Trends in shared services and outsourcing

in Advisory, 16.10.2017

The Shared Service Center (SSC) / Global Business Services (GBS) and outsourcing industry, which is in a state of flux, now needs direction to move towards a mature state. The industry is pulled in different directions due to external and internal forces be it management disconnect, the political environment or the digital technological disruption.

Driven by internal pressures for process improvement as well as external forces such as digital disruption, shared services and outsourcing are currently in a state of flux. Taking on a more centralized approach brings additional benefits, agility and added value.

Growing steadily over the past five years, the shared services and outsourcing industry is set on a path of further growth. Several factors attribute to this continued growth: Firstly, organizations seek to move higher in the value chain by improving and adapting operating models for better results. Secondly, service delivery dynamics are changing with the as-a-service delivery model gaining acceptance. And lastly, with disruptive forces like automation and cloud playing a key role in shaping up the industry, there are bound to be changes in modus operandi.

Current state of shared services and outsourcing

Most enterprises have already reaped any initial benefits anticipated during the kick off of their  shared service or outsourcing program.

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The top focus areas still remain:

  1. Driving down operating costs
  2. Aligning middle/back-office operations to improve
  3. Scalable and flexible services

The major functions still considered (with decreasing order of use) are:

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Still the major processes that can easily be offshored remain IT and transactional processes like Finance and Accounting, Human Resources, Procurement and Supply Chain & Logistics. In terms of process, offshore teams tend to deliver the transactional piece which is more or less centralized. There’s still a lot of headway to be made in taking on more of the judgmental part of the process and delivering as a Center of Excellence (COE).

What’s changing?

Companies have different objectives and plans to achieve them. Many companies have invested significantly into themselves and have looked at supplier solutions while others focus on competence and improved delivery across processes.

  • Priorities: Across industries we’re seeing a high degree of disconnect between the middle and the senior management in terms of expectations or the value being delivered from the initiatives. With the realignment of priorities, an implicit change in the operating model can be expected.
  • Digital: The increasing need for digitization in combination with other business and technology drivers are making the industry shift increase:
  1. Focus on customer centric delivery
  2. Agility regarding customer requirements
  3. Leveraged technology such as cloud computing and automation

Adapting delivery models

In terms of delivery models, companies are shifting their operating model towards a more Global Business Services / Outsourcing environment with a focus on global scope and delivery across multiple functions with end-to-end global process ownership.

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Global Business Services (GBS) are generally preferred in more mature organizations with a strong delivery presence in Asia Pacific (about 17%).

With the sustained growth in GBS and shared service centers and stronger alignment between suppliers, buyers and advisors, there’s a big shift away from decentralized models. Even new companies are now adopting centralized models. Companies with centralized delivery models are looking at expanding their GBS.

Developments in offshoring and shared services

Implications of change in operating model indicate a significant movement towards more mature GBS centers across industries – primarily in the areas of Finance and Accounting (F&A) and Human Resources (HR). Legal and Corporate Services are new process areas targeted for the benefits of centralization and the shared services model. More mature processes such as IT will continue to contribute towards the outsourcing environment.

In the European markets, insourcing or holding on to certain business units, especially F&A and HR, is expected over the next couple of years according to KPMG’s recent survey conducted in conjunction with HfS.

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Keys to success

  • Know where you stand: Assess your readiness to adapt the operating model and plan well in advance. GBS and digital-readiness maturity assessment would provide direction and identify focus areas. Sometimes a detailed review of the operating model to find the balance between automation and manual processing is necessary.
  • Unlearn and be creative: Be more creative in creating value, solving problems through collaboration and learning how to embrace the digital and intelligent automation tools available. Sometimes it’s beneficial to discard old ways of working to embrace completely new methods by encouraging innovation with quality initiatives.
  • Integrate and collaborate: Reduce the gap between what you think it is and what they think it is. Disconnect between leadership’s ambitions and middle management’s operational challenges must be removed to leverage the benefits of GBS or outsourcing. Developing a joint solution (via workshops like Accelerated Solution Design Workshop (ASD) or U-Collaborate Workshop) with various levels of management might help in solving such problems.
  • Embrace change: Identify the legacy and be prepared to get rid of it to open avenues of increasing experience and results. Doing so requires proper planning and change management as it often covers workforce as well as systems. There’s a need to provide new work experiences since a third of today’s workforce is made up of millennials seeking different challenges.

 

 

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