Shared Services vs Managed Services – Understanding the Key Differences

In today’s complex business environment, organizations are constantly looking for ways to optimize operations and reduce costs. Two popular strategies that enable this are shared services and managed services. But what exactly is the difference between the two?

In this comprehensive guide, we’ll break down the key distinctions between shared services and managed services models. Whether you’re considering outsourcing certain functions or centralizing resources internally, understanding these concepts is crucial for determining the right approach for your business.

Defining Shared Services

A shared services model refers to consolidating common business functions used across multiple departments or units within a single organization. The goal is to streamline operations by eliminating redundant efforts and leveraging economies of scale.

Some examples of shared services include

• HR shared services – Centralizing core HR processes like payroll, benefits administration, and recruiting across business units.

• IT shared services – Providing IT infrastructure, help desk, and other technology services to internal customers from a common IT organization.

• Finance shared services – Standardizing accounting, reporting, forecasting and other financial processes under a single finance function.

• Procurement shared services – Managing sourcing, vendor contracts, purchasing, and payments centrally for all departments.

• Facilities shared services – Offering maintenance, security, food services, and real estate management for company locations from one facilities team.

The shared services model aims to improve efficiency, consistency, and service levels by eliminating duplicate efforts and leveraging centralized expertise. Resources are shared and costs allocated across benefiting departments or business units.

What Are Managed Services?

In contrast to shared services, managed services refer to outsourcing specific functions or processes to an external third-party provider. The “managed” part implies that the vendor takes on responsibility for managing and delivering the outsourced services.

Some examples of common managed services include:

• Managed IT services – Outsourcing IT infrastructure management, help desk, cybersecurity, and end-user support to an IT services firm.

• Managed print services – Contracting document management, printers, supplies, maintenance, and related services to an external provider.

• Managed security services – Leveraging third-party security operations centers for threat monitoring, detection, and response.

• Managed customer support services – Relying on an external company to provide customer service, ticketing, and call center capabilities.

• Managed marketing services – Engaging digital marketing agencies to execute strategies like SEO, PPC, social media, and email campaigns.

Organizations turn to managed services as a way to reduce costs, tap into specialized expertise, and offload commoditized functions that are not core competencies.

Key Differences Between the Two Models

Now that we’ve defined both approaches, let’s explore the major differences between shared services and managed services:

Below we’ll break down some of the implications of these characteristics in more detail.

Internal vs. External

The most fundamental difference is that shared services are delivered internally while managed services leverage external partners. With shared services, you maintain control and oversight of the consolidated functions. Managed services shift responsibility to third-party specialists.

Staffing and Assets

For shared services, resources like people, tools, technologies, and facilities are redistributed but stay within the organization. With managed services, external providers supply the staffing, expertise, and assets necessary to deliver the services.

Core Competencies

Shared services allow you to focus on core capabilities by standardizing non-differentiating functions. Managed services enable focusing on strategic priorities by handing over tactical and commoditized processes.

Cost Model

Shared services drive efficiency by reducing redundant labor, systems, and processes. Costs are allocated internally to benefiting business units. With managed services, services are contracted, with external vendors billing for their services.

Governance

Shared services operate under centralized internal governance while managed services are directed by agreements with external providers. Internal service level agreements help govern shared services.

Process Standardization

Since shared services consolidate operations under common processes, they enable greater standardization. With managed services, processes can vary depending on the specific provider.

Determining the Right Approach

So when should you opt for shared services vs managed services? Here are some key considerations:

• Strategic value – Shared services for core capabilities, managed services for commoditized functions
• Control – Shared services for sensitive operations requiring oversight
• Cost – Shared services to cut redundancy, managed for variable spending
• Expertise – Managed services to supplement internal skill gaps
• Focus – Shared services to standardize, managed to focus on priorities

Often, a mix of both models is optimal. Shared services allow you to streamline core functions while managed services enable tapping into specialized partners.

Implementing a Shared Services Model

If you determine shared services make sense for your organization, here are best practices for execution:

• Select services carefully – Focus on high-impact areas with duplication.
• Design operating model – Map out structure, processes, KPIs, and service levels.
• Plan transitions – Develop detailed plans for migrating operations and staff.
• Communication – Ongoing change management and stakeholder engagement.
• Leverage technology – Implement tools to integrate and automate processes.
• Continuous improvement – Refine policies and procedures regularly.

A robust shared services model takes time to implement but can yield significant efficiency gains.

Consider InvGate for Shared Services

A tool like InvGate Service Desk can provide the core platform to enable shared services across your organization. Key features include:

• Central knowledge base – Allow users to self-serve common requests.
• Multi-department access – Grant portal access to all shared service consumers.
• SLA policies – Set service levels per department requirements.
• Consolidated reporting – Gain visibility into performance across units.
• Service catalog – Provide overview of all shared offerings.
• Automation – Streamline processes for efficiency.

With robust functionality tailored for shared services, InvGate makes it easy to deliver consistent, high-quality experiences.

When Do Managed Services Make Sense?

While shared services consolidate internal capabilities, managed services allow focusing on your organization’s true differentiators by handing over commoditized functions.

Reasons to consider managed services include:

• Gain expertise – Access skills your team lacks.
• Increase flexibility – Add or reduce services as needs change.
• Reduce costs – Only pay for what you use from providers’ economies of scale.
• Free up resources – Allow your staff to focus on higher-value tasks.
• Meet demands – Scale to accommodate growth and seasonal peaks.

Evaluate each function to determine whether managed services could provide benefits.

Transitioning to Managed Services

If opting for managed services makes strategic sense, here are some best practices:

• Audit and assess – Review current state and define requirements.
• Select a provider – Research offerings and vet providers thoroughly.
• Transfer knowledge – Plan to provide vendors with process documents and training.
• Set performance metrics – Include SLAs and guarantees within contracts.
• Phase rollout – Transition functions one at a time for smoother adoption.
• Measure success – Track KPIs and milestones vs. goals regularly.

Thoughtfully implementing managed services takes work but can yield advantages.

Blending Shared and Managed Services Strategically

Ultimately, a blended model leveraging both shared services for internal consolidation and managed services for specialty functions often provides the biggest impact.

Some examples include:

• HR shared services for core programs while outsourcing payroll.
• Centralized facilities management with third-party cleaning services.
• IT shared service desk backed by managed network services.
• Internal finance shared services paired with external auditing.

Take a holistic view across the business to determine the optimal mix for your organization.

The Bottom Line

Understanding the distinctions between shared services and managed services is critical when evaluating operational strategies. Shared services consolidate internal capabilities while managed services enable leveraging external expertise.

Assess each business function and consider factors like strategic value, cost, control, skills, and focus. Analyze whether shared services, managed offerings, or a blended model makes the most sense. Taking this strategic approach allows you to optimize operations and support business growth.