Business Process Management: What You Manage is Key to Strategic Business Alignment

Anand Sekhar, KPMG Director, Advisory Services

Unlike much process management or process optimization, Business Process Management (BPM) is about large, overriding processes that support the business strategy in fundamental yet agile ways. As such, a larger view, better management and measurement, and a key understanding of the business will generate success. Here, I’ve listed our top ten for effective BPM.

 

1

Prioritize your initiatives.

Process improvements should be prioritized according to their importance to the business.
Start with the most mission-critical processes, assign process owners, establish key performance indicators (KPIs), and give the process owner the authority for maintaining consistency across the organization.

 

2

Define governance and communication.

Strive to create a balance in your process team while maintaining clear, frequent communication.
Consider appointing a single process owner along with sub process stewards who work with local representatives while continuing to drive global consistency.

 

3

Apply BPM beyond operational efficiencies.

Instead of focusing on cost reduction, consider opportunities to increase revenue. Process mentality can illuminate easier ways to purchase, better ways to analyze consumers and markets, and opportunities to engender more loyalty among those who have already purchased.

 

4

Define your objectives and metrics.

Do you know what success looks like? Many companies have stated goals but have trouble
translating them into meaningful KPIs. Beyond cost KPIs, consider cycle time, percentage increase
in sales, and other meaningful cost and productivity measures.

 

5

Assess project success.

You have to measure what matters. Too often, the mechanics of BPM are measured but not the desired outcomes. While some of the detail is mission critical, some of the minutiae has little bearing on success.

 

6

Build to change, not to last.

BPM is a configurable solution for processes that will constantly change based on
alterations to the business direction, market operating models, regulations, and user requirements.
Simply put, change the recipe when tastes change.

 

7

Institutionalize a system for change control.

Plan for change up front. This means remaining agile, gathering feedback, making adjustments,
and communicating regularly and repeatedly. BPM never changes in isolation—
as other organizations change, BPM must respond accordingly.

 

8

Consider the user experience in defining the solution.

Is your BPM easy? User-friendly? Responsive?
Or does it ask users for the same information over and over again?
Strong BPM should help others get their jobs done better, faster, and with more satisfaction.

 

9

Do not underestimate the power of high-quality data.

The success of BPM depends in large part on the right enterprise content.
If you have data quality issues in the source systems, you could face serious problems.
It’s time to find the right data, cleanse the source data, and manage the master data.

 

10

Focus more on target state versus current state.

Finally, do not dwell too long on your current state—it will change sooner than you think.
So focus your energy on defining where you want to be (“Target state”) and
how to get there (“Roadmap”) leveraging BPM. Participate in BPM communities,
apply leading practices, and industry and domain reference models such as APQC, eTom, etc.

 

 

BPM is both an art and science. It’s not just about what you’ve done, but what you will do and how that will satisfy and delight internal and external customers alike.

If your company struggles to sustain cost savings and identify new opportunities for process improvement, read my whitepaper Ten Steps to Continually Derive Benefits From Business Process Management on the KPMG Advisory Institute, or listen to my recent BPM podcast.

The Dollars and Sense of Driving Global Business Services Maturity

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.

Option-1

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).

9247 Fig 2

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

Third-Party Vendor Services for Banks: Managing Risks in Today’s Regulatory Environment

Eugene Kublanov, Managing Director, Shared Services and Outsourcing Advisory
Greg Matthews, Managing Director, Risk Consulting

For today’s banks, managing third-party vendors and suppliers has never been more challenging. We would like to talk about these challenges, effective ways to address them, and the tools available to help banks mitigate risks related to third-party vendors.

First of all, why is third-party management such a critical issue these days? One reason is the simple fact that banks are increasing their third party spend. Given the current low-interest rates, banks are trying to build efficiencies and strip out costs, often by using cost-effective, outsourced providers. As a result, many banks are dealing with more vendors than ever before, but managing and coordinating so many vendors is not proving to be a simple task.

The main reason, however, involves the growing regulatory scrutiny in the U.S. For example, the Consumer Financial Protection Bureau has introduced new regulations that apply to services that banks provide to their consumers — even if these services have been outsourced. In effect, the CFPB is saying to banks —”You must look after your vendors as if they were a division or a department of your bank. So the same oversight you apply to your employees must also apply to your vendors.”

If banks are responsible for third party oversight, who in the organization has a single view of those third parties that would properly conduct the monitoring activity? More specifically, who is responsible for compliance? Is it the line of business that appointed the vendor? The procurement function in charge of contracting with the third party? Or is it the compliance department?

To address these challenges, banks need to adopt a risk-based approach that begins with a careful assessment and categorization of the third party portfolio. After assessing the risk associated with each category of third party, banks need to develop an effective approach for managing the existing portfolio and adding any new third parties in the future.

Any effective approach should take into account five key areas —planning, due diligence and selection, contract negotiation, ongoing monitoring, and termination.

Planning

While most banks will define the objectives for the third-party relationship, assess the risk exposure, and work through IT and security-related topics, few put together a comprehensive relationship management plan, assess the resource and skill requirements for managing the relationship, and have a structured road map for managing change with internal and external stakeholders that are impacted by the decision to leverage a third party. Too often, organizations find themselves in the RFP process before adequate time and energy has been spent defining what happens after the contract is signed.

Due Diligence and Selection

The key challenge organizations face tends to arise in the scope of due diligence performed. While core areas of a third party’s business are certainly reviewed, including financials, operations, business continuity plans, and IT and physical security, other areas that may be more difficult or time consuming to assess may go unvetted. These areas might include the experience and reputation of the third party’s principals, subcontracting relationships, compliance training, incident and reporting systems, and conflicting arrangements with other third parties.

Contract Negotiation

Governance professionals in the banking industry need to pay particular attention to contractual terms that firmly bind the third party to performance levels expected of an internal business unit and clear definitions of repercussions in case of failure to perform. Special attention should be paid to the third party’s compliance with company and regulatory requirements, compliance training, customer management, information protection, subcontracting, and right to audit.

Ongoing Monitoring

After contracts are signed is typically when the hard work begins. The ongoing monitoring and management of third-party relationships requires investment, good discipline, process orientation, and the right resources to manage risk and capture the full value of the contracted arrangement. Unfortunately, the monitoring phase of the sourcing life cycle is the one governance organizations are least prepared to manage and where compliance breakdowns and the resulting fines typically occur. Successful third-party management programs will have five key components in place:

  • A sufficiently staffed and skilled organizational model for third-party vendor management
  • A process-driven approach to executing the vendor management function
  • Defined metrics to provide enterprise-wide visibility on third-party performance and compliance
  • Leverage enabling technologies to create efficiencies, elicit insights from data, and maintain an auditable account of compliance obligations tracking
  • A portfolio management approach that adjusts the third-party portfolio to align with internal company changes, economic cycles, and risk appetite

Termination

Not all third-party relationships are destined to end well. Banks often face situations where a third party may not be meeting performance expectations, financial obligations, or contractually agreed-upon terms. In order to shield the company from potential risk or find ways to create value, vendor management organizations need to perform the critical role of proactive portfolio management and terminate third-party relationships. In terminating or off-boarding vendors, governance organizations need to pay keen attention to a host of transition-related activities and functions. These may include the capabilities and resources required to manage an orderly transition from one third party to another, the risks associated with data retention, data destruction and decommissioning of user access, handling of joint IP issues, and potential reputation risk to the bank as a result of termination.

Business is all about taking on risk for return. With a solid understanding of risk exposure, an effective approach to managing risks and a vendor management function entrusted with ongoing monitoring banks can be well positioned to thrive in the current economic and regulatory environment.

Hear Eugene and Greg discuss more about issues related the Financial Services industry in the KPMG Advisory Institute podcast: Managing Vendors – It Isn’t What It Used to Be.

 

Tackle Talent in 2014 (Or Else!)

Stan Lepeak, Global Research Director, KPMG LLP

Every December, KPMG annually polls its professionals globally as well as third-party business and IT service providers as to what they see as the top trends affecting their client organizations in the coming year. This poll is conducted as part of the quarterly Sourcing Advisory Global Pulse survey and this year’s results were released via a white paper and Webcast conducted on January 23. The focus of this Pulse survey is primarily global business services (GBS), but the annual trends poll also looks more broadly at general economic and geopolitical trends globally.

This year’s poll identified talent shortages and talent management challenges as the top 2014 trend that will have the biggest negative impact on businesses and organizations in 2014 (see Figure 1). Ranked second was weak global and regional economies and the threat of a “double-dip” recession (ranked first in last year’s poll) and weak consumer and customer demand was ranked third (ranked second last year). The trending compared to last year’s poll was positive for weak global demand (down 17 percent year over year) and weak consumer and customer demand (down 12 percent) but negative for the top ranked talent challenge whose citations jumped 15 percent year over year.

9246: Fig 1 4Q13-Pulse-talent-blog

Given still relatively, and in some cases record, high unemployment rates in many Western countries, it may seem on the surface surprising that talent shortages is identified as a major negative trend. The key here, however, is quality and not quantity of talent, along with accessibility. There are many skills high on the demand list for employers that are not readily available in many markets. One example of this is around data and analytics skills both pure (data scientists) and applied (business professionals that can understand and exploit “big data” in the context of whatever their roles in the organization are). These skills are underpinned by solid foundational knowledge in topics such as mathematics and statistics and augmented by practical business experience and strong functional and industry knowledge. On the IT side, sought after skills include advanced programming languages, “app” development (combining IT, creative, and digital skills), security and encryption, and more fundamentally, the capability to combine and embody both IT and business acumen and prowess. The shortage is for skills such as these, not just warm bodies.

Talent shortages is a recurring theme across KPMG research and a key driver for increased adoption of a GBS model and framework. The converse to the negative issue of shortages is the positive potential benefits derived from quality talent management capabilities. Organizations that excel at talent management can leverage this skill for meaningful competitive advantage. Recent KPMG research on the “intelligent” finance function bore this out and was addressed in a prior blog. This research found that organizations that placed a high value on talent management and felt they were skilled at it performed better in terms of revenue and earnings growth than firms that placed less emphasis or were less skilled at talent management.

Some argue that there are no real skills shortages and that employers that cite them are simply just too cheap to pay a compelling or competitive wage. While there are certainly situations where this is true, it is difficult to consistently make the case that there is an overabundance in the market of, for example, data scientists with strong knowledge of the finance function or software engineers that understand operational complexities of global banking. The appalling state of the education systems in many parts of Western markets adds to the credence of the skills shortages argument.

There is also the talent management side of the challenge, regardless of the abundance or dearth of available skills. Many organizations struggle with the basics of finding, attracting, and recruiting talent. This is exacerbated by the complexity of staffing new business models such as GBS operations, the need to take a global approach to talent management, and understanding and dealing with the nuances of Gens X, Y, and Z in general and in terms of integrating them with legacy staff and legacy work and reward models. In other cases, it is simply that organizations lack appeal (nearly regardless) of pay. Try and entice gangs of skilled and ambitious Millennials to (insert name of flat, cold, boring, and isolated section of your market here) and it becomes clear their value proposition goes beyond just compensation.

Talent shortages is one of the drivers behind organizations’ adoption and expansion of the GBS operating model. By consolidating and integrating service delivery models globally and the staff that support them, organizations can gain economies of scale for skills, share and extend best practices, and gain greater utilization of scare talent resources. They can integrate internal resources with those from third parties and better leverage these external skills. This is where talent management capabilities come in, above and beyond just having access to adequate talent.

Talent management is one of the challenges facing organizations’ attempt to excel at and drive GBS maturity. But it also creates opportunities for firms that can master its nuances under the GBS model to further drive the maturity and capabilities of their GBS operations. This involves taking the following steps: developing a global approach to talent management; building a compelling GBS “brand”; creating a consistent and global GBS recruitment policy and plan; deploying reward and incentive programs that motivate the right behaviors; employing training programs that address relevant GBS skills development; utilizing targeted interventions such as coaching programs for key employees; taking a proactive, transparent approach to succession planning; and continuing to proactively address the change management issues associated with GBS expansion. Regardless of whether talent shortages are real or the result of miserly management, talent management prowess is critical to the success of GBS efforts.

The Evolution of Life Sciences IT

Liam Walsh

Breaking from the past might just be the toughest part

Life sciences companies are veterans in the deployment of enterprise technology solutions and the leverage of outsourced IT delivery models. However, healthcare convergence is rapidly transforming the business of healthcare and the environment in which life sciences companies operate. As this ecosystem transformation puts new pressure on the historic life sciences business models, it is putting significant pressure on the role and capabilities of the IT organizations that support them. The question is, “Can the current IT operating models evolve quickly enough to enable the required changes in the life sciences business models?”

Changing habitats

Life sciences IT has become much more of an ecosystem model in and of itself. It is relying on more collaboration and relationships with third parties and is learning how to manage risk and protect information across a distributed IT value chain.

At the same time, life sciences IT is being asked to support expanded global operations, particularly in emerging markets, new stakeholders and new requirements that require additional skills in new locations.

Across the globe, industry market dynamics are changing as well—requiring life sciences companies to work more collaboratively with payers, providers, and intermediaries such as pharmacy benefits managers (PBMs). In addition, there is an increasing reliance on consumer and patient engagement and monitoring, which puts more demands on IT to improve capabilities to leverage big data and analytics.

Governments are also placing more pressure with new and complex regulations increasing risk and creating a need for improved compliance capabilities. And finally, many life sciences companies are adopting shared services models, so they have to change their mindset from simple functional outsourcing to a larger, more strategic and integrated business services delivery models.

So it’s not one thing but many things that are changing, and that creates new expectations in execution, architecture and strategic evolution for IT.

Problems of the past

Some of the most significant barriers to the evolution of life sciences IT are the implications of some of the good intentions of the past. Long-term outsourcing contracts and monolithic ERP systems come immediately to mind—while both enabled the achievement of past objectives, they now constrain speed and agility in provision of new solutions required by the business and the ability to reconfigure the supporting IT operating models.

What to do now

  • First, IT should no longer be considered as a function. IT should be viewed as a service integrator—not the supplier of all technology needs to the business, rather an aggregator and coordinator of technology services aligned to business demand regardless of who actually delivers it.
  • Second, IT organizations must invest in themselves, not just in the business. Rather than doing more, the organization must focus on doing better. Many IT departments are using new technologies to improve their ability to manage and deliver service with increased transparency and improved performance.
  • Third, IT needs to recognize that one size does not fit all. As organizations become more global IT needs to support different entities with tailored capabilities. Operating models need to emphasize agility so that new combinations of centralized and decentralized services can be assembled when needed driven by business-aligned demand management processes.
  • Fourth, IT needs to assemble the right internal talent. Current organizations are typically laden with application developers, business analysts and program managers— holdovers from the global ERP deployments. As the focus of the IT organization changes from delivery to service management, the emphasis should be on different talents with a focus on architecture, vendor management, information security, and big data skills.

Emerging trends

We are still at the early stages of this evolution but are clearly seeing emerging leading practices from organizations embracing the service integrator model and more agile operating models. We are seeing great examples of large organizations reconsidering how to outsource elements of IT—shifting from horizontal structures such as application development towards a functional strategy where all applications are outsourced for a particular part of the business. We are also seeing investments in IT tools; particularly cloud-based tools that can deliver value quickly while helping IT gather more insight and improve responsiveness to the business. And we are seeing new hiring profiles.

So while the life sciences IT ecosystem is changing, we are not predicting extinction; rather, we believe that a new, better IT capability is emerging that can evolve with new markets, new customers, and whatever comes next.

Hear Liam talk about how the evolving pharmaceutical industry demands more scalable and flexible IT support to better respond to the industry’s new business model in the KPMG Advisory Institute podcast: The Evolution of Pharma IT.

 

Inside the Dragon

Stan Lepeak, Global Research Director, KPMG LLP

According to the survey, “State of the Outsourcing Industry,” half of all enterprises are expanding outsourcing. And close to a third of high-end enterprises view Global Business Services as a mission-critical framework for their future operating model. China has a great opportunity to meet that demand by delivering business and IT services into the global market. The level of talent, the quality of the infrastructure, and the commitment from the government has well-prepared China for that role. However, challenges remain. Most local firms are small (often by government plan to grow the individual supplier base) and lack the scale and brand awareness to penetrate western markets. There is a lack of western business acumen; a shortage of skilled middle managers with any western business experience; in the medium term, likely wage inflation issues; and longer term, potential skilled labor shortages as population levels peak and skilled candidates are drawn to other industries and career paths.

These primary factors shape China’s role in the global outsourcing market:

COST

Cost is not just about the cost of the labor; it’s also about government incentives. The Chinese government, through the Ministry of Commerce, is highly engaged in growing outsourcing. There is a significant commitment to build the necessary infrastructure and provide the proper business and tax incentives to make China as appealing as possible. Cost arbitrage will likely continue in the foreseeable future, but the gap is narrowing, especially in Tier 1 cities such as Beijing, Shanghai, and Guangzhou.

TALENT

Because of the Chinese government’s focus on the service industry, the standard of education has improved significantly. Each year, China’s universities graduate 6.8 million students. A high percentage of those graduates are fluent in speaking and writing English—a result of a recent primary school focus on English. Furthermore, service providers utilize students through internship programs and are developing specific university classes around outsourcing. Regimented processes and smart people is a recipe for outsourcing success.

RISK

Mention doing any sort of business in China and one of the top concerns typically cited is the risk of intellectual property (IP) theft and related concerns over exposure of private or sensitive data in the market. China has stepped up a public campaign to crack down on IP theft. It has also introduced new guidelines on data privacy protection. In another measure of progress, the number of ISO 27001 certifications in China has tripled since 2008. How much these moves have improved the IP and data privacy environment in China is being debated, but they are moves in the right direction. Organizations investing in outsourcing operations in China must assess and understand the risks related to IP theft and critical data breaches then weigh these risks against their own risk profile and move forward accordingly.

China’s rising importance in global outsourcing is unmistakable. With a growing number of companies expanding outsourcing and using a Global Business Services framework, China is well-positioned to catch the next wave of outsourcing.

To learn more about how the growth of China’s shared services and outsourcing industry has become a key part of the growing services market within China’s domestic market, read our full report: Inside the Dragon 2013: Outsourcing Destinations in China.

 

 

Turning Operational Excellence Into a Contact Sport

By Anshul Varma, KPMG Director, Shared Services and Outsourcing

Shared services is all about the people

We often talk about operational excellence in the area of shared services, but so quickly dive into the processes without remembering that the key to any process is the people. Organizations that are extremely successful begin with basic training. Whether that leverages Lean or Six Sigma or another philosophy, in the end, it’s about the people.

Basic training from the start

Basic training and coaching create a common language for operations and are a good way to start as you bring in new resources and develop a shared service center.  In fact, the most successful companies address shared service centers as a major part of the new hire orientation process.  This kind of training is an investment and it sends a very clear signal to both new hires and existing staff of how much importance the organization places on continuous improvement, quality, and efficiency.

Ongoing development

The most successful organizations build staff development into their DNA. Making operational excellence a part of people’s development plan enables it to become a part of their success criteria in the organization. Generally, the people who are doing well in an organization are those who are using continuous improvement and driving operational excellence into the organization. Those people are the ones who should be recognized and rewarded for their contribution.

Everyone wears the uniform

Operational excellence is a contact sport. The leadership team must be engaged rather than standing and watching from the sidelines. Encourage managers and leaders of shared services to get directly involved with operational excellence continuously and visibly.

Leaders set the tone for how important operational excellence is for the organization and can get involved in a number of different ways:

  • First, leaders within an organization should be trained in operational excellence themselves.
  • Second, they should be seen using the tools and concepts in the way they manage shared services.
  • Third, they can support improvement projects by mentoring project leads, reviewing progress, and sharing results.
  • Finally, leaders must reward the right behavior by setting measurable goals for the organization and holding teams accountable.

An example with high dividends

We encourage clients to invest further into an operational excellence budget because it pays off and the benefits can be seen almost immediately. One client in particular was able to recoup their initial investment during the first year. Year over year, we’ve seen their savings increasing while operational excellence continues to improve. In this case, shared services operational excellence has become the inspiration and epicenter for improvement and has taken hold elsewhere across the client’s global enterprise.

As any coach knows, the plays are important, but winning depends on the team players who make them.

Hear Anshul discuss more about shared services in the KPMG Advisory Institute podcast: Operational Excellence in Shared Services.

Looking at ITO Contract Renewals, Restructures, Rebids, and Insourcing Through a New Lens

Randy Wiele, Director, KPMG LLP

The brave-hearted souls tasked with tackling end-of-contract-term decisions or other event-driven changes to information technology outsourcing (ITO) agreements know all too well that many things have changed since they inked their first, second, or even third deal.

While the traditional objectives of ITO were primarily around operational stability, lower cost, enhanced service levels, and access to new technology, today’s buyers are also looking for value-added services, innovation, flexibility, and scalability. Since the market is now full of third and fourth generation ITO deals, buyers are more knowledgeable about how to do sourcing deals and what they want and expect, and providers are more willing to accept risk and include innovation and flexibility in their deals to help ensure increasing value over the lifetime of the contract. And of course cloud, software-as-a-service (SaaS), and associated management tools have dramatically altered service delivery and sourcing design models.

All these technology and commercial improvements can be highly compelling as they may enable IT organizations to deliver transformation for their businesses, and drive value for their users and profits to the bottom line.

Yet, whether an ITO contract change is an expiration-driven renewal, a company event-driven restructuring, a real or perceived provider performance-driven rebid, or internally driven insourcing, there are numerous factors KPMG recommends a buyer consider to help ensure satisfaction and success:

  • Proactively and fully assess new contract objectives as far in advance as possible; in the case of contract expiration, 12–18 months prior, even if the contract has been amended several times during its life cycle.
  • Benchmark current price and service levels against other contracts of similar scope and size.
  • Evaluate the quality of the relationship with the service provider objectively, rather than subjectively.
  • Understand the market, individual providers’ abilities to deliver on objectives, and the financial, commercial, and legal components of negotiations.
  • Focus on the facts, instead of perception, when planning a renewal, restructuring, or insourcing initiative. As history is the best indicator of the future, look at how the service provider is performing, the value it is delivering, its willingness to innovate, etc. Also look at the performance of internal teams.

While making the renewal, a restructure, rebid, or insource decision is not simple, and requires considerable up-front work, the above actions go a long way towards helping to develop a strategic road map for the whats, whens, and hows.

Hear Randy discuss more about IT outsourcing in his KPMG Advisory Institute podcasts on Contract Renewal and Innovation.

Explore KPMG’s Shared Services and Outsourcing Institute for our latest thought leadership.

Seeking Shared Services Success by Pinpointing Points of Failure

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).

9232 Fig 1

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.

For more on Global Business Services and other related topics, please view our library of papers on the KPMG Shared Services and Outsourcing Institute.

A Telling Tale about Talent

Stan Lepeak, Global Research Director, KPMG LLP Advisory

KPMG recently completed its semiannual global market study on the state of the finance function. KPMG released the first of an ongoing wave of findings and analysis from this study in early November.  In addition to assessing organizations’ finance functions’ performance levels, key issues and needs, and future investment plans, this year’s study examined finance from the perspective of four additional themes: finance and risk alignment, data and analytics, lean finance and the use of finance global business services, and talent in the finance function. Collectively, these fed into the overarching theme of this year’s study of the role of next-generation finance target operating models in enabling the “intelligent” finance function. This market study complements and extends recent and ongoing research performed by the U.S. firm on the intelligent finance organization and other KPMG member firms’ research efforts globally.

Adequate and skilled talent, outfitted with the best available tools and with a clear, strategic direction provided by management, are intuitively core to creating an intelligent—or at least pretty bright and competitive—finance function. Talent is and has been for several years a hot topic in finance circles as well as in other functional organizational circles such as human resources, information technology, and perhaps most importantly executive management. There are talent shortages and resultant wars for talent. Organizations are struggling as to how best to attract, retain, and grow their talent. Aging workforces retiring with their talent, succession planning, and grooming talent are all topics of angst, as is what to do with “legacy” talent and those employees or candidates with little talent while seeking more higher skilled but often fickle cross-border, transnational, “gen-y,” and millennial talent. Talent as a broad topic, or problem, is critical, self-evident, and lucrative. Addressing and solving talent challenges and successfully using talent as a competitive weapon requires taking the issue down a level, in this case to what does it mean in the context of the finance organization.

Going beyond the intuitive or conceptual point of the importance of talent, finance organizations need to build solid business cases to improve talent capabilities. This is not just about throwing more money at top talent, though in some cases this is required, but rather about fundamentally changing overall talent management practice and philosophies from perspectives as diverse as what talent is needed to succeed to when organizations should contract talent from outside the organization (e.g., partner or outsource) to what are the most critical skills required in next-generation executive leadership (hint: not likely the same as last generation). Key to building this business case is creating a real sense of directed urgency versus an ongoing drone of lip service to the importance of overhauling talent practices. On this point, this year’s global finance study offers some compelling findings.

Reiterating the problem, processes for attracting talent, retaining staff, and maintaining technical knowledge of finance personnel were most often cited as a weakness among study participants (19 percent of respondents) and least likely to be cited as a strength (41 percent, as opposed to the top category of treasury activities identified by 59 percent of participants). Further, the finance “process” cited as the most difficult to improve was processes for attracting talent, retaining staff, and maintaining technical knowledge of finance personnel. Study results identified one likely contributor to organizations’ talent challenge and shortcomings: collaborating with the human resources group (ideally a key element of bettering talent capabilities) was the finance activity most frequently cited as a weakness (15 percent of respondents) and least likely cited as a strength (35 percent of respondents). On a more positive note, 56 percent of study participants felt their organizations were somewhat (41 percent) or very skilled and strong (15 percent) at talent management. Given the findings that talent management is generally still perceived as a weakness in most finance organizations; clearly these skill levels need to further improve.

Perhaps most telling, 44 percent of study participants indicated that talent management was the factor and capability most important to the success and competitiveness and value-add of their organization’s finance function. Segmenting “high performing” organizations (defined as those with revenue and EBITDA [earnings before interest, tax, depreciation, and amortization] of greater than 10 percent over the past three years) further reinforced the importance of talent. Sixty-one percent of high-performing organizations rank talent management as the most important finance function capability (see Figure 1). Less than 30 percent of “low performers” (respondent organizations with revenue and EBITDA declines over the past three years) scored talent management as the most important factor to the success of the finance function. This is the tangible, financial business case for improving finance functional talent management capabilities.

9231 Fig1

So what can and should a CFO and the finance function do to improve their talent management capabilities? Here are a few starting points.

  • Go global: To enable an effective talent management strategy, CFOs need to take a global view of their finance talent. The employees in various finance functions should be treated as one diverse pool of talent. Roles, responsibilities, and career paths should be clear for all finance people at all levels. Further, the company’s approach to career paths should be broadened to create prospects for mobility across finance teams and to encourage linkage and knowledge transfer between embedded and offshore teams.
  • Build the finance brand: This involves emphasizing the value proposition of working with the finance function within the company, both to attract new recruits and retain them in today’s highly competitive job markets. CFOs need to articulate the benefits of working for the finance function within the company and what sets their finance function apart as an employer of choice.
  • Create a consistent recruitment policy and plan for the finance function globally.
  • Leverage liberally global business services models to augment or in some cases replace traditional talent pools.
  • Deploy reward and incentive programs that motivate the right behavior and celebrate accomplishments in a meaningful way to employees, not just the HR group.
  • Employ training programs that address skills development (of the skills really needed) and (meaningfully) promote knowledge transfer at all layers of the organization.
  • Utilize targeted interventions (such as coaching programs and buddy systems) for specific employees or employee groups to equip them with new skills in anticipation of emerging needs and improve their ability to add value.
  •  Take a proactive, transparent approach to succession planning of the best people for the job at hand.

Finally and perhaps most importantly, senior finance executives must take ownership of the talent agenda. They need to consider the implications of business changes on their staff and ensure that qualified resources are in place to meet current and future business needs. They must respect the divergent needs of their employees, for example, as transaction-oriented service providers or strategic business partners. Above all, they need to create an organization-wide HR strategy that attracts appropriately skilled finance employees and supports their aspirations at all levels throughout their careers.

For the latest news and insights from KPMG on this topic, visit the Advisory Institute.