The significance of global business services rises as outsourcing outcomes fall short
This article originally appeared in Outsource Magazine Issue #28 Summer 2012
In March 2012, HfS Research and PwC conducted a major research survey entitled “The Future of Global Business Services”, to identify the drivers and results of organisational efforts to improve business support services.
“Global Business Services” (GBS) is a strategic governance framework that helps organisations transform business support functions into services that solve business problems and create new, more effective solutions for both internal and external customers of the organisation. GBS focuses on optimising the mix of resources, process acumen, and technology (including cloud computing) to deliver technology, finance, human resources, procurement, sales support and other services on an enterprise-wide basis to support the business strategy.
An executive summary of the results can be found here. The analysis of responses from 325 participating organisations focused on how leading organisations achieved superior outcomes. The study had six major findings.
1. Standalone outsourcing provides a cost-centric approach that achieves few additional benefits for far too many organisations.
Results of the study (see Figure 1) show that shared service initiatives outperform outsourcing initiatives by a significant margin across productivity, quality, innovation, and alignment with corporate strategy objectives. Hybrid initiatives that leverage both shared services and outsourcing operating models also outperform stand-alone outsourcing models in terms of productivity, quality, and innovation. While outsourcing remains an important cost-reduction vehicle, it remains less effective when not integrated into a shared services program.
2. Despite the proven benefits of their shared services and outsourcing initiatives, most organisations only include a small proportion of their operations in their shared services or outsourcing initiatives.
Forty-one per cent of organisations’ customer service, 49 per cent of their facilities management, and 58 percent of their supply chain organisations remain in decentralised in-house models. Organisations must overcome internal resistance to change and shift operations into shared services and outsourcing programs to achieve better performance results.
3. Many organisations are learning that a polarisation on cost reduction leads to poor selection of service providers and shared services design, as their prime business focus shifts to talent strategy and cultural change.
Compared to when they began their shared services and outsourcing initiatives, experienced organisations now place double the amount of importance on driving cultural change and gaining access to talent and capabilities (see Figure 2).
Organisations have also reduced their focus on cost reduction by 15 per cent, since the onset of their shared services and outsourcing transformations. Consequently, many of the initial decisions organisations made, concerning selection of service provider partnerships and shared services design, have proven hard to rectify based on their shifting business objectives. By leveraging a GBS framework, organisations making major service provider and shared services decisions can learn from the experiences of peers and place greater emphasis on talent and cultural change. For those organisations already caught in the middle of existing initiatives, GBS frameworks help their companies shift focus to align with current corporate strategies.
4. Centralised governance organisations create the best outcomes for their organisations.
Across business outcomes such as lower costs, higher quality, driving innovation, and aligning corporate strategy with operations, centralised governance teams consistently outperform decentralised teams or organisations without a governance team. In particular, centralised teams drive innovation and alignment with corporate strategy nine per cent and 13 per cent better, respectively, than organisations without governance teams. Based on this information, every organisation should organise a governance team and, despite internal resistance from IT and business leaders who do not want to lose control, organisations should seriously consider centralised teams.
5. Governance teams frequently accomplish their primary objectives, but struggle to create similar outcomes in areas outside of their key focus areas.
Both shared services and outsourcing initiatives struggled to achieve business outcomes outside of their initial key focus areas. For example, organisations that focused on reducing costs experienced outcomes that accentuated operating costs over innovation, and organisations that sought to gain access to talent and capabilities, found strong alignment with their business strategies, but struggled to drive innovation and reduce operating costs. A disciplined, balanced governance approach is needed to improve strategic and operational effectiveness.
6. Sixth, the study reiterated the critical role of governance teams to manage shared services and outsourcing service provider performance, as well as the overall program to a business case.
Organisations that actively manage a business are on average 26 per cent more likely to generate significantly better productivity, quality, innovation and alignment with business strategy. Yet, less than half (46 per cent) of governance teams have a formal business case that is reviewed on a set schedule and is formally updated as changes occur. Governance teams have significant opportunities to mature their ability to manage business cases and drive innovation and GBS frameworks provide a model to improve maturity.
These six findings are significant indicators of organisations’ maturing approach to managing shared services as standalone outsourcing initiatives show their limitations. Yet, they also prove how much room for improvement organisations still have. Organisations should seriously consider adopting a GBS governance framework to demonstrably improve outcomes.
To discuss these findings in more detail, please contact firstname.lastname@example.org