Achieving Real Dollar Savings by Implementing Shared Services

The outcomes of a business case can mean a make-or-break decision for moving forward with shared services. It is critical that you create a business case to understand your costs and savings opportunities, and to be able to demonstrate the benefits of this significant change to your organization. Additionally, the business case creates the baseline from which to measure your progress once you go live with the new model.

ScottMadden recently updated our analysis of shared services business cases we helped develop for our clients in the areas of finance and accounting (F&A), human resources (HR), and multifunction shared services.

We looked for typical returns and staff reductions, as well as ranges for implementation costs and savings opportunities. The latest results of this analysis are presented in this report.

Business cases typically have several financial metrics which are used for comparison to other cases or internal projects, as well as performance “take-aways” for the business. We focus primarily on internal rate of return and payback period in this summary, as comparing net present value across organizations can be more challenging.

Across shared services business cases, we find that the median internal rate of return (IRR) is 39%, and the median payback period is three and a half years. Our data indicates that companies in the top quartile are able to achieve higher returns of 109% or more and pay off investments in 23 months or less. However, even the bottom quartile results show positive outcomes for the business.

We conducted further analysis by industry and discovered that the industries showing the most potential for cost reduction with a shared services model include the public sector (government, non-profit, education), manufacturing, retail, and energy. Business cases developed for clients in these industries resulted in higher average annual savings per employee served with a shared services model. In the energy and utilities sector, the average percentage of labor costs saved relative to full-time equivalent (FTE) reduction is much lower. When looking at FTE reductions, the life sciences and pharmaceutical industry also shows vast potential.

While projections vary by organization and scope, they reflect why many consider shared services a practical path to reducing costs and improving operational efficiency.

Hard-dollar savings often drive the business case for shared services, but clients also realize strategic and operational benefits. Shared services typically offer enhanced scalability, more consistent service delivery, and improved internal controls. Many organizations also cite better access to data and analytics, which support more informed decision-making across HR, finance, and supply chain functions. These gains are harder to quantify but just as critical to achieving long-term value.

In our experience, labor savings almost always exceeds non-labor savings and represents the biggest opportunity for return when moving to a shared services model. We look at labor savings in terms of both the percent of FTE reduced as well as the percent of labor costs saved.

Typical FTE reductions are around 20%, while some companies see reductions of 27% or more. In terms of labor costs savings, the median percent saved is 20%, while top-quartile companies saved 33%. Across organizations, labor cost savings and FTE reductions are not tightly correlated. Some organizations capture significant dollar savings with modest FTE reductions by consolidating lower-complexity work that was previously distributed across higher-cost roles or locations. Others achieve large FTE reductions with smaller labor savings by consolidating lower-cost positions performing administrative or transactional work.

We examined various categories of implementation costs across the business cases to determine typical ranges and understand the most significant costs. These categories included technology, facilities, severance, and implementation support. Implementation support and severance represented the largest component of implementation costs, followed by technology and facilities. Implementation support includes costs for internal and external resources supporting the implementation, including fully or partially dedicated headcount, consulting support, and other vendor support.

 Across the categories analyzed, the ranges shown between first and third quartiles indicate high variability in these elements. The ranges in implementation costs suggest a difference in focus across the companies which can be driven by company strategy, availability of resources (including funding), presence of existing technologies, and other constraints and priorities.

 A variety of additional implementation costs existed for some of the business cases, including retention, recruiting, outplacement or relocation, and marketing and communications.

To determine differences in savings opportunities across functional areas, we examined shared services business case metrics for HR compared to F&A. These two functions represented the most common areas in the business case analysis. Overall, we see moderate differences in the business case results between HR and F&A functions, though both indicate a shared services model can provide benefits regardless of the functional scope.

 The HR business cases show a higher median IRR and shorter payback period, while F&A cases show a slightly higher median percent of FTE reduced as well as higher median percent of labor costs saved.

If you are developing a business case for shared services, keeping in mind a few lessons can help ensure it is successful.

In summary, the returns available through a shared services model represent a significant cost-savings opportunity for companies. Labor savings resulting from the new model show the most significant cost-savings opportunity. These savings are typically achieved through better alignment of staff resources to work performed and increased leverage of technology to automate processes. Implementation costs vary across organizations but typically include technology, facilities, implementation support, and severance. Conducting a thorough business case analysis is critical for gaining support for a shared services model, and ultimately impacts the success of the organization.

Looking ahead, the growing influence of artificial intelligence may further reshape these projections. As organizations assess future business cases, AI-driven automation and analytics are likely to shift both the scale and composition of savings, reducing human effort in some areas by 30%-60% while redefining the work that remains to focus on higher-value analysis and decision support. However, none of this is achieved without investment and transition planning, both of which will influence a business case.

Organizations considering shared services or making a significant enhancement to their existing shared services operations should start with a clear, data-driven business case. ScottMadden can help assess your current state, define opportunities, and develop a case that builds leadership alignment for change.