) The back office goes global: exploring connections and contradictions in shared service centres. Work, Employment and Society. Vol 26, No 1, February. pp111-127.
MEIJERINK, J., BONDAROUK, T. and LOOISE, J.K. (2013) Value creation through HR shared services: towards a conceptual framework. Personnel Review. Vol 42, No 2. pp154-175.
PAREKH, R. and BREEN, D. (2018) The HR challenges of shared service centres. People Management (online). 25 June.
ULRICH, D. and GROCHOWSKI, J. (2012) From shared services to professional services. Strategic HR Review. Vol 11, No 3. pp136-142.
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This factsheet was last updated by Steve George.
Steve joined the CIPD in 2016, bringing his wide experience and expertise in developing online learning programmes. He works across the HR portfolio on managing and developing content for our qualifications, short courses and publications. Steve is an Associate member of the CIPD and a Fellow of the Royal Society of Arts.
Keep informed about employment law and a wide range of current HR, L&D and OD topics with our updates, factsheets and guides