Decisions about mergers and acquisitions are driven by business strategies and financials.

But for shared-services consolidations, executives have a choice of approach. Consider two alternative approaches:

Pierre, the CIO of a Fortune-100 sized pharmaceutical and medical device conglomerate, saw the huge potential cost savings that could be gained by consolidating the currently decentralized IT infrastructure.

Using a reputable consultant, he developed a compelling financial case. He personally invested his time and "credibility chips" in selling it to the corporate CFO, CEO, and ultimately the Board of Directors.

After months of effort, Pierre's plan was approved. IT infrastructure was consolidated -- over the objections of the business units. Two months later, Pierre resigned "for personal reasons." He won the battle and lost the war.

During the same time frame, Preston, another CIO of a Fortune-100 pharmaceutical and medical device conglomerate worked with NDMA on a different strategy.

Preston said, "I'd rather have a customer than a hostage!" He focused on building a shared-services IT business-within-a-business that earned clients' business through performance, value, and great customer relationships.

He raised the opportunities of consolidation to executives' attention, but with the caveat, "I've got plenty to do as it is. But if you'd like to save money and improve the quality of service, we'd be happy to bid your business."

Through voluntary consolidations, the "market share" of corporate IT grew from approximately 40 percent to over 80 percent of total enterprise IT spending. And as promised, Preston delivered better quality services at lower costs with each consolidation.

Risks of Forced Consolidation

A forced consolidation based on the numbers -- Pierre's approach -- typically causes business units to resent a forced take-over.

The dangers include:

• Complete failure of the consolidation process due to the overt resistance of business units.

• Worse, failure of the resulting organization to deliver on promises due to the covert resistance of business units.

• A breakdown in relationships which inhibits the ability of the shared-services organization to partner and deliver strategic value.

Even if these risks are overcome, ultimately the benefits may not be delivered any faster than Preston's approach. Savings and synergies are delayed due to the confusion and strife caused by the politics, and the difficulties with fundamental organizational improvements which are required to deliver true synergies.

The Alternative: Earn Market Share

A strategy of earning market share over time -- Preston's approach -- is far safer and generally more lucrative (tortoise, not hare).

This alternative positions a shared-services organization as an outsourcing vendor to the decentralized organizations. It can be characterized by the following philosophies:

• We'd rather have a customer than a hostage; we want to earn market share through performance and relationship, not command it through monopolies.

• We're not empire builders; we're not the advocate of consolidation, but we're happy to help if it will save you money and improve quality of service.

• We'll work through, not around, your decentralized staff, as their outsourcing vendor of choice; you won't lose control.

• We're not talking about business process harmonization; we're just suggesting shared services (even for custom solutions), and consortia when clients do agree to share solutions.

• Mechanically, we trade decentralized resources (people, assets, budgets) for SLAs and project contracts -- commitments to deliver the same or better levels of service, at the same or lower costs.

Requirements

There are two key requirements to making this preferred approach work:

• Executive patience. Preston's success occured over five years (with benefits accumulating along the way).

• The shared-service organization must be the internal "supplier of choice." To earn this position, it must:
  • Offer good value

  • Deliver all its commitments reliably and safely

  • Empower clients to choose what they buy

  • Treat clients with respect (as customers, not nuisances or victims)

  • Address business-unit-specific strategies (not "one size fits all")

  • Build effective collaborative relationships

Essentially, the shared-services organization must be a highly effective business within a business.

This is exactly what Preston did. "Build it, and they will come," he believed.

Preston focused on organizational strategy. He implemented:

• A principle-based organizational structure, including executive-level business relationship managers

• A customer-focused, entrepreneurial culture

• Resource-governance processes that gave business units control over his organization's priorities (without chargebacks)

Seizing the Opportunities

In parallel with building a great shared-services organization, Preston "bid" services that replaced decentralized functions whenever the opportunities arose.

Opportunities take a variety of forms. They may be a business-unit executive who's open to the idea of consolidation. Or they may occur when a decentralized group fails in some way (for example, a security breach).

With each such opportunity, there are two classes of questions to answer:

• Data gathering: What resources (people, assets, information) are in scope (the "site survey")? What are the potential savings and synergies through consolidation?

• Organizational and leadership issues: Is the study positioned properly? Is it sponsored by somebody, anybody, other than the shared-services organization? How do we engage decentralized business and functional leaders, and ensure they feel in control? What is our vision (business-within-a-business) such that we build confidence that we'll be their vendor of choice? How do we facilitate local decisions of what exactly is to be consolidated (if anything) rather than forcing a top-down decision on all?

The data gathering issues are familiar. The organizational and leadership issues are often given only cursory attention, and yet they're critical to success.

Resources

Book: Decentralization: Fantasies, Failings, and Fundamentals

Executive Summary: Decentralization Versus Shared Services
C-level overview of the trade-offs, and how to consolidate shared services

Coaching: An executive coach can help you ensure that every move you make, indeed every signal you send, is consistent with the vision of a customer-focused internal supplier of choice. And when opportunities arise, he/she can help you address the organizational and leadership issues.

Workshop: When opportunities arise, a facilitated workshop can structure the dialog with decentralized counterparts to ensure a win-win approach.