Taking a Pulse on the Global Business Services Market: Webcast Highlights

Stan Lepeak, Global Research Director, KPMG LLP Advisory

KPMG recently released the results of its global 3Q12 Sourcing Advisory Pulse surveys. These Pulse surveys provide insights into trends and projections in end-user organizations’ usage of global business services (GBS). Below are highlights excerpted from the webcast held on October 25.  It was attended by me, Ron Walker, and Bob Cecil.  Both Walker and Cecil are principals in KPMG’s U.S. Shared Services and Outsourcing Advisory practice.

Opening remarks, Stan Lepeak, current market trending

Demand for outsourcing, especially generic back-office or ‘horizontal’ outsourcing remains weak by historical standards. Buyer organizations’ appetites to undertake any sort of change efforts became more muted in the quarter, representative of an increasingly pervasive ‘wait and see’ attitude in uncertain economic times.

Relative demand for domestic shared services centers has increased over the past year, though buyers maintain an increasingly global footprint for their shared services operations. There is increased buyer interest in placing a broad range of business activities into a shared services environment, including strategic work such as data analytics and sales, and marketing support.”

Opening remarks, Bob Cecil, top global business services trends over the past quarter

Cecil: “I have seen three trends as of late that may be of particular interest to our audience.  The first is a movement toward service expansion and integration across a broad range of business services.  Not just traditional back-office transactions, but more into supply chain and decision support services.  And clearing out the white spaces between processes, a true service integration view.

The second interesting trend I have seen in the quarter is an uptick in interest in Business Process as a Service.  In the business process world, this is largely being exhibited in interest in WorkDay or related offerings.   Companies are trying to figure out how much to do themselves, how much to rely on the Software as a Service, and where incumbent or new service providers fit in the mix.

The third trend I have seen on the ITO side is more of a push toward a service integrator model where, because of the proliferation of cloud providers along with other multisourcing, one or a few service providers are acting as a managed agent over others.”

Opening remarks, Ron Walker, top global business services trends over the past quarter

Walker: “In addition to Bob’s comments—which I would characterize as more strategic or macro—on the tactical level, organizations are looking to improve their current operations, both internal and/or sourced,  with a variety of traditional business process improvement initiatives. But the difference over the last couple of years is the access to relatively inexpensive and easy to implement technology solutions such as Blackline/Trintech, Hyperion, Workday, and similar firms.

The other is the continuing movement to utilize Business Intelligence across the enterprise.

Finally, there is the incorporating of control mechanisms as part of the improvement initiatives.”

Lepeak: “The top approaches to improve global business services  delivery capabilities over the past quarter were improve current shared services and outsourcing governance efforts, use internal process improvement, redesign and reengineer to improve process performance, and expand the use of shared services.  Ron, why has outsourcing slipped in favor of other change models, or has it not really?” 

Walker:  “I don’t know that it has actually slipped out of favor, but there certainly has been an uptick in internal improvement and shared service initiatives.  Part of the change has to do with the factors mentioned before such as the easier access to technology solutions and the decreasing arbitrage differential of outsourcing benefits. Frankly the overall options available to clients have increased as well as their own sophistication on how best to deploy a TOM; it really depends on the situation and objective.”

Lepeak: “Bob, how should buyers balance and prioritize the mix of options for improvement?

Cecil:  “You have to really scrutinize each process and each geography to see what model is right.  Rarely does a one-size-fits-all model work.  For core transactions in higher-cost locales, often a traditional outsource, or as I mentioned before BPasS solution, may apply.  For higher-end processes or lower-cost locales, maybe a captive or more joint venture-based model may apply.   And then you also need to look at your own level of maturity on processes and culture to manage in different models to see what model best fits.”

Lepeak: “According to service providers polled, demand for traditional outsourcing is weak.  Just 38 percent of service providers cite pipeline growth current quarter, down 28 percent from last quarter and the lowest level citing pipeline growth ever in the history of the Pulse survey.  Ron, is outsourcing demand really weak or is it that it’s going to a more diverse pool of providers than polled in the Pulse?”  

Walker: “I do believe new demand is not growing at a traditional pace, and part of it has to do with options mentioned before, but it also includes the expansion of qualified service providers.  The leaders are still strong, but many of the smaller providers have invested in industry-specific solutions that have cut into some of the larger providers’ deal flow,  and they are doing this with increasingly  positive and published results, so the market is more diverse.” 

Lepeak:  “Buyer demand has increased faster over the past year for shared services compared to outsourcing.  Ron, what’s your take on what is driving this shift in demand?

Walker:  “Clients are looking for a best fit model, regardless of location; it is a total operating cost coupled with quality and control.  Onshore has become more attractive with incentives and quality workforce options, and of course some political considerations. Success depends on ‘governance’ and coordination.”

Lepeak: “Ron, how are the drivers for the use of shared services goals changing and evolving, especially for more experienced organizations?”  

Walker:  “Buyers are becoming believers in the commercialization of the shared services center and the ability of shared services  to become an enabler for the overall business.  The more sophisticated buyers are actually treating both outsourcing and shared services  very similarly, and  demanding measurable outcomes for a consistent and transport cost and price.

Lepeak:  “Bob, what can users do to better achieve goals sought?

Cecil: “Most organizations would state that economically they have benefited from shared services, but the problem always becomes ‘what have you done for me lately?’  So you need to focus on the harder things such as  process improvement and driving measureable business value.”

Lepeak: “Any predictions for the coming quarter?”

Cecil: “I think more of the same, with the election and potential ‘fiscal cliff’ being the dominant factors impacting demand.  More buyers will focus more formally on driving global business services maturity.”

Walker:“The most interesting action will continue in industry-specific services and in industries such as banking and healthcare impacted by increased levels of regulation an oversight.  Cloud as a complement or alternative to traditional outsourcing will continue to grow.”

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

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