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ERP Guide : ERP and shared service centres

Tutorial by:Gitika Pandey      Date: 2016-05-20 03:12:17

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ERP systems and shared service centers can exist independently. The majority of ERP implementations take place in organizations that do not have shared service centers. However, many shared service canters use ERP to support their business processes. This is not surprising, as the reasons mentioned for setting up shared services and the characteristics of ERP are well aligned. Schulman et al. [1999] argue that process improvement may be the driving force behind shared services, but that only technology can enable these process improvements, and that the primary technology for innovation in shared services is ERP.

The prevalent motive for setting up shared service centers is cost savings in combination with higher quality of the services. The characteristics of ERP, data integration and support for best practice processes, align well with this motive. The data integration of ERP guarantees that the information entered either in the shared service centre or by employees of its customers can be used throughout the organization, which bridges a potential geographical distance between the shared service centre and its customers.

The best practices offered by the ERP system can be used to optimize the processes in the shared service centre, and the optimized processes can contribute to the intended cost savings and quality improvements.

Today, ERP is also increasingly it for the support of international business [Leladze, 2007]. The modern systems are multi-lingual, support foreign currencies and country-specific payment methods, have standardized reports for mandatory filings for tax and other government bodies, offer specific modules for country-specific wages and salaries calculations, and a variety of other functions that can support shared service centers that have international customers.

Even though the characteristics of ERP align well with the motives for setting up shared services, and ERP is increasingly it for support of international shared service centers, situations do exist where the use of ERP in a shared service centre is not the obvious choice. The suitability of ERP is related to the specialization of the shared service centre.

Shared service centers are set up mainly for concentration of secondary processes. As explained in Part 1 of this book, ERP is traditionally strong in manufacturing processes and secondary processes in the value chain. ERP therefore excels in shared services that specialize in accounting, payroll and order taking.

At this moment, ERP support for shared services that are specialized in industry-specific processes like mortgage administration or insurance policy issuance is still in its infancy.

A different combination of ERP and shared service centers exists. This combination is created when the application support for the ERP system is executed by a shared service centre. In this case the ERP system does not support the processes of the shared service centre itself. The ERP users are based in the business units and other operational units, and the shared service centre provides the application services for these organizational units.

In below image a fragment is presented of the decision of the Dutch government to set up an organization called SSC HRM P&S, which is a shared service centre for the human resource management processes personnel administration and salary administration.

 ERP in the governmental shared service centre for HR processes.

With this decision, the government announced how it intends to change the HR function of the central government and the ministries. The motive is to increase both the deficiency and the quality of the HR function. According to the decision, a cost benefit analysis that has been validated by the Ministry of

Finance shows that setting up shared services has a saving potential of €250 million to €300 million in the years between 2004 and 2015, which is a saving of around twenty-five to thirty percent [Kabinet, 2003].

With respect to information technology usage, the shared service centre intends to build upon experience already available within the participating governmental organizations. As an example: for payroll processing the intention is to use an ERP system, as ERP technology has already been used by several ministries before the introduction of the shared service centre.

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