Monday, March 01, 2010

Don't force cultural check-out when building shared services

Shared services is a delivery model for business processes and information systems that has proven itself to be a great fit for insurance companies and many other organizations that have multiple lines of business and distributed offices. A shared services model can allow a company to better reuse information systems and expertise than when every group tries to fend for itself. And it provides a better feeling of control than completely outsourcing the operations to a third-party (I talked about outsourcing of claims operations in a Claims Magazine article in 2008, when gainfully employed elsewhere, but the arguments still stand independent of any company bias I might have accidentally shown).

If shared services has been employed by some of the most competitive insurers out there, what is stopping everyone else from following the model? There are a few reasons:
  1. Inconsistency of systems, such as policy management systems, accounting systems, etc
  2. Inconsistency of business processes across lines of business
  3. Perceived complexity due to cultural or licensing issues across national or state borders

First, let's understand why it is that some companies seem to have such a big problem around inconsistency of systems and processes, before we try to fix the problem. Many insurance companies and commercial organizations have grown their lines of business independently over the years, believing that the requirements of auto insurance (for example) are very different from those of professional liability. For others, lines of business have been incorporated into the company through acquisition, bringing the technology and processes from another organization. In both cases, there is no way around the integration of lines of business into a shared services model than accepting that a lot of things are going to have to change.

By identifying similarities, differences and best practices across the individual organizations, a company can at least start to get a feel for the level of effort involved. The migration of systems is always going to be painful, and must be managed closely. The change of business processes may not be easier, but in reality it can lead to a significant improvement in the way an organization runs, providing tangible benefits over and above the benefits of cost reductions from reuse. Process improvement alone may show huge benefits from an efficiency and productivity standpoint.

So, what about the issue of handling cultural and licensing issues - the differences in the way people expect to work, and the way that local regulators force them to work? In my experience, an analysis of the local requirements of the regulators leads to a fairly consistent set of requirements. Licensing of agents can be tracked to ensure they can work in different jurisdictions pretty easily. And the passing and storage of data across national boundaries can typically be handled if you aim for the highest level of security and privacy requirements of any one state.

In many cases, the biggest issue is probably cultural. The way people expect to work, and they that they believe they work most effectively is the hardest thing to change. Centralizing your systems and business processes will require sensitive, individual change management and buy-in from local executives. Changes to perceived cultural work practices can't be bought, integrated or analyzed, unlike the process and systems changes a company can enforce elsewhere. And a regional focus can truly provide some interesting insight into what could make a shared service work better, that you may not get from a parochial view of how to do things.

The lesson? Listen, communicate and respect everyone involved in the creation of a shared service capability. Otherwise you may see cost reductions in running systems and processes, and equal reductions in the income from some regions due to lack of engagement. Do it right, and the benefits could be better than you could have planned.

A post from the Improving It blog

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