The question is: Will diversity suffer?

Global competitive pressures are forcing companies to streamline processes, cut costs, and increase value, and to do so without jeopardizing customer service quality. However, businesses processes are interconnected and do not operate in a vacuum. If there are reductions in staffing levels, there is a good chance that workforce diversity could suffer. If expenses must be cut, there is often internal pressure to shift business to large, global suppliers that offer economies of scale and capacity, and that can harm the ability of small to medium sized minority businesses to compete. Companies are approaching these complexities with new business models that enable them to meet increased pressures for greater efficiency and competitiveness, and one of those models is shared services.

The fiscal reality is that businesses must deliver ever increasing value with fewer resources. Shared services is a business model in which providing efficiency and value is derived through a process of consolidation, while avoiding the creation of a centralized function that becomes bureaucratic or unresponsive. Typically, the back office operations of a company’s multiple divisions are consolidated into a single business entity, and that entity becomes a unique core competency. Typical functions converted to shared services include information technology, procurement, facilities support, finance and accounting, legal, and human resources.

The Deloitte 2011 Global Shared Services Survey Results indicated that labor considerations, like quality, availability, costs, and language skills, are primary determinants of the shared services location. Business functions are treated like internal businesses and the providing entities must deliver support services that are defensible in terms of process costs, service levels, elimination of redundancies, ability to improve business competitiveness, creation of optimal value, and process improvements.

Leaner, Flatter, More Competent, More Valuable

Shared services is a best practice designed to create a leaner, flatter organization able to take advantage of economies of scale, talent pools, and business alignments to reduce support costs and free up resources so they can be redirected to a greater value proposition in support of the business mission and goals. It is important to understand that this is not a centralization process. The shared services entity serves multiple company units, manages its own resources, and even establishes contractual agreements with internal customers. By its very nature, there must be standardization and consolidation so that productivity and quality are stabilized and the outputs are measurable, timely, and predictable. The shared services units are business-oriented and must focus on delivering the highest value services in order to justify their existence.

Unfortunately, there are also risks associated with this business model, especially in areas of diversity. For example, the pressure to consolidate a business function may lead to the elimination of jobs. Proctor & Gamble reduced its Human Resources staff by a third after moving towards a Human Resources shared services model. Staff reductions can easily result in a less diverse workforce unless standards are established and management follows through in its commitment to maintain diversity. P&G now has a vigorous Diversity & Inclusion program that emphasizes principles that easily integrate with the shared services principles of value creation and peak performance. To maintain diversity, corporations must avoid the temptation of using criteria for layoffs that are primarily based on seniority, since many efforts to expand diversity still remain relatively new.

In relation to staffing, a second risk is that the availability of fewer jobs due to consolidation of business functions limits opportunities for new hiring. In addition, there is likely to be fewer opportunities for smaller, diverse suppliers to serve business units, since shared services usually focus on providing large scale services.

There are upsides, though, and capitalizing on them is the key to successfully maintaining a shared services business model without sacrificing diversity. For example, staffing may initially be downsized, but as the company grows, so will the need for new talent. Within the shared services unit, employees may find they have more career advancement options in the larger unit than previously existed. In addition, companies committed to diversity can re-assign people to positions in other areas of the company or retrain them to move into other positions. In fact, these kinds of commitments can ensure the ability to find and retain key talent is preserved. On the supply side, organizations will need to adhere to diversity goals and can even require that diversity be a condition of the shared services business unit in a way similar to the requirements placed on Tier 1 suppliers for Tier 2 utilization.

An Evolutionary Process Goes Global

There are many examples of corporations moving towards shared services centers. It is not a new idea, but it continues to evolve. The evolution is seen in the emergence of global business services systems, as opposed to the fairly simple consolidation of disparate processes into a single location. Business processes involving cross-functional responsibilities are organized into global business services units. It is the cross-functional feature of the next generation of shared services models that reflects the pressing need to take advantage of enterprise-wide core competencies to cut costs, while driving exceptional worldwide performance. Capitalizing on core competencies is much different than consolidating business function.

Norway’s Statoil ASA, an oil and gas production company, and PepsiCo, a food and beverage company, are two good examples of companies that drive value by utilizing cross-functional shared service centers. Statoil established the Global Business Services unit, which provides a broad range of services for processes in IT, finance, procurement, finance, and others. The business unit has service level agreements with its customers. PepsiCo International Europe managed rapid growth of enterprises in multiple countries by standardizing IT and minimizing the complexity of IT processes. The shared services IT unit could better absorb expansion without disruption and provide the services the enterprise operations needed across countries.

To excel, companies will need to become even more market driven than they are now, and that requires efficiencies and an ability to take advantage of the best talent. Management will have to be diligent to ensure that the corporate culture and values are maintained, so diversity practices are not sidelined. The reality is that the shared services business model makes diversity an even stronger imperative.