A taxonomy of management challenges for developing shared services arrangements

European Management Journal (2014) 32, 91– 103

Adam Smith Business School journal homepage: www.elsevier.com/locate/emj

A taxonomy of management challenges for developing shared services arrangements Arjan Knol a b

a,*

, Marijn Janssen b, Henk Sol

a

University of Groningen, P.O. Box 800, 9700 AV, Groningen, The Netherlands Delft University of Technology, P.O. Box 5015, 2600 GA, Delft, The Netherlands KEYWORDS Shared services; Challenges; Resource dependence perspective; Efficiency perspective; Population perspective; Knowledge perspective

Summary Shared service centres (SSCs) are an organisational arrangement to deliver services. During SSC development organisations encounter a variety of challenges affecting its success or failure. Yet in this embryonic research field a systematic insight into management challenges is absent. Drawing on literature a taxonomy of 15 challenges is suggested that are illustrated with three case studies. Resource dependence, efficiency, population and knowledge perspectives are used as complementary views to provide a deeper understanding. Based on these four perspectives change management has to deal with resource dependencies and power struggles, achieving efficiency by minimising and managing costs, achieving survival in the long run within turbulent organisational environments and finally coordinating knowledge integration. Our results show that the (degree of importance of the) challenges encountered vary per situation. We argue that it is imperative to combine the theoretical perspectives to attain a richer understanding of the situation at hand. Our findings can be used as a solid basis for attaining an elaborate theory for the development of SSCs to mitigate implementation risks by managers. ª 2013 Elsevier Ltd. All rights reserved.

Introduction Sharing of services is a management strategy in which similar business functions are consolidated in an organisation unit (Bergeron, 2003). This organisational arrangement is often labelled as a shared service centre (SSC) or shared service organisation (SSO). As semi-autonomous units, SSCs deliver support services to internal clients within organisations primarily to save costs (Schulz & Brenner, 2010) and to generate value and improve services (Bergeron, 2003). Many SSCs are being established in public and private organisa* Corresponding author. Tel.: +31 616100262. E-mail address: [email protected] (A.J. Knol).

tions to achieve a higher level of efficiency (Cooke, 2006; Davis, 2005; Kamal, 2012; Schulz & Brenner, 2010). ‘‘By cutting out duplicate support processes and non-strategic activities, and organizing them in so-called shared services, a tremendous theoretical potential exists for optimisation and extensive economies’’ (Ulbrich, 2006, p. 196). The decision of establishing SSCs is often based on a business case showing the long term costs and benefits of economies of scale and specialisation in comparison to the current, often fragmented, situation without taking into consideration the implementation process. This leaves decision-makers and managers largely unaware of the difficulties encountered when developing and implementing SSCs in organisations. ‘‘The introduction of a SSC is a critical

0263-2373/$ - see front matter ª 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.emj.2013.02.006

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and strategic decision [ . . . ] with significant complexity and risks’’ (Janssen & Joha, 2006, p. 104). Lacity and Fox (2008) identify shared services as one of the most critical areas of focus for Chief Information Officers. Achieving cost-efficient operations with SSCs is a challenging task and there are many examples of SSCs that have failed to deliver their promise of reducing costs (Farndale, Pauwe, & Hoeksema, 2009; Wagenaar, 2006). A large range of SSC development challenges can be found (e.g. Cooke, 2006; McIvor, McCracken, & McHugh, 2011; Reilly, 2009). However, most literature focuses on a limited set of challenges and a systematic overview of SSC development challenges is absent. In practice this leaves managers wondering what challenges they will encounter when developing SSCs. Furthermore, this leaves a void for theory development. The research question addressed in this paper is: what challenges can organisations encounter when developing in-house SSCs? Based on a literature review a taxonomy of challenges that organisations need to deal with when trying to achieve cost-efficient operations with SSCs is developed. These challenges are detailed using three case studies. Four theoretical perspectives are used to provide a deeper alternative understanding of the challenges encountered: a resource dependence perspective, an efficiency perspective, a population perspective and a knowledge perspective (Grant, 1996; Ulrich & Barney, 1984). The taxonomy provides a comprehensive list that enables managers involved in a SSC development project to attain a broader multi-disciplinary view and to determine which challenges to tackle in the situation at hand. The theoretical value of the taxonomy is that it consolidates the variety of challenges found in literature and the case studies and it shows that different challenges are encountered in the cases. As such it can be used as a solid basis for attaining a more elaborate theory for the development of SSCs.

Background: shared service centres In literature many definitions of SSCs exist. Based on characteristics of SSCs of Schulz and Brenner (2010) as well as a definition provided by Bergeron (2003), we define SSCs as semi-autonomous organisation units that deliver previously distributed support services to internal clients within organisations primarily to save costs. The focus of this study is on SSCs as insourcing arrangements in which SSCs are created within the boundaries of an organisation. These SSCs are the result of a consolidation of previously distributed services into semi-autonomous organisation units. Figure 1 provides an example in which previously distributed services

Figure 1

are consolidated into an in-house SSC within an organisation. Two types of SSCs can be distinguished when focusing on the kind of services they deliver. There are SSCs that deliver ‘‘services for transaction-oriented processes’’ and there are SSCs that deliver ‘‘complex, knowledge-based processes’’ (Goold, Pettifer, & Young, 2001; Schulz & Brenner, 2010, p. 212). Transactional services ‘‘deal with all the processes and activities related to meeting the administrative requirements of employees’’ (Ulrich, 1995, p. 14). Complex knowledge-based services deal with ‘‘non-routine and non-administrative [ . . . ] activities [ . . . ] primarily designed to transform a firm’’ (labelled as transformational SSCs by Ulrich (1995, p. 15)). Both types will be investigated in this research.

Method This research takes an interpretive epistemological stance aimed at providing a deep insight into ‘‘the complex world of lived experience from the point of view of those who live it’’ (Andrade, 2009; Schwandt, 1994, p. 118). Interpretive research is typically used for ‘‘relatively under-developed theoretical constructs’’ (Irani, Love, & Jones, 2008, p. 157), which is the case for SSC as limited theory development is available. The SSC development challenges included in the taxonomy of this research can be used as a solid starting point for developing components of organisational theory dealing with the development of SSCs. Literature review and case study research were used as the main research instruments. Literature was used to develop the taxonomy and case study research was used to gain a richer insight.

Literature review A literature review was conducted to create an overview of SSC development challenges using the systematic scanning approach proposed by Levy and Ellis (2006). An extensive search was performed using Elsevier (Scopus), ACM, IEEE Xplore and Google Scholar initially using the keyword ‘‘shared service center’’. In addition, backward and forward searching on references and authors was used (Levy & Ellis, 2006). Doubles as in ‘‘authors that had the definition [of SSCs] in two or more of their papers’’ (Schulz & Brenner, 2010, p. 212) were left out, maintaining only the most cited doubles. Articles not dealing with SSCs as ‘‘the organizational form of back-office functionalities’’ were also left out (Schulz & Brenner, 2010, p. 212). The resulting

From previously distributed services to an in-house SSC (adapted from Janssen & Joha, 2007).

A taxonomy of management challenges for developing shared services arrangements Table 1

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Literature review.

Type

Reference

Journal articles

Arnoud and Falzon (2012), Boglind et al. (2011), Borman (2010), Cooke (2006), Davis (2005), Dollery, Grant, and Akimov (2010), Farndale et al. (2009), Goh et al. (2007), Goold et al. (2001), Gospel and Sako (2010), Grant et al. (2007), Herbert and Seal (2012), Howcroft and Richardson (2012), Iveroth (2011), Janssen and Joha (2006), Joha and Janssen (2010), Kamal (2012), Kroll (2005), Lacity and Fox (2008), Maatman, Bondarouk, and Looise (2010), McIvor et al. (2011), Meijerink and Bondarouk (2012), Murray, Rentell, and Geere (2008), Niehaves and Krause (2010), Pollitt (2006), Reilly (2009), Rothwell, Herbert, and Seal (2011), Schulz and Brenner (2010), Su et al. (2009), Ulbrich (2006), Ulrich (1995), Walsh et al. (2008) Chiang, Huang, and Yen (2007), Domingues and Gomes (2011), He and Cao (2009), Hoong and Lim (2012), Knol, Sol, and van Wamelen (2012), Miles (2011), Miskon, Bandara, Gable, and Fielt (2011), Pinto (2010), Sedera and Dey (2007), Wagenaar (2006), Yao, Hu, Huang, and Hu (2012), Yee, Chian, and Chan (2009), Zhang and Zhang (2009) Bergeron (2003), Post (2012), Strikwerda (2010)

Conference proceedings

Books (section)

literature review consists of in total 32 journal articles, 13 conference proceedings and 3 (sections of) books as shown in Table 1. For each article, proceeding and book (section) SSC development challenges have been identified. After this overlapping challenges were identified and finally the challenges were clustered into 15 categories. For example challenges identified by Davis (2005) stating that a European SSC met stiff resistance from country managers exercising their power ‘‘because the SSC took over many of their former responsibilities quite suddenly’’ (p. 15) and Strikwerda (2010) stating that ‘‘business managers need to adjust to the fact that they have to realise their task without hierarchical power over resources they are dependent on’’ (p. 239) are both related to a challenge we have labelled as ‘‘power struggle’’. A selection of the literature review outcomes is included in the next section of this paper.

Case studies To increase our understanding of the challenges three case studies of SSCs in the Dutch central government are conducted (see Table 2). Whereas literature often merely mentions the challenges, we were able to add details by

Table 2

investigating three case studies. In literature challenges are not always backed up by empirical evidence (Borman, 2010), while in this research case studies are used to gain a richer insight in the challenges encountered. The case studies were selected based on the following criteria: • Insourcing of previously distributed services. All SSC case studies are arrangements within organisations that deliver previously distributed services; • Service type. Both SSCs delivering transactional and knowledge-based services were studied; • Type of change. Price and Chahal (2006) distinguish between chosen change being ‘‘more a proactive approach driven by a workforce committed to the success of an organization’’ (p. 239) and crisis change being ‘‘a reactive approach driven by external factors and fear of failure’’ (p. 239). The SSC case studies selected for this research all went through a chosen change development process. • Data availability. SSC case studies were selected from which information was publicly available and that were willing to collaborate with the researchers without restriction concerning the publication of challenges. This resulted in the selection of three public sector SSCs, as

Case study descriptions.

Name SSC

Description

Size (fte)

Service type

Case study material

4FM

Merger of four organisation units taking care of general facilitation support services for four Dutch Ministries (12.000 employees) Merger of multiple archiving organisation units in the Dutch central government in one SSC for archiving services An ‘‘umbrella’’ SSC for the Dutch central government composed of multiple relatively small expert centres such as Work & Health and InterCoach

+-220

Transactional

1 interview director 1 interview manager

+-370

Transactional

1 interview director 2 interviews managers

+-500

Primarily complex, knowledge-based

4 interviews managers

Doc-Direkt (DD)

De Werk-maatschappij (DWM)

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A.J. Knol et al. in-house SSCs of private sector firms might be reluctant to openly share their challenges (a complete case study research within constraints in terms of Yin, 2003).

The case study material is derived from in total nine open interviews held between June and December 2010 and one interview held in December 2012 (partially recorded, notes taken directly after). Open interviews were chosen to enable an unbiased approach. Although varying per interview, in general questions were asked about the SSC development projects the interviewees were involved in (reasons why the SSC had been established and how the development process had evolved) and what challenges they had encountered. The interviewees were all directors of the SSC cases or managers involved in the SSC cases. In summary, the translated quotations from the case study material included in this paper are derived from recordings and notes from the interviews.

Four theoretical perspectives and a taxonomy of challenges SSCs can be viewed as service systems in their environments composed of ‘‘value co-creation configurations of people, technology, [ . . . ] systems, and shared informa-

Table 3

tion’’ (Maglio & Spohrer, 2008, p. 18). SSCs as service systems operating in complex environments ‘‘cannot be described and understood by a single academic discipline’’ and an ‘‘integration of various disciplines’’ is needed as proposed by service science (Chesbrough & Spohrer, 2006; Ng, Maull, & Yip, 2009, p. 378). Accordingly, this research provides a systematic overview of SSC development challenges based on four theoretical perspectives rooted in different academic disciplines as suggested by Ulrich and Barney (1984) and Grant (1996): a resource dependence, an efficiency, a population and a knowledge perspective is taken. The four perspectives were found to be suitable for this research as they enabled a distinct categorisation of the many SSC development challenges identified in literature and in the case study material and enabled to capture a more comprehensive picture than using a single view (Freytag, Clarke, & Evald, 2012). This section provides an explanation of the four theoretical perspectives including corresponding SSC development challenges derived from the literature review and the case studies. First an overview of the theory and 15 types of SSC challenges is given in Table 3. Hereafter each perspective is explained in detail including the corresponding challenges. Finally the taxonomy of SSC development challenges is presented.

Four perspectives in organisational theory and corresponding SSC challenges from literature.

Perspective

Org. success

Theory/scientific relation

SSC challenges from literature (selection)

Resource dependence

Maximise power by acquiring and maintaining resources

Resource dependency theory

A power struggle in acquiring and maintaining resources:

Maximise efficiency in internal and external transactions

Transaction cost theory Agency theory Costing approaches

Maximise efficiency by minimising transaction/production costs:

Long-term survival in organisational environment

Organisational structure, strategy, life cycle Contingency theory

Long-term survival:

Knowledge integration for the production of goods/ services

Knowledge management

Knowledge integration:

Efficiency

Population

Knowledge

• Power struggle Davis (2005); McIvor et al. (2011); Reilly (2009) • Struggle for required resources Farndale et al. (2009) • Neglected resources Goh et al. (2007); McIvor et al. (2011); Miskon et al. (2011)

• Standardisation (processes, IT, personnel) Davis (2005); McIvor et al. (2011);Strikwerda (2010); Su et al. (2009); Wagenaar (2006) • Business case Strikwerda (2010); Wagenaar (2006) • SSC arrangement/governance Reilly (2009); Ulbrich (2006); Walsh et al. (2008) • SSC implementation strategy Wagenaar (2006) • Maintain service level quality Janssen and Joha (2006) • Performance indicators Reilly (2009) • Contracting and costing Strikwerda (2010) • Alienation Cooke (2006) • Shadow staff Ulrich (1995) • Alignment and adaptation Goh et al. (2007) • Momentum McIvor et al. (2011); Niehaves and Krause (2010) • Reinvent the wheel Bergeron (2003); Davis (2005))

A taxonomy of management challenges for developing shared services arrangements

Resource dependence perspective Theory The resource dependency theory (RDT) of Pfeffer and Salancik (1978) is based on the assumption that organisations depend on other organisations to provide necessary resources in order to survive and grow (Garavan, 2012). ‘‘The power of an organization depends upon the resource dependency relationships it has with other organizations’’ (Medcof, 2001, p. 1002). ‘‘Strongly rooted in sociology (Weber, 1947), organizational success in the resource dependence perspective is defined as organizations maximizing their power’’ (Ulrich & Barney, 1984, p. 472). Organisations aim to maximise their power by ‘‘altering their structure and patterns of behavior to acquire and maintain needed external resources’’ (Ulrich & Barney, 1984, p. 472). They aim to decrease their resource dependence on other organisations and increase the resource dependence of others on them (Cool & Henderson, 1998; Harpaz & Meshoulam, 1997). Based on RDT a struggle for resources and resistance from individual organisation units can be expected due to a loss of power when establishing SSCs. With the establishment of a SSC individual organisation units operating within the domain are forced to share resources. Consequently they cannot acquire and maintain resources individually, thereby diminishing their ability to maximise their power and minimise the power of others. The SSC establishment distorts the power maximisation efforts of the individual organisation units which can be a significant cause for resistance. SSC challenges In SSC literature the power struggle in acquiring and maintaining resources is mentioned on two levels. First, a power struggle and corresponding resistance from stakeholders in the SSC domain is recognised. A new distribution of power that comes with the reorganisation process when developing SSCs can create difficulties in accepting new roles and relations and damages the autonomy of e.g. line managers. Reilly (2009) mentions an ‘‘almost inevitable scepticism or even outright hostility from [ . . . ] line customers, senior management or, in local government, politicians. CEOs (and politicians) may oppose losing their own HR function, as it is a demonstration of power and status, or object to sharing with more powerful partners’’ (p. 22). Davis (2005) mentions that resistance should be expected because ‘‘a significant number of staff in the country business units may loose their jobs because of a reduction in head counts’’ (p. 15). Difficulties in accepting new roles and relations can also be caused by a shift of career opportunities with ‘‘ÕnostalgiaÕ for the old ways’’ (McIvor et al., 2011, p. 450). Second, a struggle for SSCs themselves in acquiring and maintaining required resources can be expected. E.g. Farndale et al. (2009) refer to a challenge in the ‘‘expertise of the HR SSC staff (a lack of skill in communication, results orientation, cooperation, and customer orientation)’’ (p. 552). It is noted that this challenge does not only concern human resources, a struggle in acquiring and maintaining other tangible or intangible resource types such as funding or customers can be expected too (Ghobadian, Viney, & Redwood, 2009; Trienekens & Beulens, 2001).

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Finally, based on the resource dependence perspective a third SSC challenge can be expected: resistance due to neglecting non-critical resources affected by the organisational transition. Ghobadian et al. (2009) suggest that in public sector reform end-users are often neglected, because managers ‘‘tend to favour those stakeholders who provide critical resources’’ (p. 1528), as explained by RDT. Boglind, Ha ¨llste ´n, and Thilander (2011) state that ‘‘there are indications that ‘‘listening to the voice of customer’’ has become less important’’ (p. 582) when establishing SSCs. McIvor et al. (2011) recommend to ‘‘give significant attention to engaging with staff affected by new arrangement’’ (p. 458) as a strategy for addressing SSC development challenges.

Efficiency perspective Theory In the efficiency perspective ‘‘successful organizations are those that are able to manage their transactions efficiently’’ (Ulrich & Barney, 1984, p. 473). Accordingly, this perspective is rooted in economics. There are a number of theories and costing approaches related to the efficiency perspective. First, the transaction cost theory of Williamson (1981) suggests that organisations aim to minimise their transaction costs as well as production costs which forms the basis for (boundedly rational) sourcing decisions. For example outsourcing can decrease an organisationÕs production costs and increase its transaction costs (Kern, Kreijger, & Willcocks, 2002). Transaction cost theory can be useful to complement the resource dependence perspective (Tillquist, King, & Woo, 2002). Second, following Trienekens and Beulens (2001) and Kern et al. (2002) the agency theory of Eisenhardt (1989) relates to the efficiency perspective too. Agency theory focuses on contractual arrangements between agents (the SSC) and principals (individual organisation units in the SSC domain), with agents and principals having ‘‘partly differing goals and risk preferences’’ (Eisenhardt, 1989, p. 59). ‘‘The focus is on the most efficient contract arrangements between the agent and principal’’ (Kern et al., 2002, p. 166). In addition, Trienekens and Beulens (2001) mention costing approaches that can be related to the efficiency perspective. They include ‘‘Direct Product Profitability’’, ‘‘Activity Based Costing’’ and ‘‘Total Cost of Ownership’’ as three possible costing approaches in supplier/SSC – client relationships (p. 469). SSC challenges Based on the efficiency perspective a number of SSC development challenges related to maximising efficiency by minimising transaction and production costs can be expected. First, standardisation challenges when developing SSCs are mentioned quite abundantly in literature. ‘‘Given the serial restructuring that occurs within the SSC sector, one of the key ways that control and coordination is retained throughout is via standardization’’ (Howcroft & Richardson, 2012). Three levels of standardisation can be distinguished: process standardisation, IT standardisation and personnel

96 standardisation. McIvor et al. (2011) state that ‘‘a further challenge involves redesigning and standardising processes that are dispersed across different business units and locations’’ (p. 449). Davis (2005) mentions that ‘‘some companies experience more technical difficulty [ . . . ] major problems bringing formerly decentralized IT services [ . . . ] into a central support centre’’ (p. 15). Also companies have to watch out for ‘‘overstandardization of systems and processes’’ (Su, Akkiraju, Nayak, & Goodwin, 2009, p. 383). Difficulties in transferring personnel from individual organisation units to a SSC in terms of differences in employment conditions (Wagenaar, 2006) and cultural differences (Strikwerda, 2010). Second, making business cases to clarify to what extent transaction and production costs will be minimised and to what extent efficiency gains will be achieved once a SSC is operational can be quite a challenge for organisations. Often reality proves to be different than what was calculated in the business case before SSC implementation. E.g. ‘‘implementation costs may rise unexpectedly higher than anticipated’’ (Wagenaar, 2006, p. 357) or transition costs are not included presenting an unrealistic cost-saving potential (Strikwerda, 2010). Third, challenges in how to design a specific SSC to attain efficiency in terms of organisational and administrative structure and responsibilities can be expected (Grant, McKnight, Uruthirapathy, & Brown, 2007). ‘‘Should an organization have only one centre or several, should it be organized locally, regionally or globally, or may it perhaps be some kind of virtual organization?’’ (Ulbrich, 2006, p. 200). Reilly (2009) refers to this as governance and found that due to ‘‘different political views on ownership [ . . . ] operating service centres across organisational boundaries is challenging – especially the governance arrangements’’ (p. 21). Walsh, McGregor-Lowndes, and Newton (2008) state that ‘‘there is also a strong emphasis on the need for an effective governance arrangement for implementing shared services models’’ (p. 204). Fourth, how to optimally implement a SSC after the design phase can be challenging as well. Wagenaar (2006) distinguishes between ‘‘big-bang’’ and ‘‘soft pressure’’ SSC implementation strategies: ‘‘it is tempting to conclude that the project may have had higher chances on success if one had chosen for a ‘‘Big Bang as the story, soft pressure as the practice’’ strategy than a pure Big Bang strategy’’ (p. 362). Possibly challenges can be mitigated when starting small and gradually expanding to ensure a ‘‘smooth execution’’ (Wagenaar, 2006; Zhang, Zhang, & Huang, 2009, p. 76). Fifth, a challenge in maintaining service level quality when minimising transaction and production costs can be expected. ‘‘Some interviewees [ . . . ] were very afraid that service levels would fall’’ (Janssen & Joha, 2006, p. 107). Sixth, a challenging aspect is how to evaluate the performance of a SSC once operational in terms of efficiency and effectiveness for different principals (individual organisation units in the SSC domain) wanting different indicators. ‘‘Agreeing key performance indicators and the level at which they should be set’’ (Reilly, 2009, p. 21). Seventh, challenges in establishing efficient SSC-client relationships in terms of contractual arrangements and costing approaches are expected. This is confirmed by Strikwerda (2010) who mentions difficulties in costing ap-

A.J. Knol et al. proaches and pricing one the one hand and struggles to formulate a complete service level agreement which foresees in every contingency on the other. According to Kern et al. (2002) ‘‘outcome uncertainty, risk aversion, programmability of providerÕs behaviour, outcome measurability and the length of the agency relationship’’ (p. 166) are aspects to consider in agent (SSC) – principal (individual organisation units) relationships, based on the agency theory. Eighth, alienation can be a challenge caused by a distant relationship between SSCs and end-users, a loss of face-toface contact and depersonalisation due to formalised procedures. Figure 1 provides an example showing that before implementation of a SSC services are executed closely to clients within an organisation unit and after implementation of a SSC services are concentrated in central or regional centres outside the line organisation, resulting in the SSC to become ‘‘alienated’’ from its clients. ‘‘The distanced relationship (both geographically and psychologically) between the HR staff and their clients may have a negative effect on their work’’ (Cooke, 2006, p. 221). Ninth, shadow staff can be an expected SSC challenge as well. Shadow staff refers to the phenomenon that the services of a SSC are not used due to the fact that staff is hired by line managers to do the work. ‘‘Shadow staffs are when line managers want some organization/HR work done and have ‘‘administrative assistants’’ do the work in lieu of using the HR shared services’’ (Ulrich, 1995, p. 23).

Population perspective Theory ‘‘If power maximization defines organizational success in the resource dependence perspective and if efficiency plays the same role for the efficiency perspective, then organizational success in the population perspective can be defined as survival’’ (Ulrich & Barney, 1984, p. 474). The population perspective is rooted in biology and views organisations as populations aiming for long-term survival. Ulrich and Barney (1984) relate the concepts of organisational strategy (generalist/specialist, r/K), structure and life cycle to the population perspective. In addition they state that luck is an aspect to consider when looking at organisations trying to survive in their environments. ‘‘Because the selection pressures in an environment are essentially unpredictable and the strategies of successful firms are only partially subject to imitation, firms and populations of firms that are selected for may, in fact, simply be lucky’’ (Ulrich & Barney, 1984, p. 475). The luck aspect relates to the contingency theory (e.g. Scott, 1981). In essence, the contingency theory states that organisational survival is dependent (contingent) on an organisationÕs environment and that adaptation (fit) to the environment is essential (Drazin & van de Ven, 1985) SSC challenges Based on the population perspective two types of SSC development challenges can be expected. First, the SSC ought to align itself to the overall organisationsÕ strategy in order to achieve long-term survival. The choice should be made whether its primary goal is to save costs or if innovation and an increase in quality are imperatives as well. ‘‘With the growing practice of shared services, it is important to

A taxonomy of management challenges for developing shared services arrangements understand how a shared services model fits successfully into the overall business strategy of the firm’’ (Goh, Prakash, & Yeo, 2007, p. 251). Second, gaining momentum can be a challenge when establishing SSCs, related to the aforementioned aspect of luck and the contingency theory. E.g. the establishment of SSCs in public organisations requires a supporting political climate. Certain preconditions are identified which contribute to a positive momentum (Niehaves & Krause, 2010). Furthermore, maintaining momentum can be demanding. ‘‘Shared services involves significant internal upheaval and organisational change, and organisations often encounter difficulties in sustaining momentum’’ (McIvor et al., 2011, p. 450).

Knowledge perspective Theory The knowledge perspective as proposed by Grant (1996) is adopted as a fourth distinct theoretical perspective for this research. Grant (1996) states that the primary role of organisations is to integrate ‘‘the specialist knowledge resident in individuals into goods and services’’ (p. 120) with the main management task being the establishment of coordination for knowledge integration. The main focus of the knowledge-perspective is on the production of goods and services in organisations through coordination of integrated knowledge. Hence, organisational success in the knowledge perspective is defined as optimal coordination of knowledge integration for the production of goods and services. ‘‘The application of competences (such as knowledge and skills) by one party for the benefit of another’’ (Vargo, Maglio, & Akaka, 2008, p. 145) to create value in the complex service industry is what it is all about for SSCs after all. The knowledge perspective relates to knowledge management and sharing of best and worst practices in organisations (Alavi & Leidner, 2001). OÕDell and Grayson (1998) state that ‘‘unknown and untapped, a vast treasure house of knowledge, know-how, and best practices’’ (p. 154) lies within organisations. SSCs can be seen as suitable organisational arrangements for the sharing of best & worst practices regarding the delivery of specified services (either transactional or knowledge-based services as explained before). When implemented properly, the service delivery of SSCs is based on a consolidation of best and worst practices built up throughout the years in former organisation units. SSC challenges An expected challenge when developing SSCs related to the knowledge perspective is neglecting existing practices that are available within or outside the organisation. Learning from past experience by sharing best and worst practices regarding SSC development can be a challenging aspect. The metaphor of reinventing the wheel is used for this challenge. The reinventing of the wheel can occur on two levels. First, the development of SSCs in public and private organisations can be a challenging endeavour as a whole as shown in literature and it seems that organisations encounter similar challenges over and over again in preparation of the organisational transition phase. For example the aforementioned suggestion of Wagenaar (2006) to avoid big bang

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implementation strategies when developing SSCs can be seen as a worst practice that needs to be accounted for. Second, the transfer of best and worst practices regarding the delivery of specific services of SSCs can be challenging. The organisational change inflicted by SSC development can result in a loss of knowledge regarding service delivery. Davis (2005) states that ‘‘a reduction in headcount [ . . . ] may obstruct the transfer of knowledge from local offices to the SSC’’ (p. 15). In addition (cultural) barriers blocking knowledge transfer regarding service delivery might be expected when staff from different organisation units speaking different vocabularies are replaced to a SSC. Strikwerda (2010) states, however, that ‘‘working with multiple nationalities in a SSC does not result in significant problems’’ (p. 212). In summary, the reinventing of the wheel challenge refers to the neglecting of existing practices about (1) achieving organisational transitions when developing SSCs and (2) the specific SSC service delivery itself. Bergeron (2003) suggests to conduct a feasibility study when preparing SSC establishment in which identification of best and worst practices (on both levels) seems to fit well.

Taxonomy of SSC development challenges ‘‘The word taxonomy is derived from Greek words (taxis + nomos) – taxis is arrangement and nomos law – and can be conjugated to mean ‘‘the science of classification’’’’ (Sharma, Foo, & Morales-Arroyo, 2008, p. 34). Taxonomy as a science exists for a long time, ‘‘having becoming formalized in the middle of the eighteenth century when Carl von Linne ´ (Carolus Linnaeus) established the binomial system of nomenclature’’ (Clark, Godfray, Kitching, Mayo, & Scoble, 2009, p. 953). Apart from biological taxonomies dealing with ‘‘the classification of living things’’ (Charles & Godfray, 2002, p. 17), other types such as corporate taxonomies can be distinguished (Gilchrist, 2001; Kremer, Kolbe, & Brenner, 2003; Sharma et al., 2008). ’’A corporate taxonomy may be viewed as a conceptual map [ . . . ] that can assist every business activity’’ (Sharma et al., 2008, p. 34). It categorises ‘‘phenomena of interest’’ (Gregor, 2006, p. 619) specifically for organisations. This research provides a corporate taxonomy based on the four theoretical perspectives of Ulrich and Barney (1984) and Grant (1996) with the 15 aforementioned types of SSC development challenges (see Table 4). This level of detail (15 challenges organised in four perspectives) is chosen to provide a comprehensible overview of challenges whilst still enabling to relate challenges to distinct theoretical perspectives. Moreover, a more fine-grained taxonomy could lose its generic value. The taxonomy presents the identified perspectives and challenges from the literature review complemented with empirical data from the three case studies. The ‘‘X’’ indicator in the taxonomy below the three case studies 4FM, DD and DWM shows whether the challenges have been identified in one or more case study interviews. Based on the case study material a ‘‘shift of norms’’ challenge has been identified, referring to a shift of norms of end-users in which an acceptable level of service prior to the implementation of a SSC is not an acceptable level

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Table 4

Taxonomy of SSC development challenges.

Perspective

SSC challenge

Illustrative examples from case study material

4FM

DD

Resource dependence: a power struggle in acquiring and maintaining resources

Power struggle

Power struggle during development of DD caused by a loss of FTE and financial agreements: ‘‘it was [ . . . ] a challenge for Doc-Direkt to achieve coherence between the departments. The cause of this is a lack of trust, suspicion and position and power games, due to a loss of FTE when a SSC is implemented’’ Self-interest started playing a role at 4FM when concrete agreements about the transfer of services from the units to the SSC needed to be made: ‘‘when things get exciting self-interest starts playing a role’’ A struggle for an expert centre of DWM in acquiring experts: ‘‘Bureau Gateway needs more personnel to react to client demand which is difficult these days’’ Reaction of a neglected (non-critical) employee who did not understand the upcoming reorganisation after many prior reorganisations: ‘‘again another T-shirt’’

X

X

Process standardisation difficulties during development of a DWM expert centre: ‘‘standardising work [ . . . ] turns out to be quite a challenge [ . . . ]. Customised work often is not possible anymore and this results in resistance’’ IT harmonisation issues during development of DD: ‘‘for example at Doc-Direkt, just for the Ministry of Justice 16 systems need to work together to enable the centralised digitalising. This proves to be a complex task’’ A challenge to create a business case due to a lack of available financial data: ‘‘significant qualitative improvements will be achieved which can result in cost-savings too, but estimating the cost-savings on beforehand is difficult’’ Unclarity in how to arrange a DWM expert centre (one big centre or several smaller centres): ‘‘we should be cautious of excess inflexibility when a SSC becomes too big. Bureaucracy is a big concern’’ Tensions in following a big-bang or a soft pressure implementation strategy during development of a DWM expert centre: ‘‘letting departments decide for themselves to join a SSC proofs not always to be successful, but external pressure to obligate departments to join can be troublesome as well’’ Difficulties regarding service level quality for 4FM where after SSC establishment clients expected a higher service level quality than before: ‘‘if your girlfriend bakes a cake you are quickly satisfied, but at the bakery the expectations are higher’’ Not identified in case study material Higher costs for 4FM clients: ‘‘in practice a SSC seems more expensive, because in the hourly rates all costs are included such as cleaning, workplace and management costs’’ An ‘‘alienated’’ 4FM working as a distanced supplier for multiple Ministries has resulted in more formal client relationships: ‘‘the distances were shorter before and the relation was less formal, but as a SSC 4FM is really seen as a supplier’’ The services of a DWM expert centre are not used because Ministries keep organising it themselves: ‘‘for telephone contracts Ministry employees continue to organise this themselves, whereas this should be the job of the SSC’’

X

Efficiency: maximise efficiency by minimising transaction/ production costs

Struggle for required resources Neglected resources Standardisation (processes, IT, personnel)

Business case

SSC arrangement/ governance SSC implementation strategy Maintain service level quality Performance indicators Contracting and costing Alienation

Shadow staff

Alignment and adaptation

Knowledge: knowledge integration

Reinvent the wheel

Momentum

DD encountering difficulties to align to the primary strategic goal of saving costs: ‘‘also after the establishment of a SSC like Doc-Direkt an innovative attitude is needed’’ A positive momentum for DD riding along a centralisation wave which made things easier for development in the beginning (not a challenge): ‘‘the political and organisational context was right, the time was ripe. There was a centralisation wave in 2008 creating a right and positive moment in the government to start working together’’ A DWM expert centre missing best practices regarding the transfer of services from five organisation units: ‘‘for example the organisational transition [ . . . ] with the transfer of five clubs; you expect some kind of manual then [ . . . ] the wheel is constantly reinvented again with corresponding problems’’

X X X

X

X

X

X

X

X

X

X

X X

X

X

X

X

X

A.J. Knol et al.

Population: long-term survival in org. environment

DWM

A taxonomy of management challenges for developing shared services arrangements anymore once implementation is finalised. It is noted that in the taxonomy this challenge is included within the ‘‘maintain service level quality’’ challenge related to the efficiency perspective.

Discussion Context dependent challenges The analysis of the cases shows that the variety of challenges found is quite high. None of the challenges have been mentioned unanimously by all respondents and several challenges have been identified by single respondents. Between the cases only the ‘‘standardisation’’ challenge was identified in all cases. Table 2 gives an overview of the basic characteristics of the investigated case studies. Both SSCs delivering transactional and knowledge-based services were tackled in this research with 4FM and DD delivering routine transactional services and DWM primarily delivering non-routine knowledge-based services. As shown in the taxonomy in Table 4, several differences between the challenges in the transactional and knowledge-based SSCs can be recognised. Although they might be coincidental (the aforementioned luck aspect belonging to the population perspective), some justifications are suggested for differences between the case study types. First, a more intense power struggle for the transactional SSC case studies occurred in comparison to the knowledgebased SSC, because transactional activities are possibly higher in volume and head count than knowledge-based activities (routine versus non-routine in terms of Ulrich, 1995). This can result in higher downsizings for transactional SSCs making managers more reluctant to transfer these kind of activities and resources. In addition, knowledge-based workers can perceive the establishment of a dedicated SSC for their expertise as rewarding whereas transactional workers can perceive it as another reorganisation with fear of downsizing resulting in increased resistance and power struggle. Second, routine transactional activities require a lower level of expertise in general. Expertise for routine transactional tasks is better available than knowledge-based activities that require higher levels of often specific expertise that is hard to find. This can clarify why the ‘‘struggle for required resources’’ challenge was an exclusive challenge for the knowledge-based SSC case study. Third, a reason why the ‘‘neglected resources’’ challenge is solely derived from the knowledge-based DWM case could be due to the relatively small size of the expert centres in comparison to the larger transactional SSC case studies. The larger SSCs had formal project organisations during establishment that ensured proper communication with non-critical employees regarding the upcoming organisational development. Fourth, the ‘‘maintain service level quality’’ challenge is solely derived from the 4FM transactional case. A reason for this might be because a drop in service level quality is typically associated with transactional services. Fifth, only the transactional 4FM case encountered difficulties with costing. A reason for this might be because this

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aspect changed significantly for their clients after establishment, having moved from integrated costing within the primary processes to non-integrated costing once the SSC had been established. Sixth, a reason why the ‘‘alienation’’ challenge was solely present in the transactional case studies can be found in the observation that the physical and psychological distance between clients and SSC increased after establishment of the transactional SSCs. For the knowledge-based DWM case the experts are working at relatively small centres offering non-routine services with the same psychological distances as before, whereas in the other cases the support was put at an armÕs length. This resulted in the feeling that these SSCs were placed further away. Finally, the ‘‘alignment and adaptation’’ challenge was solely present in the transactional case studies. A reason for this could be that the primary goals for both transactional SSCs are specifically to align to a cost-saving strategy, while for the knowledge-based DWM case quality and innovation were imperative in addition to a cost-saving strategy. In summary, a variety in challenges is recognised within and between the case studies and between the case study types. The variety can be an underlying reason for the deficiency of a comprehensive overview of SSC development challenges in literature. In SSC literature numerous ÔhardÕ and ÔsoftÕ challenges are identified, predominantly based on all kinds of case studies. Overall the variety in challenges per case and in literature suggests that SSCs might be less uniform than often thought. This notion can be related to the aforementioned contingency theory (e.g. Scott, 1981) belonging to the population perspective. SSC development is context dependent and survival is contingent on an organisationÕs environment. Based on the case studies investigated for this research and their aforementioned differences and similarities, Table 5 provides a preliminary set of SSC case study characteristics that can be of influence on the type of challenges that are encountered, to be used for further research. Although identification of these factors was not the direct goal of our research and the material was not collected for this purpose, we were able to derive characteristics of the SSC case studies that can be of influence on the challenges encountered. Sometimes interviewees and documentation did not provide uniform answers for describing the cases on these characteristics. In these situations we included the most common direction to stress the differences among the cases.

Comprehensiveness The case study material has not resulted in challenges not identified in literature, it merely complements the literature review conducted for this research with real-world examples (that are often missing according to Borman, 2010) to gain a richer insight. Apparently together all literature provides a comprehensive overview of the SSC development challenges that were encountered in the case studies that were investigated in this research. However, in none of the journal articles, conference proceedings nor books included in the literature review all SSC challenges are mentioned, confirming our starting point for the need for a systematic overview of SSC challenges.

100 Table 5

A.J. Knol et al. Comparison of basic SSC case study characteristics.

Factor

4FM (transactional)

DD (transactional)

DWM (primarily knowledgebased)

Distance to clients after establishment

By concentration in one location the physical and psychological distance with the clients increased

By concentration in 4 locations the physical and psychological distance with the clients increased

Freedom in service usage by clients Geographical location

Non-obligatory

Compulsory

By concentration in multiple expert centres the physical distance increased, yet the psychological distance remained the same Primarily non-obligatory

Goal/strategic alignment

1 central location with employees working in the Ministries Cost-savings

4 regional locations with employees primarily working from there Cost-savings

Implementation strategy

Bottom-up, soft-pressure

Top-down, big-bang

Level of standardisation Momentum during early development Reach Required expertise level

Highly standardised routine services Positive momentum (centralisation wave) 4 Ministries Primarily low-level expertise

Highly standardised routine services Positive momentum (centralisation wave) All Ministries Primarily low-level expertise

Service level quality Service type Size

Initially dropped Routine Large

Initially dropped Routine Large

Volume

Large volumes

Large volumes

Tension field between perspectives Four theoretical perspectives are taken to create the taxonomy of SSC development challenges. Whereas Ulrich and Barney (1984) provide the three perspectives resource dependence, efficiency and population, we found that adding the knowledge perspective of Grant (1996) contributes to the understanding and enabled to gain a comprehensive view of the many SSC development challenges identified in literature and in the case study material. The use of the four perspectives results in stressing different types of challenges. Establishing SSCs is primarily about dealing with resource dependencies and power struggles as well as achieving efficiencies via standardisation and SSC arrangement. The ‘‘power struggle’’, ‘‘standardisation (processes/IT/personnel)’’ and ‘‘SSC arrangement/governance’’ challenges are mentioned relatively abundantly in literature and in the cases. A field of tension is recognised between the challenges; achieving higher efficiency with SSC arrangements via standardisations is likely to result in an increased power struggle. Larger SSCs are presumably able to achieve higher economies of scale, yet they also need to deal with more stakeholders in the SSC domain. The major challenge for SSC change management is to achieve and maintain a carefully orchestrated balance between both, whilst dealing with other SSC challenges identified in this research. This is in line with an observation of Iveroth (2011) that achieving change in the sourcing domain is a sociomaterial practice (Orlikowski, 2007). SSC establish-

Composed of multiple regional expert centres Cost-savings, innovation and qualitative improvements Primarily bottom-up, softpressure Primarily less standardised non-routine services Positive momentum (centralisation wave) All Ministries Primarily high-level specific expertise Initially remained the same Non-routine Composed of relatively small expert centres Primarily low volumes

ment requires a focus on both social (resource dependence) as well as material (efficiency) aspects. The different perspectives and their corresponding challenges can be used to stimulate the debate about how to address and how to balance them.

Unbalanced SSC objectives In the case studies investigated for this research the dominating goals were related to efficiency savings (except for the DWM case which also has quality improvement as a goal). A reason for this can be found in the observation that the case studies were predominantly established to save costs, which is confirmed in literature (Schulz & Brenner, 2010). The main focus of SSCs is on maximising efficiency which might be a reason why this perspective receives more attention, both in literature and in the case studies.

Conclusions and implications In this paper literature was reviewed to derive a taxonomy of SSC development challenges. Based on the theoretical perspectives of Ulrich and Barney (1984) and Grant (1996) a systematic overview of 15 distinct challenges to account for when trying to achieve cost-efficient operations with SSCs has been made. In addition, three case studies have been investigated to illustrate the challenges derived from literature. The perspectives and their corresponding

A taxonomy of management challenges for developing shared services arrangements challenges demonstrate that sourcing with SSCs is a complex matter in which simultaneously various challenges need to be addressed by organisational change management. Based on the four perspectives change management has to deal with resource dependencies and power struggles, achieving efficiency by minimising and managing costs, achieving survival in the long run within turbulent organisational environments and finally coordinating knowledge integration. A carefully orchestrated balance between achieving and maintaining efficiency via standardisation versus dealing with power struggles and resource dependencies must be achieved whilst dealing with other SSC challenges. The analysis of the case studies shows that each SSC was confronted with a different set of interrelated challenges. This confirms our starting point that there is a need to create an overview of these challenges. Furthermore, this suggests that SSCs are less uniform than often thought and the (degree of importance of the) challenges that are encountered vary per situation. Hence, this research underlines that a uniform approach to SSC development is not recommended. The establishment of a SSC cannot be treated as a standardised process and the context needs to be taken into account. Managers can use the taxonomy as a comprehensive list to determine which challenges play a role in their situation and to anticipate on them. They can use the taxonomy to determine mechanisms to mitigate challenges that can arise in the SSC development projects they are involved in, for instance during the creation of a SSC transition plan. We found that adding the knowledge perspective of Grant (1996) alongside the three perspectives of Ulrich and Barney (1984) contributes to the understanding and enabled to attain a comprehensive view of the many SSC development challenges. Our analysis shows that it is imperative to combine the theoretical perspectives to gain complementary insight. The four perspectives do not only show a different set of challenges, they can also provide a mean for balancing different objectives and stimulating debate about the way to deal with the challenges and directions that can be taken when developing SSCs. The identified SSC challenges can be used as components of organisational theory dealing with the development of SSCs. Furthermore, future research can be dedicated to taking a closer look at individual perspectives and related SSC challenges. Also the relation of the identified in-house SSC challenges with challenges in an outsourcing context provides possibilities. Supplementary case study material can be useful; for example SSCs operating in a private context or international comparisons. Overall, a multidisciplinary approach is recommended for further research on dealing with the varying nature of SSC development challenges.

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Yin, R. K. (2003). Case study research: Design and methods (3rd ed.). London: Sage. Zhang, R., Zhang, Y., & Huang, Y. (2009). Key changes of design on financial shared service: Lessons of Chinese group companies. Proceedings – 2009 IITA International Conference on Services Science, Management and Engineering, 73–76. ARJAN KNOL MSc is a PhD student within the Business & ICT section of the Faculty of Economics and Business of the University of Groningen. He graduated with honours and received a Best Thesis Award from his faculty for his master thesis about offshore outsourcing success. Currently he is conducting a PhD research at the Dutch Ministry of the Interior and Kingdom Relations in the area of decision enhancement and shared service centres. His research interests are in the fields of sourcing, effective decision-making and design science. He published multiple peer-reviewed publications. More information: and .

Dr. MARIJN JANSSEN is Director of the interdisciplinary Systems Engineering, Policy Analyses and Management (SEPAM) Master programme and is an Associate Professor within the Information and Communication Technology section of the Technology, Policy and Management Faculty of Delft University of Technology. His research interests are in the field of public-private service networks and in particular governance, orchestration, (shared) services, intermediaries, open data and infrastructures. He serves on several editorial boards and is involved in the organisation of a number of conferences. He published over 200 refereed publications. More information: .

Prof. Dr. HENK SOL is Professor of Business & ICT and Founding Dean of the Faculty of Economics and Business of the University of Groningen and the Faculty of Technology, Policy & Management of Delft University of Technology. His research focuses on the development of services enabled by ICT, management information systems, decision support systems, telematics and designing information-intensive, innovative organisations. He supervised over 75 PhD students with a great many publications in these fields and served in editorial roles for many IS journals. More information: .