Best practices in Shared Services Centers

Shared Services Centers - Cost versus profit centers

Article

In this article, Jesper Lillelund, Co-founder and Director of CorporateLeaders, discusses the difference between Cost and Profit Centers in Shared Services Centers.

Shared Services offer potential for significant savings and performance improvement across an organization. They are also the consolidation of common functions, systems, processes and people across business units into an internal service unit that is managed by an autonomous organization.

When a Shared Services Center is run purely for cost reasons, it is not likely to have a sustainable outcome. Shared Services are really about servicing customers and should be run like competitive businesses. Operating a Shared Services Center as a profit center will provide an incentive to create value through further improvements in efficiency, attracting new service business from internal customers.

There are many issues a company must consider when choosing how far the Shared Services Center should be run as “pure” profit center.

Chargeback prices determine how far a Shared Services Center can be considered as a cost center or a profit center.

Tax considerations are one of the many challenges and external implications that impact the choice of the business model.

The whole concept of a Shared Services operation relies on clearly defined Service Level Agreements (SLAs) outlining the formal interface between the center and its customers.