Over the past couple of years there has been an uptick and rebound in buyers’ interest in the use and expansion of shared services operations to support various back-office functions and processes in areas such as IT, Finance & Accounting (F&A), HR, and procurement. While historically some have viewed shared services as a precursor to outsourcing, there are a range of scenarios and situations in which buyers see shared services as complementary or preferable to the use of outsourcing.
In some cases this is due to because of the nature of work being performed, and in others it is more simply because buyers feel they can perform the work better or cheaper than an outsourcer. However organizations should perform thorough assessments to determine the preferred delivery model mix for a given functional area, and develop a sound means to measure the performance and success of each model.
Metrics Are Changing
Shared services models, at least successful ones, continue to evolve. The value proposition and success metrics for shared services operations are changing. Leading organizations today seek measureable business value from shared services—above and beyond driving costs down via consolidation, automation, and labor arbitrage. These organizations are assuming a more commercial orientation to the business, which involves driving and improving overall business performance, as well as competing for internal business on level ground with external service providers. It also involves adopting a more global portfolio approach to placing shared services centers and paying close attention to their alignment with complementary outsourcing efforts.
Results from KPMG’s 3Q11 Sourcing Advisory Pulse survey reinforces these points. They find that end-user organizations are showing a resurgent interest in the use and expansion of shared services, especially nearshore captives.
Figure 1 illustrates demand for shared services over the past twelve months based on the perspective of advisors from KPMG’s global network of member firms. Change in demand is assessed over the three geographic models for shared services: domestic, nearshore and offshore.
The greatest increase in demand, as cited by 49 percent of advisors polled, was for nearshore captive shared services centers. Domestic centers scored 36 percent and offshore captive centers 34 percent. Fifteen percent of advisors noted a drop in demand for offshore captive centers.
Digging deeper finds that these demand levels vary by the home market region of the buyer organizations as well as the global reach of their business. There is less demand growth for domestic shared services, for example, from firms that have a global footprint or are based in Western Europe. When it comes to the use and expansion of nearshore centers, however, the global and European-based firms show the greatest level of interest. Buyers headquartered in the US, particularly those with a limited global footprint, have shown the most resurgent demand in interest in domestic shared services centers. Most of this is because of a preference and fit with the model, but protectionism and fear of negative publicity from going offshore is also a factor.
So, while the market is seeing a growth in buyer interest for expansion of to expand shared services operations, this increase in interest varies across the different geographic delivery model options. The pace of demand growth for offshore centers in the more mature Indian market, for example, is being outpaced by demand growth in Asia Pacific, especially China. Some of this growth in the China market is to serve local Chinese organizations or support market penetration and growth efforts by Western firms, though there is also a growing trend for organizations based in the Asia Pacific region to consolidate existing shared services operations in China.
Regardless of the shore involved in shared services usage, key to their successful deployment is execution. There are a variety of factors that characterize successful shared services organizations. They include the following.
• A formally documented multi-year strategy that links to the overall organizational mission, vision and strategy
• Comprehensive organizational planning, including succession plan development, key resource development and definition of staff skills mix
• Aggressive exploration of sourcing alternatives, and, where applicable, implementation to create a blended service delivery model that leverages both internal and external capabilities and resources
• Governance by a steering committee comprised of customer representatives, functional leadership and business services leadership
• A highly standardized environment that promotes maximum reliability, supportability and efficiency
As organizations’ global sourcing strategies and models expand and become more complex, shared services will continue to play a critical role, along with IT and business process outsourcing, and cloud computing to both enable and expand service delivery capabilities. Defining the model, however, will likely remain easier than making it work well.