Shared Services/Global Business Services Centers Archives - Page 7 Of 9

Is Your Shared Services Center Driving Automation Across Your Enterprise? | Blog

December 5, 2019

Over the past few years, automation has become an integral part of Shared Services Centers’ (SSCs) growth and evolution. Whether large or small, whether onshore, nearshore, or offshore, SSCs – what we refer to as Global In-house Centers (GICs) – have made strong progress in adopting automation solutions.

Some have only dipped their toe into basic RPA. Others have moved ahead with more advanced automation technologies like machine learning and artificial intelligence. And a handful have started emerging as key strategic and revenue-generating entities for their parent companies. These GICs have built scaled delivery teams with strong domain knowledge around the implementation of automation solutions. There are multiple instances of GICs housing the global automation Center of Excellence (CoE) and driving initiatives across the enterprise. Aggressive adopters have moved beyond automating processes within the center and are now supporting process automation across locations and businesses. And they’re increasingly leading the design and execution of automation strategy, and are influencing decisions on go/no-go opportunities.

Everest Group’s recently published report Scaling Up the Adoption of Automation Solutions – The Evolving Role of Global In-house Centers discusses the key adoption trends and challenges in the GIC and automation space.

Let’s take a quick look at the four key trends.

Solutions and support

Some mature GICs have developed multiple offerings to support different businesses. Typical offerings include advisory support, platform or infrastructure support, and end-to-end implementation support. For instance, the India GIC of a leading European insurance firm provides bot infrastructure support to the company’s Singapore entity. With this set-up, the Singapore-based team didn’t have to invest in its own infrastructure to gain full access to the bots’ capabilities.

The talent ecosystem

From developing in-house automation talent to managing vendor resources, SSCs are making major strides in the talent management space. As part of their talent management strategy, many best-in-class GICs are investing heavily in building in-house talent, especially for AI-based solutions. This includes developers, data scientists, and project managers. These GICs are also investing significantly in upskilling/reskilling programs for their resources, and are strongly emphasizing education and awareness of automation’s capabilities and benefits. Some GICs are also training their business/operations resources on automation skills; this helps them scale-up faster.

CoE roles, governance mechanisms, and structures

Many GICs are upgrading their CoE model, roles, and responsibilities as they progress along their automation journey. Many successful centers are moving towards the federated hub and spoke CoE model, wherein the GIC houses the CoE hub and the functions have their own automation team (spokes.) The federated model enables rapid scalability and better opportunity identification than centralized CoEs. But, with either model, there are some pitfalls to avoid. Our blog titled Four Reasons Enterprises Aren’t Getting Full Value from Their Automation CoEs details what they are.

In-house automation platforms

Building on their understanding of automation capabilities, some mature GICs have started exploring the use of custom-built in-house platforms to run automations. While in most cases these are for attended RPA bots, some best-in-class SSCs have developed platforms using advanced technologies such as interactive virtual assistants (IVA) and machine learning. There are even a few examples of GICs adopting a 100 percent in-house development model, meaning no third-party vendor support. While we expect GICs to continue exploring in-house automation tools, we don’t expect that these will replace the use of third-party vendor products in the near future.

What GICs have accomplished over the past few years in scaling up the adoption of automation solutions across businesses and locations is just the tip of the iceberg. Going forward, they are likely to build on this foundation and penetrate deeper into the enterprise with ever more complex automations.

To learn more, please read our report — Scaling Up the Adoption of Automation Solutions – The Evolving Role of Global In-house Centers – or contact us directly at Bharath M or Param Dhar.

Why Pharma Companies View their Indian Shared Services Centers as Growth Partners |Blog

October 8, 2019

India is clearly becoming the “it” destination for pharmaceutical companies’ shared services centers (SSC) – or Global In-House Center (GIC) – organizations. Why do we say this? Because global pharmas with headquarters in the U.S. and Europe employ more than 11,000 FTEs employees in their India-based shared services centers to deliver not only table stakes transactional finance and HR services but also highly complex processes across all stages of drug development, including drug R&D and clinical trials.

What’s India’s appeal? There are four factors.

Established/Mature Location for Global Pharma Services Delivery

India is a time-tested, proven GIC destination for a wide range of industries. Many of the world’s leading pharmaceutical companies started delivering their global services support operations from India back in early 1990s. Now, pharma majors like AstraZeneca, Eli Lilly, and Novartis are delivering complex, judgment-intensive services such as product R&D, biostatistics, and clinical trials site management from their India GICs. Hyderabad, Chennai, and Bangalore are the preferred locations, housing more than 80 percent of the pharmaceutical GIC talent.

Skilled Talent Pool

Talent availability, at scale, is one of India’s strongest value propositions. In recent years, many pharma companies have been able to successfully scale their delivery teams supporting diverse functions such as R&D, commercials, IT, and finance. For example, a leading pharma GIC houses 2,000+ resources providing IT services for various pharma functions. And multiple other pharma SSCs have scaled teams (400+ resources) that support R&D services, and dedicated resource groups comprised of doctors, PhDs, and biostatisticians, for complex drug R&D processes like development of computational solutions for analyzing clinical trials.

Opportunities for Cross-functional Collaboration

India’s availability of diverse talent profiles at scale allows India-based pharma SSCs to support multiple functions. And because many of them house IT resources with R&D and commercial business teams, they have multiple opportunities to collaborate on and insource IT work for drug R&D (e.g., to build IT platforms for drug development and IT services for lab support), and commercial operations (e.g., IT services for finance.) The value of this collaboration? Tighter integration of functions, better understanding of business requirements, and faster execution.

Mature Market for Digital Services Delivery

Leading India-based pharma GICs are working on digital initiatives including analytics and automation, and some are serving as global automation CoEs for their parent enterprises. Many are developing analytical tools for marketing & sales operations, competitive intelligence, and incentive planning. They are also investing heavily in automating less complex and high-volume transactional processes such as expense management, purchase order creation, offer letter generation, résumé screening, and management reporting, and deploying RPA bots to read files, extract data, and report adverse events. As part of the broader digital agenda, some centers have also started exploring the uses of artificial intelligence/machine learning to recruit patients and select sites for clinical trials, and for channel sequencing and optimization in their enterprise’s sales & marketing function.

Going forward, pharma companies not only expect their India SSCs to grow in scale and expand the scope of their process delivery, but also play a significant role in their digital transformation journeys by leading initiatives across all stages of the product R&D lifecycle. To satisfy these expectations, the GICs need to build deep domain capabilities and acquire or train talent to deliver increasingly complex, higher up the value chain services and next-generation digital initiatives.

To learn more about why pharma companies consider India their preferred service delivery destination, please read our recently published report, “Healthcare and Life Sciences – GICs in India Fast-tracking Enterprises’ Digital Agenda,” or connect directly with the report authors Anish Agarwal, Bharath M, and Rajeshwaran Pagalam.

What’s the Best Structure for Your Shared Services Innovation Team? | Blog

September 27, 2019

As we presented in a recent blog, shared services centers (SSCs) – or what we refer to as Global In-House Centers (GICs) – must create their own innovation team to support their parent enterprises’ innovation agenda. But how should you structure your team to yield the desired outcomes?

Innovation maturity and mandate

You should start by determining your SSC’s innovation maturity and mandate. The maturity is determined by the strength of your existing internal capabilities, including talent, technology, and culture; the involvement and support you require from leadership; the primary focus area of the innovation, e.g., generate revenue, reduce costs, or mitigate risks; and the impact generated by your innovation initiatives e.g., dollar value of costs saved or revenues generated.

The innovation mandate is outlined by the level of ownership and visibility for innovation initiatives; the extent of cross-collaboration between business units / functional teams; and overall alignment of your SSC with the parent enterprise’s structure and business model.

Once you’re armed with that information, you can select one of the three SSC, or GIC, innovation team structures most prevalent today, based on the guidelines we present below.

Types of SSC innovation team structures

SSCs with low-to-medium maturity and innovation mandate

If this describes your SSC, you’ll do best with a centralized structure in which your parent enterprise drives the innovation and you have limited involvement. This structure allows the parent company to have greater control and ownership, and prevents the GIC’s low maturity from being an obstacle. Many organizations prefer this structure, as it enables faster implementation of enterprise-wide and business model-related innovations, promotes standardization, and improves governance of innovation initiatives. However, many SSCs are reluctant to operate in this structure, as it presents limited opportunities for them to breed an in-house culture of innovation and deliver higher-level transformational value.

SSCs with moderate-to-high maturity and innovation mandate in a specific domain

The best fit for these SSCs is a business unit-or functional team-led innovation structure. This allows the parent enterprise to adopt a decentralized innovation approach, enable direct communication and visibility between the SSC and business unit or functional stakeholders, leverage innovation teams placed within the GIC’s business units or functional teams, and provide better alignment on domain-specific end-business objectives. Key success factors include regular mentoring by the parent’s teams to build strong future-ready GIC leadership, and direct communication channels between SSC and business unit stakeholders.

SSCs with high overall maturity and innovation mandate

For GICs that fall into this category, a dedicated innovation team in which responsibility for innovation is fully in its hands works best. This structure allows the GIC to take more ownership of proposing and prototyping new, innovative solutions, and equips it with capabilities to better respond to enterprise-wide requirements.

Achieving the right balance of ownership, accountability, and investment is the key to successfully implementing this structure and making it a win-win for both SSCs and parent enterprises. It enables the SSC to reach its true potential and gain recognition as a thought leadership partner and empowers the parent to implement innovation initiatives with relative ease and replicate best practices across business units and functions.

Because every company’s innovation structure is inherently different, GIC leaders need to thoroughly investigate each of the models and decide on the most appropriate one based on their GICs’ overall maturity and mandate.

If you’d like detailed insights and real-life case studies on how SSCs are driving their enterprises’ innovation agenda, please read our report Leading Innovation and Creating Value: The 2019 Imperative for GICs.

In upcoming blogs, we’ll be discussing ways you can promote innovation and increase its impact in your shared services. Stay tuned!

Shared Services Centers and the Myth of Scale | Blog

September 26, 2019

Shared Services Centers (SSCs) – what we refer to as Global In-house Centers (GICs) – need to achieve breakeven to be financially viable. The breakeven equation is straightforward: the point at which total labor arbitrage (the average difference in labor cost between the SSC and a center at home) is equal to the SSC’s run cost (all non-labor costs such as facility rent, utilities, training, recruitment, travel, and other miscellaneous costs.)

Conventional wisdom says that that only large centers with a minimum of 1,000 FTEs can achieve breakeven. But that’s old-school thinking, and old-world reality.

We analyzed the breakeven point for 850 GICs in today’s digital world across a variety of factors, including the scope and complexity of services delivered, locations leveraged, and employee profiles. And we found that even an SSC with as few as 25 FTEs can be financially viable if it is delivering high-end, judgment-intensive services.

The rise of small SSCs/GICs

In the last three years, the average SSC scale, as measured by the number of FTEs, has declined by about 60 percent.

Why are we seeing this significant increase in small-scale centers? Several reasons:

Lower barriers to entry: Technology advancements facilitate better collaboration and knowledge transfer among leadership and peers
More robust ecosystem: Better infrastructure, access to a large talent pool with relevant technical and functional skills, and multiple professional services firms to provide on-ground support
Lower cost: Easier access to cost-competitive real estate, and wider availability of talent with the relevant functional, and managerial skills.

Today, it’s not about scale…it’s about alignment with the broader sourcing strategy

Ever since the inception of the SSC model, enterprises have been relying on their centers to improve products, processes, customer and employee experiences, build high-value skills, and drive operational excellence. But in today’s environment, scale no longer matters. Why? Because some of the main levers for SSC success, such as enhancing cultural integration, accelerating the strategic agenda (e.g., innovation, digital transformation), facilitating cross-functional collaboration, and promoting process ownership, are scale-agnostic.

Today, the decision on whether or not to establish a delivery center must be based on how it aligns with the enterprise’s broader sourcing strategy. In particular, enterprises should assess whether the SSC/GIC can help them:

Retain and strengthen in-house capabilities, especially for core intellectual property intensive work
Develop tighter integration (better control and governance) and stronger alignment on culture and brand
Accelerate the adoption of digital and other disruptive technologies such as automation, analytics, and artificial intelligence.

The next time you’re thinking about setting up a new SSC/GIC, don’t let the scale of the center – or lack thereof – stop you from exploring the possibilities!

Does Your Shared Services Center Need an Innovation Team? | Blog

August 27, 2019

In order to evolve from cost enablers to strategic partners that can drive competitive advantage, shared services centers (SSCs) – what we call Global In-House Centers (GICs) – must support their parent enterprises’ innovation agenda. And whether innovation means one, more, or all of the following to their enterprise, SSCs are quickly recognizing that creation of their own innovation team is one of the key ways they can deliver on that strategic requirement.

Types of innovation initiatives

What is an innovation team?

An innovation team is a group of dedicated resources mandated to evangelize innovation within the organization. The members typically have innovation-specific competency and relevant experience, and are unrestricted by business-as-usual constraints.

While ad-hoc or informal innovation teams used to be the norm in most GICs, the forward-thinking ones realize that a formalized approach is becoming essential for long-term success.

SSCs’ innovation teams influence strategy, capabilities, and culture

Based on our discussions with and analysis of around 800 GICs spread across offshore geographies, we’ve grouped innovation teams’ focuses and capabilities into three areas.

Shaping the enterprise’s overall innovation strategy

SSC’s innovation teams help shape their enterprise’s innovation agenda by enabling decisions on key themes such as: improving the process/product/service mix, enhancing the customer/employee experience, and revamping the business model; impact areas like cost savings, risk management, and revenue generation; and innovation partnerships with start-ups, academic institutions, etc. For example, one GIC’s innovation team was given a mandate to ideate and develop innovative solutions/products to better engage customers. It led all the stages of the innovation journey (from ideation and concept testing to detailed design and development) to develop the enterprise’s flagship mobile payments app.

Enhancing capabilities by improving skills, tools, infrastructure, and technology

SSCs’ innovation teams support and lead capability and ecosystem development. Areas they become involved in include setting up the physical work environment including innovation labs, garages, and digital pods, and developing new methodologies, frameworks, and tools. For example, one GIC we work with – that of a leading U.S.-based financial services firm –assisted in development of a cloud-based, compliant platform for instant communication and content sharing. The platform is used by more than 20,000 employees across the organization for real-time collaboration.

Fostering a culture of innovation

Beyond their primary responsibilities of supporting core, business-as-usual activities, GICs’ innovation teams often serve as “innovation champions” or “innovation ambassadors” to shine a spotlight on best practices and key pitfalls to avoid. These teams primarily consist of employees embedded within the GIC’s business units/functional teams, and focus on domain-specific innovation. This enables direct development of an innovation culture in delivery teams. For example, in one insurance company’s GIC, the innovation team is mandated with promoting innovation at the grassroots level. So, it organizes trainings, workshops, and competitive events.

Innovation team make-up

At a broad level, innovation teams are comprised of the following key roles:

Innovation champions: Leadership members (typically C-level executives, and functional/business unit heads) for providing strategic guidance
Program managers: Senior management members and/or dedicated managers for driving innovation programs/projects
Process experts/technologists: Experts with deep knowledge of product, technology, and tools
Strategists: Typically, tenured senior resources with extensive experience with innovation programs and solid domain knowledge.

Of course, some SSC’s also include other roles, some very niche and company-specific, in their innovation teams.

Size your innovation team to your specific needs

Our research found that SSCs’ innovation teams are typically comprised of five to 20 dedicated FTEs, spread across the enterprise and the SSC. A relatively small number of GICs have 20-50 or more FTEs that are specifically part of their innovation team.

While most GICs have a lean innovation team, we encountered multiple instances of recently bulked-up teams. Interestingly, there is a limited co-relationship between revenue/size of the SSC’s parent enterprise and the size of its innovation team. What tends to impact the size of the innovation team is the extent of the innovation focus, the level of innovation maturity, existing structures for driving innovation, and broader business requirements.

There is no one-size-fits-all approach. When designing your SSC’s innovation team, you should start by determining what aligns well with the existing structure and caters to evolving innovation needs. You can customize its size and composition once it’s up and running.

Can Your Shared Services Group Manage Enterprise Risk? | Blog

July 17, 2019

The financial crisis of the late 2000s, increasingly stringent regulatory requirements, growing competitive pressures, and a host of other factors have vaulted the risk management function to new heights of strategic importance for banking, financial services, and insurance (BFSI) companies.

Our ongoing research in the sector shows that most enterprises handle risk management out of their onshore headquarters locations, rather than giving ownership of the function to their offshore shared services centers, or what we call Global in-house Centers (GIC).

When we asked BFSI companies why they were keeping risk management on their home turf, they cited several reasons:

Because they’re still trying to streamline their risk management frameworks, structures, and processes, they’re unclear what to keep onshore and what to offshore to GICs
As risk management is becoming an increasingly critical component of the overall enterprise strategy, they view offshoring the function as a risky move
They’re concerned that the offshore talent lacks the needed business acumen and understanding of sourcing geography’s regulations
They feel constant interaction and frequent coordination with multiple business units and teams is the first line of defense for reducing risk at the origin

What’s the common thread behind all these rationales? They’re all perceptions, rather than reality.

In fact, our research shows that GICs are particularly well-suited to deliver the risk management function. Why?

Many shared services organizations are the driving force behind their enterprise’s digital, automation, and analytics initiatives, and their deep knowledge in these specialized capabilities can be highly useful in the risk management function. And there are synergies in areas such as risk modeling, forecasting, scenario analysis, and reporting. For example, a leading bank’s GIC has successfully automated local regulatory reporting, and is transitioning to be a centralized reporting team
There is a dearth of risk talent globally, but offshore GIC locations, such as India and Poland, have strong, solid pools of talent with deep risk management knowledge. This talent is coming from their domestic market (e.g., local banks) and existing GICs that, over time, have scaled their risk management function
To deliver real risk management value to the business, the GIC and the group risk team must be integrated; shared services groups have already cracked this operating model way back in areas such as investment research (e.g., sell-side and buy-side) and actuaries (e.g., pricing and valuation).

How can your shared services organization assume responsibility for your enterprise’s risk management function? Like most GICs, yours was probably established to handle scale-oriented transactional work. But risk is about value, not scale. So, you need to change your parent company’s mindset about your group’s capabilities by proactively identifying, proposing, and demonstrating how you can add value and be a strategic partner in managing risk.

Here are a couple of examples that may help get your creative juices flowing:

One GIC parlayed its experience with machine learning algorithms to build “Challenger Models” that significantly increase the precision of dataset validation for its company’s credit analysis
Another shared services group championed creation of its company’s “Operational Risk Center of Excellence” through process enhancements, global transformation projects, continuous process review and improvement mechanisms. This helped streamline and simplify various processes and risk frameworks.

Our two cents to enterprises: you stand to lose a lot if your risk management capability isn’t up to snuff. Your best solution may be right in front of you, even if not geographically right next to you.

Global Service Delivery Locations: Where to Go, Where Not to Go! | Blog

May 22, 2019

Long gone are the days of selecting offshore/nearshore service delivery locations with a regional/local interpretation of demand, a focus on cost savings, and an emphasis on service delivery in and of itself. Today, it is evolving to include a global view of demand, an increasing focus on talent quality and capacity for innovation, and the involvement of group-level strategy at its core.

So, which locations will help enterprises fulfill their requirements? Where can they place a long-term bet for a sustainable strategy that provides a competitive edge against their competitors?

Everest Group’s viewpoint, “2019 Locations Predictions: Follow the Talent,” reveals location-specific forecasts that can guide organizations on how to transform their global delivery location strategies.

Everest Group’s Predictions for Global Services Delivery Locations

Asia

As companies look for large-scale rebalancing and consolidation/right-sizing to fewer centers, the primary focus of a location strategy will be talent quality and availability. Asia has the largest talent pool with varied skillsets for IT, digital, Engineering and R&D (ER&D), and BPS service delivery.

India – India will continue to progress in the next three to five years, driven by growth in the digital and ER&D functions, as well as the increase in the availability of depth and breadth of talent. Cities such as Hyderabad and Pune will experience the highest traction due to increasing demand for complex IT and high-end R&D work from the technology and BFSI giants.

The Philippines – The Philippines will continue its dominance as one of the largest voice-BPS markets, and will also experience growth in IT services, accentuated by a faster rotation into digital such as customer analytics and social media-driven services. We expect increased traction in locations beyond Manila, such as Iloilo, Quezon, Taguig, and Davao, given their attractive cost proposition and untapped talent pools.

Malaysia – Malaysia will continue to grow, especially in the multilingual BPS, banking-BPS, and digital sectors, due to the increasing demand from Southeast Asian markets and global BFSI majors.

Europe, Middle East, and Africa (EMEA)

As companies consolidate their portfolios, and as technology and design thinking-based approaches blur the boundaries between IT and BPS, cross-functional collaboration will become critical to achieving digitalization and faster time-to-market. The EMEA region provides an ecosystem that enables companies to tap into talent that can multi-task, and is more suited for cross-functional center setups.

Poland – Poland will overtake Canada to become the third largest location in the world for BPS delivery, given its expansion of multi-functional delivery centers across various verticals and its strong government support. Cities such as Krakow, Warsaw, and Wroclaw will see traction in high-end IT services, with players setting up digital innovation hubs, including blockchain, cryptocurrencies, and AI.

Ireland – Ireland will experience the fastest growth in the region due to strong government support, well-developed infrastructure, and the increasing trend across global majors to shift their headquarters away from the United Kingdom because of Brexit uncertainties. Beyond Dublin, we also expect higher BPS growth in tier-2/3 locations such as Cork, Limerick, and Galway.

Israel – Israel will witness a significant uptick in next-generation IT services including big data, cybersecurity, cloud, and IoT, driven by a focus on research and close collaboration between academia and industry.

Americas

The rise of reshoring amidst the protectionist policies adopted by leading source geographies, including the United States, is driving companies to scrutinize and consolidate their service delivery portfolios. The Americas region is becoming a preferred choice for firms, given the ease of coordination with onshore teams, better alignment/training, and customer intimacy.

Costa Rica – Costa Rica will experience an increase in center set-up activity, although the typical scale of operations might decline due to the focus on delivering agile transformation and automation solutions to support North American operations.

Jamaica – Jamaica will see accelerated growth, especially in the BPS segment, on the back of availability of a large English-speaking talent pool and dedicated government investments to enhance the business environment.

Canada – Canada will also witness accelerated growth, particularly due to high government investments in attracting foreign investors, and especially in the IT and digital services space. Uncertainty around U.S. government policies will further drive enterprises to expand beyond existing U.S. delivery centers, especially Canada.

In today’s complex, and often volatile, environment, a tightly defined and carefully crafted location strategy is increasingly critical to enterprises’ long-term success. For more details on Everest Group’s Predictions for Global Services Delivery Locations, please see our viewpoint, “2019 Locations Predictions: Follow the Talent” or contact Parul Jain or Anish Agarwal directly.

Digital Enables Shared Services Centers To Deliver New Wave of Business Impact | Blog

April 24, 2019

The number of shared services centers is growing, and enterprises are also expanding the size of their existing centers. Why? A key driver is that digital transformation enables shared service centers (also referred to as “Global in-house Centers” (GICs)) to deliver a new wave of business impact to their parent organizations. Digital technologies such as analytics, automation, and other enabling technologies allow GICs to drive their enterprises’ digital agendas. In fact, Everest Group’s market research shows that the share of new GIC setups that supported digital services was 52% in 2018. However, it’s important to note that some GICs perform better than others and deliver superior outcomes in driving digital agendas. What makes the difference?

In Everest Group’s report, “Digital Maturity in GIC – Pinnacle Model Analysis 2018,” we identified the characteristics of what we refer to as “Pinnacle GICs”™ – global shared services centers that stand apart from other GICs for their business outcomes and capability maturity. Pinnacle GICs achieve superior business outcomes because of their advanced capabilities. We study these best-of-the-best GICs to provide insights into key enablers for desired outcomes and investments required for the greatest speed to impact.

Why Shared Service Centers Are Growing in Size and Value | Blog

February 15, 2019

The shared services market is growing quickly. US and European firms are either expanding their existing shared service centers (also referred to as “Global in-house Centers” (GICs)) or building new centers. Let’s look at what’s happening and the factors that are driving the growth.

Reduced Barriers for Small or Mid-Sized Firms Building Offshore Shared Service Centers | Blog

February 12, 2019

Since the inception of offshored shared services, sometimes referred to as “Global In-house Centers” (GICs), the underlying assumptions were that (a) size matters and (b) the choice of functions (transactional, scale-driven processes) was a driver for gaining offshoring benefits. But the world has changed. The size and functions constraints no longer pose a barrier to entry when building offshore shared services centers.

The assumption that size matters developed because of the complexities and long learning curves in building centers offshore, including:

Finding leadership
Negotiating for real estate
Navigating complex tax regulations
Understanding cultural differences for talent management
Navigating the complex telecommunications labyrinth
Technology barriers to effective collaboration
Building institutional knowledge about how to transfer work at scale to an offshore party.

These complexities required a minimum level of scale for offshore shared services to justify the investment and deliver value.

In 2019, most of these challenges no longer exist or pose a high barrier for building a new shared service center as they did a few years ago. Several factors evolved to expand opportunities for building shared service centers of all sizes.

For example, sophisticated leadership is readily available. Today, in India or the Philippines, there is a large pool of executives that have successfully built and run shared service units or GICs. When you hire them, they can quickly assemble a complete team across all dimensions to equip a new shared service center.

Likewise, the complexity and difficulty in finding and securing real estate is now dramatically simpler. Offshore facilities today can rely on improved infrastructure and connectivity. Facilities are readily available and often already furnished with real estate brokers ready and able to facilitate the transactions. There is a broad market acceptance that India and the Philippines have good hotels and retail facilities, good food, are safe, and have good air transport.

Advisors now understand the tax treaties. Accountants and lawyers know how to construct the appropriate legal entities (e.g., LLPs vs. wholly owned subsidiaries) and structure them to be tax and compliance efficient. They also understand the government entities and licensing and are eager to assist new entrants.

The services industry’s current level of maturity enables successful practices based on past lessons learned for offshore shared service centers. The philosophies and methodologies to transfer work and run the work effectively are widely available with training available for the uninitiated. Today, we understand the role of the center and how to integrate it with the parent organization. Furthermore, we now have technology tools and collaboration platforms that facilitate remote workforce management.

So, the barrier to entry, which was prevalent earlier, now is dramatically lower. Today, it’s much easier and cheaper to start a new center. This results in two areas of growth for shared service centers:

Small to mid-sized organizations
Larger firms moving away from third-party services

Small to Mid-sized Organizations

In the past, companies needed to spread the learning curve and expense over a large number of FTEs and many functions. In addition, technology platforms enable better collaboration, thus dramatically reducing dependence of colocation. These factors change the return on investment or viability of small entities.

Now that the need to scale is reduced, companies can get a strong return, even for sometimes as few as 50 seats, depending on the function. They can also make a significant impact to EBIDTA for their parent companies, even at a much smaller scale.

The reduced scale factor dramatically changes the landscape in which companies can, and should, consider having an offshore facility. Until now, the prevailing wisdom was that companies sized at $50 million to $2 billion were too small to tap into having their own shared service center and must, instead, go through third parties. Everest Group’s market benchmarking reveals that almost half the new shared service centers set up since 2014 were established by small (<$1.5 billion revenue) and mid-sized (<$10 billion revenue) enterprises. Today, with the lower barrier to entry and reduced scale factor, even a small $50 million firm (depending on what the services involve) could and should confidently look at building its own offshore shared service capability.

Clearly, the economics change significantly, depending upon the function or skill set the company seeks to acquire. The highest return is in IT engineering functions and areas such as analytics. But even the threshold for corporate functions is dramatically shifting for shared services with 100-150 people.

Looking at the relative market penetration of GICs or offshore shared services in the $50 million to $2 billion marketplace, it’s clear that only a very small proportion of these firms are taking advantage of this now-affordable and high-return mechanism. The reduced barrier to entry and reduced scale factor suggests that these firms should now pay attention; as they do, we could well see an explosion of small shared service entities being established offshore.

Larger Firms Shifting Away from Third Parties

The shift in economics also impacts larger firms, leading them away from third-party service providers and opting for the do-it-yourself (DIY) movement. We’re seeing rapid growth of the number of new shared service centers as well as the growing size of the shared service or GIC communities in locations such as India, the Philippines and Eastern Europe.

The offshore shared services market is growing rapidly for companies of all sizes. The earlier constraints for entry and need for large scale are no longer a factor. In fact, the constraint facing firms today is one of mind-set, not of ability.

Category: Shared Services/Global Business Services Centers