Five Keys to Succeed in “Running IT Like a Business”

Steve Bates, Principal, CIO Advisory

Mandates for enterprise IT departments have taken a 180° turn since the 2008 financial crisis began easing. While board of directors and business leadership had been calling for slashed costs, their new directives are for provision of IT transparency and proof of real, tangible business value delivered.

Realizing the need to transform IT into a high-performing, value-focused business partner, an increasing number of CIOs and CFOs are turning to Technology Business Management (TBM), which is effectively a discipline to “run IT like a business.” They are finding that TBM helps them by:

  • Enabling collaboration among IT, finance, and business partners
  • Driving alignment between technology supply and business demand
  • Guiding and demonstrating the value of technology to business partners
  • Utilizing the principles of marketplace economics to drive change.

For organizations beginning to embark on a TBM journey, following are five KPMG-identified keys to succeed in running IT like a business.

The demand for IT transparency starts at the top

Boards and executive leaders are demanding IT make a significant change in its capabilities. The result is altering the very fabric of how organizations invest in and interact with both customers and suppliers. KPMG’s podcast, IT Transparency: New Capabilities Driven by the Boardroom, provides more details.

IT transparency enables transformation

IT transparency can transform the relationship between IT and business from a supply-based model to a business-demand consumption model. The second in KPMG’s IT Transparency podcast series, IT Transparency: An Accelerant to Transformation, delivers insights into how IT transparency enables transformation, why traditional IT delivery models cannot react with agility to changing business conditions, and the new lens through which IT is being evaluated.

IT staff must gain new capabilities to run IT like a business

To achieve IT transparency success, the IT organization must make fundamental behavior shifts to ensure value is delivered and business measures are achieved. KPMG explores this topic in its third IT Transparency podcast, IT Transparency: Changing the IT Mindset.

Changing the IT discussion from a cost to a value investment

Managing the business of IT through an integrated view of technology cost, performance, supply, and demand is a value-oriented conversation bigger than IT alone. To transform from technology provider to value-focused business partner, IT must address its business audience and tie into corporate culture, strategy, and goals. KPMG’s thought leadership paper – Moving Information Technology from a Cost to an Investmentdelves deeply into the three domains of TBM, the four stages of value optimization, and managing the journey and realizing value.

Learn from your peers

First American Financial Corporation, a TBM pioneer, recently shared with KPMG its multi-step journey from legacy spreadsheet-based models to collaboration with its business units, and its challenges and successes along the path to running IT like a business. The KPMG podcast, The TBM Journey at First American Financial Corporation, provides valuable lessons learned that have practical application to your own organization’s TBM initiative.

To learn more about KPMG’s approach to TBM and how we can help you run IT like a business, please contact me at sjbates@kpmg.com.

Taking a Pulse on Global Business Services – Short Term Progress but a Long Term Journey

Stan Lepeak, Global Research Director, KPMG LLP

KPMG recently released  the results of its quarterly, global 1Q14 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.

The first quarter edition of the Sourcing Advisory Pulse performed a recurring and ongoing analysis on general trends in the used of shared services, outsourcing, and global business services, including market demand and deal characteristics for third party services.  It also took a deeper dive into the macro state of the GBS market and the impact current economic and geopolitical market conditions are having on global sourcing.  The following are the key findings from this quarter’s Sourcing Advisory Pulse survey.

9252 Figure 1

Do You Have the Right KPIs to Run IT Like a Business?

Dave Conroy, Managing Director, CIO Advisory

You might remember the old saying about the cobbler’s children—they have no shoes. In fact, the IT function has long been providing “shoes” for everyone in the company except itself as it helps the CEO, COO, and other business leaders exploit information and business intelligence for competitive advantage.

But what if we think about the CIO as the leader of a business that just happens to be IT? Then we can better understand how the right analytics can enable CIOs to gain the insight they need to truly run IT as a business. Basically, it all comes down to leveraging the same practices and measurements that IT customers have been using for years.

Needed: an end-to-end view

Today’s IT function is an enabler for success, serving as a partner that drives innovation, finds new ways to exploit emerging technologies for competitive advantage, and works with its customers to understand demand and then effectively deliver new services and solutions around this demand. In the same way, the IT leadership model also needs a strong focus on demand, with an end-to-end view across the entire IT value chain, not just a point solution. This means that CIOs need to develop a balanced perspective around their investment and service delivery portfolio; retain a strong sense of governance, risk, and control; and bring that entire package together to create the right value both for the IT function and for the customers they serve.

Finding the right KPIs

The real challenge about analytics for the IT organization is not absence of data. IT is flooded with information generated by IT service management, help desks, CMDBs, the complexity of the project portfolio, tracking systems, etc. Instead, the real challenge is how to find the KPIs that IT leaders can use to make the best changes, interventions, and decisions for their IT organization.

These KPIs should go beyond traditional IT metrics involving budget, cost of IT, SLAs, scalability, and reliability. They need to be KPIs that allow CIOs to answer fundamental questions about their organization, such as “how well are the IT projects aligned to the business priorities?” and “how well is the IT organization positioned to enable rapid entry into new markets?”

Since information gathering takes time and resources away from other tasks, CIOs really need to focus just on those five or ten KPIs that actually make a difference. Using a top-down approach, CIOs can build dashboards that provide valuable business intelligence to support decision making without inflicting any unnecessary overhead on the IT organization.

The right information at the right time from the right sources

Developing the right kind of KPIs for IT isn’t something that comes off the shelf with a technology solution. Sure, there are analytical engines out there, along with data warehouses and a host of platforms that are used to facilitate the process, but if you are unclear about the KPIs that drive true value, then all of that technology is largely misguided.

A KPMG-developed framework, called the Intelligent Enterprise, helps business leaders get the right information at the right time from the right sources. This framework can also be applied to the IT organization. In a nutshell, it can define the right KPIs and strategic measures as a function of IT’s business strategy. These KPIs may not necessarily be discrete data points. What they should be are strategic indicators of performance.

KPIs for the IT organization are all about getting the basics right and establishing an environment that has a data hierarchy aligned around the IT organization’s goals and objectives. Three or four years down the road, the next step might be predictive analytics and being able to mine unstructured information for greater insight. For now, however, we think the big opportunity for IT is about finding the most efficient and effective way to deploy the resources of the IT organization as a whole to deliver the best results for their business customers. And that’s not a challenge that requires the most sophisticated big data analysis techniques. It’s more profound. It’s organizational, using the right KPIs to track the things that truly move the needle for the IT function.

Hear Dave talk about how CIOs are utilizing management information as business intelligence to make the most effective decisions in terms of running the business of IT in the KPMG Advisory Institute podcast: IT Analytics Shape the Future of the IT Organization.

New Study Shows Major Investment in Global Business Services

Companies to spend $40 billion annually. Analytics, IT, and talent cited as success factors. 

Global Business Services (GBS) is a next generation operating model for driving performance, added value, and deeper savings in business services.

Among other benefits, GBS can help organizations to lower costs, get products to market faster by using their process footprint, quickly integrate acquisitions to accelerate growth, and drive growth in emerging markets by seamlessly supporting operations in new geographies.

We’d like to share some highlights about the primary challenges and opportunities of GBS for 2014, based on findings from “The Global Business Services Industry Study,” one of the largest and most comprehensive GBS studies ever conducted. Conducted by KPMG and HfS Research, the study covered the dynamics and intentions of 416 enterprises, with more than $1 billion in revenue, representing various regions and industries.

Key findings from the study
In the study, almost two-thirds of respondents from mature companies said they intend to move to GBS or significantly evolve their GBS within the next two to three years. Even more telling, we found evidence suggesting that —

  • Global enterprises plan to spend $40 billion dollars per year on improvements in GBS.
  • Back-office centralization is well developed, with the majority of companies (51 percent) already centralized.
  • Analytics will provide the value-differentiator for GBS organizations, providing strategic operational analytics to improve services, contain costs, and enhance decision making.
  • GBS organizational models fundamentally change the structure of companies by replacing traditional siloes with matrixed processes.
  • Limited executive experience in key areas slows progress.

Success with GBS
According to our recent study as well as our experience in the field, the successful development of GBS can include the following initiatives.

Developing an effective, long-term, analytics road map
Accessing meaningful data to support decision-making will provide a crucial value-differentiator for GBS organizations, with three-quarters of enterprises viewing investments in analytics as important for reducing costs, gathering more data on customers, and improving profits. Success will be measured by process improvement, cost control, and the capability of governance executives to produce quality operational data upon which to support management decisions.

Supporting business enablement of IT
Most mature GBS organizations own multifunctional processes, as well as the underlying technology. With today’s technology, they can integrate the back office with the front office, managing cohesive, end-to-end processes that connect disparate systems, owners, and activities. They can also organize skill sets in appropriate groups to drive efficiency and additional controls. Furthermore, they can support multiple services within a diverse commercial enterprise resource planning (ERP) environment, while taking advantage of multi-tenant platforms offered by software-as-a-service (SaaS) providers.

Improving talent management
With new technology, changing markets, and the growing complexity of business requirements, talent shortages–especially in middle- and higher-level roles–remain a top challenge for GBS organizations. GBS organizations can determine the right mix of in-house training, third-party resources, and outside recruitment to gain the skill sets they need. It is important to be seen as an “employer of choice.” Bringing in the right talent will help foster innovation and prepare the organization for the future.

Learn more
Access “The Global Business Services Industry Study” to learn more about GBS trends and issues. Topics include:

  • An exploration of the newest global operating models to enable new technologies, capture the value from data and analytics, empower the business, and simplify the extended enterprise
  • Leading practices for planning and implementing global business services
  • Process and industry trends
  • Progress toward achieving global business services
  • Desired business outcomes
  • Operating maturity and readiness
  • Actions needed to drive success
  • The future role of analytics and data governance

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.