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.

Rethinking HR in a Changing World: Winning (or at Least Competing In) the War for Talent

Stan Lepeak, Global Research Director, KPMG LLP Advisory

KPMG market research on the state of human resources (HR) turned up some disappointing findings. The HR function in many organizations is still not viewed or performing as a strategic asset. Key to becoming more strategic is to develop and employ a more comprehensive, business strategy-driven, HR change framework that leverages detailed HR architectural models to define and prioritize change efforts.

Digging deeper into specific areas where HR needs to perform more strategically, the research study found that talent management was identified as a top priority. Despite the increased rhetoric around the “war for talent” in an increasingly competitive and globalized marketplace, HR is too often viewed as being nonessential or ineffective (see Figure 1 below).

9166 Fig 1

While it is disappointing that the skill at which HR was most frequently cited as excelling was cost cutting, and then, by just 39 percent of study respondents, various critical aspects of talent management (source, retain, career development) were even less frequently cited. This will prove more of a challenge going forward as retaining crucial skills and experience within the business was cited at the top desired focus area for HR groups over the next three years (see Figure 2 below).

9166 Fig 2There are three key dimensions to improving organizational talent management capabilities:

  1. Balancing global and local talent – managing, hiring, and identifying talent globally while retaining important local insights
  2. Managing a flexible and virtual workforce – but not at the cost of loyalty and career development
  3. Retaining the best talent – maintaining employee engagement in the face of a less committed, more flexible workforce

Organizations must address these three dimensions individually, and in a coordinated, collective, and where applicable, global fashion. Fragmentation of strategy and execution itself is a detriment to excelling at talent management.

There are several key elements to successfully executing on the dimensions outlined above; among them:

  • Redefining talent management by thinking “outside-in,” and beginning with the talent needed in the organization rather than the talent currently in place.
  • Driving change so that business unit and executive teams own their talent and are held accountable for keeping their best employees. HR can, and should, help prepare them for this responsibility, but no longer assume it for them.
  • Extending this point, HR should help the business to manage talent risk such as critical skill gaps, key person dependency and succession risk, and work with them to develop and demonstrate the ROI from improved talent management.

HR can help their organizations get battle-ready for the war on talent, and there has never been a more critical time to do so; but new tools, techniques, and practices are required to accomplish this.

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

Baby Boom Generation of Contracts to Rebid or Renegotiate

Jerry Klawitter, Director, KPMG LLP
Carlos Llaguno, Senior Associate, KPMG LLP

You needed some creative solutions, needed to lower operational and labor costs, needed to free up staff for more strategic initiatives, needed to gain access to world-class capabilities, needed access to industry-specific expertise, needed to better align the internal IT organization with business requirements…

“BOOM”—you outsourced many of your back-office services, including IT, with a third party. Three-year contracts, five-year contracts—there was an abundance of outsourcing contracts and relationships put in place since the turn of the century. Some of you have already extended or renewed those once already, some have taken the services back to the market in search of a better solution, and some of you have brought services back in-house.

Right now, there is a surge of contracts nearing the end of their terms and you need to think about what it means—what is the right answer—renew, renegotiate, rebid, or insource?

What has to be understood?

First and foremost, you need to think strategically about what you want to get out of your outsourced services. Figure 1 below illustrates how market thinking about the drivers for outsourcing has evolved.

9225 Fig 1

There are many aspects to evaluating the services you are receiving, the level of service quality and efficiency, and the legal protections afforded to your company and customers. Once you have a comprehensive assessment of your current outsourcing delivery model and provider(s), you need to ask yourself some important questions that will help you to define your future model:

  1. Has the performance of the incumbent service provider(s) been satisfactory? (i.e., does or can the provider fulfill its contract obligations, achieve expected service performance metrics, provide flexibility in providing services, and is it easy to partner with when contracting?)
  2. Is the incumbent able to further transform current service delivery? (i.e., can the incumbent provide more mature processes and implement innovative solutions that cost effectively transform the current model and enable IT to “future proof” its ability to support the business?)
  3. Can current services be delivered internally or by another provider for less cost? (i.e., will the costs to acquire, transition, and sustain service operations over the contract term be less expensive than the incumbent provider?)
  4. Will switching to a new provider result in greater risk exposure? (i.e., is there higher probability of lost revenues, productivity losses, penalties for noncompliance with legal/regulatory requirements, or a damaged brand reputation by changing service providers?)

What are your options?

Renewal: Accept the current contract conditions with minimal changes. Consider if your current agreement is reasonably consistent with similar market agreements, if you have a positive relationship with your current service provider, and whether your current provider can meet your evolving needs.

Renegotiate: Consider the strength of your relationship with your service provider. Is it a positive relationship? Are there significant things that need to be changed or added?

Rebidding: Rebidding doesn’t necessarily eliminate your current provider from consideration; it only means that you will be entering into a competitive procurement and will seriously consider offers from other providers.

Insource: Insourcing is performed due to high levels of dissatisfaction with the incumbent provider and the sourcing market in general. Few clients insource all of the services they previously outsourced, but you may choose to bring some pieces back in-house.

What are the opportunities?     

A contract nearing the end of its life is an opportunity. Outsourced services is a journey where you need to continue to evolve and mature in order to meet the changing needs of your business. Figure 2 below illustrates the maturity curve you embarked on when you first started to outsource services—where are you today?

9225 Fig2b

At the end of term, there are opportunities to consider: Are you at market price? Does your contract adequately protect you from current and future risk and provide you with flexibility to address change? Are you receiving the quality of process and service that you require, and are you positioned for new and emerging services? Are your policy, political, and regulatory requirements known and documented?

As part of the outsourcing “boom,” you are not the only one contemplating the next stage of your journey. Strive to understand the opportunities in the marketplace and position yourself for success as you progress up the outsourcing maturity curve.

For more related to this topic, read Developing Sustainable Outsourcing Strategies is a Multi-Faceted Balancing Act. And visit the KPMG Advisory Institute for the latest thought leadership from Management Consulting.

The Survey Says: F&A BPO is a Strong Market (And there is plenty of room for expansion)

Stan Lepeak, Global Research Director, KPMG LLP and Ron Walker, Principal, KPMG LLP; featuring Phil Fersht

KPMG and Horses for Sources (HfS) recently conducted a broad industry study, and spoke with 1355 stakeholders who buy, sell, and advise on sourcing services. Of that, we interviewed 170 customers of F&A BPO at length. Here is the first of what we found.

The market is growing

In a nutshell, outsourcing in the F&A market is $25 billion, and the biggest piece is order-to-cash, which is growing 5 percent. Multi-process F&A BPO, where two or more core financial processes are under a single contract, is $4.5 billion and growing at 13 percent.

Interestingly, Latin America is the fastest growing region with a 12 percent CAGR in F&A BPO; then Asia Pacific, with growth of around 10 percent. EMEA is growing at 8 percent, followed by North America at about 6 percent.

The fastest growing industry area for F&A BPO is the high-tech-software-telecom space growing at an 11 percent clip. This is probably not too surprising, as many of these companies are looking for more radical, fast-moving ways to build mature business models. Media and publishing is also growing at 11 percent, while the public sector is picking up at around 9 percent.

There is plenty of room for more

But in even the most commoditized processes such as payroll, 40 percent of companies still run their payroll in-house. About 50 percent still run their own AP and AR. Higher-value processes such as analytics and financial planning are still scattered inside, with four out of five enterprises not having moved them to shared services yet.

Accelerating from the start

An interesting trend is that once companies make the move to F&A BPO, even in a very small sense, it becomes much easier to see the inherent opportunities and expand. New tools, different ERPs, and cloud make it easy to implement new functions. Service providers have become much smarter and more capable of delivering point solutions easily and effectively, and buyers and suppliers are working together to explore the possibilities.

The mid-market potential

There are not very many all-in finance and accounting deals out there. They are very big and very comprehensive. Most of them are three to five years, and for one function or a couple of functions versus the whole thing. We believe we’ll see that trend continue over the next several years, with the exception maybe of the mid-market. The mid- market is where new technologies and solutions can have the most impact.

Going vertical

The other big thing that we’ve seen is that successful service providers have focused their energies on industry verticalization. They are focusing on verticals that they have expertise in and because the market is much more sophisticated than it ever has been regarding how they buy these services.

We see F&A outsourcing for many of the larger enterprises now as part of a broader initiative to leverage relationships with service providers to plug gaps, to give more flexibility to their capabilities, to add new technology and analytics, and to create new dynamics and more innovative ways to get things done.

Coming up

In another blog, we’ll discuss what companies are looking for now, and how innovation and analytics are becoming as much a part of the mix as cost savings and labor arbitrage were a decade ago.

Hear Stan, Ron, and Phil discuss the key findings of the KPMG/HfS outsourcing study in the KPMG Advisory Institute podcast: Finance and Accounting Outsourcing Market Landscape 2013.

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

The New(ish) Role for IT and the IT Group

Matt Bishop, Global Managing Principal, CIO Advisory
Stan Lepeak, Global Research Director, KPMG LLP

Technology change—and complexity—continues to increase. This is nothing new but in the context of cloud, “big data,” BYOD, and social media, the pace of change is accelerating. Expectations of what Information Technology (IT) can bring and what the IT group should do to enable these expectations continues to change. As a result, the IT franchise—and IT as the keeper and enabler of technologies in the organization—is more at risk than ever. So how can CIOs guide their organizations to better support the business with technology-enabled services while running the IT organization itself much more effectively?

First, it is important to recognize that the pace of IT change is different this time. It’s not driven by one thing—the mainframe, client server, ERP, the Internet—but a lot of different things coming together—cloud, social media, big data, mobility, the consumerization of IT, etc.  It is the combinatorial effect of these new technology trends.

So how do most IT organizations address these combinatorial components? They run some pilots; put them it in a Petrie dish; test this and that thing out; and make sure they’re comfortable and confident with that technology. This is a no brainer and can be fun but everyone is doing it, including a broad range of nimble vendors and service providers directly targeting the business. The much more important next step is using that technology to drive real efficiencies and effectiveness in the current and soon to be future modes of doing business (not IT).

Let’s look at big data. IT groups embrace the potential of big data, for example in the form of predictive analytics, and the notion of information as an asset and using information to drive business value. But there is a big gap right now in that IT groups either do not have the capacity or the focus to really turn that lens on themselves. As a result, many IT organizations have difficulty answering questions that predictive analytics could help answer.

One good example is to improve IT systems reliability. IT organizations are doing significant work associated with outages or trying to prevent outages. But few organizations are taking all the historical data they have around incident, around capacity, around configuration, around vendor reliability, and developing tested statistical equations to identify when is the next likely time an outage will occur.

Another example is the cost dimension of analytics and IT. IT organizations make purchasing decisions all the time. These purchasing decisions are based on metrics such as cost, available budget, standard performance metrics, and existing vendor preferred relationships.  But what needs to be better addressed is the total cost of those assets over their lifespan, from acquisitions to disposal, inclusive of operating costs and those types. This is where big data can have a potentially big impact of the business in terms of cost and performance.

These examples are part of the bigger issue of how can CIOs better drive innovation in the IT organization from the use of technology as well as from the standpoint of their people, and making their people more creative in terms of being able to help the business or be more creative in terms of solving problems.  The focus needs to move beyond cost to include innovation and speed.

There are many enablers of innovation. One is a willingness to try new things that potentially may fail, and an associated second is the executive permit that to fail is sometimes acceptable. This means moving beyond an overemphasis on self-preservation and underemphasis on accelerated change.  It also means better defining and measuring true innovation and what change enables it in new and creative ways. This is an outward focused effort, and too many IT groups are inward and historically focused in their metrics.  This must change, or innovation and underpinnings of it through the exploitation of the myriad of current technologies trends in the market today will remain aspirational for too many IT organization.

Hear Matt explain the critical role IT plays in a technology climate of change and opportunity in the KPMG Advisory Institute podcast: The New Role of Technology.

Explore KPMG Advisory Institute’s CIO Agenda and visit the KPMG Advisory Institute for the latest thought leadership from Management Consulting.

Information Security and Outsourcing: In a constantly expanding enterprise, keeping up is hard to do

Greg Bell, Principal, CIO Advisory

Today organizations struggle to really protect your information. That’s driven by a lot of different external trends. It could be increased regulation over certain types of data that you have to protect. It could be protecting some corporate secrets and intellectual property. Or it just could be making sure that the integrity of all the data they use to make their business decisions is complete and accurate.

To that end, it is important to think holistically about how information is being protected and whether it’s within your four walls and in your complete control or whether you trust it to a business partner through an outsourcing arrangement.

Alignment and priorities

Companies must work on setting security strategy that is aligned to their business priorities and regulatory imperatives.  Once they set the strategy then it becomes an easier valuation to determine whether they’re best to maintain that information control internally or externally.

But the practical world today that we live in is all of our clients still have some sort of extended global enterprise. They’re relying on a cadre of businesses, partners, and even customers becoming more involved in self-service.

So understand that you’re going to have to share information with other valued members in your extended value team including your outsourcers. We’re seeing this becoming very common. It’s a real litmus test of how well you’re evaluating security when you pick your vendor and how well you get transparency into how they’re managing your data throughout that lifecycle.

No right answer

Every business has a different set of security needs and those needs change, as well as who manages them. It’s part of the lifecycle where all relationships come to an end at some point. So how do you make sure that you retrench your information and security? You have to bring that information back and make sure copies aren’t still being stored with that third party nor do they have access to it.

There are many particulars based upon where you are in your relationship with your outsourcer. But we’ve seen a lot of organizations do this extremely well where they’ve actually been able to improve their security posture by thinking through the process and carefully selecting their right outsourcers.

Tried and true cautiousness

The “trust but verify” concept is central to any relationship you have with a third party. You want a trust with them because you’re imparting part of your business process to them and you want to have that relationship. So trust on both sides is extremely important.

But again, the regulatory environment we deal with today—just the risk environment we deal with today—means that you have the obligation to verify that trust. Now and over time, and in many different areas. The legislation and regulations we deal with tend to change fast and often, and there is no sign of that letting up.  So it’s important we keep security in alignment with our business and our environment.  To make sure you’re meeting your security obligations to your customers, to your company itself, and to your regulatory environment.

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.

And hear more about issues related to security and privacy in the KPMG Advisory Institute podcast: Security and Privacy Considerations in Outsourcing.

Architecting a More Strategic Next Generation Human Resources Function

Stan Lepeak, Global Research Director, KPMG LLP

Recently completed KPMG market research on the state of human resources (HR) turned up some old and disappointing findings.  The HR function in many organizations is still not viewed as, or performing as, a strategic asset.  Despite the increased “war for talent” in an increasingly competitive and globalized marketplace, HR is too often viewed as being nonessential or ineffective.  Part of the reason for this is that over the past several years, Western organizations have been preoccupied with cost optimization, cost reduction, and sustainable cost management. This has required HR to play its part, largely through making the HR function more efficient—for example, via downsizing and the increased use of shared services and outsourcing—but not necessarily more effective.  Yet, long before the economic downturn, many organizations did not view HR as strategic.

The conceptual process to make HR more strategic is relatively straightforward; it involves answering three questions.

1)      What is the organization’s business strategy?
2)      How is value created through people, and what does the HR and people agenda need to look like?
3)      How can HR drive and enable this value, especially at the strategic versus just operational level?

The more challenging part of the equation involves defining and gaining consensus among key HR and management stakeholders on answers to these questions, and then executing on them.

Organizations require a framework and approach to use to understand the implications of the above questions (and many others related to HR) in a disciplined and thoughtful manner. This approach can enable organizations to translate the business strategy into value through the people agenda, and in turn, identify the ways in which HR can add value to the people agenda. Figure one illustrates one example of such a framework.

9146 Fig 1

Figure 2 provides the next level of detail to this framework for three common strategic organization initiatives (none of which have to do with cost cutting): operational excellence, customer intimacy, and product leadership.

9146 Fig 2

The HR architectural implications provide a road map for an HR strategic improvement agenda and help prioritize initiatives.  For example, in an organization focused on operational excellence, but perhaps because it deals with commoditized products, customer intimacy is secondary, HR should recognize that it should  place relatively less emphasis on efforts such as providing high touch employee services.

Key to making HR more strategic is in having the talent at the management and operational level, and the skills to execute on change efforts.   Yet, without a framework to connect HR to the business and an architectural model to execute on the framework,  HR groups are unlikely to make any more progress in becoming more strategic than many have over the past 10 years.

Dig deeper into learning how your organization can become more strategic in our whitepaper Designing Next Generation HR.

Additional resources can be found by visiting KPMG’s HR Center of Excellence and by listening to our Advisory Institute podcasts Data-Driven Human Resources, Eradicating the Stigma: HR’s Future, and Rethinking Human Resources in a Changing World.