Stan Lepeak, Global Research Director, KPMG LLP
The “upper right hand quadrant” is a coveted place in the business world. Two-by-two matrixes and four-box visuals are common means to depict where an organization is at, and where it should strive to be, around a myriad of business and technology topics. Whether a tech vendor or service provider pining for positioning in the upper right of a Gartner “Magic Quadrant” or Forrester “Wave” or a global business services executive eyeing “level 5” in KPMG LLP’s (KPMG) global business services maturity curve (see Figure 1 below), being higher up and upper right is generally connoted as good, desirable, and the place to reside.
Only it is not this simple, at least when it comes to global business services (GBS) maturity.
In contrast to other comparative matrixes, level 5 is not the desired end-state goal for all organizations when it comes to GBS maturity. As with moving up any maturity curve, there are costs and requirements associated with reaching each new level. And with GBS maturity, there are important considerations to address in terms of defining the ideal level of GBS maturity given an organization’s overall business strategies, operating mode, culture, and style.
As is noted in the diagram, level 5 designates integrated. Implied in this level of maturity are organizational characteristics such as wide-ranging process ownership and management of GBS functions, integration and coordination, outsourcing governance GBS operations across geographies and supported business units, and tight integration between GBS processes and underlying supporting information technology applications and systems. These attributes are generally desirable and most GBS organizations should seek to gain them, but only if they fit and mirror the overall organization. Achieving a highly integrated GBS operation may not make sense, or may practically prove impossible to achieve, for example, in a conglomerate of more loosely federated organization. Organizations that lack active executive management support for driving greater GBS maturity should measure their aspirations in the context of what it is viable to achieve.
Part of this decision-making process in determining how far and fast to push GBS maturity involves measuring the cost and benefits of driving for greater maturity. It is easier to achieve greater executive management support, for example, if there is a solid, measureable, and bottom-line-focused business case, and this goes beyond just cutting costs. One dimension of this is to measure financial benefit of greater GBS maturity. This is a complex process, but early results from KPMG’s ongoing GBS maturity research efforts have found, at least directionally, that organizations with more mature GBS capabilities tend to perform better financially as measured by several common financial metrics.
KPMG correlated the maturity scores of the organizations that have participated in the GBS maturity research effort against 12 financial performance metrics such as return on equity (RoE), return on assets (RoA), and cost of goods sold as a percentage of revenue (COGS/revenue). Results are encouraging relative to the positive impact GBS maturity can have on its users’ financial bottom line (see Figure 2). There was a high direct correlation between GBS maturity scores and COGS/revenue (+0.63)* and cash from operations (year over year % change to cash flow, +0.57) for all participants in the GBS maturity research effort. Examining just the firms with the highest overall GBS maturity scores found a high correlation for both RoE (+0.97) and RoA (+0.93). Not all correlations were positive, however, as illustrated with the negative correlation between standardization and EBITDA (earnings before interest, taxes, depreciation, and amortization).
While many factors impact financial metrics such as the ones assessed here, the positive link between GBS maturity and several measures of financial performance is in itself a positive correlation. This is another key set of factors to assess and interpret in determining the aggressive and scope of efforts to drive GBS maturity.
* Correlation calculations were based on the following industry accepted norms:
- -1.0 to -0.80 Highly negative correlation
- -0.79 to -0.50 Moderately negative correlation
- -0.49 to + 0.49 Mathematically Insignificant correlation
- +0.50 to +0.79 Moderately positive correlation
- +0.80 to +1.0 Highly positive correlation