Stan Lepeak, Global Research Director, KPMG LLP Advisory
KPMG recently released the results of its global 3Q13 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 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 information technology (IT) service providers.
This edition of the Pulse survey does an annual examination of the state of shared services usage globally. Over the past several years, there has been an uptick and rebound in buyers’ interest in the use and expansion of shared services operations to support various back-office functions and processes, though increasingly front-office activities such as analytics and sales and marketing support are in scope. There is a growing range of scenarios and situations where buyers view shared services as complementary or preferable to the use of outsourcing and several factors contributing to increased interest in nearshore or domestic shared services. They include a recognition that some more strategic work, as diverse as customer care and data analytics, is better performed closer to home from proximity, time zone, cultural, skills, and political correctness perspectives; receding benefits from wage rate disparities; and increased process automation that further detracts from the benefits of labor arbitrage. Protectionist policies and political and fiscal uncertainty also are factors.
Saving money remains the primary driver for shared services usage though more progressive firms are seeking a much broader portfolio of benefits. These include on the operational level better end-to-process management across geographies and more strategic support for market expansion, business growth, or merger and acquisition (M&A) efforts. While buyers are having moderate success in meeting cost savings goals, at least initially, many struggle to deliver, or at least meaningfully measure, more business impactful benefits.
One challenge for driving more benefits from shared services efforts is that as efforts have become more expansive, global, and complex, achieving success becomes more difficult. More sophisticated and experienced buyers continually challenge themselves by raising the bar for success. Many organizations achieve short-term success from “quick hit” wins (i.e., one-time cost reduction from moving work offshore, or consolidating IT operations), but then struggle to continually improve operations and drive down costs, and stagnate over time from an improvement standpoint. To overcome these challenges, shared services organizations must pinpoint their effort’s key success factors and identify and overcome the most likely and common points of failure. KPMG polled its member firms’ advisers in the Pulse survey to address both these items (see Figure below).
Executive management support is identified as the top key success factor in shared services efforts, as has been the case the past two years. Overall governance capabilities, or lack thereof, are identified as the most common point of failure in shared services efforts, as is typically the case as well with outsourcing. Taking another angle on reviewing the results by measuring the gap between success factors and points of failure, the biggest negative gap was for chargeback structures, which had a low score as a success factor but relatively high score as point of failure. This was similar with talent management capabilities. Other KPMG research around GBS maturity has also identified talent management as a key issue and challenge for organizations.
Having identified the success factors and points of failure in their own operations, what should shared services organizations do next? The following is a list of key activities and capabilities that organizations should aspire to undertake and adopt in their shared services as well as overall GBS operations.
- A formally documented multiyear strategy reflected in the overall shared services organizational mission, vision, and operating model and linked back to the overall corporate business strategy
- Comprehensive shared services organizational planning, including succession plan development and a strong focus on talent management
- An aggressive exploration of all sourcing alternatives to create a blended service delivery model that leverages both internal and external capabilities and resources
- Movement towards end-to-end process management within and across all delivery models in the GBS continuum with clear process ownership
- Governance by a steering committee composed of customer representatives, functional leadership, business services leadership, and where applicable, supply and service chain partners
- A highly standardized IT environment that promotes maximum reliability, supportability, and efficiency
- Use of data and analytics tools and services both to measure shared services performance levels and identify problem areas of potential improvement as well as offering data analytics services back to the business units
Shared services users, especially those constantly raising the bar on the scale and scope of their operations, must in parallel raise the bar of their capabilities to support increased ambitions, if they hope to ever evolve from the transactional to transformational in their collective GBS efforts.