Bill Thomas, Partner, KPMG in the UK

Today the shared services and outsourcing markets are in a state of flux. Some highs, some lows, and some evolution. So while things may not seem bright everywhere, there continues to be much supplier and buyer activity.

European angst

First, let’s look at Europe. Boardrooms are anxious and concerned about costs, revenues, and access to capital. Retailers are facing a market where there is real anxiety and consumers are hunkering down. Then there’s the issue of talent. Tragically, there is much unemployment in many markets.  However, corporations on both the supply side and the buy side are wrestling with an inability to rapidly attract and retain the right skills they need to drive business at the moment.

In the US, the economy does seem to be about a year or two ahead of Europe at the moment. While in Latin America, Africa, Asia and Russia, there are extraordinary growth stories.

Suppliers and buyers follow rising markets

The supply side is positioning themselves to benefit from growth economies. There are operating models to refresh, technology to transform, and organizations to enable. Suppliers can move into these new markets and robustly deliver service and capture growth.

The buy side, particularly where they have heavy dependency in Europe, are driven by cash constraints, and by the real need to drive down existing costs while at the same time realizing positive returns on any change programs this year.  We are seeing interesting extremes when we look at the drivers for change programs. At one end of the spectrum, programs are driven by cost and cash while at the other end, there are hot markets where clients are saying, “Assets are cheap. I need to invest and transform the nature of my business to capture that growth.”

Governance grows

The most frequent flyers of change programs are those who are looking to improve governance arrangements over the sourcing vehicles, be they internal, shared services, outsourced, or overseas. All of those can be rapidly improved with a focus on governance.

Organizations are also thinking beyond today’s constraints and the multinational marketplace of the last decade. There’s a real need for looking at the processes that underpin each function’s service delivery, redesigning those processes and deploying them in a sensible way, in a common rhythm, to a common operating model globally.  And when that happens, process improvement is right there.

Technologies make things possible

There exist some interesting nuances. Clients have gone far with establishing shared services or outsourced relationships, but opportunity remains to drive a higher volume or extending the scope of services.  People are realizing they can put more volume into the services they’ve already built, and adopting cloud based services is becoming a great way to increase throughput. However, a word of caution: we see that suppliers have cloud based skills and capabilities that are ahead of buyers’ ability to procure a cloud based service.

Shifting markets and priorities are positive in the long run. They create smarter buyers and stronger suppliers. As globalization moves ahead, both parties are finding new and better propositions.  They’re beginning to get their heads around how to contract for them and how to understand the economic models that go with them. As a result, we are seeing the deal flow increasing. And that’s good for everyone.

For more from KPMG on this topic, visit the KPMG Shared Services and Outsourcing Institute.

Filed under: Market Trends and News, Outsourcing, Shared Services by KPMG