Transforming Support Functions While Avoiding the Efficiency Trap

Whether we're talking about Shared Services Centers (SSCs) or Centers of Excellence (CoEs), the traditional approach to support functions has been dominated by relentless cost efficiency mandates. While strategic cost management is a legitimate business imperative (including for the business of government), the tendency to reflexively target support functions as the first source of savings creates "efficiency traps" – self-reinforcing cycles where successive waves of cost-cutting ultimately hollow out essential capabilities and create significant organizational bottlenecks. Diminishing the value, if not reversing, the value those support functions were intended to deliver.?

The Efficiency Illusion and Its Resulting Costs?

Pure cost-reduction approaches to shared services and centers of excellence generate far-reaching consequences beyond quarterly reports' immediate financial benefits. These hidden costs manifest in several ways:?

• Process delays that extend transaction timelines and hamper business agility
• Redundant shadow systems emerging in business units to compensate for capability gaps?
• Inconsistent service quality, creating downstream rework for knowledge workers?
• Mistakes and errors that lead to poor decisions and outcomes?
• Critical institutional knowledge loss that compounds with each restructuring wave?

In our engagements across both the public and private sector, we have consistently found real costs incurred from underresourced support functions.?

For SSCs, the ripple effects undermine the very efficiency they were designed to create. For example, in our work with a $3B industrial technology player, excessive cost-cutting in IT infrastructure support manifested as lost opportunity and diluted investment during three concurrent enterprise-level systems implementations:?

• Quick start to all three systems implementations, coupled with a 24-month delay in full implementation due to an inability to effectively manage the implementation cycle?

• Resulting in a final budget that had ballooned by $25M above initial projections, creating a substantial gap relative to initial ROI projections?

• Internal teams unable to effectively or efficiently leverage the implemented systems due to improper testing, debugging, and training?

• Customizations being abandoned due to resource constraints, forcing departments to create workaround processes that undermined the standardization benefits of the ERP system?

• Post-implementation support backlogs extending to 3-4 weeks for critical fixes, directly impacting field activities and customer satisfaction?

For CoEs, under-resourcing compromises the effectiveness and strategic outcomes these specialized units are meant to deliver. At a multinational industrial technology client, budget constraints imposed on their Product Innovation CoE resulted in:?

• A narrower than required innovation funnel?

• Reduction in new product concepts reaching prototype stage?

• Inability to conduct proper consumer insights research, leading to increased product launch failures?

• Loss of key technical specialists to competitors, taking valuable institutional knowledge that had been built over years?

These examples highlight how pure cost-reduction approaches, whether applied to transactional SSCs or specialized CoEs, ultimately generate expenses and missed opportunities that far outweigh the initial savings.?

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Breaking the False Dichotomy?

The fundamental flaw in conventional support services thinking lies in the artificial separation of efficiency and effectiveness. This false dichotomy presents business leaders with an impossible choice: contain costs or maintain service levels. Forward-thinking organizations recognize this is not an either/or proposition - both SSCs and CoEs can and must deliver on both dimensions.?

When implemented with a pure cost-reduction mindset, Shared Service Centers (SSCs) become bottlenecks that prioritize standardization at the expense of business responsiveness. However, the most successful SSCs are designed for both standardization and responsiveness, focusing not just on transaction cost but on end-to-end process effectiveness.?

Similarly, when subjected to pure efficiency metrics, Centers of Excellence (CoEs) lose their ability to drive innovation and best practices. Yet mature CoEs actually reduce total organizational expenditure by preventing costly mistakes, accelerating innovation, and ensuring consistent application of best practices.?

The key insight: Every support function, regardless of model, must balance efficiency and effectiveness. Organizations trapped in outdated thinking often apply one-dimensional metrics - focusing solely on cost per transaction, headcount ratios, or budget variance - while ignoring crucial performance dimensions like response time, quality levels, business impact, and innovation contribution. This misalignment between metrics and mission is a primary source of the organizational bottlenecks and redundancies that plague many enterprises.?

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A New Framework for Shared Services Maturity?

Moving beyond the efficiency trap requires measuring shared services through a more sophisticated lens. Leading organizations now evaluate support functions across three dimensions:?

1. Operational Efficiency: Traditional cost and productivity metrics remain important but insufficient on their own?
2. Service Effectiveness: Speed, quality, and responsiveness from the internal customer perspective?
3. Strategic Contribution: How support functions directly contribute to enterprise value creation through activities like: accelerating time-to-market for new products, enhancing decision quality through superior analytics, enabling market expansion through scalable back-office capabilities, reducing compliance risks that could threaten business continuity, and identifying emerging opportunities through specialized expertise that business units alone would miss?
4. By building resilient shared services using these balanced metrics, companies can weather economic cycles without sacrificing critical capabilities. This demands a deliberate approach to model selection based on the nature of the work, starting with rigorous assessment of which activities are truly transactional and which require specialized expertise.?

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Looking Forward?

The next evolution in support functions requires moving beyond narrow efficiency mandates to embrace a more nuanced understanding of how shared services and centers of excellence create value. Organizations that successfully navigate this shift will find their support functions becoming not just cost-effective service providers, but genuine strategic partners in driving enterprise performance. By breaking free from the efficiency trap, these organizations build resilient capabilities that both reduce costs and enhance business outcomes - proving that with the right approach, you truly can have the best of both worlds.?

In our next article, we'll provide a diagnostic framework for quantifying the true costs of your current support model and share our decision matrix for optimizing your service delivery architecture. We'll also explore how digital transformation is creating new possibilities for simultaneously improving both efficiency and effectiveness in shared services.?

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