Put the right commercial model in place to support a long-lasting relationship.

by Michael J. Steer, Simon Fogden

Shared services centers (SSCs) are seen by finance directors as a successful means of increasing the efficiency and effectiveness of support organizations. As the market develops, the status quo is being continuously challenged by calls for outsourcing and/or decentralization. Against this background, SSCs need to demonstrate the added value they bring to their host entity. One way they can achieve this is by establishing a commercial model that clearly demonstrates the competitive advantage they offer.

The following list explores the key elements to consider when establishing a commercial model in order to support the delivery of competitive advantage.
Timeliness. Start thinking about the model early in the process and do not fall into the trap of leaving it to the last minute. Too often, the commercial model is an afterthought—it is either hastily created during the initial migration or implemented only after the SSC is live and delivering a service.

Stakeholders. Engage with and talk to your stakeholders to understand what they are looking for. Understand the commercial model that will work for them and collaborate with them to build it accordingly. The model needs to build trust in the SSC and ultimately satisfy the needs and requirements of the host organization and customers.

Options. Understand the models that exist and explore the most suitable option for your organization. Consider the complete range:

• Simple: Cost plus or cost of retained organization minus savings;

• Intermediate: Volume/transaction based; and

• Complex: Gain share or outcome driven.

Principles. Establish the principles against which you will build the model. Apply these principles rigorously to the selection process. Some of the principles to consider would include:

• Transparency: Ensure customers always know what they are getting for their investment by being clear on the constituent price elements. Define services in a manner customers understand and can control—number of manual invoices, number of manual journals, etc.

• Fairness: Apply the same model to all shared services customers.

• Simplicity: Ensure the model is simple to explain and manage. Brief all parties on the process to make sure they understand how the model works and how they may influence their costs.

• Flexibility: Recognize that the model will change. The commercial model should be established with this in mind. It may be better to not implement the full model until the services from the SSC are stable. An interim solution may be to continue to charge the previously budgeted costs with any under/over recovery being held at corporate level. This will ensure future relationships set off on the right foot.

• Implementation: Determining when to move from an interim model will need to be a subjective decision. Some of the relevant questions to consider include: what is the level of understanding around the model?

Are the services stable? Is everyone clear on the baseline performance?

Partnership. Work in partnership with your customers. Many improvement opportunities will need to be implemented externally, even though the symptoms may only be evident within the SSC. Effective improvement can therefore only be achieved if the shared services team and the customer are working in partnership to deliver the change.

In summary, no matter what the strategy is for shared services, the commercial model is critical to ensuring its underlying success. The SSC will need to evolve as the organization does and it should continually review its structure and commercial viability to ensure it consistently meets its customers’ needs while remaining competitive with other delivery options.

A shared services center will only be successful if the customers view it as a true partner and each is willing to work with the other to drive real value into the organization.

We will be exploring how you deliver a true partnership in our next article.