Managing Shared Services with ABM

1. Managing Shared Services with ABM Reading 12-12 to 12-16 Sabari Devadoss Neil Evangelista Hari Haran Faezeh Minazadeh

2. Shared Service Companies • To keep with continuous improvement, superiority in service and products, many companies such as IBM and GE have managed to share their administrative services among the company’s operating units. These administrative services are called “shared services”. • Shared services include transaction-processing services such as payroll processing, claims processing, human resources and many accounting services.

3. SSCS three basic questions and answers • What causes costs in our operation, how can we manage them? • How do we determine how much to charge each customer? • How do our costs compare to those of others, especially outsourcers who can provide the same services? • ABM can be used to provide the cost information required to answer these questions

4. How do managers manage SSC costs? • Through use of ABM, many companies have understood what causes costs and how to mange them. • Service level costing is a process that involves identifying the activities and costs associated with providing services. • Differential pricing is charging customers different prices for the same service based on customer behavior.

5. How do managers manage SSC costs? (Continuation) • A shared service center should regularly compare its costs of providing services to the cost at which others can provide the service. • Benchmarking helps a center compare service costs with others. • The center’s cost per output of service knowledge is important for benchmarking.

6. How do you develop an activity based framework? • Companies go through three phases in the development of an activity-based framework to support a shared service center: • Initial model building effort, • Customer education and service-level review process, and • Ongoing maintenance and use of the activity-based framework.

7. Steps required to build an activity-based model

8. Initial Model building • This step should be begin with a much more detailed work plan. Steps in this phase are the same steps required to build an activity-based model. • Cost information, relationship among activities, costs, and services provided are built into the model.

9. Customer Education And Service Level Reviews • The center can communicate the information with customers by developing SLA ( service level agreement) for each customer. • This document consists of information about which services are provided, cost of each service, and information about past service levels.

10. Customer Education And Service Level Reviews (Continuation) • Final SLA will cover information such as how billing will be accomplished, whether reviews are allowed periodically and how required information will be gathered over time. The final SLA is based on the results from each customer negotiation session.

11. Ongoing Management And Use • Ongoing maintenance of the original ABM, is linked to service level agreement and benchmarking. • Benchmarking results can provide ideas for continuous improvement efforts. • Continuous improvement efforts can result in lower costs of services incorporated in each ensuing SLA.

12. Ongoing maintenance of the original ABM model

13. Conclusion • As a result, the activity-based cost model provides a more effective means of managing service operation than traditional cost statement analysis. • Improved understanding of costs and drivers by service centers and customers will result in lower total costs to the corporation.