How are you driving innovation with your outsourcing providers and, if you’re a supplier of outsourced services, how are you delivering innovation for your clients? What’s working and what’s not? How do you measure its impact and how can it be improved?

As part of a wider research programme, in May 2011 EquaTerra*, in conjunction with the National Outsourcing Association (NOA), launched a survey with senior executives from both the outsourcing user and supplier side to find out more about innovation in outsourcing.

Key findings included:

• Innovation is considered to be important, but it seems that buyers are not yet taking it seriously enough.
• Investing in (enabling) innovation is key and can increase quality, reduce costs and improve time to market.
• Both outsourcing users and service providers need to take a lead role and appoint named leaders for innovation.
• Mechanisms that support innovation should be implemented. This does not just mean an appropriate governance structure, but also an innovation framework, methodology, funds and training for example.

However, above all, the success of innovation processes should be measured, and this should be done collaboratively by both the client organisations and the service provider.

For further insights, see the management summary for Driving Innovation through Collaboration on equaterra.com, which covers some of the interim findings from the research; the full report will be published by the National Outsourcing Association.

*In February of 2011,  KPMG LLP (US), KPMG Holdings Limited (UK) and KPMG International acquired the business and subsidiaries of advisory firm EquaTerra Inc.

Application support can become more efficient and better able to meet changing business needs. But there are common pitfalls and challenges to negotiate and critical success factors to be aware of on the journey from strategic vision to reality.

The recent challenging economic climate has led to a focus on cost saving and flexibility throughout businesses. This translates into a need for application support to focus on leveraging and realising benefits from significant IT investment programmes rather than new investments. Support also needs to be agile and responsive to adapt to effectively support changing business requirements whilst managing business complexity. These pressures are driving a greater appetite for significant transformation in businesses, however, rather than straight forward productivity savings. All of these factors: the pressure on costs and avoiding large capital expenditure, the need for flexibility and an acceptance that optimisation may require transformational change, point to the need to investigate the service provider community to help meet these challenges. This is because these are all areas where outsourcing has a proven track record in supporting organisations.

In order to help realise the benefits of any optimisation initiative, it is important to be aware of the critical success factors. A successful sourcing strategy needs to be created and then delivered. This involves ensuring that the appropriate tools, data and expertise are applied and a robust methodology followed. For further insights on this subject, including details of critical success factors, read Unlocking the Benefits of Transforming Application Support on equaterra.com.

Unless you have been spending time under the proverbial rock you know that cloud computing is the “hot” topic in the business and IT services marketplace for 2011. There’s no denying cloud computing is a hot topic, especially among those vendors and service providers selling cloud offerings. The more interesting debate is around what is really new (or not) with cloud computing. Is cloud computing truly revolutionary, as some claim, or is it a savvy repackaging by marketers of mostly existing services and capabilities? More importantly, what are the true benefits cloud computing can bring buyers in the near to medium term, especially larger organizations with significant legacy infrastructure and systems investments? And finally, what are the challenges buyers must prepare for, address and balance against potential cloud benefits?

There are many potential “new” benefits cloud computing can bring its users. These include things such as more rapid deployment of software applications with lower upfront investment costs or faster provisioning of computing services such as servers or desktop environments.

There are also potential complexities and problems that cloud computing can bring its often unwitting users. One potential, and not-so-new problem, is more renegade procurement and implementation of point software solutions across the enterprise. This can raise support costs and further fragment IT architectures, supported standards, and compliance and security regimes. Related to this is the introduction of a proliferation of new service providers and applications, some of which will likely fail or be acquired in short order, complicating and raising the cost of supplier management and governance. This can result in a loss of economies of scale and create integration nightmares between cloud services and legacy IT environments. Many buyers are forgetting why the rage of the 1990’s was to move to integrated software suites. And even benefits such as faster provisioning of computing services can get bogged down by inflexible legacy policies, procedures, contracts and service level requirements.

All of these challenges are surmountable. But this surmounting has a real cost in terms of effort, time, money, resources and skills. These and many other cloud computing externalities form the “buyer beware” or at least “buyer be aware” manual for cloud computing. And this manual is not just for the CIO or IT professionals. Business unit leaders and even other CXO’s must understand the ramifications and opportunities cloud computing will have on and can bring their organizations.  Defining an executive’s perspective on cloud computing has been the emphasis of extensive research KPMG has conducted on the evolution of cloud computing. If cloud computing, regardless of its newness, is viewed as a natural evolution of the service delivery market, with pros and cons and a learning curve, then it is more likely to bring benefits to its adopters both tactically and strategically.

Formerly EquaTerra, now KPMG, we are excited to share expanded insights to support a smarter, empowered enterprise. Thus, we will highlight KPMG studies to better enable your analysis, planning and decision-making processes, ideally making you more effective in your role.

Late last year KPMG collaborated with CFO Research Services on a study to examine senior finance executives’ views on the role of the corporate finance function and their aspirations for the years ahead. The resulting report – A New Role for New Times: Opportunities and Obstacles for the Expanding Finance Function – contains both positive and negative findings.

What CFOs from the study cite as working today:

• More than seven out of 10 respondents feel finance is highly credible with its internal customers including the C-suite, the board and other stakeholders to line of business and functional management
• More than half say improving their abilities to support line of business management will help finance increase its contribution to the company’s success, while nearly half see such opportunities in improving their support for business growth, either organically or through M&A; standardizing and streamlining core finance processes; and helping to reduce the company’s overall cost structure
• Executives give themselves high marks when it comes to processes that are internal to finance
• The process for planning, budgeting and forecasting – which is among finance’s most forward-looking activities – was cited by 50 percent of respondents for moderate or incremental change, and by one in three as a target for “dramatic change” over the next two years.

Respondents are less positive in the following areas:

• Across the full collection of companies responding to the survey, finance executives show less confidence in their ability to collaborate successfully with other parts of the company, and respondents are least likely to see strength in their relationships with staff functions such as HR, IT and legal departments
• While 39 percent of respondents agree that their company’s use of IT within the finance function is very effective, more than one in four disagree with this statement. Many survey respondents cite concerns that their IT systems are not evolving fast enough to meet their changing needs, and that their current systems are antiquated.
• Unfortunately, while the planning, budgeting and forecasting process is one that finance executives are targeting for near-term change, it is also the area that finance executives also find the hardest to change, as cited by 54 percent of respondents
• More than three out of four respondents regard growing organizational complexity as the most acute risk threatening their ability to be effective, and human capital/professional staffing and IT were also cited as high risks
• When asked about the greatest barriers to improving the effectiveness of their company’s finance function, almost half of senior finance executives complain that their IT systems are out of date, inflexible or unable to support new requirements. And four out of 10 respondents cite shortage of time and attention within finance to improve capabilities.

We believe that the state of the relationship between finance and IT (see the second bullet in the section above where respondents were less positive with respect to certain areas) could pose challenges to companies whose finance leaders are prioritizing transformation of their organizations.  Conversely, there are opportunities for those companies who embrace technology and find ways to collaborate successfully with IT to implement real and sustainable change.

While there are no panaceas, one-size-fits-all answers to solving issues such as those brought out in this research study, in a point of view paper entitled Transforming Finance; we identify several methods that will help finance leaders transform their function to more strategically support their company’s business objectives. First, they must find a balance between strategies that are both effective and efficient. Second, they must find a balance between strategies that are both transformational and transactional as they relate to strategic services and tactical execution and to incremental change and disruption. Third, they must find a balance between strategies that focus on both transformational and transactional as they relate to strategic services and tactical execution and to incremental change and disruption. Third, they must find a balance between strategies that focus on both risk and reward. Fourth, they must view technology and people as key enablers – rather than be-all, end-all solutions – of a successful, value-add transformation journey.

Business success today is predicated on working both faster as well as smarter. Advances in information technology and telecommunications, as manifested in the Internet, highly complex enterprise software systems, and process automation, have helped enable organizations to work increasingly faster and on a global scale. In many respects, it is working smarter (or at least smarter than the competition) that has become the greater challenge.

Being awash in data that they can barely keep track of, much less turn into relevant and competitive information, is not a new problem for organizations but is one that is becoming increasingly acute. The challenge is how to take the wealth of data they have at their digital fingertips and turn it into actionable intelligence. Actionable intelligence is defined as contextual, targeted and insightful information that enables organizations to make timely, fact-based and forward looking decisions on how to best perform their business activities.

Core to creating actionable intelligence is excelling at knowledge management. While not to digress into some of the more arcane and conceptual aspects of KM, what is most relevant here is how to combine and leverage both explicit (e.g., facts, figures, formulas) and tacit (e.g., best practices, contextual experience, “tribal learning”) knowledge around a given business situation, challenge or problem. Excelling at gathering and processing explicit knowledge can enable organizations to run faster. Combining tacit with explicit knowledge can enable organizations to work smarter.

Organizations need to continually reassess what they are doing to work smarter and not just faster (and cheaper). It is easier to invest in more IT systems and capabilities to create and gather more data at a more rapid pace than it is to figure out how to leverage that data for competitive gain. Overcoming this challenge involves both understanding the key business opportunities and defining and honing a framework to address them.

One somewhat mundane though critical dimension to this effort is optimizing the supporting business and IT functions and processes that underpin all business activities. For example, how to run the finance and accounting function in a way that not only increases efficiency but provides key financial information to decision makers to make competitive gains, or increases effectiveness. Similarly, how to provide quality and cost-effective customer care while simultaneously using any customer interaction to gain insights on how to increase loyalty and cross and up sell goods and services.

Increasing efficiency and effectiveness, cross selling and up selling, and many other common business paradigms are nothing new. What has changed is how to excel at them. The volume and growth levels of accessible business data today are immense. The means to interact with employees, business partners and customers is rapidly evolving through the use of social media and highly functional personal devices. Speed is required to keep up. Knowledge is required to get ahead.

One approach to address these challenges and opportunities is KPMG’s Extended Global Enterprise (EGE) model. It provides a framework and strategic road map for enabling buyer organizations’ global business services strategies and operating models. Relative to actionable intelligence, EGE is underpinned by SPEED, or the Services Portfolio and Extended Enterprise Design framework. SPEED is used to assess the maturity, efficiency and effectiveness of supporting business and IT models, processes and systems in the EGE model. Ultimately, however, there are many approaches organizations can employ to balance working faster with being smarter. The key is to do so in time.  Organizations can utilize the SPEED framework to assess how best to deliver core business and IT services in a way that better enable actionable intelligence across the enterprise.

On Tuesday, February 22, KPMG LLP (US), KPMG Holdings Limited (UK) and KPMG International announced an agreement to acquire the business and subsidiaries of EquaTerra Inc. This combination creates a global shared services and sourcing advisory offering that is aligned with a much larger global network of KPMG talent offering audit, tax and advisory services. The reasons for the acquisition are compelling, strategic and reflect the shifts occurring in the overall global business and IT services marketplace.

There is increasing evidence that leading buyer organizations are changing their approach to optimizing their internal operations, and are changing their delivery of internal support using a combination of external providers and internal staff. Fierce global competition and difficult economic times require radical improvements but with new constraints that do not allow significant investments and elongated time frames (e.g., ERP implementation or 10 year outsourcing deals.)  There is a renewed focus on optimizing services and driving process improvement across all the enterprise using shared services organizations augmented, extended and often improved by external service providers. It is no longer an either/or approach.

The value proposition and success metrics for shared services operations are evolving. Leading organizations today receive measureable business value from shared services – above and beyond driving costs down via consolidation, automation and labor arbitrage – in areas such as IT, F&A, HR and procurement. These organizations are assuming a more commercial orientation to the business. This involves driving and improving overall business performance as well as competing for internal business on level ground with external service providers.

The outsourcing market has also materially evolved and matured. A growing number of service providers are demonstrating advanced capabilities enabling them to move up the value chain in terms of services offered. They are better able to integrate into existing business operations to provide more high value and strategic services. As a result outsourcing today is moving beyond just an alternative service delivery strategy to become an enabling lever of an overall transformation agenda and one that is closely aligned with internal shared services delivery capabilities. Commonly, this transformation agenda is targeted at improving global competitiveness by better leveraging global resources, talent, and markets via a global business services model.

What constitutes outsourcing is also evolving. Cloud computing as manifested in software and infrastructure as a service (SaaS/IaaS)  is  heavily impacting all aspects of outsourcing and the way IT and business services are designed, purchased and consumed. Cloud has the potential to help buyers and providers standardize services while simultaneously improving price performance, long an elusive outsourcing holy grail.

Buyers today are demanding more, better and different services from sourcing advisors. They seek mature combinations of outsourcing experience, operational skills, industry knowledge and implementation capabilities underpinned by strong market data, information and knowledge. Clients seek flexibility in the types of support they receive from advisors ranging from deep dive to lighter touch models to support the entire sourcing lifecycle and ongoing process improvement. Advisors play a critical role in helping buyers design, enable and optimize a portfolio of services without bias to internal or external provisioning.

The addition of EquaTerra into KPMG’s existing SSOA practice provides it with a deep team of additional seasoned outsourcing advisors with extensive hands-on sourcing and service delivery and transformation experience. The acquisition arms KPMG member firms with extensive market data and insights, intellectual property, and supporting sourcing tools and technologies. Through this combination KPMG has created a global sourcing and shared services platform on a scale that clients can leverage to transform services delivery capabilities from the multiple dimensions of IT, enterprise systems, HR, finance, supply chain, tax, and risk.

Learn more by reading these related articles:
The Extended Global Enterprise Advantage
Sustain Competitive Advantage by Rethinking Your Business Services Models

In 2008 the Public Utility Commission of Texas (PUCT) finalized a multi-billion dollar plan to increase the Electric Reliability Council of Texas’ transmission capacity by building 2,200 miles of new transmission lines and related facilities. These facilities are targeted to areas of future wind generation. Oncor, a regulated electric distribution and transmission business that provides electric delivery to consumers, was awarded approximately one fourth of the projects. This five year project meant Oncor had to significantly increase its construction capacity and forced a major review of its sourcing and contracting processes. Hagen Haentsch, Oncor Director, Asset Investment Strategy, shared some of the exciting work going on at Oncor.

EquaTerra:  What were some of the key lessons learned in this project?
Hagen Haentsch:  First and foremost, we wanted all our decisions on this project to benefit our customers. We generated a lot of good will by using contractors in our service footprint, like Falcon and Nucor, who are making our transmission towers from recycled-in-Texas steel and Texas-based construction labor providers like Chapman Construction and Weaver Construction. There’s a lot of excitement about our CREZ projects because customers know this will have positive economic and environmental benefits.

We also learned quite about our construction process and the importance of pragmatic and operationally-relevant contract provisions such as force majeure clauses and governance and issues resolution. We also learned the importance of translating contract provisions into procedures and tools that are useful to field resources and operational management to support execution.

Another interesting point is that this sourcing process highlighted areas of ambiguity around basic definitions of risk of loss and ownership during the projects. Through this sourcing process we were able to clarify acceptance of the work and better define liabilities and responsibilities.

We also tried some creative approaches with performance management. In some cases we felt that monetary penalties did not always promote partner-like behavior. We learned that it is critical to balance transparency and open discussion with performance accountability and liabilities. If we are truly going to operate as partners, we have to be prepared to deal with all issues, particularly the tough ones.

For more of this interview with Haenstch, click here.

Change management was the hot topic last week at an EquaTerra roundtable that I had the privilege of hosting. I gleaned insights from largely experienced outsourcing buyers across a spectrum of functions (e.g. Finance, HR, IT and Procurement) and industries.   Our conversation evolved from change management into key success factors for implementing shared services that includes significant outsourcing of transaction processing.

Here are six key themes that I captured from our discussion:

1. Be deliberate in defining scope. Don’t force fit in what isn’t practical.
2. Collaborate with the provider—and expect the same back. “Throwing over the wall” is not going to work, particularly early in the relationship.
3. Leadership needs to be behind the initiative, and stay behind it.
4. Cross-functional integration is key. A finance change can’t be implemented without IT, IT will need HR’s help, and an HR transaction with have financial impacts.  Be proactive in knitting your organization together before beginning the journey.
5. Your culture and your provider’s culture will be different. Acknowledge and leverage that.
6. On communications, remember the multiple audiences.  Business leadership, middle management, impacted employees, non-impacted employees, will all have different perspectives and concerns.  Recognize and respond to those differences.

And as an aside, the venue, the Freedom Center in Cincinnati, OH is a very interesting museum that should be on your itinerary if you are traveling there.

For the latest from EquaTerra in HR, visit www.equaterra.com/hr.

For more on transition and implementation, EquaTerra offers these Library items:
Benchmarking Best Practices for Start-up Services Delivery Organizations: An SSON Interview with Rick Bertheaud
How to Minimize Risk During Transition
Limiting Risk in Global Sourcing Efforts
A Bad Transition is Like Going on Honeymoon and Fighting All the Time

If you are reading this, you may have decided it is time to take knowledge management (KM) seriously. Perhaps you have seen the effects of lost knowledge and are working from lessons learned. Or maybe you are a visionary who understands there is no time like the present to get things underway. So how do you begin establishing your KM strategy? EquaTerra recommends these essential steps.

1. Clearly understand what a knowledge lifecycle includes. Articulate your vision and the importance it has on your strategic business objectives to your knowledge stakeholders. Then, compose a team and insure the proper level of sponsorship and attention.

2. Establish a timeline. Determine how much time you want to dedicate to the initiative in terms of lifecycle steps. Investment in the right resources is just as important as the investment in the right technology.

3. Identify a knowledge manager and project owner. Make sure the person serving as the knowledge manager clearly understands the mission and vision. If he or she is not a project manager by nature, enlist the help needed to stay on track.

4. Determine those within your organization today who maintain the largest repositories of intellectual capital. Keep in mind it might be tacit knowledge resulting from years of experience that would be lost if they left the company or a tragedy struck, or more tangible data maintained on hard drives or in file cabinets. How accessible is the information? How close to retirement are the people that possess it? It’s important to understand these factors when considering your approach to knowledge assimilation.

5. Identify what knowledge capture processes exist today. Sources to consider include web portals, collaboration sites like SharePoint, and helpdesk or call centers, either internal or external, that support your customers or employees. Other relevant sources may include HR, legal, communications and risk management departments. If knowledge is managed by a third-party provider, make sure it is transferrable in a format you are able to accept. Should the contract end, you will want to ensure you have all information at your fingertips.

6. Call on all business units and departments to determine and list the information most important to them, where it is housed, and how they would recommend extracting it to a common and secure repository.  For example, business units may seek out data associated with specific customer information, legal entities for information relative to articles of incorporation, policies, signed statements, minutes of previous board or steering committee meetings, or compiled research obtained or purchased on behalf of the organization. HR departments might seek research on insurance vendors  or past practices of the organization in terms of people care.  From an IT perspective, a helpdesk may look at the most frequently received requests or incidents and develop knowledge elements for analysts to expeditiously troubleshoot and resolve. A marketing department might look at the history of campaigns and their resulting successes. Your governing board may place importance on the historical information surrounding the founders of the organization. Your IT department might maintain data within your business continuity plan specific to systems and applications. Every department and business unit should be considered a stakeholder and offer suggestions as it relates to the work they do.

7. Vet and prioritize the suggestions. Then, determine what information is most relevant to the business and how best to assemble or extract it.

8. Label each knowledge artifact to ensure proper tracking. Include, at minimum, the source, current location, format, age and current owner.

9. Validate the information. It will be critical to your initiative that knowledge is evaluated for accuracy and applicability to the business environment. This is part of the overall lifecycle and, once established, will drive the evolution of knowledge over time.

10. Start the lifecycle and don’t forget to measure and report at the stakeholder and leadership levels on how knowledge is being captured as part of your strategic planning efforts. Track the number of defined and prioritized knowledge elements discovered through the preceding steps. Ensure accountability of all process stakeholders through regular communications on the effort and activities to date. Make the updates part of a regular governance review. Follow and trust the process.

As with all new initiatives, getting your knowledge lifecycle up and running will take time and commitment.  To learn more on this topic, read the related white paper, “Knowledge Management Makes a Comeback. A Knowledge Management Primer: What it is, How to Get Started, Manage it Going Forward and Calculate ROI.”

The music video of the song “Video Killed the Radio Star” was the very first ever shown on MTV when the music channel debuted at 00:01 on August 1, 1981. And while video didn’t actually kill radio, it certainly pressured the radio industry to work harder and smarter to compete in the dynamic world of visual media and information. The newspaper industry is facing a similar challenge. It has been widely publicized that the subscriber base and ad revenue are waning. At the same time, the newspaper industry’s revenue model is morphing and becoming more complex, with classified advertising and static one-half page advertisements withering away and being replaced by other revenue models including pay per click and gain share.

I recently spoke with Vivek Sharma of Infosys after its outsourcing relationship with a large newspaper client received recognition from the Shared Services and Outsourcing Network. Infosys currently provides this client with finance and accounting services, but one development really caught my eye. It was an offering called ‘Newspaper in a Box’. The concept is intriguing. Infosys is developing a service built on SAP’s IS Media Module and other software systems to manage processes such as order booking, inventory, advertising, rate setting and discounts – essentially the order-to-cash process. Infosys owns and manages the platform and the infrastructure for these relationships.

Mark Trepanier, EquaTerra managing director, has worked extensively with clients in the media and newspaper industry. I was interested in his view of this service, and he shared the following, “The concept behind the Newspaper in a Box is sound. Provide an operating platform and technologies which support organizations that need to make fundamental changes to their business, without the need to make a capital investment. Whether customers will be willing to sacrifice customization for standardization remains to be seen. We are closely watching the progress of this service to determine the viability for our clients.”

We will keep you updated as this service continues to develop.