Stan Lepeak, Director, Research, Shared Services and Outsourcing Advisory

Often buyers have viewed global sourcing as a series of discrete options and capabilities (e.g., internal services, shared services, offshore captives, business process outsourcing and information technology outsourcing (ITO)) rather than a continuum of integrated service models. This is similar to the legacy perspective of viewing offshore outsourcing as a point-to-point initiative (for example, from the US to India) instead of an integrated suite of global service delivery capabilities.

The reality today is that organizations should develop a holistic strategy and operational model to support the totality of their business and IT services operations. This includes how to source and manage these capabilities as well as how to continually improve their overall efficiency and effectiveness.  While leading organizations have made progress, for example, in governing their outsourcing efforts as a portfolio via a center of excellence model, often these efforts are disconnected from the management of internal retained operational systems and functions as well as the strategy and execution of sourcing of new investments.  In short, buyers’ capabilities to source and manage a diverse services delivery portfolio have often not kept up with their sourcing ambition’s scale and scope.

Findings from multiple EquaTerra* research studies highlight the diversity of sourcing models employed today by commercial and public sector organizations.

• Thirty-four percent of buyers that have undertaken finance and accounting outsourcing (FAO) are employing offshore resources and 48 percent are using both offshore and nearshore resources (EquaTerra 2010 FAO Service Provider Performance and Satisfaction Study).
• Fifty-five percent of European ITO buyers are using offshore resources and over one half of these same buyers plan to expand offshore efforts going forward (EquaTerra 2010 European ITO Service Provider Performance and Satisfaction Study).
• EquaTerra research has identified more than one thousand shared services center operations managed by western commercial firms in onshore, nearshore and offshore locations.

There are several elements involved in crafting and executing an integrated service delivery strategy and model. At the base level it includes developing systems to help ensure that new sourcing efforts above a threshold level have visibility at the corporate level to monitor that buyers are not adding new alternative service delivery models and capabilities in a disconnected fashion. Similarly with outsourcing governance, adopting a centralized aforementioned center of excellence or enterprise sourcing council (see section VI of the 3Q10 EquaTerra global Pulse survey results) helps ensure adequate visibility and control across outsourcing efforts above a threshold scope. Increasingly, a key component of a buyer’s outsourcing governance operations will include deploying skills and resources to perform the service integrator role to manage and govern increasingly complex multi-sourcing arrangements.

Organizational and operational “silos” have long impeded large organizations’ nimbleness and ability to affect needed change. This holds true today with alternative service delivery model strategies, operations and tactics.  Buyers that take a holistic view to sourcing, managing and continually improving the continuum of their service delivery capabilities are better positioned to compete in today’s global marketplace as well as take advantage of the service delivery options and capabilities it has created.

*EquaTerra was acquired by KPMG in February of 2011.

Filed under: Governance, How to..., Insourcing, Offshore & Captive Centers, Outsourcing, Shared Services by EquaTerra