Hack:
Busting Monopolies

The approach large organizations use to support their business and employees is inherently flawed. While companies continuously try to find a competitive edge in their respective markets, they have unknowingly created monopolies and monopolistic behavior in their own corporate centers. Monopolies exist when a specific person or enterprise is the only supplier of a particular commodity or service, and are characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods. They are less efficient and innovative over time, becoming “complacent giants” because they have to be neither efficient nor innovative to compete in the marketplace (source).  

The innovation of the 1990’s for building and delivering enterprise-wide services to support an entire corporation was the “shared service center.” In concept these organization units leverage the scale of an enterprise to enable investment and purchasing/negotiating power which promised lower unit cost and better service than a single division was able to achieve. They try to optimize work across the enterprise by centralizing all common work into one department and gain economies of scale. Often the objective of organizing this way is to reduce the unit cost of work while adhering to a set of predetermined service levels. Born was the HR, Technology, Finance, Procurement, etc. service centers. Where technology and automation of repeatable task was feasible, standardization reined.

During the emergence and implementation of the shared service centers- organizations experienced a backlash from the very people they were intended to service, their employees. This backlash often resulted in failed or suboptimal implementations, long and expensive transition periods, higher unit costs and lower service levels. Today these shared service centers have 3 distinctive flaws. Service centers:

1. perpetuate corporate inertia
2. don’t meet the end users’ needs
3. don’t challenge employees who work within them.

On every finance leader’s shelf sits multiple business cases, consulting presentations, software proposals and organizational solutions to achieve the shared service nirvana…the lowest unit cost (seemingly unaware only one organization can get there).

Problem 1. Corporate inertia. Corporate inertia is a term used to describe an established organization or that remains rigid in its thinking and actions rather than being open to changing industry and market dynamics. It's easy for leaders to become complacent when things are going well. Ultimately, inertia leads to a loss of competitive advantage, trapping businesses in traditional operational patterns and halting growth (source).

Shared services have become so ingrained in the way companies organize, resource and get work done that they seemingly operate in an unquestioning environment. They don’t innovate and keep up with the changing nature of business. Admittedly the value of organizing in a shared service center is to standardize. Therefore the core capability in these organizations is the ability to consistently and predictively comply with a predetermined standard. Consequently a shared service center is not likely to have any innovation capability and if some did exist, it would be the job of management to stamp it out quickly. These organizations are the very definition of inertia. The best day of a shared service employee’s work is when they've met a service level agreement or they've come in under budget. They just keep on doing what they were set up to do – only faster and cheaper.

And while almost 80% of the Fortune 500 companies make a statement like “our employees are our greatest assets” in their annual report or most companies will tell you they create value through what their employees’ contribute, they have been chipping away at the knowledge workers autonomy in how they perform their job through the shared service monopoly.

Compounding this problem is the fact that the organizations spend plenty of time and money to recruit talent, however once a new employee is in the door they are forced to use the corporate shared services. Employees have fewer and fewer options/choices about the inputs they can use for their work or even how they choose to work.

Problem 2. Not meeting the user’s needs.

Corporate shared services centers are working across purposes with the business unit they are in place to serve. The major organizing principle of these centers is to centralize all similar activity and then manufacture a standard service. As a proxy for user needs – service levels are established. The service center then agrees to achieve the service level and accept a penalty when missed and often awarded a bonus when exceeded. The entire service center infrastructure (roles, job descriptions, processes, systems, management reports, management meetings, etc…) is built to deliver upon the service level agreement.

And while there are merits to leveraging scale, today’s incarnation of the corporate shared service is like Henry Ford… “we will sell you a car in any color as long as it is black”.

Moreover, the service center is in relentless pursuit of a service level, not in pursuit of helping employees and colleagues be more competitive/successful in the market or even win in business.  This results in a mismatch in what the service center produces and what the user actually needs. All too often this leads to rework by the end user or worse --the end user doesn’t use service or output at all (think of the marketing manager who had to hire an administrator to  complete procurement forms; the junior finance manager who purchases training externally rather than from the training department; the reams and reams of management reports that go unread and unused; the sales manager who had to hire junior staff to interface with all the corporate requests; the executive doing more administration that leadership…).  

Problem 3. Service centers don’t challenge the employees who work within them.

While there is an appropriate role for good operations management, a career in a service center can be the proverbial “thinking inside the box,” literally and figuratively.  Like any monopoly, the status quo is the modus operandi and baring a disaster, change doesn’t benefit the monopoly and is avoided at all costs. (Sometimes even a disaster won’t change the status quo in a monopoly-think of the energy companies). Work tends to be boring, monotonous and separated from the users or main line of business that the company is in. There is no sense of contribution to the business or that your effort actually matters. The service center is so far removed from the business and sector in which it operates that its employees often don’t know the core business, lead products or even key customers. The overall objective has become to figure out how to meet the services level utilizing as few resources as possible, not contribute to the business. This results in a culture of “can’t do” inevitably the employees of the service center tell its user (customers) that it can’t meet a particular need and over time employee’s stop doing or stop trying anything other than meeting the agreed service level.

Delivering a standard transaction or service is not enough in today’s competitive business environment. Additionally, the line business too spends a lot of time and money recruiting top talent to their organization. The very same talent that is supposed to bring value to the company. If you believe that organizations add value through what their people contribute then supporting them in the best way possible becomes a priority. The corporate center of today operates and behaves like a monopoly (Figure 1). There is no incentive or pressure to figure out new and better ways to increase both the quality and speed of service while at the same time reducing costs and producing a service that is continually more valuable to the employee. The only incentive is to meet a service level target. Often the center will reuse a product or services even if it does not meet the user’s business objective.  Organizations can get a lot better return from their employees if they are supported in a way that mirrors the dynamic environment in which they work. A market environment.

Figure 1. Problem Illustrated

A more vibrant and enabling environment for employees to thrive is one in which they can contribute to the business and the mission of their organization – a “can do” environment.