What it means
In growing businesses, different departments or regional branches often duplicate administrative tasks. Each location might hire its own person to process invoices, answer employee questions about benefits, or manage software setups.
Shared services brings these routine, back-office tasks together under one roof, often operating like an internal service provider. This approach matters because it eliminates wasted effort and lowers operating costs.
When a single central team handles payroll for all company branches, they can invest in better software, standardise the processes, and work much faster than individual local teams could on their own. In practice, operating a shared services model requires treating internal departments like paying customers.
The central team agrees on service level targets, such as how quickly they will resolve an IT support ticket or process a supplier invoice. This keeps the central team accountable and ensures the rest of the business gets reliable support.
While popular in large enterprises, smaller growing businesses also use this concept by grouping administrative tasks for a cluster of local shops or offices. The goal is always to free up local managers to focus on serving customers and generating revenue, rather than getting bogged down in paperwork and routine admin chores.
Think of an apartment building. Instead of every flat buying its own lawnmower, washing machine, and repair tools, the building provides a shared laundry room and a central maintenance crew for everyone to use.
In practice
Real-world examples
Example 1
A growing retail chain with ten stores centralises its payroll. Instead of each store manager spending five hours a week processing timesheets, one central HR specialist handles the payroll for all ten locations. The stores together recover 50 manager hours each week, which they spend on customers and sales.
Example 2
A mid-sized manufacturing firm with three regional offices creates a central IT helpdesk. All technical support requests are routed to this single remote team, reducing software licensing and hardware costs. The firm also negotiates one bulk licence in place of three separate ones.
Example 3
A healthcare group with five clinics establishes a central billing department. Patient invoicing and insurance claims are processed by one specialised team, improving accuracy and reducing payment delays. Clinic managers receive a monthly report showing how many claims were paid on time.
Think of it
Think of an apartment building. Instead of every flat buying its own lawnmower, washing machine, and repair tools, the building provides a shared laundry room and a central maintenance crew for everyone to use.
Formula
Calculation
Cost Savings = (Standalone Administrative Cost per Location x Number of Locations) - Centralised Shared Services Cost
Worked example: 5 branches each spend $20,000 yearly on local bookkeeping, which is 5 x $20,000 = $100,000 in total. A central shared service costs $70,000 to run, so the annual savings are $100,000 - $70,000 = $30,000, which is 30% of the original cost.
Do not forget one-off costs. If setting up the central team costs $40,000 for software and training, the payback period is $40,000 / $30,000 = 1.33 years, or about 16 months. After that, the full $30,000 a year drops to the bottom line. Many companies also charge internal customers a fee per transaction, for example $70,000 / 14,000 invoices = $5 per invoice, so that each branch can see what it is using.Case study
Seen in the real world
This is a fictional, illustrative scenario. Brightway Logistics operated five regional depots across the UK, and each location employed two administrative staff to handle local supplier invoices and customer queries, costing $60,000 per depot in wages. Total admin spend reached 5 x $60,000 = $300,000 annually, with frequent errors due to inconsistent record-keeping. The company decided to centralise these tasks into a single shared services hub at their headquarters.
They hired a team of four specialists at a total cost of $160,000 and invested $10,000 in new accounting software. This reduced their total annual admin expenses to $170,000. As a result, Brightway saved $300,000 - $170,000 = $130,000 in the first year alone. Invoice processing times dropped from ten days to two, and local depot managers were able to dedicate their full attention to driver scheduling and client satisfaction, driving a further 5% increase in monthly delivery volumes.
The finance director then introduced a simple internal charge. With 20,000 invoices and queries handled each year, the hub cost $170,000 / 20,000 = $8.50 per item, and each depot received a monthly report on its usage. Depot managers began to ask why some branches generated more queries than others, which led to clearer supplier paperwork and fewer errors.
Watch out
Common mistakes
- Treating the central team as a dumping ground for messy, poorly defined tasks without proper training.
- Failing to establish clear service level agreements, which leads to poor communication and unmet expectations.
- Forgetting to consult local staff, resulting in a central system that ignores practical day-to-day needs.
Questions
People also ask
How does shared services differ from outsourcing?
Outsourcing sends work to an external company outside your business. Shared services keeps the work inside your company, just grouped together in a dedicated internal team.
What types of tasks are best suited for shared services?
Routine, repetitive administrative tasks that do not require face-to-face customer interaction, such as payroll, accounts payable, IT helpdesks, and basic HR enquiries.
Does shared services only work for large corporations?
No. While popular in large enterprises, growing small and medium enterprises with multiple locations or departments can also benefit by centralising administrative duties.