Stan Lepeak, Global Research Director, KPMG LLP Advisory

The use of social media (e.g., Twitter, Facebook, LinkedIn®, blogs) is already pervasive in most organizations globally, whether management, communications, risk management, and human resources (HR) groups like it or not. Too many organizations, however, are reactive, dismissive and in some cases naively unrealistic, about the potential benefits and risks of employees’ personal and professional use of social media and the ability of the organization to control its usage.

The HR group is in a position to meaningfully help, or significantly hinder, an organization’s beneficial use of social media. Organizations that reap the greatest benefits from social media are those that empower key employees to become evangelists for the organization on social media platforms, helping customers, building the brand, attracting talent, and giving a personal face to the organization. In addition to the external advantages, these key social media leaders become even more engaged and personally bonded to the organization, its mission, and goals, if done correctly. The HR group can, and should, take a lead in defining and driving this strategy in the organization.

Social media leadership can come from anywhere in the organization, from interns, to line personnel, to managers, to product leaders, to executives. Social media is well established as a consumer and brand oriented set of tools, but organizations need to tailor its usage to their style, culture, industry, and risk profile. Organizations can also leverage social media as a means to improve internal collaboration, communication, and operational efficiency and effectiveness.

An organization that thoughtfully embraces social media can realize opportunities across four key areas:

1)      Collaboration: Constant, transparent, and effective collaboration with employees, customers, and supply and service chain partners

2)      Talent management: Top performance delivered through robust and real-time training, development, and support

3)      Administration: Employee-centric HR operations, regardless of where employees are in the world or organization hierarchy

4)      Employee engagement: Single, unified culture with engaged employees driving business success

While social media policy creation has challenges, it is not so different from previous challenges such as the adoption of corporate-wide e-mail in the 1990s or organizations’ usage of the Internet as a communications medium. Organizations need to create a social media governance body of key stakeholders. This would typically include a cross-functional representation of IT, legal, HR, compliance, marketing, and risk management that reviews current and planned use of social media against current communications-related policies. It is important to have HR and Legal involved in this discussion to make sure the emerging policies strike an appropriate balance between workplace and personal use, while maintaining some level of corporate oversight.

The forums created to consider social media use in the workplace should strive to provide policies that are enforceable, while being absolutely clear on what is mandatory and what the consequences are for noncompliance. These policies should result in guidelines that easily create awareness and understanding of an organization’s position on social media adoption. An organization’s specific framework is successful if it can demonstrate that it has been effective in building organizational knowledge of the benefits and risks of social media, and is supported through ongoing tailored communication and training.

Social media’s usage and importance, especially to younger generations of employees and customers, will only continue to grow. Therefore, it is critical for organizations to try and get ahead of the curve in terms of defining an optimal strategy and engagement mode for social media. The HR group is in a great position to help this effort and demonstrate a tangible means through which it can deliver strategic value to the organization.

Hear more about issues related to Human Resources by visiting KPMG’s HR Center of Excellence and by listening to the KPMG Advisory Institute podcasts Data-Driven Human Resources, Eradicating the Stigma: HR’s Future, and Rethinking Human Resources in a Changing World.

Filed under: Human Resources, Market Trends and News, Social Media
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Jerry Klawitter, Director, KPMG LLP

Today’s outsourcing buyers have a wealth of delivery, contractual, provider, and location alternatives from which to choose. Yet, despite their increasing maturity, many buyers are missing the mark in attaining the most advantageous and strategically value-added outsourcing deals. This is in large part due to the sheer complexity caused by the myriad options available to them.

KPMG LLP has identified three fundamental areas in which buyers struggle—perhaps even more today than yesterday given the ever-increasing complexity—during the initial strategy and recommendation phases of the sourcing lifecycle. As is clear, they are all rooted in making the right balance-based decisions, which of course are distinct to each individual organization:

What to outsource

Every business, business unit, and individual stakeholder possesses biases, vested interests, and perspectives on what to outsource and what to retain, regardless of whether it is the organization’s first initiative or a subsequent iteration. And the vehemence they bring to the decision-making table can have a significant negative impact on the results they expect to achieve from outsourcing. For example, some organizations believe they are so unique they keep too much in house. This reduces the leverage and efficiency they can achieve with a third-party provider, and may preclude a managed services deal focused on outcome-based delivery, resulting instead in a staff augmentation or out-tasking model in a managed services wrapper. Others, perhaps facing pressing resource, knowledge gap, or regulatory reporting challenges, give away so much scope that they effectively abdicate any responsibility for the outsourced processes. That is, until they are dissatisfied with the results, and place blame on their provider.

Which providers to invite to the party

Onsite, onshore, nearshore, offshore, or multinational? SaaS, IaaS, PaaS, or BPaaS? Niche, “best of breed,” or multitower? Tier 1 or Tier 2? All categories, and the individual providers in each category, have their upsides and downsides, both in and of themselves and in relation to the decided-upon scope. But here again, buyer preconceptions and biases can inappropriately color which providers are included in the RFP and down-select process. For example, operations may balk at the idea of using an offshore provider due to communications style challenges, despite the potential cost savings and follow-the-sun capabilities. IT may draw a line in the sand about using a SaaS provider, fearing likely unwarranted loss of control. And perceptions of individual providers may be colored by secondhand information or isolated interactions, which may be out of context or out of date.

How to get to the solution

More often than not, buyers rush to get their RFP into the market, without ample consideration of the aggregation of what is and isn’t important, and how solution elements interrelate and impact each other. While a sense of urgency is advantageous, a well-written RFP makes it easier to compare and evaluate the intrinsic value of each bidders’ recommendations, can make the down select and final selection of the winning provider a much cleaner process, and results in documents that can be reused as key elements of the contract.

Lacking balanced objectivity in each of these areas, buyer organizations may unintentionally create a situation that is at best subpar and at worst disastrous. With so much at stake, and with such a dizzying array of options, buyers will be well-served by seeking the assistance of an external advisor that is solution- and provider-agnostic, leverages a fact-based approach to eliminate preconceptions and biases, and utilizes tested methodologies, accelerators, and IP to drive a win-win deal.

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

And to receive the latest insights from KPMG, join the KPMG Institutes.  Be sure to customize your profile by selecting “Shared Services” and “Outsourcing” along with other interest areas.

Filed under: How to..., Outsourcing
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Tim Payne, Partner, Global Centre for HR Transformation, KPMG in the UK

Talent analytics is a very seductive topic. Most HR professionals are longing for a way to put some numbers and science to the art of people management—a longing driven by insecurities after years of unflattering comparisons with our associates in Finance and Marketing, and a craving for respect from our business customers. Analytics holds out the promise of instant credibility fix, a sign of transition from adolescence to adult.

I have to admit to being a little swept up in this myself. An early career spent buried in Spps-x validating recruitment processes and competency frameworks no longer look like a waste; multiple regression is no longer a net negative on the CV.

In addition to this, some of the newer cloud-based HR and talent systems are even arriving with prepacked analytics—in-built algorithms to help you predict and manage your workforce, retain talent, and save money!

And I am still excited and convinced that analytics holds the key—or one of the keys—to improving how we manage our people (see our recent paper on analytics). However, I was given pause a few weeks ago when a software vendor demonstrated their latest analytics package. At the click of a mouse (or the swipe of a screen) the system plots individual workers on a matrix of their future predicted performance rating and their future predicted likelihood of leaving. Think of what you could do with that data. That is the exact moment I started to feel a little nervous for a number of good reasons.

First, there was no mention of how the in-built algorithms are validated. Not a sign of an R-squared or a confidence range, let alone adverse impact, indication of sample size involved, or whether the data are distributed normally. In other words, how do we know the predictions are accurate and fair?  This doesn’t mean these points hadn’t been considered by the vendor, just that they were not raised or promoted.  And if not raised by the vendor, will they always be raised by the customer?

Second, I started to think about how this information might be used. In an ideal world, someone would take this data, together with other contextual information, and work out a plan. Presumably, if an individual is predicted to be a high performer and a high risk for leaving, the course of action is clear—speak to their manager, speak to them, and try to find a way to change the predicted outcome.

But what if it’s the other way around—predicted low performance and a low risk of leaving. Do you stop investing in that person and remove them from the promotion list? Do you start looking for ways to make them more likely to leave? One hopes not but that instead the prediction is used by a line manager to work out why their performance is predicted to be low and what might be done to turn this around. Questions should be asked: Are they in the wrong job or are there issues at home? Perhaps the problem is actually with the manager, or their colleagues, or their client allocation….

This line of thought made me suddenly rethink my allegiance to analytics. Particularly when you factor in that I work more with European than U.S. clients, where the employment law environment is tough and complex.

And yet, I do believe that all things being equal, those prepacked algorithms will be more accurate than our human intuition. I believe analytics works. In my first year as an undergraduate, I took a course in the history and philosophy of science, and that’s where I first came across Paul Meehl. We studied his book ‘Clinical versus Statistical Prediction: A theoretical analysis and a review of the evidence’ which was published in 1954.

You can still get it; I recommend it.  An interesting study quoted involved asking medical doctors (MDs), nurses, members of the public (using a check list), and an equation to diagnose a particular illness. MDs were worst, followed by nurses, followed by the members of the public, and the best diagnosis was via an equation. In other words, we’ve known for a long time that algorithms are better predictors than humans. So why didn’t doctors get replaced in the 1950s? The answer is in the complex moral, social, and cultural context of the time. Frankly, in the 1950s, we wanted to see a man in a white coat with authority telling us our fate.

When it comes to making decisions about people in the workplace based on algorithms, perhaps the moral, social, and cultural context is today more supportive, more ready.  But I don’t think HR professionals should take this for granted.  We should think hard about how we use these powerful new tools before we click that mouse or swipe that screen and in so doing create unforeseen ethical or legal dilemmas.

Hear more about issues related to Human Resources by visiting KPMG’s HR Centre of Excellence and by listening to the KPMG SSO Institute podcasts Eradicating the Stigma: HR’s Future and Rethinking Human Resources in a Changing World.

Filed under: Data Analytics, Human Resources
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Glenn Davidson, Managing Director, KPMG LLP

Federal, state and local governments and other not-for-profits have largely been operating the same way as they have for decades. Typically, it is with highly distributed, decentralized IT models that are not necessarily efficient, or successful in providing great service quality.

The recession has changed all that, and now there is an imperative not only to drive costs out of the system, but also to improve the service delivery to all of their constituent agencies or departments. Today, they are looking at how to refresh legacy systems to take advantage of modern technology environments.

Cost is the driver; improvement is the benefit

Like any large legacy operation, change in budgeting is usually the first wake-up call.

How can we overall reduce the cost of our IT operations? How can we avoid any major capital outlays for new technology in this environment? Those are the initial issues, but at the same time, there has been keen interest in process improvement. How do I enable my employees to do more themselves? How do I make it easier for my citizens to communicate with me? How can I make it easier for them to access my services?

So while the initial questions were about cost, questions of service quickly follow.

A hard look at hard costs

Many government organizations’ IT is highly decentralized or federated. It is difficult to get a true picture of spending and/or how services are currently being delivered. Improvements can be around the processes, but often it is around consolidation and centralization. Then the thinking turns to a shared services approach, where we start to deliver services on a fee-for-service basis, or on a resource-units formula.

Lately, we have heard clients say, “Why are we investing in this technology anyway? We’re not particularly good at it. Maybe there are others that could do it better and perhaps less expensively than we currently do it.”

Go big

Most organizations tend to look at their optimization programs with a very narrow, small focus. They are perhaps a bit cautious about mounting a major transformational initiative. Unfortunately, we find that normally those small initiatives are more likely to fail than perhaps even the large ones, so we have really encouraged organizations to think big and recognize that safer, more incremental programs don’t necessarily get the job done.

Big and broad thinking around transformation tends to have a better track record. The public sector is a very complex entity, with many stakeholders and consensus operating styles. In this sector, change management and communications programs are significant keys to success.

Build on fact, but think differently

It is even more important to be armed with the facts. A keen understanding of the environment and a fact-based business case around organizational change can go a long way to move the effort out of the gate.

Once the facts are on the table, it’s time to change the mind-set. Cultural change is difficult—even in the most progressive businesses. Shared services and outsourcing require a different mentality. With shared services and outsourcing, stakeholders are paying fees for service. It’s no longer just a broad-based budgeting exercise, but a real spend. That gets people’s attention, and that keeps the transformation moving ahead.

Hear more about issues related to IT Optimization in the KPMG SSO Institute podcast: IT Optimization in the Public Sector featuring Glenn Davidson, and the KPMG whitepaper by the same name.

And to receive the latest insights from KPMG, join the KPMG Institutes. Be sure to customize your profile by selecting “Shared Services” and “Outsourcing” along with other interest areas.

Filed under: Information Technology (IT), Outsourcing, Public Sector
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Glenn Davidson, Managing Director, KPMG LLP

While many corporations have gone to employee self-service, HR in public sector organizations has tended to lag. The decentralized model of yesterday has left each agency, and in many cases each department, with its own HR operation. Worse, these operations tend to operate largely with paper files—documents and spreadsheets—for most employee-related operations, from recruiting and onboarding to performance reviews, and to retirement and outplacement.

People costs on top of people costs

When you look at the budget of a federal, state, or local agency, or the enterprise overall, you see that personnel costs are among the largest. Of course, a lot of that is salary and benefits, but then look at the HR function specifically, and the numbers of people that ultimately support your employees tend to be quite large. That’s number one.

Number two is the service that is ultimately being provided to those customers may leave something to be desired—it may take too long to recruit people, for example, or to change benefits. Some of that happens because civil service positions tend to have long recruitment cycles, but much of it happens by paper-based processes that are slow by nature. Add to it the avalanche of performance reviews midyear and annually, and it only creates a bigger burden.

Fresh, new, and shared

Public sector HR is certainly ready for a refresh, and technology is certainly one of the major drivers here. It could take the form of a new enterprise resource planning system, or it could actually be HR software-as-a-service from the cloud, but whether it’s a new ERP or cloud service, the processes have to evolve quickly to become effective and standardized across the enterprise to leverage the benefit.

Done right, those systems will provide people with access to data, so they can do a much better job of managing their workforce. While technology is critical, process change, practice change, and cultural change are every bit as important.

One way to shortcut all that is to adopt a shared services operation. Once you have standardized the processes and you are leveraging a common platform, you can begin to change the operating model to one of fee-for-services.

Many paths – one destination

We have seen organizations approach the road to shared services with different models; but in every case, it is critical to have the operating model for, and an enforcement mechanism of, the principles the executives have adopted on their journey.

We have seen state governors send out edicts to show the way. In the federal government, it could be the Secretary or the Deputy Secretary who is ultimately mandating the organizational change.

But then the process can be different. It may mean that department-by-department or office-by-office, all of their HR activities may move into the shared services center. Some have started with a single process across the agency or across the enterprise such as time and attendance or travel and expense; a pilot program, if you will, to see if it works, and how people use it.

Our own philosophy is that you should bite off as much as you can possibly chew. In fact, larger transformation programs can have a higher success rate than smaller ones. This is probably because larger programs can generate bigger benefits, and by demonstrating value early and often, you can gain the momentum to take advantage of more and more down the road.

Hear more about issues related to Human Resources Optimization in the KPMG SSO Institute podcast: HR Optimization in the Public Sector featuring Glenn Davidson, and the KPMG whitepaper by the same name.

And to receive the latest insights from KPMG, join the KPMG Institutes.  Be sure to customize your profile by selecting “Shared Services” and “Outsourcing” along with other interest areas.

Filed under: Human Resources, Information Technology (IT), Outsourcing, Public Sector
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Stan Lepeak, Global Research Director, KPMG LLP Advisory
Rick Wright, Global & US Cloud Enablement Program Leader, KPMG LLP

KPMG recently released the 2013 edition of its annual cloud market research study. The first in a series of blogs examining key findings from this market study highlighted some of the hidden or at least unexpected costs and complexities organizations adopting cloud are experiencing. Another set of findings highlights that while cloud adopters can potentially save money and reduce costs compared to legacy IT environments, just focusing on the cost reduction potential of cloud misses out on its greater potential benefits.

Cost savings is the clear objective for most organizations adopting cloud (see below figure). It is encouraging to see that cost reduction and speed to adoption remain high on the list of objectives for executives. These benefits have always been central to the cloud value proposition, and bring obvious and meaningful business benefit. The fact that so many enterprises continue to see them as key objectives shows that experience in cloud environments has not seemed to dull these anticipated gains.

The research findings also show that the business side of organizations is beginning to recognize that cloud is much more than just another IT cost reduction lever. This is illustrated in the gap between how IT and business leaders view the cloud. Fifty-one percent of IT execs cited cost reduction as the top cloud objective compared to just 41 percent of business execs.

Essentially, the IT function sees cloud as a strategy to run their business more efficiently by reducing costs and enhancing agility, two of the biggest challenges for most IT leaders. The business is less focused on these objectives, which indicates that they see these challenges as being the purview of the technology function and—correctly or incorrectly—assume that IT is taking every opportunity to achieve these operational objectives already.

These results suggest that business executives are starting to more fully appreciate the potential transformative value that cloud can bring to the enterprise. And, having experienced some of the immediate benefits of the cloud, many are now starting to look deeper into their operating models to see how these advantages can be extended into the wider enterprise. To achieve these benefits, however, it will be imperative that strong emphasis is placed on understanding cloud’s strategic potential and incorporating that into not only the overall business strategies, but also the cloud investment plans and technology architecture road maps.

Ultimately, executives of all stripes will need to remember that cloud is not a short-term fix for the business, and that some of the benefits will only start to have a significant impact a couple of years down the road. Indeed, gaining real cost savings from the cloud is about more than simply moving from fixed costs to operating costs; the greatest cost savings—and, more importantly, the transformational business benefits—will come from the longer-term outcomes such as more efficient processes, more flexible operating models and faster entry into new markets and geographies.

While process transformation via the cloud is key to achieving real and lasting benefits, getting there will not be simple. It will require business leaders to work with IT to develop innovative strategies and plans to redefine and overhaul operating models and processes in order to take advantage of cloud capabilities. Otherwise, these transformational benefits will remain vague and aspirational, as has been the case with many early cloud adoption efforts.

Visit the KPMG Advisory Institute for the latest thought leadership from Management Consulting and KPMG’s microsite to learn more about guiding the CIO agenda.

Filed under: CIO Agenda, Cloud Computing, Information Technology (IT)
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Stan Lepeak, Global Research Director, KPMG LLP Advisory

As organizations expand their collective global business services (GBS) efforts they are increasingly diversifying the geographic locations from which they source services and in which they established captive shared services centers.  While India remains a top destination and source for services, other markets are growing in relative appeal.  This trend is nothing new.  Western European firms have been sourcing services from Central and Eastern Europe for years, to the extent that these markets are at, or near, capacity for some services and skills.   But, over the past one to two years this trend has accelerated, and will continue to do so going forward.   Recent HfS Research illustrates this point (see Figure 1)

There are many reasons why organizations are diversifying their services footprint.  It is good sourcing and GBS practice for organizations to routinely and thoroughly assess and reassess their GBS footprint.  Here are some factors to account for in this reassessment process. 

• Cost.  There are many markets that are now cheaper than India for certain services, such as rote IT work or voice.  There is also greater recognition and awareness among buyers of the indirect costs of using India—or other faraway places, or places with cultural and business contextual differences—in terms of project inefficiencies, rework, need to staff off-hour shifts, cost of site visits, etc.  Collectively these “leakages” can add up and eat away as business case benefits.
• Location proximity.  Organizations increasingly prefer that certain types of work, e.g., work that is more hands-on or strategic, are performed by near or offshore resources available during normal home market working hours.  Site assessments and visits are also more convenient when in closer geographic proximity.   Also, India overall is having a harder time staffing graveyard shifts than in the past, and the recent assaults in New Delhi have not helped matters. 
• Language.   This is obviously critical for services such as voice, and the Philippines, for example, is increasingly preferred for English language services given there is often less of an issue with accents and greater cultural affinity between the Philippines and the US.  The Philippines also offers Spanish language skills, as does most of Latin America.  Latin America also has Portuguese and French language skills, while Central and Eastern Europe can offer French, German, Dutch, and other tongues.
• Support market penetration efforts.  Most Western firms, based in slow growth or stagnant economies, are targeting emerging markets to drive business growth.  To support these efforts they are establishing and expanding local operations in these markets.  This includes India, and also China, Brazil, and the rest of Latin America, and parts of Africa.  This expansion includes establishing local support operations that organizations can leverage to support other regional operations as well as the home market.   Often, it is more cost effective to support market penetration efforts locally, but additionally local skills, expertise, and cultural and business knowledge are important.  In some cases regulatory, trade, and legal restrictions make local resources both preferable and more cost-effective. 
• Specialized skills.   While India offers a broad skills base, certain skills are more readily available or available at a better price elsewhere.  Some examples of this include advanced mathematics, physics and statistical skills in Russia and other markets in the former Soviet Union, creative and design skills in a variety of European and Asian markets, and language skills as detailed above.
• Diversification.  As organizations utilize more global resources, they are becoming more sensitive to, and aware of, the risk of concentrating too many resources in one market, or too many eggs in the proverbial one basket.  This risk can take many forms including geopolitical (e.g., terrorism, shifts to less business-friendly or export-friendly ruling governments, elimination of trade incentives), environmental (e.g., natural disasters, health and safety – i.e., Beijing smog, etc.), and infrastructural (e.g., weak/decaying physical infrastructure, capacity constraints).
• Tax and regulatory.  Organizations are also becoming more aware of, and sensitive to, the impact of taxation and regulatory requirements and burdens on offshore operations.  While these impacts are often more pronounced on captive shared services, they also impact outsourcing directly and indirectly.   Offshore markets and their providers and sponsors are becoming more focused on how they can use favorable tax and regulatory regimes to lure service providers, and through them, buyer organizations’ work. 

Organizations need a formal process and program to continually monitor, and when needed, revise their GBS location strategies and models.  Organizations looking for specific location assessment information are encouraged to check out KPMG’s Competitive Alternatives services and resources.

Filed under: Global Business Services, Offshore & Captive Centers, Outsourcing
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Mike Gough, Manager, KPMG LLP and Jeff Gregoire, Director, KPMG LLP

Say the words “cost allocations,” and your audience immediately thinks “expensive,” “formulaic,” “not based in reality,” and maybe worse.  Cost allocations are nothing new, but managing them correctly is. It’s the difference between providing a required service versus providing a value-based service with obvious benefits. With new options such as the cloud, shared IT services must have an even keener focus on allocating costs effectively and with transparent value in mind.

Cloud is changing everything

Today, organizations can effectively get around IT for a variety of activities using resources in the cloud. Software, infrastructure, backup, support, and others can all be handled by individuals and organizations in the cloud—often in minutes, paid for with a credit card. 

Cloud gives users distinct advantages over many traditional insourced IT shared services:

• Usage-based pricing – Cloud systems typically provide services in a metered approach to resource utilization “by the resource, by the drink” (e.g., GHz of computing power, GB of storage, Mbit of bandwidth). 
• Rapid Elasticity – Capabilities can be rapidly and elastically provisioned, in some cases automatically, to quickly scale up and rapidly scale down in an almost unlimited manner.
• The cloud user can monitor, control, and report in detail providing users with significant transparency as detailed information about usage is integral to the cloud business model.

Can your IT organization do that?

In our experience, users would much rather stay with the IT home team, but they readily assume they are paying too much for an inferior service. However, drill-down discussions reveal that, in many cases, it is the allocation of the costs, rather than the cost themselves, which drives dissatisfaction.

Users want to understand:

Pricing and charge-back transparency:  What’s the methodology?  Are there any additional expenses and overhead charges bundled in?

Value:  Am I paying a fair price for the services I’m receiving?

Flexibility: How can I change requirements, such as consumption and service levels, to reduce my spending?

The road to allocation value

The journey to effective cost allocation is not quick. While it requires significant strategic planning, the benefits are many. Consider that mature service cost allocation:

• Allows customers to control the amount of services they consume and reduce the overall cost to the enterprise
• Provides better information for realistic sourcing decisions, including cloud options
• Enables better alignment between service cost and service performance
• Provides increased visibility into the organizational support costs
• Delivers an expectation and framework for continuous unit cost financial improvement
• Provides reliable cost forecasts
• Enables optimization for tax/credits and tariff accounting treatment
• Allows timely reporting to spot and correct negative financial trends
• Provides better communications between enterprise service and customer organizations

With transparency, user groups will have greater insight into your offerings and your price structure.  However, if you treat them like a customer and a partner, they will work with you to reduce overall cost and waste in the organization. Put it all together, and the enterprise can gain significant value that positions IT and its constituents in line with the business strategy and plan.

In one of our recent Pulse surveys, only 15 percent of IT respondents identified chargeback structures as a key success factor within their organization.  Eighty-five percent hadn’t acknowledged or implemented a clear cost allocation methodology.  At KPMG, we have helped companies move to allocation maturity and transparency. 

We invite you to read more about issues related to IT Cost Allocation in the KPMG whitepaper: Transforming Cost Allocation for Information Technology Services.

And to receive the latest insights from KPMG, join the KPMG Institutes.  Be sure to customize your profile by selecting “Shared Services” and “Outsourcing” along with other interest areas.

Filed under: Cloud Computing, Information Technology (IT), Outsourcing, Shared Services
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Steve Salmon, Principal, KPMG in the UK
Stan Lepeak, Global Research Director, KPMG LLP Advisory

KPMG recently released the 2013 edition of its annual cloud market research study. Among the many findings, several that stood out highlighted that adopting and exploiting the potential of cloud is often not as quick, cheap, or easy as market hype would lead one to expect, at least among larger organizations with extensive legacy IT environments and more complex and customized IT requirements.

The rise of cost and complexity are inevitable major challenges to cloud implementation, in part because of some common misconceptions and hype surrounding cloud. Cloud is not simply a “buy, bolt on, and go” solution. Rather, it requires organizations to fundamentally transform the way they procure, manage, and use their IT applications and services, which, in turn, drives up the cost and complexity of implementation.

In the context of the hype, confusion, and simplistic vendor models, (too) many organizations have assumed that cloud could be implemented within their existing business and IT architecture without recognizing the significant transformation that must occur before cloud benefits can be fully realized. However, as organizations gain more experience in the cloud they are increasingly starting to recognize that it is not simply a case of flipping a switch and reaping the wonders of cloud benefits. Addressing the needs and requirements of cloud-related business process redesign, IT management capabilities, systems integration, infrastructure and configurations are all part of the transition process from traditional to cloud based operating environments. Figure 1 illustrates the most common challenges organizations are facing with cloud adoption efforts.

Many organizations also tend to underestimate the costs and complexity of integrating multiple cloud provider platforms and traditional systems into cohesive and interoperable business services that span functions across the organization. The reality is that most organizations will engage with many cloud service providers to support different business processes and functions, but with no clear industry standards yet in place, will find the process of ensuring interoperability to be rather complex. This is especially true for organizations that have already adopted alternative service delivery models such as shared services and outsourcing, which also must be integrated into the mix and managed alongside cloud efforts.

The ability to develop and deliver an integration capability within IT will be a key success factor for CIOs and their organizations going forward. So, while some observers suggest that cloud will diminish the role of the CIO, particularly as IT decision-making and budgeting move further into the business, we see the CIOs role as becoming ever-more critical as the business’ service integration broker on a commercial level, a process level, and a technical level. KPMG client experiences and this market research find that control and governance risk have moved up the IT and business agenda as more of the core processes move into the cloud. Given that the ownership of cloud within the organization is often fractured within the separate business functions, the lines of risk ownership are rapidly becoming blurred. As such, it will be critical that organizations address and understand the various elements of loss of control—whether that be technical, legal or regulatory—as part of their implementation and integration planning.

Visit the KPMG Advisory Institute for the latest thought leadership from Management Consulting and KPMG’s microsite to learn more about guiding the CIO agenda.

Filed under: CIO Agenda, Cloud Computing, Market Trends and News
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By Ron Walker, Principal, KPMG Management Consulting

Buyers, providers, advisors, analysts, and market watchers alike know that finance and accounting (F&A) has never been the frontrunner outsourced business process function. Yet, the “2013 State of Outsourcing” study, conducted by HfS Research with support from KPMG, shows that F&A is picking up outsourcing steam.

Indeed, the study’s results indicate that F&A outsourcing (FAO) will grow 8 percent in 2013, that four out of 10 buyer organizations plan to start or expand their FAO scope during the year, and that 43 percent of businesses with greater than $5 billion in revenues plan to increase their FAO activity. KPMG attributes part of the growth to the success buyers are achieving through use of selective outsourcing as a means to improve their efficiencies.

Direct interviews the two firms conducted with finance executives at client organizations, in parallel with the study, tell the larger F&A 2013 and beyond story. KPMG observed three key, and tightly interconnected, trends from those discussions.

Hybridization

Although use of FAO is expected to grow faster than ever before, buyer organizations will increasingly expand their use of a hybrid service delivery model, making FAO one of several integral components of their overall global business services (GBS) strategy. The hybrid model to be utilized varies among companies due to a variety of factors including size, appetite for risk, industry sector, etc., but may include in-house, shared services, offshore captive, outsourced, and cloud-based platforms and bolt-ons, either offered by service providers or procured internally.

Cloud Solutions

One of the largest impacts on the F&A service delivery model is coming from cloud solutions –  ERP-type offerings and point solutions for the record-to-report process and collections management. The pay-per-use cloud model is extremely enticing to providers and buyers alike, as it substantially reduces service delivery expenses. And the very nature of cloud solutions gives buyers increasing flexibility in how they design their hybrid F&A delivery models.

Verticalization

There is a clear dividing line among the four top external service providers and the “challengers.” One of the primary contributors to the leaders’ success is their development of specialized vertical industry capabilities and use of FAO tools and technologies. This allows them to deliver increasing value to their clients, often at significantly lower price points when leveraging cloud-based solutions, and caters to buyers’ growing demand for sector-specific capabilities. Today’s dominant vertical markets for FAO services are technology, manufacturing, and banking, financial services and insurance (BFSI), while the up-and-comers include retail, media/publishing, public sector, and high-technology/telecommunications/software.

Clearly, those responsible for ensuring effective delivery of their organizations’ F&A processes have never had so many valuable, viable choices. At the same time, these exponentially increasing options create complexities around delivery models, management, and governance that decision makers have never before had to consider. As a result, buyers much carefully investigate, weigh, and vet all model, provider, and cloud options before they make any changes to their GBS methodology.

To learn more about KPMG’s latest thinking on F&A, FAO, and GBS, please visit KPMG’s Shared Services and Outsourcing Institute.

Filed under: Cloud Computing, Finance & Accounting, Global Business Services, Market Trends and News, Outsourcing
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