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 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.


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.


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.

Global Business Services: From Blunt Tool to Innovation Enabler

Stan Lepeak, Global Research Director, KPMG LLP Advisory

KPMG recently released the results of its global 2Q13 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 IT service providers.

KPMG is consistently seeing GBS continue to become the predominant model that progressive, and increasingly mainstream, organizations are employing to manage their collective shared services and outsourcing efforts. Figure 1 taken from KPMG and HfS Research’s State of the Outsourcing Industry 2013 market study illustrates this point. Over three-quarters of participants polled in this market study expect to moderately or significantly increase their use of the GBS operating model and framework going forward.

9208 Fig 1

A driver for increased GBS usage, and more importantly an enhanced benefit it can bring over traditional stand-alone shared services and outsourcing efforts, is the focus on how to use GBS to bring greater business value to the organization beyond just cost savings. This is reflected both in the goals and business case benefits sought in new efforts being undertaken as well as in how focus is changing in existing efforts in the field. Figure 2, based on research efforts conducted by HfS Research, illustrates an example of this and measures how corporate leadership’s objectives are shifting from cost reduction to more strategic elements such as accessing talent and skills and driving corporate and cultural change.

9208 Fig 2

GBS usage is evolving beyond a blunt tool to drive cost savings to an intricate, yet powerful, instrument to deliver strategic business value. Back-office services deployed into GBS operations are increasingly extending beyond just transactional activities, while customer-facing and more strategic activities are more often in scope. GBS efforts are becoming the vehicle through which organizations can enable greater consolidation and leveraging of common applications and business processes, models, and leading practices to deliver a broad range of services more efficiently and effectively on a global scale.

There are many challenges to organizations’ GBS adoption, expansion, and maturity-driving efforts, and many enablers. One often underemphasized enabler is the role of IT, both as a group and organizational unit as well as a collective set of tools, technologies, and systems. The 2Q13 Sourcing Advisory Pulse took a deeper dive into the role of IT in enabling GBS success, and we will examine that in a subsequent blog entry.

GBS is a key focus area in the quarterly Pulse surveys and in other KPMG market research efforts and in client engagements. KPMG will release new findings from its ongoing GBS maturity research efforts in the fall of 2013 and is also conducting a major global market study with HfS Research on broader GBS trending that it will release later this year.

Taking the Pulse of the Global REFM Outsourcing Market

Stan Lepeak, Global Research Director, KPMG LLP Advisory
Patrice Gilles, Managing Director, KPMG LLP Shared Services & Outsourcing Advisory
Doug Burr, Director, KPMG LLP Shared Services & Outsourcing Advisory

KPMG recently released the results of the 2013 edition of its annual REFM (Real Estate and Facilities Management) Outsourcing Pulse survey. The findings from the REFM Outsourcing Pulse are taken from end-user organizations that are actively exploring or undertaking REFM outsourcing efforts, leading REFM global business and IT service providers, and third-party legal counsel and sourcing advisors supporting clients’ REFM outsourcing efforts. The REFM Pulse is part of KPMG’s Pulse family of research studies. Over 300 respondents participated globally in this year’s REFM Pulse survey with end-users represented across all major geographies and industry groups.

The global REFM outsourcing market remains very healthy and continues to grow (see Figure 1).   Demand for REFM outsourcing is highest in the Asia Pacific region and among larger, global buyer organizations.  Demand in the United States and EMA is weaker than in other regions although the existing level of outsourcing is higher in these markets.  From an industry perspective, the greatest current level of demand for REFM outsourcing comes from the banking, financial services, and insurance (BFSI) industry group, followed by healthcare, pharmaceutical and biotech, and public sector.

9229 Fig 1

Overall REFM outsourcing penetration levels are high in major markets. Most end-user organizations today have undertaken some level of REFM outsourcing (see Figure 2).  Tactical REFM services are the activities most commonly outsourced.  A growing number of service providers, however, are demonstrating improved capabilities that potentially enable them to move up the value chain in terms of services offered into areas such as REFM strategy and planning and research and development support services. While the deal size and volume of potential work in these areas is smaller than with more tactical activities, the strategic value to the client is much higher. To promote growth in these areas, providers much continue to become better at integrating services into existing business operations to provide more high-value and strategic value.

9229 Fig 2

Reducing costs remains the top driver for REFM outsourcing, though buyers increasingly seek more strategic goals such as improving global delivery and operating models and improving process performance above and beyond reducing costs.  One of the top trends in the market today is bundling of  REFM services under the fewest number of service providers and operating under an integrated model to further reduce costs, drive consistency, and improve governance, controls, service level agreements, KPIs, and performance reporting.

Organizations need to continually assess what is the optimal mix of outsourcing, shared services, and internal operations to support their REFM services needs. This requires a careful evaluation of the performance of their current operations, business needs and challenges, capabilities available in the market, and the benefits, risks, and costs of making a change. There is no right answer or single best-fit model, but maintaining the status quo legacy model is not prudent.

For more of KPMG’s latest thinking on REFM, please view our library of papers on the KPMG Shared Services and Outsourcing Institute.


The Role of IT in Enabling GBS Success

Stan Lepeak, Global Research Director, KPMG LLP Advisory

KPMG recently released  the results of its global 2Q13 Sourcing Advisory Pulse surveys. These Pulse surveys provide insights into trends and projections in end-user organizations’ usage of global business services (GBS).   A key focus in the 2Q13 edition of the Pulse survey was examining the role of IT in enabling GBS success.  While IT is critical to any GBS basic operations, KPMG finds that often IT is disconnected, underutilized, and misunderstood as component of the GBS program, framework and model.

One key to driving greater GBS maturity is improving the underlying capabilities of IT, both as a collective set of technologies and as the IT group, used to support GBS efforts, and better aligning them with these efforts.  More standardized IT applications and systems enable a more integrated IT environment that is critical to creating more integrated and end-to-end GBS operations across functions, geographies, and business units. Beyond providing core operational services, integrated IT can enable the other key capabilities needed for GBS operations such as providing data analytics required to optimize both GBS and firmwide operations.

KPMG market research into GBS maturity finds that more mature organizations often cite the importance of quality IT capabilities to the success of their GBS efforts. This manifests itself in numerous ways.  In addition to more standardized global IT platforms, the capabilities to exploit emerging IT capabilities, for example with cloud and data analytics, can further GBS capabilities, especially beyond core transactional activities.

The 2Q13 Pulse examined in detail through what means and to what degree both the IT group (see figure 1) and IT as a set of technologies (see Figure 2) can enable GBS success.  The Pulse polled just KPMG member firms’ consultants globally on IT group enabling capabilities and both its consultants and  third party service providers on overall IT capabilities

9209 Fig 1

9209 Fig 2

The area where KPMG consultants felt typical IT groups add the most value to GBS efforts was works closely with GBS and firm executives to define a GBS IT strategy and architecture that maps to and supports the GBS and overall firm business strategy. Ranked nearly the same was provides operational support to GBS operations so they do not need to invest in these resources and capabilities themselves. These two capabilities show both the strategic value (IT strategy and architecture definition) and operational value (providing core IT resources) that IT can, and must, bring to optimize GBS efforts.

When it comes to  how IT as a set of technologies typically acts as a critical enabler to firms’ GBS efforts the top scored capability by both KPMG consultants and third-party service providers that IT provides a largely standardized IT platform that can support integrated GBS efforts across functions, geographies and business units.   Providers also scored IT provides an IT environment that delivers GBS executives and decision makers timely and accurate access to GBS operational data to make informed business decisions at this same level. Provides a robust, secure and accessible means for GBS operations to interface with customers, partners and suppliers also scored well.

While these findings illustrate the range of activities IT groups and IT itself can enable to support improved GBS efforts, the emphasis on deploying a largely standardized platform is arguably the most critical. High performing and highly integrated IT operations and systems are key to enabling the other capabilities cited such as data analytics and access to required operational data as well as maintaining secure and robust between communications between GBS groups and components and third-party partners, suppliers, and customers.   Regardless of the which elements of IT prove most critical to GBS, it is an imperative that CIO, CFO and other firm leaders and enablers of GBS efforts come together – if they have not already – and ensure they are defining, mapping and executing an appropriate IT strategy and architecture to support their collective GBS ambitions.