You don't have to sell Jack Cooper on the concept of shared services. Since 1997, productivity cost savings from Bristol-Myers Squibb Co.'s Global Business Services (GBS) unit have yielded the New York-based firm a cool $1.5 billion per year. The cost savings will be reinvested in areas like sales staffing and research "that will increase our competitive strengths," says Cooper, CIO at the $20 billion pharmaceutical company.

In 1995, a Bristol-Myers task force determined that the company could easily cut costs and improve productivity in two key areas: financial-transaction processing and manufacturing. The idea was to consolidate similar functions in each of these two areas across all of Bristol-Myers' global business units. "We didn't need 85 worldwide locations processing invoices," Cooper says.

A two-year re-engineering effort resulted in an integrated SAP-based enterprise resource planning network run by Bristol-Myers' Princeton, N.J.-based GBS group. The system handles everything from order entry to production sourcing.

"We formed an IT shared services [unit] to support GBS," says Cooper. "We wouldn't have the economies of scale or control of funds if we didn't have one instant service run by one IT group. Now, Wal-Mart gets one invoice showing all of our brands."

Both GBS and the IT shared services unit allocate their operating costs back to the business units. Specific criteria set by business units measure how each group performs.

"For IT, it's on-time delivery within budget and the business unit's satisfaction rating," Cooper says.

Sharing the Load

Bristol-Myers isn't alone. Nearly half of the Fortune 500 have set up shared services organizations, primarily to support financial transactions, followed by human resources and IT activities, according to Martin Hammer, a partner at PricewaterhouseCoopers in New York. The approach has been successful, he says, noting that "some companies have achieved 30% cost savings gains."

Hammer adds, however, that a company should generate at least $500 million in revenue "to benefit from the economies of scale shared services can provide."

Technology enables just about every type of shared service. However, IT isn't always part of an organization's mix of shared services.

For example, Darcy Volk, director of Blue Bell, Pa.-based Unisys Corp.'s shared services group in Bismarck, N.D., which handles accounts payable, travel reimbursements and sales commissions, must go through the company's central IT department to ssubmit suggested changes to Unisys' three cash disbursement systems. The IT department's advisory board then prioritizes the requests.

IT shared services typically fall into two camps: transactional, such as data center operations, network services, help desk and maintenance; and professional services, such as application development and telecommunications.

The IT group at Rogers Shared Services handles all desktops, networks and call center support for its parent company, Toronto-based Rogers Communications Inc., Canada's largest cable and wireless company.

Ronan McGrath, Rogers Shared Services' president, says the group spent two years streamlining its IT infrastructure, implementing Microsoft desktops, Oracle databases, Cisco internetworking and EMC storage. Since Rogers' operating companies are experts on their own core businesses, McGrath says, "we decided that they could do applications development better than us."

Like any shared service, IT has to create a set of standards to work by. These may include operating principles agreed upon by the shared services' governance board and CIO, choices of service offerings and prices, negotiable service-level agreements (SLA) for specific services, a benchmarking procedure to determine if a task should be outsourced or an internal billing procedure to cover fully loaded costs.

For example, Williams Communications Group Inc.'s IT shared services group in Tulsa, Okla., is evaluating several SLA tiers for back-end system maintenance.

Andy Dail, an IT supervisor at Williams, says a platinum tier requires a response to a system request within an hour and would carry a higher charge than a gold tier, for example, which would receive a same-day response.

Freedom of Choice

Barbara Quinn, a partner at Cail Consulting Group Inc. in Victoria, British Columbia, says there's no single, preferred model for an IT shared services unit. The basic model, known as a "community of interest," consists of specific, centralized transactional services that business units must use, such as accounts payable or legal services.

They can also negotiate changes to have their services customized. "If the European business units want their payables in euros, they'll be charged a margin for the upgrade," says Cooper.

Another approach is to use a marketplace model. It consists of professional services that business units aren't required to use but can consider and benchmark against third-party services. To be successful with this model, says Quinn, IT shared services must concentrate on improving service quality and allow line management to enforce corporate software and hardware standards.

In the advanced marketplace model, the IT shared services unit becomes its own company. Originally established as an IT organization to support the five divisions of Netherlands-based Royal Dutch/Shell Group, Houston-based Shell Services International became an independent shared services firm in 1998, marketing its services to other oil and gas companies.

Cooper adds that he believes the goal of a shared services organization must extend beyond achieving cost savings and streamlining operations.

"It must align itself with the business units and work like hell to identify and produce the services they need," he says.

» posted by ITworld staff

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