A holding company may centralize functions across several operating businesses.
The potential benefits are clear:
- lower cost;
- stronger expertise;
- consistent systems;
- improved control;
- easier reporting;
- better purchasing power.
Centralization can also create distance, slow decisions, and confusion over responsibility.
Shared services should solve a specific operating need.
Functions commonly shared
Depending on the group, shared functions may include:
- financial reporting;
- treasury;
- legal support;
- tax coordination;
- human resources;
- recruitment;
- IT;
- cybersecurity;
- procurement;
- insurance;
- compliance;
- systems administration.
Not every function should be centralized in every group.
Define the customer
The operating company is the internal customer of the shared service.
The service should have:
- clear scope;
- responsible leader;
- expected response time;
- service standards;
- escalation process;
- cost allocation;
- performance measures.
A shared function should not assume authority over company management merely because it provides support.
Preserve company accountability
Operating management should remain responsible for:
- customers;
- employees;
- delivery;
- budgets;
- local compliance;
- operating decisions;
- company performance.
For example, group finance may set reporting standards while the company’s management remains responsible for the accuracy and performance behind the numbers.
Centralize where capability matters
Shared services may be valuable when individual companies cannot justify specialized expertise.
Examples include:
- cybersecurity;
- treasury;
- complex legal work;
- senior recruitment;
- group insurance;
- transaction support;
- consolidated reporting.
The group can provide access to higher-quality capability than each company could maintain alone.
Keep local knowledge where it matters
Some work depends heavily on:
- local employment rules;
- customer behavior;
- language;
- market practice;
- operational context;
- management relationships.
A centralized team may lack that knowledge.
The model may need local execution supported by group standards.
Address legal and tax requirements
Cross-entity services may create issues involving:
- contracts;
- transfer pricing;
- VAT or sales tax;
- data processing;
- confidentiality;
- employment;
- regulatory responsibility;
- intellectual property.
Qualified advisers should structure the arrangements appropriately.
Measure whether it works
Review:
- service cost;
- response time;
- quality;
- company satisfaction;
- risk reduction;
- efficiency;
- operating impact;
- duplicated work.
Centralization should not be preserved merely because it was difficult to implement.
Shared services create value when they give operating companies better capability and information while leaving accountability where the business is actually managed.