The Year Ahead: 2010 in Shared Services & Outsourcing

After looking back over the tumult that was 2009 (see our Year in Review) it's only fit and proper that our attention should turn to the next twelve months in shared services and outsourcing. What will the future bring? Our assorted experts give you their thoughts...

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Phil Searle
MD & Founder
Chazey Partners

So, looking forward to next year, what are the challenges and opportunities that face us?

As highlighted in the Year in Review feature, shared services and BPO as delivery solutions that can achieve the triple benefit of reduced cost, improved service levels and an enhanced control environment has been on the agenda of many an Executive Board.  This has been a great opportunity for shared services professionals to become more visible within the organizations they support.  Shared services has also been able to move up the value chain and expand scope across multiple processes.  This will likely continue in 2010.

The challenge is that if we do not fall back into recession and sustained growth does return, the focus on shared services and BPO at the senior Executive level may reduce.  That is just natural as “growth” strategies return to the fore.  However, that is not to say at all that shared services and BPO will not stay critical to overall enterprise sustainability and long-term success.  Those organizations that already had effective shared services and BPO in place have generally been better placed to weather the storm. It is just that an adjusted approach and emphasis from shared services and BPO professionals will be required.  Constant marketing of the benefits is always required.  It is also likely that service levels to the business and the quality of support will have a greater overall weighting compared to cost and control than perhaps it has in the last year.  But always remember that effective shared services can deliver all three!

And as cash becomes less restricted, there will be the opportunity and benefit of more money potentially becoming available for investment in implementing shared services and BPO and in training, technology and, where necessary, seeking expert third-party help.  Nevertheless the lessons learned during tough economic times should not be forgotten – targeted investments are key.  Do not return to “blank check implementations” of new technologies or new shared service centers.  A robust approach, with clear governance, ownership and sound principles will always greatly enhance the chances of long-term, sustainable success.

The challenge with Public Sector finances and the need to fund huge borrowing requirements will also be of great importance and generate significant debate.  Shared services in the public sector has been growing in recent years but this will only accelerate as ministers and officials look to new ways to reduce spending whilst trying to maintain frontline service levels.  Shared services can help achieve this by creating efficiencies and lowering the cost of running “back office” transactional and administrative services significantly which, if done properly, means that any cuts in frontline services can be minimized.  This is a going to be a massive political, economic and social challenge across many countries in the years to come.  Shared services can be part of the solution, although the problem is going to require multiple different strategies , including of course looking at taxes and public spending programs.

For sure, as we sit here in December 2009 things look a lot more promising from a broader economic perspective than they did this time last year.  But this is of course not the time for any sort of complacency as significant challenges and opportunities remain, including continuing restriction of credit in certain markets, mass unemployment and the threat of inflation at some point down the track.

What is definitely true is that shared services and BPO have really come to the fore again as a proven way to help with efficiency, effectiveness and control.  Indeed, they never went away! But as growth returns the opportunities will be viewed differently, which is a good thing.

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Mark Toon
CEO
EquaTerra

Recession fatigue has set in and talk is turning from surviving the downturn to succeeding in the upturn. The C-suite is doing two things: they are optimizing where they spend their money and they are focused on those areas where they need to reduce their costs. In 2010, optimization will be the new transformation. Ultimately, organizations still want to "transform" how they deliver back office services, but they typically want to move in pragmatic, incremental steps and focus on achieving best in class, standardized and optimized delivery models. Companies will continue to use outsourcing as a mechanism to achieve cost reductions. In 2010, CEOs will seek balance in the business and carefully evaluate where they invest, what they transform and what they maintain.

Stan Lepeak
Managing Director of Global Research
EquaTerra

Contrary to what is widely believed, global sourcing activity will continue to grow in 2010. There are several reasons for this, the most obvious being the desire to reduce costs. While there is greater protectionist sentiment, there is a lack of action in the market, and therefore this is not materially impacting most organizations.

Rick Bertheaud
Managing Director of Procurement Advisory Services
EquaTerra

As the procurement discipline matures, the use of and demand for procurement outsourcing will continue to grow through 2010 – and it is currently the fastest growing outsourcing segment. A value driver fueling the demand is the inclusion of sourcing activity such as indirect spend management. Organizations that include strategic sourcing of indirect goods and services in their procurement outsourcing scope seek, and are achieving, double-digit savings on managed spend.

Paul Cornelisse
Managing Director, Information Technology Advisory
EquaTerra

Market share will shift towards global and more remote infrastructure management outsourcing where benefits can be achieved from doing so. However, maturity in this market has led to organizations identifying certain processes which are better delivered more locally and selecting service providers on flexibility and customer intimacy as well as price, creating new and interesting opportunities for new midsized service providers.

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Jim Whitworth
Independent Shared Services Specialist

The year ahead is unlikely to see the emphasis move far away from cost, both in terms of the SSO or BPO achieved and the project to get there. However, more activity in the market will provide the opportunity to look at new ideas for scope, organization and operation as a means to achieve savings rather than simply looking for cheaper and cheaper implementation and operating costs. Outsourcing has managed to evolve and grow through the recession and will continue to do so. The challenge facing the internal shared services option will be to compete with outsourcing on results and establish a true value beyond just cost-cutting. There need to be some high-profile internal SSO programs kicked off in the next few months to regain previous momentum and, through quality of execution re-establish the added value attainable. Where success of the BPO industry is reflected in the business wins, growth and M&A activity of BPO providers, we need to see some objective measure of success for internal shared services and appropriate publicity for that success. Practitioners and supporters of shared services as a winning organizational design structure need to ensure that cautious C-level execs see compelling business cases, robust designs, exceptional implementations and delivery of significant, tangible operational benefits in 2010 and beyond.  

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Phil King
Associate Partner
Atos Consulting

2010 sees the launch of SAP's Shared Services Framework in June, so maybe shared services leaders using SAP will be able to help their IT colleagues justify some ERP investment again. Interest in both new and optimization of existing shared services will increase even further particularly as more and more Public Sector organizations come under pressure to reduce "back-office" costs while protecting front line services as economies emerge from recession - so there will be an increase in the tempo of collaboration across both national and local government and other agencies - not necessarily in a coordinated way leading to many different models requiring analysis and assessment. The challenge as always is to deliver on the promise and realise the benefits. I expect continued focus across all sectors on exploiting shared services as an asset to deliver organization-wide benefits. To support this a growing trend will be utilisation of user-friendly business process management solutions to assure standardization, control and compliance, and underpin end-to-end process improvement to get the most out of existing or proposed technology investments.

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Ravichandran Venkataraman
MD
ANZ Operations & Technology Pvt. Ltd

What does 2010 hold in store for us?

• Productivity - there will be a call for at least 20% to 25% productivity this year with little to no investment in technology;
• Consolidation - companies that are cash rich will push harder for takeovers - we are seeing this in the Financial Services Industry where valuations are attractive. We will see this happen in the shared services industry also;
• Moving to smaller regional hubs - with the risk of terrorism, natural calamities, etc. going up significantly, most companies are moving towards smaller regional hubs across countries to manage their shared services needs. This also helps from a language perspective given that Asia and Europe have the need for different languages;
• Integration & Change Management - With consolidation taking place, there will be a need for integration and change management expertise globally. there is already a huge shortage of this and the need will increase.

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Zachary Misko
Global Director
KellyOCG - RPO

In 2010, companies will focus recruitment strategies on building effective sourcing plans and use of technology and available tools, use processes like LEAN to improve overall efficiency and metrics and reduce waste within their team and organization, as well as look for ways to bets understand and simplify all of the technology and tools available within the realm of talent acquisition.

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Mark Judd
HR SSO Director
HR Shared Services
Rolls-Royce plc

If the management of an HR Shared Service Organization has ever been considered a challenge in the past, the last twelve months have reset the bar. In both the public and private sector the concept of a cost saving business case is no longer enough to justify investment and commitment to transformation. The need to work within the boundaries of affordability, in an environment where cash is scarce and closely protected, has meant that we have to make more careful choices on how we progress our service offerings. This impacts on the design of our solutions and the pace at which they can be implemented.

It has also created a paradox in that there is an urgency to deliver much more to preserve and improve the business cost base but caution in moving delivery away from the corporate control where the benefits are not immediately obvious. There is also less capital investment available to make it happen.

It is likely this is a temporary hiatus as need surpasses caution. Certainly we have had a lot of interest in visiting the Rolls-Royce HR Shared Service Centre from private and public sector organisations alike. I think the next two years will see an unprecedented level of activity in HR transformation projects. Much of this will probably be in the public sector where the choice of back office infrastructure is weighed up against the ability to field front line staff. There is no real choice between the two and there are only so many options to reduce costs. Politically unpalatable collaborations between public sector entities could now be seen as very desirable. This may see the emergence of some of the very largest HR transformations.

This could be set to be a very exciting couple of years.

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Traoloch Collins
CEO
www.serviceframe.com

Shared Services:  Increasing confidence within shared services organizations as they are recognised as ‘engine rooms’ of companies rather than ‘support services’.  This process will be driven by shared services teams as they demonstrate that they can deliver services at higher quality and more efficiently than a distributed model.  These teams will also adopt slicker and more effective performance and risk communication approaches as they increase their capability and maturity.

Outsourcing:  Client organizations will drive a more holistic approach to ‘sourcing management’.  CFOs will recognise that outsourcing contracts represent very significant amounts of OPEX spend and that an organizational approach should be taken to managing risk, performance and cost on all outsourcing contracts.  The Client focus will be ensuring there is clear and consistent information on service delivery and value creation across all contracts. Service Provider Organizations will welcome a structured approach to relationship management but will need to focus on how to measure and define the innovation and value creation that clients are looking for – this is an area which I still think lacks any real measurement and precision.

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Cliff Justice
national leader of Shared Services and Outsourcing Advisory
KPMG LLP

Looking out to 2010 and beyond, key trends may impact how organizations’ shared services and outsourcing initiatives will evolve:

• As shared services functions and outsourcing agreements enter a mature stage in their natural lifecycle (years 3-5), organizations will be challenged to reinvent the next value curve or face diminishing returns;
• With increasing supply choices, in terms of both countries and suppliers, organizations will be faced with developing more diverse (and complex) outsourcing portfolios in pursuit of greater value, speed and competitive advantage.
• The drive for continuous improvement in the delivery of services to the organization will force companies to rethink how competition between internal and external capabilities generates sustainable efficiency, effectiveness and innovation.

Dwayne Prosko
Director, Shared Services and Outsourcing Advisory
KPMG LLP

Strategy: Looking forward, we believe that buyers of outsourcing services, such as CFOs and CIOs, will take more of a demand management view of services. Reducing the demand for services does not necessarily mean stopping work, but rather working in a more sophisticated way. Traditionally, business units often receive the same level of service regardless of business needs – a one-size-fits-all approach. Frequently, this results in all business units receiving the lowest common denominator of service. A more sophisticated way is to tailor the service offerings, so that some business units are not under-served at the expense of over-servicing others. For example, in Finance & Accounting (F&A), this can involve employing customer segmentation principles to offer tailored products and services to the business units that use the reports and analysis produced by F&A.

Eugene Kublanov
Director, Shared Services and Outsourcing Advisory
KPMG LLP

Governance: An evolved approach to governance will be required. In the past, the shared services and outsourcing governance function was primarily focused on executing certain processes in a consistent manner. In the governance model of the future, the focus will be less on process execution and more on demand generation, value creation and customer satisfaction. It will require a more holistic, market-driven approach, more akin to a nimble start-up than a back office function. By addressing the extended global enterprise, this governance model will allow organizations to reinvent, realign, implement and manage service delivery portfolios that remain perpetually relevant.

Matamba Austin
Director, Shared Services and Outsourcing Advisory
KPMG LLP

Transactions: In 2009, companies tried all the traditional forms of cost cutting, and considered many of the traditional areas for outsourcing and shared services. In 2010, buyers of outsourcing services will be trying to find new ways to improve profitability. As a result, organizations will approach their existing outsourcing partners with a new willingness to consider transformational improvement solutions, so long as they can be done with minimal up-front capital investment. Experienced outsourcing buyers will consider more aggressive transaction parameters, e.g., more aggressive onshore/offshore mix, with an open mind to some of the newer offshore geographies. Buyers that have not done significant outsourcing in the past will finally start entering the market. They may not pursue large, multi-tower deals, but will approach transactions on a more aggressive schedule than in the past.

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Linda Merritt
Research Director, HRO
NelsonHall

2010 sees the rise of the HR services portfolio manager and delivery architect. The question is not outsourcing or shared services. The question is what is the optimum mix of outsourced, shared services and locally determined HR delivery services given the current and going forward needs of the business?

The HR services portfolio executive is a business and HR leader who blends a review of business plans and HR initiatives with internal capabilities and costs to develop a strategic plan to manage the total cost of ownership for the entire portfolio of HR services while maximizing HR’s efficiency and effectiveness and its impact on the business. The HR services portfolio manager partners with the HR executive to gain funding and the buy-in of stakeholders. 

The services delivery architect builds out in phases the “Lego” mix and match service delivery model ensuring it is all seamlessly integrated, managed and provides the required service quality, cost and performance. The HR delivery architect combines the skills and competencies of a technology leader, vendor manager and an HR-savvy operations manager.

Whether this describes one HR super star, or team capabilities, we are not talking about quiet “factory” managers toiling out of the way in the back office taking out a few more pennies here and there. We are talking dynamic executive talent that impacts the lion’s share of the HR spend, and accelerates HR’s delivery of business results.

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Vipin Suri
Managing Director
Shared Services International Inc.

In 2010, the cost pressures will continue and SSCs will be required to pursue non-traditional approaches for increasing efficiency and effectiveness.  Focus on Demand Management, End-to-End Process Cost Optimization and SSC Administration Cost (Cost-to-Serve) will increase significantly.  The future in shared services is about continuous improvement and customer partnerships.

Anther area of focus will be on the way SSCs report and provide information to management along with greater transparency of costs of doing business.

In addition, key shared services priorities during 2010 will include:

• Service quality management
• Governance framework
• Enhancement of internal controls
• Cash flow enhancement
• Cycle times acceleration for all SSC processes
• Moving up the food (value) chain progression
• Talent management
• Outsourcing opportunities

Source: Shared Services & Outsourcing Network