Achieving Real Dollar Savings by Implementing Shared Services

The outcomes of a shared services business case can be make-or-break for moving forward with the transformation. It is critical that you create a business case to understand your costs and savings opportunities and to demonstrate the benefits of this significant change to your organization. Additionally, the business case establishes the baseline for measuring 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 across 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.

Shared services business cases typically have several financial metrics that are used for comparison to other cases or internal projects, as well as performance “takeaways” for the business. We focus primarily on the 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 indicate that companies in the top quartile achieve 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 shared services cost savings 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 considering FTE reductions, the life sciences and pharmaceutical industries also show significant 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 shared services business case, 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 exceed non-labor savings and represent the biggest opportunity for return when moving to a shared services model. We evaluate labor savings in terms of both the percentage of FTEs reduced and the percentage of labor costs saved.

Typical FTE reductions are around 20%, while some companies see reductions of 27% or more. For shared services cost savings, the median percentage 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 shared services 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 accounted for the largest share of implementation costs, followed by technology and facilities. Implementation support includes costs for internal and external resources that support the implementation, such as fully or partially dedicated headcount, consulting, 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 shared services implementation costs existed for some of the business cases, including retention, recruiting, outplacement or relocation, and marketing and communications.

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

The HR business cases show a higher median IRR and shorter payback period, while the F&A cases show a slightly higher median percentage of FTEs reduced and a higher median percentage 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-saving opportunity for companies. Labor savings from the new model represent the most significant shared services cost-saving opportunity. These savings are typically achieved through better alignment of staff resources to work performed and increased leverage of technology to automate processes. Shared services implementation costs vary across organizations but typically include technology, facilities, implementation support, and severance. Conducting a thorough business case analysis is critical to gaining support for a shared services model and ultimately impacts the organization’s success.

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 within the conventional shared services model, 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 shared services 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, identify opportunities, and develop a case to build leadership alignment for change.