Every company strives to increase revenues while cutting cost. For this reason, support functions are often seen as a drain on overall profitability. In at least one key way, this shouldn’t always be the case. Many companies that have embarked in a shared services strategies over the past decade have seen bottom-line improvement.
To develop a comprehensive plan, shared services strategies must focus on a few key elements: people, process, technology, and location.
Talent that must be cross cultural, open minded, and driven to achieve. Even very good strategies may never reach their potential due to the lack of talent in the new location. Whether your location will be onshore, nearshore, or offshore, there is at least 20% savings potential in setting a new shared services strategy.
1. Smart Selection of Locations
According to AT Kearney’s services location index, there are more than 51 countries suitable for setting up a new delivery center. If you multiply this by the number of attractive cities within a country (up to five on average in some places), you may come up with no less than 200 options in you shared services menu. If you add the fact that many countries and cities around the world are figuring out new ways for tax exemptions, real estate incentives and job creation subsidies, your new magic matrix of location evaluation will be no shorter than 5,000 data points that need to be analyzed.
Finally the company factor: We all have enterprise preferences when making choices due to risk management, existing investments, long-term corporate strategies. At the end, location selection will become very messy if there is no methodology and data analytics to support the decision-making process. The is no perfect decision when selecting locations, but if you narrow down options using trusted algorithms — such as risk ratings, talent pool sizes, labor cost (including separation costs) and language ratings — your options will come down to less than 10, which can be evaluated with existing assessment tools.
2. Strategy Is Core
To seize the opportunities, your shared services strategy must focus on delivering value by using advanced data analytics. There are clear benefits — location, labor arbitrage, process simplification, one customer experience, and IT standardization — but savings are too often diluted due to currency exchange, attrition, and low productivity.
Take Brazil’s exchange rate, for example. In October 2002, the nation’s currency reached nearly 4 reales per dollar. Five years later it had appreciated to 1.6 reales per dollar before jumping to 2.6 in 2009 and then back to 1.5 in 2011. And where is it today? Basically at the same level as of 2002.
But imagine the forecast vs. actual expenses of all these years and — more important — the lost opportunity for those companies that decided to invest only in Brazil, a single offshore location, without using business analytics solutions to dilute the impact over the years.
3. The Magic Triangle of Talent, IT, and Process
One source of risk is taking the wrong path in the definition of the processes to be centralized along with defining the technology to be used in the central location. For example, if the process selected has multiple hand-offs in the current workflow, cycle times will most likely be impacted in the new remote location. Also, if current process requires handing off documents with signatures, the new PDF and TIF workflow managers must consider a more extensive scenarios for rejections and approvals in the remote location so transactions do not get stuck in the middle of clarifications. Using an ERP does not guarantee success when centralizing a process used to exchange other relevant informations to the transaction.
Consider making a process dissection before centralizing the operation in the remote location to eliminate waste in your ERP-defined process. Getting the right leadership in place in the new location is a critical factor for success. While you should consider a handful of expats, always target the development of local leaders so that, in the long term, there is a qualified pipeline in case you need to grow your center, transform processes, and or shut down a location. Finding the right mix of global and local leaders will make your exit strategy less painful due to the uniquenesses in each market when downsizing operations.
Governance: Knowing Who Owns What
One location selection is finalized, strategy is defined, and IT and process are fined tuned, it is show time! And this is when you fight the internal battles.
Moving operations to a central location is a very scary transition, so everyone wants to keep control. Companies often struggle to customize policies and procedures to a shared services environment. This is why using a “lift and ship” approach is the preferred approach for many. The risk is that remote management requires a new mindset — retaining the existing ways of doing business becomes a contradiction since shared services bring lots of change. Ensure that a shared services board is in place to be the ultimate referee and provide guidance on the battle of functional ownership vs. multi function (center) ownership vs. fully integrated shared services.
There is a lot of discussion on which strategy is better — but there is no perfect model. All are dependent upon the cost pressures, P&L management, and corporate policies. What works for one company may not be best for others and vice versa.
5. Functional vs. Shared: Measuring Success
Once functional vs. multifunction vs. totally integrated shared services is defined, the goal should always be a complete re-design in the end-to-end services and processes and clarity on what will be measure to define success. A tight business management system needs to be in place to align shared services operations to corporate goals.
The shared services dashboard is the only vehicle to track performance, but too often scorecards are put in place to measure things only for the sake of it. Advanced scorecards include critical information for decision making, such as cost per transaction, per customer set, or per line of business. This level of granularity is only realized if the right data strategies are in place by the time of setting up the shared services center. Business analytics tools are in place to short time to value in deploying SSC dashboards.
6. Lifecycle Management
There is nothing harder than replacing the car that you just love driving. Similarly, in the long run, it is hard to avoid attachments to SSC. That is why it is so important to develop a lifecycle management process around the maturity of existing centers.
Lifecycle management in shared services is not only about opening new locations and shutting down old ones. It is about understanding evolution based on SSC overall financial performance, workforce longevity, and process/IT maturity.
For example, when SSC labor costs start increasing, but there is no high attrition and a good set of leaders, the lever to be pulled is process automation and IT centralization. Today, there are multiple business analytics approaches that will help you model the right lifecycle strategy for shared services.
7. Talent for the Future
At the end of the day, no strategy can be successfully deployed without the right leadership. Attracting and retaining the right talent in your SSC will make a big difference. Centers are regularly seen as the low-cost, low-skilled workforce. But finding the right leadership team in the new location is equally as important as the cost benefits of competitive labor cost.
It may sounds easier said than done, since good companies are already trying to attract the same talent. The market is competitive — no matter where you are. But using workforce analytics to model different scenarios can help determine the right hiring mix between expats, local leaders from other companies, and long-term investments in future leaders. There is no secret recipe to find the right talent, but there is certainly proven methodologies and local advisory firms that can make this process smoother.