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| 2 minutes read

COE or SSC? The difference and why it matters

A common point of confusion for companies undergoing an organizational transformation is establishing Centers of Excellence (COE) and Shared Service Centers (SSC). More and more organizations that use offshore talent in SG&A functions are now using these centers beyond the need for wage arbitrage and cost savings. Users of these centers may implement them incorrectly or even use the terms interchangeably. COEs and SSCs are distinctive, each with its own mission, use, and benefits.

COEs and SSCs form a continuum with thought leadership and best practices on one end, and high-volume transactional processing, repeatability, and reusability on the other.

COEs strive for developing and implementing best practices, in contrast to SSCs that strive for cost efficiencies and volume processing. COEs have an element of thought leadership and play a leading role in creating and disseminating best practices, while doing so efficiently and often for heterogeneous deliverables. Meanwhile, SSCs have an element of scale economies and play a leading role in creating repeatable and efficient processes for near homogeneous transactions.

When the Two Collide…

The middle ground is often the source of definition clashes and mismatched expectations, setting the stage for trouble.  A COE that performs transactions and repeatable processes starts to mimic an SSC, just as an SSC that is source of new ideas and invests in process origination and reengineering starts to mimic a COE. This can result in employee confusion over roles and responsibilities, expectations, and goals.

The two centers need to be clearly defined up front, in a well-thought-out organizational structure and strategy that includes assigning the right labels, attributes, and charters to these two organizational types to derive maximum benefits.

A Case in Point 

Imagine you embark on a low-cost outsourcing/offshoring journey in pursuit of global talent pools. You find a rich and abundant resource hub, but you have not defined the recipient organization adequately or chartered it with clear objectives. You are hiring top talent in that market on the premise that you are staffing a COE but assign them routine repeatable work typically processed by an SSC. This mismatch rapidly impedes your reputation as an employer to attract new talent. You wonder why your attrition rate in the first year is higher than local averages, and you fail to gain the desired efficiencies in the parent organization.  Since the organizational charters were unclear for the target low-cost center, you risk falling short of meeting both short and long-term objectives, and the implications can be extensive and expensive.

The short-term impact may include:

  • Inability to realize the intended benefits of using lower cost talent hubs
  • High attrition causing reinvestment in hiring and training
  • Loss of brand goodwill at target destination
  • Frustration among sending side managers who were assured “it will work”

The longer-term impact could be:

  • Having to pay over market to manage retention
  • Cultural diversion between stateside sending and target receiving teams
  • Loss of confidence in target workforce
  • Forced insourcing as the program fails to achieve desired benefits

It is important to be exceptionally clear on what type of organization you are building. Also note that neither of these organizational structures automatically equate to outsourcing or offshoring. In fact, historically SSCs were inhouse centers and often stateside. Aligning on organizational charters, expectations, and services can help maximize the return on the investments and create sustainable advantage.

Take the time to define the right structure to meet the needs of the organization:

  • COEs for thought leadership, outside-in insights, and collaboration; and
  • SSCs for procedural and execution efficiencies and inside-out excellence in performance and productivity.

Tags

operational improvement, organizational transformation, center of excellence, shared service center, private equity

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