Location Strategies and the Inevitability of Change | Sherpas in Blue Shirts

Everest Group’s Eric Simonson, Managing Partner, Research, recently led a panel titled “Location Strategies: Optimising Your Operations in Growth Markets” at the 12 – 15 May SSON Shared Services & Outsourcing Week in Dublin, Ireland. Sarah Burnett, VP, Everest Group, was in the audience and shares the insights she gleaned from the discussion. 

Last week I attended Shared Services Outsourcing Week (SSOW) in Dublin, where Eric Simonson, Everest Group Managing Partner – Research, ran a panel session to discuss location strategies. Taking part in the panel were:

  • Jamie Davies, Finance SSC Manager, Computacenter
  • Petter Frisell, Finance Operations Manager, Dixons Retail
  • Gerry Meegan, Head of Operational Excellence, GBS, Europe and Asia, The Coca Cola Company

Location Strategies: Optimising Your Operations in Growth Markets at SSOW Europe

Emerging from the debate was that change is inevitable — so location strategies cannot stay the same for long periods of time. Accordingly, Shared Services Center (SSC) organizations must be highly skilled in managing location as well as transformational change while delivering services, keeping staff motivated, and achieving ever increasing year-on-year efficiency and improvement targets.

Factors that contribute to change include:

  • Internal dynamics such as shifting corporate priorities and business strategy leading to changes in location requirements
  • External reasons such as problems with retaining skilled staff in off-shore locations.

For example, one company had moved some of its IT services offshore to India but had problems with talent retention. The quick turn over of staff made the services unsustainable and led to the company bringing its capabilities back onshore. This is the type of problem that could be exacerbated by the lack of brand awareness among the local workers who might prefer to work for an IT company rather than the IT unit of a different type of business.

Taking services back onshore can bring its own issues, such as lack of onshore skills particularly in IT where skills are expensive. Of course, changing locations does not necessarily mean bringing services onshore but likely to other locations and nearshore, particularly where the company might already have offices. Panel members had experienced moving SSCs to existing nearshore offices. Having had staff already in place in these new locations had made the moves much easier.  The benefits of having an existing presence in a location had to be balanced against availability of the desired skills in that locality, for example required language skills or availability of specific technology platform expertise, such as, Oracle.

Having change management experience is essential for SSCs, not only to move locations but to modernize and transform services too. Some of the transformation challenges that panel members had dealt with included cultural resistance to change within their organizations. Their advice was to ensure good communication to engage well with stakeholders and all staff who will be affected by the change. One panel member gave the example of having to win hearts and minds to support even the simplest form of change; from paper to electronic payslips.

SSC managers also have to excel at marketing and sales in order to sell their services to the rest of the business. This activity requires performance data, monitoring and reporting, to demonstrate the value of the SSC in order to win new clients. This ties in to benchmarking and monitoring to measure year-on-year improvements.

Continuously improving performance can be very challenging, with expectations seemingly on an ever upward trajectory. This goes for year-on-year process and performance improvements as well as cost cutting targets. Consequently, panel members emphasized the need for SSC management to take a broad view of their services and how these can be improved. Some organizations have set up service optimization functions that work in parallel with the operational function of the SSC, but which are focused on achieving year-on-year improvements.

On the subject of continuous improvements, panel members believed that times of change, e.g. moving locations or bringing services back in house after outsourcing an SSC, provide good opportunities to review and improve processes, to fix them if they are broken, or to simplify them if they have become over-complicated.

Another important skill for SSC managers is good people management. The issue of staff retention has already been mentioned. Add to that the problem of staff in onshore or nearshore centers knowing that the service is very likely to be offshored at some point in the future. The SSC manager has to deal with the resulting job insecurity issues that this raises and the potential impact on staff engagement, motivation and retention.  Some companies have specific HR policies to address this issue, for example, they will not take on raw graduates in the main part of the business but have career paths for their SSC staff to transfer to the main part of the business instead.

Finally, if the service is outsourced, the panel recommended that some capabilities should be kept in house, such as the operational oversight and the optimization functions mentioned earlier. This would keep some important skills inhouse should the outsourcing not work out.

Photo credit: SSON

Are We About to See a New Wave of Shared Services Activity? | Sherpas in Blue Shirts

We were recently a sponsor at the 18th annual Shared Services & Outsourcing Week conference in Orlando (part of SSON, the leading event for shared services). The significant portion of attendees that are just embarking on shared services for the first time and opening up new shared services capabilities was striking to us. It raises this question: Why are we seeing a new wave of shared services situations?

There are two perspectives for shared services and outsourcing: (1) two sides of the same coin or (2) differing vehicles to achieve the same goals. Either way, most of us now think of shared services as a mature space with companies refining their shared services.

So it’s certainly interesting to see new shared services starts on the upswing, especially since BPO in 2013 certainly performed less robustly than we had hoped for in terms of growth.

Are organizations moving to favor shared services? Or are we going to see a re-acceleration of outsourcing as companies move to build hybrid models (both outsourcing and shared services) going forward?

We’ll be watching this trend. But there can be no doubt that based on this conference we are seeing a pick-up in new shared services starts.

Photo credit: SSON

An Event-full Week…And What I Learned | Sherpas in Blue Shirts

Just wrapped up a week of two sister events – Shared Services & Outsourcing in Banking, Financial Services, and Insurance – with one in Atlanta and the other in New York. After four days of debate and discussion with a cross-section of industry leaders, I offer a few observations.

  1. In Atlanta, a gentle snowfall is a nightmare, not a pleasant dream. You probably saw the news coverage…and it is accurate. A trivial amount of white stuff (which turned to ice) completely shut down the town — but, luckily, not the hotel bar. We were scheduled to fly from Atlanta to NY on Wednesday night for the NY version of the event…and we actually made it to New York about 10 minutes early. BUT, the uncertainty throughout the day of >60% flights being canceled, shifting to Atlanta’s subway (MARTA), and long security lines made it feel like an miracle of human achievement. Never a good sign when the benches in the airport are all occupied by people sleeping.
  2. Analytics is starting to become real. We heard multiple examples of real analytics efforts and impact. Certainly it is early days, but the options are beginning to take shape and some are creating innovative approaches. One example included distributing mobile devices into a customer base to help capture previously unstructured data far in advance of when the information actually makes its way into normal market datasets. Due to the nature of financial services products (actuarial science in insurance, credit scoring in cards, etc.), BFSI should have a head start on organizational acceptance of the value of analytics…other industries should make sure to pay attention to their learnings.
  3. Global In-house Centers (GICs) and third-party outsourcing are both alive and well. Essentially all of the larger organizations participating in the events make use of both internal delivery and external delivery models. Nothing suggests this is about to change. But there is a general sentiment toward favoring internal models. Unless service providers can start demonstrating value-add beyond labor arbitrage, predictable workloads which benefit from business context will be shifting to the GIC model. Offshore is no longer scary, and large financial institutions can effectively manage operations to increasingly help generate change and transformation.
  4. The Goliaths of the third-party landscape are seeing a lot more Davids. Many participants reported being able to work more collaboratively with their smaller service providers in terms of structuring deals, adjusting services, preparing for future change, and other important dimensions. Some of this is due to differences in margin expectations and risk appetite, but the largest factor may simply be that the smaller providers provide more and better leadership at the account level – top executives are involved and make a difference. This trend stretched across IT, contact center, and transactional BPO. The large players need to ensure they are scaling and empowering real account-level leadership or this dynamic will only continue to grow.

Great discussions and a fun group of people – thanks to everyone involved for a nice end to January.

An Early Peek… the Results from the Shared Services and Outsourcing Survey | Sherpas in Blue Shirts

Summary report now available | Download

As you may recall, in December Everest Group announced that we were partnering with Shared Services & Outsourcing Network (SSON) to launch the industry’s first-ever survey to investigate Vertical Industry-specific Strategies for Shared Services and Outsourcing (or “VISSSO” for those who like acronyms that hiss like a snake).

The survey covered not only traditional horizontal functions like F&A, HR, and IT, but also industry-specific functions like order management in hi-tech, merchandising analytics in retail, and loan and mortgage servicing in banking. In total, it addressed 164 vertical functions and 8 horizontal functions. Scope, sourcing model, technology strategy, organization model, improvement initiatives…all that stuff for each function across 28 industries.

Quite simply, it was a huge effort, and we are just now climbing out from underneath the avalanche of data.

Starting tomorrow at the North America Shared Services & Outsourcing Week in Orlando, we will begin unveiling the findings. We will follow with similar sessions in other SSOW events around the world, plus release the summary report later in March.

Enough about what is to come, let’s jump into some of the insights we have uncovered.

Looking across the 164 vertical functions, the responses reveal that services industries like financial services, transportation, and healthcare (in comparison to product-oriented industries like manufacturing and energy) include over twice as many vertical functions in their shared services and outsourcing strategies. Why? To over-simplify, the mid-office of services industries is simply larger and more important than that of product-oriented industries.

This means the mid-office is more closely tied to the financial processes typically at the heart of both shared services and outsourcing efforts. Or as we have hypothesized in our earlier research, “operational finance” processes of services industries are a critical component of value delivery and due to their linkage with other finance process, they are most commonly aggregated into the more general finance activities.

We also broke apart the data based upon the organizational maturity for delivering services (see the graph below). Interestingly, mature organizations are twice as likely to use end-to-end models for delivering F&A services. Further, mature groups are somewhat less focused on consolidation (and re-engineering – not shown), but more focused on increasing collaboration with their user groups. Further, they believe they are more than four times as successful in implementing change.

Mature organizations increasingly look for value beyond process improvement

What does this tell us? Our belief is that shared services and outsourcing professionals are segmenting into two groups. One has been successful in creating change for their organizations, plus implementing and optimizing a new delivery model. The second has not only implemented a new model, but is actively trying to create ongoing change by engaging their users and seeing change as a day-to-day competency instead of a painful and one-time transition.

Consolidation and process re-engineering will not quickly go out of style, but they are far from the end of the story. And, by the way, the more mature group reports greater focus on cost savings, greater ability to meet financial targets, and more increased inclusion of non-cost value drivers in their business cases.

There are many other findings that will be featured in our summary report; some additional interesting factoids in the interim include:

  • Of all sectors, public sector is most focused on cost savings (tax payers rejoice!)
  • Not surprising, the hi-tech industry has much more aggressive plans to pursue Saas/cloud solutions
  • More mature organizations are largely focused on soft factors like user engagement and change management, but they are not more inclined to implement new tools, adopt analytics, or prioritize Saas strategies

All for now…looking forward to sharing more as we work through additional analysis. Please don’t hesitate to contact me if you have questions or wish to debate the findings.

Vertical Industry Strategies – Getting Serious about Value and Investments | Sherpas in Blue Shirts

With the maturation of legacy service delivery models, everyone is looking for the next lever to pull.

And the first-ever survey into how shared services and outsourcing models are maturing by industry – being jointly conducted by Everest Group and the Shared Services and Outsourcing Network (SSON) – will finally yield definitive insights from buyers, providers and consultants alike on the abundantly clear next lever…industry-specific strategies. Take the survey now.

For the first time, we will be able to look at how shared services and outsourcing models are maturing for functions specific to more than 25 industries, such as claims management in insurance, order management in telecommunications, and loyalty program management in hospitality and tourism.

The responses from the Vertical Industries Strategies for Shared Services and Outsourcing survey will enable us to document the current role of shared services and outsourcing, degree of centralization, expected optimization initiatives, technology strategies, and other factors relating to more than 150 functions across all the covered industries. We’ll then be able to arm you with both the broad themes and the detailed nuances that are relevant to you and your business.

Why is a view of vertical industry strategies important?

First, we are receiving an abundance of these questions. We are increasingly asked to help organizations calibrate their approaches based upon factors unique to their businesses. For example, although sometimes collectively referred to as “Energy and Resources”, oil & gas, utilities, and mining are very different industries, and the location of businesses requiring support, the role and degree of centralization, and the tolerance for operating shared services in “non-traditional” geographies vary tremendously. And SSON is hearing the same thing from its members –industry-specific content and networking are increasing in prominence.

Second, solutions specific to vertical industry strategies drive more complex economics, especially as they relate to technology. As the functions being supported more closely touch the business, the potential impact on revenue and cost increases…as does the potential for greater value. However, the unique nature of each function complicates the technology options. Make-buy decisions become more complicated and fewer options exist. Further, service providers must carefully assess whether they have the stomach to invest in and maintain more narrow solutions with fewer potential clients across which to spread their investments. As illustrated below, service providers must think carefully about where to draw the line in making technology investments to serve unique industry needs. Further, their clients must make a corresponding commitment to a technology model.

Increasing level of industry specificity

Third, organization models are under attack and will be shaped by the answer. Traditional shared services models were initially defined around the scope being impacted by ERP implementations. The scope for offshore outsourcing and captives was largely shaped around roles that could be delivered remotely with lower cost labor. Neither was fundamentally designed around what best enabled the business. As shared services and outsourcing initiatives mature and expand, they are challenging existing organizing philosophies, and the degree and type of industry-specific services will fundamentally set the stage for the next generation in global services.

Oh yes, this is an important topic.

The survey, which will launch in early January 2012, will include relevant questions for enterprises, service providers, and consultant/analysts. If you have any questions or comments before you participate in it, please contact me at [email protected].

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