Tim Payne, Partner, Global Center for HR Transformation, KPMG in the UK

The year 2012 was when the knives really came out for the traditional annual performance process, and associated aspects such as the 9-box, and in particular forced ranking. Tellingly, a fair number of these knives were wielded by HR commentators and practitioners, rather than those outside the HR profession. Statements were made along the lines of “the annual appraisal demotivates employees.” Experience of our clients and within KPMG also suggests that the “classic” approach does not always have the effect intended. It’s a more than legitimate question to ask whether your performance management process is an exercise in compliance and form-filling, or a genuine tool to align performance to strategy and build engagement and motivation.

At the same time, there is a growing buzz about a different approach to performance management that involves various combinations of:

• A “social” approach
• A more time-flexible, project or customer-focused approach
• A real-time emphasis on feedback and recognition
• A nod toward the growing importance of internal/external online reputation.

Where is the buzz coming from?

A number of places. First, HR systems vendors – no product release is complete without integrated social features, and it is known that talent suites including performance management are the hottest of hot product sectors. They are reacting to a perceived shift in the workforce (Millennial, always on, on-line, collaborative, social, connected workforce), and taking advantage of huge expectation for consumer-standard user experience and the ability to share.

Second, some high-profile organizations have moved away from classic performance management, or announced they will. Facebook is the best known having implemented Rypple, which was then bought by Salesforce.com and rebranded as work.com. Work.com picks up most of the features listed above. You can get an overview of how Facebook is using work.com here. Motorola Solutions recently announced they are abandoning the annual appraisal.

Unsurprisingly, the early adopters seem to be the high-tech businesses where everyone is glued to a laptop and very into social networks.

Third, a legitimate concern in some organizations is that the annual appraisal process has become an exercise in process compliance rather than a genuine tool for driving better, more aligned performance, and more engaged and satisfied workers.

Four elements of the new approach to performance management:  [infographic]

1. A social approach. Social performance management systems like work.com (and Workday, Oracle Fusion, SuccessFactors, PeopleFluent with SocialText and SilkRoad) enable the setting and sharing of team goals, linked to a particular program or sales account. Individuals on the same team can see each other’s goals, and can ask for and provide feedback on those goals. Some offer integration into an internal social network, e.g., sales chatter for salesforce.com, or other system such as Yammer, so people can share their goals more widely if they choose.
2. A more flexible approach. Rather than set objectives, and then revisit them once or twice a year, these systems encourage setting objectives around key projects, and then setting new objectives when the next project starts. At the end of the year, all of the progress rating, feedback, etc. is collated in one place.
3. Real-time feedback and recognition. These types of systems allow individuals to ask for and receive feedback in the moment. They also allow managers to recognize people in the moment, either through praise or “points,” which in some systems automatically flow through into real items such as Amazon credits. Some systems build in an element of gameification to encourage the giving of feedback, and a feedback culture. Facebook has integrated work.com with the compensation module of workday so performance ratings flow through into compensation modeling.
4. Reputation. The Silicon Valley thought leaders talk about the increasing importance of your online reputation. Some are starting to think that, particularly for knowledge organizations, internal online reputation, or a combination of internal and external online reputation will be the greatest indicator of your performance and value to the business. The wisdom of the crowd should identify those who are truly adding value. So the number of times you give feedback online, the number of “thanks” you get, the number of “likes” your articles and posts receive, the number of re-tweets, the number of connections you have – all are quantifiable, and indicators of your worth in a connected workplace. One future scenario has this concept replacing performance appraisal, although most companies are certainly not there yet.

Challenges

To make any of this work, organizations need to use a certain amount of technology, but also a lot of work on culture and mindset. For many U.K. and European companies, some or all of these features would represent a very different way of managing people. There is also the need to somehow link performance to pay, and while many are saying they are doing away with the annual appraisal, this can be taken to mean they are focusing much more on ongoing objective setting, feedback, and recognition, but are still having something at the year-end to assign an overall rating that links to the pay round, i.e., they are not doing away with the annual process at all. It also makes sense to challenge whether such a fluid approach to performance management is right for your particular company, industry, or workforce. It most likely will not work for everyone.

KPMG’s own adoption of the new approach

At KPMG, a new performance management system (on SAP) has just been launched alongside a big campaign to shift our employees’ behavior from “performance management” to “performance development.” KPMG is also piloting features that are called “spontaneous feedback,” which encourage (through game mechanics) people to provide feedback to others and enter into a dialogue about that feedback. If the recipient chooses, he or she can save the conversation to his or her performance record.

Hear more about issues related to Human Resources by visiting KPMG’s HR Center of Excellence and by listening to the KPMG Advisory Institute podcasts Data-Driven Human Resources, Eradicating the Stigma: HR’s Future, and Rethinking Human Resources in a Changing World.

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Stan Lepeak, Global Research Director, KPMG LLP Advisory

Ten years back big ticket human resources outsourcing (HRO) was becoming the rage in sourcing circles.  Service providers and their clients were designing and chasing global “mega” HRO deals ($1+ billion TCV) designed to streamline processes, reduce costs, drive progress, get HR execs a “seat at the executive table,” introduce shiny new technologies, and even fold the laundry.  Research and equity analysts (and even some sourcing advisors) gladly tagged along and kept a tally of the big deals.

Ten years later we know how and where that market went.  Down.  Many mega deals ultimately flopped and while HRO still lives, it is much smaller and humbler and more often wrapped up in an organization’s larger global business services efforts.

When HRO was taking off many felt finance and accounting outsourcing (FAO) would follow close on its heels.  It did not, which retrospectively is a good thing.  FAO tended to plod along often with a focus on more mundane transactional processes such as accounts payable and receivables.  Mega deals never occurred, in part due to a typical CFO’s hesitancy (for good reason) to turn over large swaths of their organization to third parties, but also because many F&A groups are so lean there simply is not enough to outsource to make a mega deal.

Over the past one to two years, however, the FAO market has evolved and the pace of FAO has accelerated.  Mega deals are not on the horizon, but more deals are. And while reducing costs is a major driver there is also often a focus on strategic activities that may deliver the progress so many HRO (and ITO) deals have found elusive.

KPMG, in conjunction with HfS Research, recently released a broad market study on finance and accounting outsourcing and global business services market.  While the FAO market is small (see Figure 1)—even smaller than HRO—it is growing more rapidly than other outsourcing market segments (see Figure 2).  There are variety reasons for this growth and the growth itself is in a different form than a few years back.

The key focus and value organizations are seeking through FAO today has moved beyond the traditional emphasis on outsourcing transactional activities to including strategic value-added services such as analytics and middle- and front-office services.  Buyers are seeking greater automation, as opposed to just cheaper bodies, and more packaged and vertical industry recommendations.   This is changing the competitive dynamics of the FAO service provider market as well.   Check out the new HfS Research Blueprints for additional insights into competitive positioning in the outsourcing service provider market.

The research efforts found that while organizations were having success in reducing operating costs via FAO, they placed greater value on FAO as a means to force change into business operations and to gain access to analytics skills, tools, and capabilities. Given this focus, going forward FAO will become an increasingly important component of organization’s global business services strategy and operations.

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Stan Lepeak, Global Research Director, KPMG LLP Advisory

KPMG LLP (KPMG) recently released the results of its global 1Q13 Sourcing Advisory Pulse surveys. These Pulse surveys provide insights into trends and projections in end-user organizations’ usage of global business services (GBS).  Two prior blogs (click here for the first and second in series) reviewed various highlights of this quarter’s Pulse.

Below are the results from the online polling that occurred as part of the Pulse release Webcast held on April 25.  They reinforce the findings from the Pulse survey itself.

Figure 1 illustrates demand trending for shared services as compared to IT and business process outsourcing.  It reaffirms that buyer interest in the use of shared services has increased relative to the use of outsourcing over the past year though firms are often sticking with their existing sourcing model.

Figure 2 highlights participant organizations’ plans relative to the use of finance and accounting outsourcing (FAO) over the next 12 months.   KPMG, in conjunction with HfS Research, recently released a major market study on FAO and F&A shared services trending.   Results from Webcast polling show the relative immaturity, and therefore growth potential, of the FAO market compared to other outsourcing areas.  Note that in the trends polling questions (Figures 2–4) respondents could only select one response compared to five in the Pulse survey.

Figure 3 illustrates the most common service delivery models, split between the choices of shared services, outsourcing, and in-house delivery  in use in organizations.  Results find that the use of shared services augmented by outsourcing remains the most common model in use in the market today, but that the use of global business services delivery models is growing.

The final point addressed in the Webcast polling was which functional areas, beyond the major back-office processes of F&A, HR, IT and procurement, are being delivered via a global business services delivery model (see figure 4).   Business intelligence and customer care were the two functional areas most commonly cited as being operated under a GBS though several other areas are being supported via this model as well.

To receive the latest insights from KPMG, join the KPMG Institutes. Be sure to customize your profile by selecting “Shared Services” and “Outsourcing” along with other interest areas.

Filed under: Global Business Services, Market Trends and News, Outsourcing, Shared Services
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Mitch Kenfield, KPMG LLP Managing Director, CIO Advisory

For years, those of us who are leaders in information technology have carried forth the mantra, “run IT as a business.” But, for most of us, that really meant run IT as a cost center—manage your P&L, respond to requests, and keep the engine running. In the past, we used terms like “factory,” or “service,” or “utility” to describe the IT function. That was then. This is now.

Today, the business of IT truly means business, and that means much more than just keeping up with the needs of the business while avoiding major budget issues. Today, business executives expect IT to provide greater value and to do so with more agility. They expect the “IT Business” to enable their business by providing the right products at the right time and cost. Their expectations for capabilities, speed, and value are increasing. Their options for alternative solutions are expanding.

IT organizations must go beyond as a back-office function. This requires a change in how the organization sees and positions itself, how it interacts with the business, and how it operates, and importantly, it requires the CIO to serve as the chief executive officer of the IT business.

The “CIO agenda”

Our experience has shown that leading CIOs consider five major strategies as part of their CIO Agenda:

1. Create business value: lead the business in using technology to enable innovation and advance business agenda
2. Navigate business change: help the business implement and achieve the desired benefits of major change (e.g., M&S, new market entry, outsourcing)
3. Optimize IT investments: align the IT investment portfolio with business priorities and maximize return on investments
4. Transform IT capabilities: continually optimize the IT delivery model to meet evolving expectations for performance, quality, and cost
5. Deliver IT with confidence: understand and proactively manage risks to protect the business and reduce impact of disruptions

Anticipating change

With these strategies in mind, forward-thinking IT executives seek to pave a path ahead of their business stakeholders without waiting to be told what is needed. They proactively think about customers’ changing needs and how to best serve them. They consider how they can assemble and integrate responsive solutions and how they will build the competencies and culture to appropriately deliver needed business capabilities, growth, and profitability. They constantly evaluate and work to increase the value they provide.

The Journey

The journey to running IT as a business can start from different places and take multiple paths. Priorities for any given organization depend on their specific business needs and the industry environment within which they operate. The CIO must consider both the current state of IT and the future needs of the business to define an appropriate path that balances pace with achievability. Some organizations must mature across a number of technology business capabilities in parallel. This process can include improving service quality through IT service management (ITSM), understanding the true cost of service through IT financial management (ITFM), and gathering initial IT metrics to build a baseline and to illustrate results. Other organizations have made significant progress in individual areas and are ready to take the next step toward proactive and empowered decision-making for IT. This comes through the integration of processes, data, information, and capabilities from multiple areas to help manage the business of IT through “IT Intelligence.” KPMG’s experience working with clients who have been successful delivering clear and demonstrable benefits has shown that there is no single, “right” path, yet an early and continual stream of progress has been essential to garner business support and value.

At KPMG LLP, we are working with clients to understand the ways their IT organizations can increase value by moving from a traditional service delivery organization to one that demonstrates mature business disciplines and values. We are calling it “Technology Business Enablement”—it’s intelligence for the IT organization.

There is a lot to discuss on this topic and a lot to learn. In future blogs, we will talk about the critical actions a typical organization can take to step up to the challenge of connecting all the pieces and providing measurable business value.

Hear more about running IT as a business in this KPMG Advisory Institute podcast and paper.

And visit the KPMG Advisory Institute for the latest thought leadership from Management Consulting and KPMG’s microsite to learn more about guiding the CIO agenda.

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Vicki Phelan, KPMG Director, Shared Services & Outsourcing, Life Sciences Advisory

(Vicki Phelan is cofounder of Women in Shared Services and Outsourcing. She is a life-long networker and credits her success to the many people she’s met along the way.)

Networking is big business today. Not just for those who network effectively, but for the many online and in-person networking services, organizations, and groups to help those who may not be “naturals.” Today, LinkedIn has more than 200 million members. Facebook has 1.1 billion. In fact, 40 percent of people say they socialize more online than they do face-to-face. No doubt, many live, in-person networking events are awkward, if not downright painful, as we paste on our name tags, get out our business cards, and look for the next meaningful conversation.

Without trying to over-generalize, networking is especially awkward for women. Recently, KPMG LLP hosted 50 senior executives at the 7th Women in Shared Services and Outsourcing conference, and one of the most interesting panels centered on networking. While men tend to easily blend their work lives with their personal lives and relationships, women tend to keep their heads down, focusing on getting work done and taking care of families, and networking only if and when they deliberately schedule time for it. So when they do find time to formally network, the pressure is on!

Natural differences

This is undoubtedly why women tend to revert to friends and existing relationships in a very subtle, often too subtle, way. Women don’t want to be seen as “using” relationships, so they often don’t effectively articulate their ambitions. At the same time, they don’t as easily offer to help others, holding back ideas, connections, and mentoring. For women, this is a cautious, serious business.

Dare I say, here is where we can learn something from the guys. Men tend to be amiable, open books when it comes to networking. In fact, they naturally network without even thinking about it. Just about any guy can open a conversation with a complete man-stranger by talking about sports. After the ice is broken, they can naturally wade into topics around work, who they know in common, what they are trying to do, and how they can help each other. It is very reciprocal, high-level, and nonthreatening. They easily triangulate opportunities this way. For men, it often doesn’t feel like business at all.

Discovering your network

Whether online or in person, what kind of people should you consider in your networking circles? Typically, a mix of folks makes the best sense as great ideas and strong connections often come from where you least expect it. Of course, there are the internal company colleagues—both direct and indirect stakeholders in your career. But there are also many external people who can be great sources of ideas, inspiration, and relationships. These often include competitors, community and business leaders, industry experts, vendors, consultants, spiritual connections, neighbors, even the PTA.

A plan without end

At the risk of being somewhat mercenary, having a networking plan does play a major role in many successful executives’ lives. Breaking into the Boy’s Club has a seminal chapter on networking. Using that as a foundation, ask yourself a few important questions:

• How did networking help you reach your current position?

• Did you circle back to thank and help the people who got you there?
• Are you comfortable in networking with men, women, or both?
• Are you comfortable integrating your personal relationships with business opportunities and vice versa?
• What role does social networking play in your efforts?
• How do you intend to keep your network engaged, active, fresh, and growing?

Perhaps one of the most important aspects of networking is that it isn’t just about you and your next job. It’s about others. If you focus your efforts on other people—learning, listening, advising, mentoring, and connecting—networking will pay off in ways you might have never expected.

I leave you today with two important questions. The first one is easy. The second one is a bit tougher:

Whom have you met recently? And how can you help them?

That’s what networking is all about. So get your head out of your laptop, look around, open up, and meet a new opportunity.

To receive the latest insights from KPMG, join the KPMG Institutes. Be sure to customize your profile by selecting “Shared Services” and “Outsourcing” along with other interest areas.

Filed under: How to..., Outsourcing, Shared Services
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Steve Fortier, Principal, KPMG LLP
Stan Lepeak, Global Research Director, KPMG LLP Advisory

Organizations have many issues to consider and address as they embrace and expand cloud efforts.  Saving money, accessing new software capabilities, and addressing security concerns are typically top on the list.  Understanding taxation ramifications are not always top of mind or at least firms’ tax experts are often not adequately in the loop on cloud investment and decision-making processes.  This approach can prove costly in the long run both from the perspectives of exposing firms to additional tax liabilities or missing out on opportunities that could bolster overall cloud cost savings efforts.

KPMG recently released the 2013 edition of its annual cloud market research study.  Prior blogs have reviewed cloud implementation complexities, potential benefits beyond cost savings, and security issues and concerns. This blog addresses potential tax implications from cloud efforts.

A high portion of cloud research study respondents agreed that the tax implications of cloud adoption play a role in the cloud decision-making process (see figure below). It is interesting to note that they also believe that their organization is appropriately skilled to overcome the challenge of uncertain tax implications.  KPMG experience finds this skills assessment is often misplaced.

On face value, the research study results seem to show a remarkable awareness of cloud-related tax implications by IT and business executives. But according to a recent KPMG survey of 200 senior corporate tax professionals in the US, less than half of all companies include their tax department in up-front discussions on cloud initiatives.

The reality is that getting strategic tax advice from the company’s tax team should be a critical step in the cloud planning process. There are significant tax implications in how cloud service agreements and operations are contracted and structured that should be considered and appropriately managed.

According to the 2013 cloud survey, business leaders indicate they understand the implications of shifting IT expenditure to current expense as well as potential transfer pricing issues.   While these issues are important, if you ask a tax professional what the biggest challenges are, they would likely point to issues around indirect taxes such as VAT and sales tax, expanded taxable presence and compliance obligations, or the identification of tax incentives and credits associated with cloud investments.

Take, for example, the question of whether the contracting of cloud services results in a perceived investment in land. If so, the organization may well be subject to indirect taxes on that asset holding. Similarly, the way that intra-group licenses are structured and maintained may result in an unexpected VAT liability.

Business and IT executives tend to consider tax in the cloud as a primarily compliance-driven issue that the tax team can sort out once the contracts have all been signed. In reality, the tax structure of the cloud service can make a significant difference in the company’s tax position, when it is approached strategically.

Visit the KPMG Advisory Institute for the latest thought leadership from Management Consulting and KPMG’s microsite to learn more about guiding the CIO agenda.

Filed under: CIO Agenda, Cloud Computing, Information Technology (IT), Market Trends and News
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Greg Bell, Principal, KPMG LLP
Stan Lepeak, Global Research Director, KPMG LLP

As we write this blog cybersecurity, “cyberterrorism,” and “cyberwar” are once again front page news. The US president has declared that the “cyber threat is one of the most serious economic and national security challenges we face as a nation” and that “America’s economic prosperity in the 21st century will depend on cybersecurity.” Meanwhile, the US and China are trading accusations over government sponsored, or at least condoned, hacking efforts, and leading tech firms and news publications are admitting to having suffered major hacks. These developments are heightening legitimate concerns over tech and information security and nowhere are these concerns greater than in the context of cloud.

KPMG recently released the 2013 edition of its annual cloud market research study. Prior blogs highlighted some of the hidden or at least unexpected costs and complexities organizations adopting cloud are experiencing and the need to look beyond just cost savings as a cloud driver. Here we examine how organizations view and are addressing cloud security issues and needs.

Not surprisingly, challenges relating to security and privacy continue to rank highly on the list of concerns for both IT and business executives (see figure below). However, the data indicates that organizations are becoming more confident in the security of cloud providers. While this is positive it is critical that confidence does not slip into complacency.
Working with clients KPMG has found that–with few exceptions–leading cloud service providers tend to have a very firm grasp on security. In most cases, these providers offer robust and resilient security measures and controls that may enhance some companies’ security rather than diminish it. This in no way means that security should slide down the cloud agenda. In fact, before organizations move one piece of data into the cloud, they must ensure that they have thought carefully about creating a cloud security strategy that takes into account the broad array of service providers that the organization may engage. Ideally, this will include key measures for data security, integrity, and availability.

Most importantly, developing a robust cloud security strategy will require IT and the business to work closely together to ensure that the organization’s security posture and approach are well thought out and articulated. The business, for example, will need to decide how fast they need their data, how accessible it needs to be, and what level of security is appropriate. The technology function, on the other hand, will need to translate those needs into specific security requirements and then manage their providers to maintain and monitor those security protocols and controls.

The reality is that Information Security (IS) departments will continue to guard the organization’s key information assets, whether or not those assets are stored in-house or in the cloud. But this movement to cloud will require IS leaders to start thinking and communicating about security in terms of how it impacts the business operations and the services they use, rather than the security of infrastructure such as servers and networks. The bottom line is that the business and its executives don’t need to understand the nitty-gritty of cloud security; they do, however, need to know that their data, applications, and intellectual property are reliable, accessible, and safe.

Visit the KPMG Advisory Institute for the latest thought leadership from Management Consulting and KPMG’s microsite to learn more about guiding the CIO agenda.

Filed under: CIO Agenda, Cloud Computing, Information Technology (IT), Market Trends and News
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Steve Bates, KPMG Principal, CIO Advisory

If venture capitalists walked through your door with a sack full of cash and asked you to clearly articulate the market value of your IT organization, what would you tell them? Would you talk about uptime, utilization, platforming, and cost savings? Or would you discuss tangible business metrics like market share, margin enhancement, return on capital, customer penetration, and product differentiation?

Right now, this scenario is playing out across a multitude of IT organizations big and small. How has the topic so radically changed from standardizing, optimizing, and controlling the IT estate to running technology services like a business? The answer comes from the top. Today’s boards and executive leaders are demanding a significant change in IT innovation that is creating a new dialogue about how organizations invest in and interact with the enterprise and its customers and suppliers.

Gain insights and know how

Top priority questions coming from the boardroom that impact the overall business strategy include:

• Why is the organization so challenged in using both data and relationships to plan with greater confidence?
• How should IT be measured via five business metrics, and why is transparency only the first step of the transformation journey?
• What is the CIO’s and CFO’s joint role for enabling the enterprise to rapidly adjust operating strategies and capability sets?
• What is IT’s role in creating sustainable value and driving a high performance culture?

Recognizing this shift in executive-level appreciation for technology, leading CIOs are pivoting IT’s capabilities beyond utility operations to delivering deep insights on the cost, value, and use of solutions that produce big wins for their companies in the marketplace. Creative financial structures, more holistic risk views, data-backed scenario modeling, and a ruthless focus on IT portfolio performance are resulting in a wider array of choices tied to actual business outcomes.

By no means is this an easy change. Traditional IT supply-based operating models must give way to a business-owned demand culture. Roles like architecture, strategy, planning, and IT finance must be elevated to a more senior status to credibly deliver on harvesting existing investments while actively seeking out external disruptive technology that provides competitive advantage. New aptitudes and decision strategies traditionally found in industries like private equity must be developed and embedded to kill off underperforming assets and redeploy capital.

Few C-suite leaders have the span of responsibilities as the IT executive and as little control over their budget and resources. Thankfully, new standards for technology business management are rapidly maturing and being recognized and adopted by leading global companies. Over the next few weeks, we’ll explore how those leaders are responding to their most senior stakeholders and transforming IT’s role in the value stream.

In my next blog, I’ll address the building blocks for successful demand planning. One hint: It starts with transparent, fact-based discussions and relies upon a unique set of skills rarely found in one person.

Hear more now about IT Transparency in my KPMG Advisory Institute podcast: IT Transparency: New Capabilities Driven by the Boardroom.

Filed under: CIO Agenda, Information Technology (IT), Market Trends and News
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Stan Lepeak, Global Research Director, KPMG LLP Advisory

KPMG International recently released the results of its global 1Q13 Sourcing Advisory Pulse surveys. These Pulse surveys provide insights into trends and projections in end-user organizations’ usage of global business services (GBS). A prior blog reviews the highlights of this quarter’s Pulse.

Organizations are continuing to expand the scale and scope of their GBS efforts. This expansion is occurring in a variety of dimensions geographically, cross-functionally, from a more end-to-end process standpoint, and with the inclusion in the GBS model of more diverse and often more strategic functions, process, and activities. Activities such as supplier relationship management, supply chain and logistics services, and business intelligence are increasingly being targeted for a GBS deployment. Organizations seek to leverage “economies of skills,” optimized geographic deployments, and greater global integration from moving these activities from distributed silos into globalized operational centers. These moves highlight the increased use of GBS operations for more strategic activities and not just as cheaper offshore centers for transactional services. The challenge for organizations’ GBS expansion is the often relative low levels of maturity they possess to manage these efforts.

The 1Q13 Pulse survey did a deeper dive into trends in global business services from the perspective of adoption levels in general and across various functional areas, the impact current global economic and geopolitical conditions are having on GBS initiatives, and the maturity of organizations’ capabilities to manage their GBS efforts. The maturity assessment is an extension of an ongoing market research effort conducted on organizational GBS maturity.

KPMG professionals were polled on nine activities related to managing GBS effort. These categories are similar to those assessed in the related GBS maturity assessment program, though that maturity assessment is much deeper and detailed. Respondents ranked each category on a one-to-five scale where one represents very immature and five very mature (see Figure 1).

The top ranking by KPMG International member firms’ advisors was for GBS organizations’ skills at governance across collective outsourcing efforts globally, though the score level leaves room for improvement at just 2.47 on the five-point scale. All scores were clustered in a close range with the skill of integrated talent management across collective outsourcing retained organization and governance groups globally scored the lowest at 2.04. Talent management overall for both shared services and outsourcing efforts is a weak spot for many organizations. Improving skills in areas such as these is critical to support efforts, as is balancing the ambition of efforts with the current levels of skills to adequately manage them.

There are many things organizations can do to improve their GBS management skills and capabilities. An important one is to run GBS operations more as a business, with a clear value proposition, full-service

methodologies, loyal customers, talented employees, responsive infrastructure, and adequate operating capital. Organizations should also balance their GBS ambitions with their capabilities to support efforts. Efforts should stretch and drive improvement in GBS management efforts, but not break them, or organizations risk taking a step back down the GBS maturity scale.

To receive the latest insights from KPMG, join the KPMG Institutes. Be sure to customize your profile by selecting “Shared Services” and “Outsourcing” along with other interest areas.

Filed under: Global Business Services, Market Trends and News, Outsourcing, Shared Services
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Stan Lepeak, Global Research Director, KPMG LLP Advisory

KPMG recently released the results of its global 1Q13 Sourcing Advisory Pulse surveys. These Pulse surveys provide insights into trends and projections in end-user organizations’ usage of global business services (GBS). The learnings are gleaned from KPMG International member firms’ (KPMG firms’) advisors, who are working closely with end-user organizations that are actively exploring or undertaking GBS initiatives, as well as from leading global business and IT service providers.

Demand for third-party business and IT services, including outsourcing, remained solid in the quarter according to both third-party business and IT service providers and KPMG firms’ advisors polled. Demand for traditional, more transactional outsourcing remains weak by historical standards, and often is low margin and low priority. Increasingly, transactional business process outsourcing (BPO) is threatened, or blessed, depending on your perspective, by increased automation that will continue to supplant people with systems. Traditional transactional information technology outsourcing (ITO) continues to succumb to cloud options to the benefit of buyers and of the subset of ITO providers that can successfully co-opt cloud. Finance and accounting outsourcing (FAO) continues to enjoy a surge in demand, though the key focus and value-add has moved beyond the traditional transactional focus on to more packaged solutions, strategic value-added services, and vertical industry solutions.

Pulse survey results find that service provider pipeline growth for outsourcing services remained solid in the quarter, though not as strong as in the last quarter of 2012 (see Figure 1). There is optimism on demand for services, but concern over deal profitability in the second half of 2013, though opinion is mixed across different classes of providers. Outsourcing demand is still being negatively impacted by a variety of factors including more focus on shared services, negative market conditions in the Eurozone, near saturation in certain account segments, and cloud alternatives. The bifurcation between “leaders” and “laggards” in the service provider market will continue to grow, accelerated by the above-noted trends in cloud, automation, and specialized services.

Economic conditions globally are not materially changing the nature and scope of buyers’ GBS efforts. While there is some relative increased interest in more domestic sourcing as well as increased levels of insourcing of transactional services previously outsourced, overall these moves remain more the exception than the norm and are occurring on a small scale. Firms must identify, however, when and where these options are the preferred choice, and pursue them accordingly.

Specific to outsourcing, buyers remain aggressive about reopening contracts to renegotiate service levels, pricing levels, and scope and are also performing more thorough benchmarking and baselining efforts when preparing for new and renewal outsourcing efforts. The more skilled service providers, however, will benefit from this pending “baby boomlet” of outsourcing demand from contract rebids, renewals, and renegotiations.

To receive the latest insights from KPMG, join the KPMG Institutes. Be sure to customize your profile by selecting “Shared Services” and “Outsourcing” along with other interest areas.

Filed under: Global Business Services, Market Trends and News, Outsourcing, Shared Services
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