Shared Service Centers: Location and Physical Design
Primary Location Options
Organizations typically set up shared service centers (SSCs) because of their many disparate units with duplicate back-office functions. The first question organization leaders must answer is, How many SSCs do we need? The answer depends on the geographic spread of a companys constituent units and how far down the standardization continuum a company is willing to go. This decided, the next question is where to locate the SSC(s). A location analysis characteristically focuses on three options:
- Housing the SSC within existing corporate offices.
- Hosting the SSC at one of the internal-customer or business unit locations.
- Establishing a greenfield site independent of existing operations and located apart from existing operations.
Initially, the first two options may seem attractive to management. Existing locations usually have available real estate; housing the new unit close to current operations is considered risk-adverse; transfers into the SSC offset potential layoffs; transfers of leadership into the new organization are easily achieved; and, initial setup is easier and less intense. However, best practice suggests choosing a greenfield site is a preferable approach.
A greenfield SSC strategy centers around building a new business entity in a new location away from existing corporate entities, complete with a new workforce and a new mission driven by customer service. A greenfield location is important in helping the SSC achieve its objectives for performance, cost, independence, and fairness. Achieving these objectives is at risk if a greenfield strategy is not followed.
New Location Differentiates an SSC
SSCs are designed to be operationally excellent. The centers are designed to provide a standard set of services to customers at the lowest cost possible while employing optimal processes and practices.
This objective often runs counter to the modus operandi of the parent company. For example, a customer-intimate organization goes out of its way to customize goods and services for its customer base. However, there is no need for customization to extend to the internal back-office processes like finance and accounting.
Thus, establishing an SSC in this type of organization requires a completely different culture to achieve its mandate. Establishing a new organization will negate the impact of working efficiently against the prevailing culture of the established organization.
Similarly, moving to a new location will allow the SSC to be a distinct entity with a new breed of operation for itself. A SSC, having a unique culture, needs this independence from the heritage organization to achieve full operational excellence.
SSCs are developed to decrease organizational operating costs. Typically, large organizations choose to locate their headquarters in large cities allowing access to their customers and a suitable labor pool while adding to corporate image. SSCs are low-cost service providers that cannot afford high-cost, large-city locations if meeting their objectives.
The SSC model requires that all its customers feel supported. Establishing the SSC in a greenfield location allows the organization to start fresh with no misconceptions about preferential customer service. Also, new employees are not entrenched in old patterns of behavior. Thus, the greenfield site offers the organization the opportunity to:
- Establish itself in the most cost-effective location possible.
- Select a location where the infrastructure and available resources can properly support the SSC.
- Separate the SSC from any negative connotations associated with existing business units or a headquarters.
- Disengage from work paradigms held by longstanding organization members.
- Design for and evolve into a new culture founded in operational excellence and composed of progressive, high-performing teams.
- Build a new environment supportive of the intended culture.
The transition to a greenfield site means a relatively smooth start to operations. This is a real opportunity for SSCs to prove themselves as viable business partners. With the cost variable critically important, the greenfield strategy is likely to win every time.
Top 10 Criteria for Selecting a Greenfield SSC
Once the decision to build a greenfield SSC is made, a location for the new business must be selected. The process starts with defining and weighing the SSCs selection criteria. Normally these include:
1. Attractive Operating Economics
When selecting the SSC site, attractive operating economics carry the most significance. Locating the SSC in a low-cost operating environment yields significant cost savings far beyond net workforce reduction. Desirable locations offer relatively low real estate costs combined with low labor and SSC support service costs. Corporate tax incentives differ between countries, states, and local municipalities. (In terms of tax advantages, Dublin is a popular location for European SSCs.) Some locations even pay for the development and delivery of training since it enhances the competitiveness of their labor pool.
2. Select Geography with Ample Support and Infrastructure
When selecting geography look for an area that includes access to a suitable labor force, communication vehicles like high speed telecom access, bus and train transportation, suitable highways, and airport accessibility.
3. Proximity of Corporate Location and Customers
This is usually the least relevant criterion in selecting a SSC. Proximity is only significant if SSC leaders need to meet with customers often. The ability to accommodate meetings within day-trip distance might then be valuable in determining the SSC location.
4. Proximity of Competitors
Competitors in this case are other SSCs. Other SSCs in a smaller geographic area suggest competition for the labor force and the potential inflation of salaries or wages. This factor is heightened if any of the competitors are perceived as choice employers. If trained and experienced resources are easily recruited without paying salaries above market scale, then close proximity to competitors is a possible benefit.
5. Ability to Support Multiple Languages
SSCs serving multiple countries might consider acquiring a multilingual staff. Lower cost metropolitan areas with diverse populations might be more cost competitive than homogeneous, remote locations. Ireland provides tax incentives and a well-trained labor pool supporting SSC locations with multilingual needs. India is another attractive location alternative with a mix of favorable economics and a multilingual workforce. Ontario, Canada is perhaps most ideal as it is near-shore, cheaper than the United States, and with Toronto close by, it has access to the most diverse language pool in the world, according to one U.N. study.
6. Hours of Operation
SSCs typically serve customers across multiple time zones. Consider access to a shift-work labor force such as university students and part-time employees.
7. Available Office Space
House the SSC in a suitable building with ample office space. Consider the availability of office space for both short-term and long-term growth. Other companies might discover the attractive economics of your site location, thereby diluting the future low-cost operating environment advantage.
8. Union Activity
In choosing an SSC location avoid areas experiencing high unionization.
9. Low Risk of Natural Disaster
The SSC must be fully operational at all times. A technology and business continuity plan is prudent in all cases. The best practice is to avoid areas with a high likelihood of natural disasters.
10. Quality of Life
Most companies want at least a core of heritage organization employees to be part of the new SSC. This typically means securing people for leadership positions. Selecting a location desirable to these individuals and their families is a significant consideration. Areas offering a low cost of living, a low crime rate, excellent schools, great community spirit, and cultural offerings are more attractive to transplants.
Additionally, it is sound practice to engage the future leader of the SSC in all requirement definitions and decisions. This facilitates the decision-making process, the implementation process, and the sense of ownership that the centers leader is expected to carry out.
For customers to feel they are serviced equitably, it is critical that an SSC divorce itself from an existing organizational unit. |
Selecting the Final SSC Site
Following the due diligence effort, a short list of possible locations is defined and evaluated. The list is presented, and any potentially problematic locations are eliminated. A shorter list of locations for field visits is eventually agreed upon.
Field Visits to Determine Geography
Conduct field visits with the following goals:
- Confirm that an area fulfills the requirements. Realities may differ from the research data used to make the assessment. For example, the relative accessibility to primary sources of labor may have been overstated.
- Meet with leaders of the local business community to understand the business environment and evaluate the availability of quality labor.
- Meet with members of the local business development council and members of government to identify relocation incentives such as tax and training incentives.
- Assess the caliber and availability of the future workforce by visiting institutions of higher learning. Assess whether institutions might also assist with ongoing training.
- Visit the neighborhoods and city center to identify the housing market and cultural environment.
- Evaluate transportation alternatives; determine the viability of commuting and providing access to low- and middle-class potential employees.
- Finally, visit possible sites where the SSC could be housed or built.
Visits to cities can be done anonymously. In this way, local business and government representatives cannot pre-judge a situation, hampering the objectivity of the evaluation process. The selection field can be narrowed from site evaluations. Revisit the first selected site to take the next step in securing promised financial incentives. The organization then reveals their identity to sign agreements. Keep the second site in contention until these final arrangements are signed and sealed. By maintaining this position the organization enhances negotiating leverage.
Building Selection
After deciding on a general geographical location, the next decision is identifying a specific building or office space. There are three primary options: using existing premises, adapting existing space, or building on a greenfield site:
1. Occupy Existing Premises
Typically a B-grade building is most suitable for an SSC. A-grade buildings such as glass towers found in city centers will not satisfy the desired cost profile.
2. Adapt Unoccupied Retail Space
Retail space is typically large, open, and conducive to creating a unique office environment. Many companies take the opportunity to convert such space into an office environment. However, conversion costs can be high.
3. Build-to-Suit Option
Available land permitting commercial building offers a significant advantage. The company can design a high-performing environment that attracts and retains employees. The company leases a build-to-suit facility from the owner just like an existing facility, so the ongoing cost is no higher. One note, however, is the build-to-suit option typically requires a greater investment of time on the front end. This time must be integrated into the overall development timeline for the SSC model.
Real Estate Expert
A real estate expert is integral in evaluating facility options and negotiating the contract.
The real estate experts advice is not an added cost; the future landlord pays this fee. When choosing a facility, give careful consideration to the following:
- Readiness of the facility for the go-live date
- Flexibility to customize the space to meet human performance design goals
- Terms of the lease, including options for renewal and expansion
- Incentives offered by the owner/builder (such as facility services)
New Work Ways Demand a New Location
The consolidation of back-office functions is nothing new to established organizations. Many organizations flip-flop between centralized and decentralized models over the years. SSCs are embraced because they offer a new way of organizing for advantage and provide an effective middle ground between centralization and decentralization.
But even SSCs are subject to change over time. SSCs periodically must reexamine, reevaluate, and rehone their intent as business needs progress. A financial SSC is not, after all, a centralized finance factory. It is a sophisticated, progressive, and fast-paced work environment. An SSC leverages the economies of scale in producing finance and accounting functions, dramatically reducing costs, streamlining processes and response times, and increasing the quality of service provided. Selecting the most appropriate environment contributes to the overall success of the SSC model.
Designing a Physical Environment for High Performance
Many SSCs look like typical modern corporate offices hundreds of crowded cubicles surrounded by executive offices. Along withthe similar look comes a similar feel to the corporate environment. Conversely, the SSC facility can be designed in a way that better supports and enables the new required high-performing culture.
To accomplish this, facility design cannot be performed independently from the design of the organization and its business processes. A good facility design is based on carefully defined requirements. Given the relatively low pay scale and flat organization in the SSC, designers must identify other means of motivating the workforce to increase productivity over time. Designing an attractive facility with an environment conducive to high performance is one way to motivate the workforce and increase productivity.
Facility Design for a High-Performing Workforce
An architecture firm is ultimately needed to work with the team in designing the appropriate environment. The architect can also secure office furniture and equipment to complement the office space. The landlord typically works with the architect. It is important to secure the architect at the beginning of the SSC requirements definition phase to best understand planning and development requirements.
The interior facility design should support an open work environment where team barriers are eliminated. Further, it should allow sufficient diversion from the tedium associated with doing repetitive tasks with numerous channels for communicating. Following are some practical physical design considerations.
- Organizationally, the SSC should have a flat-structure with no hierarchy in the form of offices this applies to the most senior managers. One possible exception is the lead human resources director who manages confidential information.
- Artificial lighting in the design should complement high ceilings and natural light to create an open, progressive environment. This takes the significant number of computer hours logged by all SSC employees into account. Place walkways near windows where possible so that windows and natural light are accessible to all employees. Design seating in an equitable manner so that artificial or arbitrary boundaries of preferred seating are avoided.
- Place leader cubes throughout the SSC. Colocate leaders with their teams as leaders will take regular walk-throughs to increase their visibility and employee support. An isolated leader is counterproductive to the open culture.
- Establish formal and informal multiple meeting areas. Small team rooms and informal seating areas encourage active communication and problem solving. Use substantial amounts of glass in meeting rooms to take advantage of natural light and to create a more inclusive environment.
- Large professional training rooms are mandatory to encourage continuous learning in the SSC. Turnover is a reality, and a self-sufficient training capability is a critical element for the success of an SSC.
- Maintain multiple open wall spaces through-out the SSC to post periodic performance measures based on key performance indicators, continuous improvement, and value-added customer service.
Establish the Timeline
After the initial location screening is completed, all parties should agree to an integrated activity timeline to meet the targeted go-live date. The project team then meets weekly until the building plans are complete. Once construction begins, the project team requires a program manager to coordinate all the activities and communicate the development schedule as necessary. One consideration is to have the contracted architecture firm provide the project management function at a reasonable cost.
Selection, Design, and Build Checklist
The following steps are the most helpful and significant when building an SSC:
Selection Phase
- Define the scope of the SSC
- Choose a site selection firm, real estate adviser, and architect
- Develop location criteria
- Have location consultants perform due diligence on all possible locations
- Develop and visit short-list locations
- Select two top sites
- Work with the local government of the first choice to secure business development incentives
- Work with a real estate advisers to secure appropriate site
- Work with a real estate adviser and an owner/builder to develop plans for optimal site specifications
- Select a program manager for build phase
- Sign the lease
Design and Build Phase
- Program manage ongoing building preparations
- Complete detailed architectural plans
- Sign agreements of service with local telecommunications and utility providers
- Develop emergency procedures and health and safety plans
- Develop business continuity (disaster recovery) plan
- ign agreements with other facility providers
- Secure office furniture and other equipment
- Install new and/or additional lighting
- Install all furniture and computer equipment
