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Shared services is a business practice of centralizing administrative functions within a company instead of them being performed by separate divisions or in different locations. Consolidating related administrative functions in a single unit results in long-term savings to the business. The practice can have some difficulties and expense in implementation. However, it is still generally considered a good long-term decision.
A favored strategy among larger companies with many divisions and locations, the shared services model is very cost-effective. It saves money in office space, technology, and personnel. It ultimately reduces administrative costs as well. The model also uses “convergence of functions,” placing related units like human resources, payroll and accounting in the same office space.
Using shared services is like running a business within a business. The company becomes a service provider to itself. The practice is the reverse of outsourcing, where a third party outside the company is contracted to provide services previously handled within the company.
Implementing the model requires significant changes for a company’s employees as they adapt to new roles. Employees who previously provided the now centralized services may disagree with the changes or find themselves in an unfamiliar new role in the company. Some will have to adapt to new technologies and learn new skills. Administrative personnel will also have to adjust to the role of performing what are essentially customer service duties for the other departments or units within the company.
Achieving the goals of the shared services can take a long time. There may be an extended period of some profit loss during the transition due to the many expenses associated with moving offices and people. There are also costs involved in retraining personnel and purchasing and installing new information technologies. Despite the potential loss of profits, the investment is generally believed to result in a more efficient and profitable company.
Some state agencies in the US have begun adopting the model in order to help the government run more efficiently. When the same services are required by more than one unit within the same entity, those units are converged. The restructuring is long term, but it is believed the ultimate cost savings will be tremendous.
Institutions also cooperate in sharing services and the delivery of services. These can include sharing knowledge, skills, and access to information. They may also involve joint commercial ventures to achieve a shared goal.
Separate business entities also form partnerships for the purpose sharing the same services to achieve common goals. Such services might include phone systems and internet software access. For instance, a group of independent lawyers or small firms may share office space, library access, and support staff, dividing the costs between them.
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