October 31, 2022
Managing Principal, Sourcing Change
Executive Advisor, Everest Group
I’m a bit tired of hearing the GBS glitterati bash any model that isn’t 1) end-to-end, 2) integrated, 3) fully digital, or 4) delivers every applicable scope under the sun. This correlates with what folks think is “best” or “most mature,” forgetting that a good model for an enterprise may be whatever is possible to achieve at any point in time. And given unsettling economic and geopolitical considerations, it may be time to dust off that model we derisively call “landlord.”
It’s no time for orthodoxy, folks. As an architect, I was trained to think “less is more.” We may very well be at the juncture where cajoling other parts of the business into a lighter touch or “landlord” GBS operating model is the prudent thing to do for the enterprise, the business, and for the GBS operation.
So, we are all on the same page here. I looked up GBS landlord model. The normative definition for the GBS model is the central provision of facilities management, administrative services, HR services, metrics reporting, infrastructure, and often capabilities such as cross-functional collaboration, continuous improvement, program and change management in an offshore location while the business takes the delivery risk. All of the above are components of a multi-functional or integrated GBS model—sans the ownership of people, process, and sometimes technology.
Now I am not advocating that we discard years of hard graft after having moved mountains to give legitimacy to global process owners, arguing successfully for investment in digital, creating a single source of enterprise data, and—finally—delivering end-to-end. But I ask, does an enterprise business services platform only create value when it’s soup to nuts? Is eschewing a landlord model a mark of best practice and maturity? Why can’t a business tenant reap some of the value without ceding all control?
We think hybrid when it comes to effectively combining in-house and third-party delivery. Why not extend the definition of best practices to encompass more than actual process ownership—we deliver business outcomes, and we also help other parts of the enterprise become more efficient by leveraging the delivery model.
Why should you consider embracing a hybrid ownership GBS model?
- What the business may need now: If you are not sleepless about the challenges your enterprise—and by extension, your GBS—will face in 2023, you ought to be. Propping up margins through cost reduction will likely be the enterprise’s major obsession. Smart GBS leaders pivot away from a “my way or the highway” stance to give the business any relief possible and facilitate the offshoring of processes that provide near-term business benefit
- Easier to implement; a quick win: Landlording as part of a hybrid GBS operating model may give new meaning to the concept of lift and shift. The tenant business will take care of restructuring, process documentation, knowledge capture, and resource design. All GBS has to do is play the role of good partner…and host
- Leverages GBS infrastructure and capability: COVID sharply reduced facilities demand in service delivery locations. Why not leverage both assets– empty desks– and embedded capability—such as HR, IT, and others—to get a higher return and increase the utilization of a GBS hub?
- Sets GBS up for additional scope: Think of a hybrid model as a less aggressive approach to expanding scope. Once GBS provides housing and services to a business function, the next logical step, assuming good performance—is a turnkey operation
- Reduces risk: Often, in the play for scope, GBS organizations cast risk to the four winds. On paper, it’s conceptually great to extend the model to encompass the processes that underpin highly technical research and development, or critical engineering documentation, but if certain conditions are not in place, such as the right talent, controls/governance, process understanding, and business sponsorship, GBS can be looking in the face of potential failure. Unfortunately, failures have a knock-on effect, breaking trust and creating a situation where GBS scope unnecessarily contracts, setting the model back years
- Absorbs cost: Transfer pricing charges—if it is part of the GBS funding protocol—are not static. Being able to spread the cost over a greater number of stakeholders gives relief, a great message in a recession
- Eliminate perception of empire building: Looking around at the deconstruction of GBS models, certain trends repeat each other time after time. One of the most common is “too big, too fast.” When leadership, business conditions, or the enterprise operating model changes, GBS empires that are not hard-wired into the organization design are ripe for decimation. Who is going to argue that the GBS is too big when some of the scope comes from tenants? A hybrid owner/landlord model may be the perfect strategy to ensure GBS survivability and promote growth, and a win-win for the enterprise
- Gives the business a try-before-buy: In a landlord model, the business does not have to go all-in immediately, but receives some of the benefit, giving GBS the opportunity to demonstrate the value of an ownership model. Success is a compelling advertisement
What functions are ripe to incorporate into a landlord model?
Deciding what functions suit landlording is critical to GBS success. It is not an excuse for the business to take back functions or processes as part of a power play, or because of a delivery fault. Remember, it is not a reset of the model, but rather an expansion.
- Perceived as risky: If processes are perceived as too risky for a GBS to deliver, they probably are. Let the business take the risk
- High technical knowledge: Not all delivery location management teams are equipped to recruit and retain the right delivery talent as part of a service level agreement. Landlording ascribes the responsibility to the tenant
- Complicated processes: If the processes, including upstream and downstream, are tightly intertwined, stakeholder management attendant to a service delivery model can be a nightmare and a time sink
- Overly regulated: GBS operations know their accounting, retention, and privacy requirements, but keeping up with more esoteric requirements may not be a good use of resources. Leave it to the business
- Buyer not on board: Why fight a losing battle? Offer the buyer the opportunity to maintain control and reap some of the benefits of offshoring. Over time, when the value proposition is clear and sending it to GBS is a no-brainer, the conversion should be easier
Ensure you know the preconditions for success
Landlording is not a passive throw-it-over-the-fence-activity. While it is not as full-on as the ownership of process delivery, certain management mechanisms must be in place to make it work
- Create and communicate business rules: Don’t play landlord if the greater value comes from traditional service delivery. Be clear with the business when the “for rent” sign is out, and when it’s not
- Devise the right governance model: Ensure you have the right governance cadence and KPIs in place. Landlording is not a passive pursuit; formality and metrics are critical to success
- Take time to sort SLAs: Landlording does not obviate the need for SLAs. There may be fewer of them, but as the saying goes, good fences make good neighbors. Work with your business partner to create an explicit set of agreements
- Don’t forget stakeholder management: Managing a tenant can require the same level of stakeholder engagement as a service delivery model
- Put model evolution on the table: Define success factors and gates in advance—just like a build-operate-transfer model, prompting the tenant to convert to a GBS ownership model when certain criteria are met
Truth be told, many GBS organizations are hiding the fact that they operate a hybrid ownership model because it’s not seen as evolved, mature, or leading. Leaders, it’s time to stop being sheepish, put your heads above the parapet and proudly proclaim: landlording is valid! We run a hybrid GBS operating model that creates enterprise value.
If you are interested in joining our collaborative virtual roundtable, GBS Leadership Exchange: The Most Effective Strategies to Address the Future of Work, reach out to request to join.