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Summary Report: Vertical Industry Strategies for Shared Services and Outsourcing Survey
 

Summary Report: Vertical Industry Strategies for Shared Services and Outsourcing Survey

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Everest Group and the Shared Services & Outsourcing Network (SSON) conducted the first-ever survey focused on vertical industry strategies in shared services and outsourcing. ...

Everest Group and the Shared Services & Outsourcing Network (SSON) conducted the first-ever survey focused on vertical industry strategies in shared services and outsourcing.

The survey covered 28 vertical industries, 8 horizontal functions, and 164 vertical functions. It addressed a wide range of topics from scope to improvement initiatives to sourcing models to technology strategies.

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    Summary Report: Vertical Industry Strategies for Shared Services and Outsourcing Survey Summary Report: Vertical Industry Strategies for Shared Services and Outsourcing Survey Presentation Transcript

    • A joint study by Shared Services & Outsourcing Network (SSON) and Everest GroupSummary ReportVertical Industry Strategies for Shared Servicesand Outsourcing SurveyReport: March 2012 Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
    • Introduction and background Much of the growth in shared services and How to learn more outsourcing has been oriented along traditional horizontal functions such as finance &  Visit the websites of SSON and Everest Group for accounting, human resources, and IT. However, more information, including fact sheets with results with increasing maturation and innovation in for specific industries strategies, differences across industries are emerging, additionally, vertical functions unique  Results from the survey will be featured at Shared to an industry are increasingly playing an Services & Outsourcing Week (SSOW) events important role around the world in 2012 In order to better understand these trends, Everest Group and the Shared Services & Australasia China Outsourcing Network (SSON) conducted the first- Melbourne Shanghai ever survey focused on vertical industry 16-19 April 2012 23-25 October 2012 strategies in shared services and outsourcing Europe Germany The survey covered 28 vertical industries, 8 Amsterdam Berlin horizontal functions, and 164 vertical functions. It 14-16 May 2012 20-23 November 2012 addressed a wide range of topics including scope, improvement initiatives, sourcing models, Asia India and technology strategies Singapore Gurgaon 04-06 September 2012 04-06 December 2012 This report summarizes the findings from over 650 responses across enterprises, service www.ssonetwork.com providers, and industry influencers research.everestgrp.com/VISSSO-survey Copyright © 2012, Everest Global, Inc. 2 EGR-2012-0-R-0666
    • Table of contents (page 1 of 2)Topic Page no.Section I. Executive summary 5 Executive summary 6 Snapshot of key analyses 7 How to interpret this report 8Section II. Overview of shared services and outsourcing strategies 9 Summary 10 Success, maturity, and focus on cost 11 Centralization and sourcing model 13 Improvement initiatives, ability to change, and SaaS 17Section III: State of traditional horizontal functions 20 Summary 21 Scope 22 Delivery model, offshoring, and technology 23Section IV: Variations by industry 26 Summary 27 Scale and sourcing model adoption 28 Horizontal and vertical function adoption 30 Improvement initiatives for vertical functions 34 Copyright © 2012, Everest Global, Inc. 3 EGR-2012-0-R-0666
    • Table of contents (page 2 of 2)Topic Page no.Section V. Different approaches used by mature organizations 35 Summary 36 Profile of mature organizations 37 Improvement initiatives 40 Scope of F&A 41Section VI. Perspectives of service providers and influencers 42 Summary 43 Service provider industry focus and growth 44 Sourcing model trends 45 Alignment of investments to improvement initiatives 46 SaaS/cloud adoption expectations 47 Influencer views on service provider gaps 48Appendix About the survey 49 Glossary of key terms 50 Copyright © 2012, Everest Global, Inc. 4 EGR-2012-0-R-0666
    • Outline Executive summary Overview of shared services and outsourcing strategies State of traditional horizontal functions Variations by industry Different approaches used by mature organizations Perspectives of service providers and influencers Copyright © 2012, Everest Global, Inc. 5 EGR-2012-0-R-0666
    • Executive summary With the increasing maturation of shared services and outsourcing, many organizations report that their programs are successful and able to consistently meet financial objectives However, far fewer organizations consider themselves to be mature in comparison to their peers and most are still primarily focused on process improvement over other sources of value Further, most shared services and outsourcing groups are more oriented towards traditional horizontal functions such as F&A and HR rather than vertical functions, which are closer to the core business activities In order to deliver the required results, organizations primarily favor a shared services model. Many organizations also state a bias for a “best-fit” sourcing model, but this is not demonstrated in reality Finally, although many respondents indicate technology is a key initiative, they are generally not yet convinced that it is appropriate to adopt SaaS/cloud technology models Copyright © 2012, Everest Global, Inc. 6 EGR-2012-0-R-0666
    • Snapshot of key analysesFinancial and value management Representation of horizontal and vertical functionsPercent of respondents agreeing with statement Average number of functions included Horizontal functions Vertical functions Cost reduction is the most 62 3.4 important objective Services industries 2.1Consistently meet financial 76 objectives 3.3 Business cases include Product industries 87 1.2 value beyond cost savingsShared services and outsourcing adoption by industry Relative focus of respondents by maturity level Average shared Percent of respondents 3.5 services adoption Below average Above average adoption of shared adoption of shared services and above Healthcare payers services and Collaboration with Successfully implement average for outsourcingExtent of third-party outsourcing 3 outsourcing business users change Information Media & Travel & services entertainment transportation Banking Chemicals Telecom Capital markets Insurance 2.5 Average outsourcing Engineering & construction Life sciences Oil & gas Mature 48 57 adoption Retail Freight & Hi-tech Utilities logistics Healthcare providers CPG Above average 2 adoption of Below average Automotive shared services adoption of shared services Government and below average for Less mature 31 12 Industrial products and outsourcing outsourcing 1.5 1.5 2 2.5 3 3.5 4 4.5 5 Extent of shared services Copyright © 2012, Everest Global, Inc. 7 EGR-2012-0-R-0666
    • How to interpret this reportKey definitions and visual conventionsKey definitions Functions: Business support activities which  Improvement initiatives: Questions about seven encompass multiple processes improvement initiatives were asked for each function Horizontal functions: Activities which tend to be (horizontal and vertical functions), and also asked about similar across industries such as finance, HR, and IT. in aggregate. These seven include the following: Eight horizontal functions were covered in the survey – Increase consolidation/centralization Vertical functions: Activities which are different by – Reengineer/standardize processes industry. Examples include order management in – Implement new tools and technologies hi-tech, merchandise analytics in retail, and loan and – Leverage analytics and business intelligence mortgage servicing in banking. The survey covered – Increase collaboration with business users 164 vertical functions – Increase level of offshoring/nearshoring – Deepen talent pool/expertiseVisual conventionsMany questions in the survey were asked in terms of In order to draw attention to the most important data andthe extent to which a respondent agreed or disagreed summarize key insights, the report uses the standardswith a statement. Respondents were given seven provided belowoptions to select from and these are shown on charts inthis report using the color scheme provided below Notable data findings Additional insightsStrongly Somewhat Somewhat Stronglydisagree Disagree disagree Neutral agree Agree agree Copyright © 2012, Everest Global, Inc. 8 EGR-2012-0-R-0666
    • Outline Executive summary Overview of shared services and outsourcing strategies State of traditional horizontal functions Variations by industry Different approaches used by mature organizations Perspectives of service providers and influencers Copyright © 2012, Everest Global, Inc. 9 EGR-2012-0-R-0666
    • Summary of key messagesOverview of shared services and outsourcing strategies Respondents from enterprises report a high degree of success with their shared services and outsourcing efforts, although only a quarter consider themselves mature in comparison to their peers. Further, respondents demonstrate a clear focus on meeting financial objectives while also pursuing sources of value beyond cost savings IT horizontal services are the most centralized, with vertical functions being the least centralized. Shared services is the preferred sourcing model with “best-fit” as a strong second, although much less commonly adopted when looking in detail at functional approaches Moving forward, respondents indicate: – The greatest focus on process-centric improvement initiatives and lesser priority being placed on analytics and offshoring – In order to accomplish these improvements, respondents see their leadership as being effective in supporting initiatives, but less confident in their effectiveness in executing change efforts – SaaS/cloud technologies vary widely in adoption and many are undecided to slightly biased towards increased adoption Copyright © 2012, Everest Global, Inc. 10 EGR-2012-0-R-0666
    • Although over 60% of the enterprise respondents considertheir efforts to be successful, only 26% feel confident thatthey are mature in comparison to their peersLevel of agreement with statement Strongly Somewhat Somewhat Strongly disagree Disagree disagree Neutral agree Agree agreePercent of enterprise respondents Our shared services and/or outsourcing program is generally 5 10 20 19 33 13 considered to be a successIn comparison to other organizations, our strategy for shared services and 1 12 17 17 20 24 9 outsourcing is clear and well-conceivedIn comparison to other organizations, we are mature users of shared 6 18 13 11 26 15 11 services and outsourcingLarger organizations demonstrated a tendency to perceive themselves as successful and mature incomparison to peersSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 11 EGR-2012-0-R-0666
    • Three-quarters of enterprises meet their financial objectives.Surprisingly, almost 90% respondents reported includingsources of value other than cost in their business casesLevel of agreement with statement Strongly Somewhat Somewhat Strongly disagree Disagree disagree Neutral agree Agree agreePercent of enterprise respondents We consistently meet our financial 13 6 14 20 34 22 objectives Cost reduction is the most important objective for our shared services 2 6 16 14 30 22 10 and/or outsourcing strategy In addition to cost savings, weconsider other sources of value in our 1 3 1 8 23 45 19 business cases We regularly refine our objectives to target new sources of value 1 3 8 17 29 33 9The comparatively low portion of respondents who indicated cost reduction as the most important objectivesuggests that increasing maturity has led to broader value propositionsSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 12 EGR-2012-0-R-0666
    • IT functions are the most centralized at 77%, comparativelyalmost half of the vertical functions are centralized – which isnot far from the overall philosophy of organizationsPercentage of enterprise responses Overall philosophy 5% Sentiment independent of 32% 40% 23% function Aggregate across Aggregate of over 1,000 functions 10% 31% 27% 32% functional answers Horizontal IT 4% 19% 32% 45% functionsHorizontal F&A, HR, Break-out of functional 9% 30% 28% 33% answers procurement Vertical functions 15% 39% 23% 23% Not Somewhat Mostly Centralized centralized centralized centralizedWithin the vertical functions, product-oriented industries were twice as likely to have decentralized deliveryas services industriesSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 13 EGR-2012-0-R-0666
    • Most organizations prefer shared services, with “best-fit” in astrong second position – and both expected to growEnterprise sourcing model preference Future sourcing model trendPercentage of enterprise responses Percentage of enterprise responsesBest-fit (either shared services or Reduce shared services outsourcing based upon and outsourcing (1%) situation) 39% No change 19% Increase Prefer third-party outsourcing 7% 45% shared services Increase both third-party 23% outsourcing and Prefer shared services 47% shared services 12% Increase third-party outsourcing Retain in business 7%Roughly 80% of the respondents expect to grow their use of shared services and/or outsourcing. Only onepercent expect to reduce the efforts, with 19% anticipating no changeSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 14 EGR-2012-0-R-0666
    • Although respondents from shared services organizationsmost heavily favored shared services, all respondentsindicated a similar preference for “best-fit” sourcingPercentage of enterprise responses Best fit 39% 38% 41% Prefer third-party outsourcing 7% 18% Prefer internal shared 56% services/captives 47% 33% Retain in business 7% 6% 8% All respondents Respondents in shared Others services/captivesAlthough a high portion of respondents in the “Others” category have responsibility for vendor managementand other outsourcing roles, less than 20% indicate that outsourcing is the preferred sourcing modelSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 15 EGR-2012-0-R-0666
    • “Best-fit” sourcing philosophy is common, but seldommatches reality – and being adopted less than half as often asthe overall philosophy suggestsPercentage of enterprise responses 18% 14% 14% 6% 7% 30% Best fit 39% 14% Prefer outsourcing 7% 55% 57% 65%Prefer shared services 47% 47% 24% 17% 15% Retain in business 7% 9% Overall philosphy Aggregate of F&A, HR, Vertical functions IT infrastructure & functional answers procurement applications horizontals horizontalsOnly IT functions which are much more centralized come close to matching the overall sourcing modelphilosophySource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 16 EGR-2012-0-R-0666
    • Process-centric improvement initiatives are rated as highestpriorityPercentage of enterprise responses rating as a top 3 priorityReengineer/standardize process 78 Increase consolidation/ Process-centric levers 53 centralization for improving Implement new tools and 50 technologies Increase collaboration with 38 business usersLeverage analytics and business 28 intelligence Increase offshoring/nearshoring 19 Deepen talent pool/expertise 13Consistent with other areas of the survey, offshoring received modest focus as being an important lever forcapturing more valueSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 17 EGR-2012-0-R-0666
    • Most organizations believe that their leadership is effective insupporting initiatives, but only a quarter of them expressconfidence in their effectiveness in executing changeLevel of agreement with statement Strongly Somewhat Somewhat Strongly disagree Disagree disagree Neutral agree Agree agreePercent of enterprise respondents Our senior management is effectivein supporting shared services and/or 2 6 14 12 25 28 13 outsourcing initiatives We are effective in executing our change management plans 3 6 18 15 31 21 6Confidence in ability to effectively execute change varies significantly by maturity (see later section for moredetails)Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 18 EGR-2012-0-R-0666
    • Current use of SaaS/cloud technologies is broadly distributedand neutral on future plans, with a slight bias towardsincreased adoptionLevel of agreement with statement Strongly Somewhat Somewhat Strongly disagree Disagree disagree Neutral agree Agree agreePercent of enterprise respondents We are currently using SaaS/cloud 16 20 7 23 15 17 2 technologies for some functions We plan to significantly increase the use of SaaS/cloud technologies 11 8 4 38 19 17 3The hi-tech and travel & transport industries indicate a greater interest in these new technology models, incontrast to more regulated or information-sensitive industries (e.g., banking, healthcare)Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 19 EGR-2012-0-R-0666
    • Outline Executive summary Overview of shared services and outsourcing strategies State of traditional horizontal functions Variations by industry Different approaches used by mature organizations Perspectives of service providers and influencers Copyright © 2012, Everest Global, Inc. 20 EGR-2012-0-R-0666
    • Summary of key messagesState of traditional horizontal functions The survey included a deep-dive into the traditional horizontal functions of F&A, HR, and procurement Although judgment-intensive processes are less commonly included, the representation is generally a third-to-half of the respondents Additionally, respondents indicated a strong bias for pursuing new sources of value through changes in delivery model such as end-to-end approach in F&A, core spend in procurement, and self service and mobility in HR By contrast, respondents were more mixed in their use of offshoring and nearshoring, with a wide distribution of approaches Similar to overall adoption of new technologies, respondents are often undecided on the role of SaaS/BPaaS in their F&A, HR, and procurement strategies – with HR demonstrating a greater openness to new technologies Copyright © 2012, Everest Global, Inc. 21 EGR-2012-0-R-0666
    • Across horizontal functions, adoption of transaction-intensiveprocesses outpaces judgment-intensive processesInclusion of processes in horizontal functions Transaction-intensive Judgment-intensivePercentage of enterprise respondents answering for function F&A Procurement Human resources Accounts payable 93 Day-to-day Employee data 86 66 purchasingAccount receivable 82 Payroll 81 Accounts payable 63 General ledger 82 Benefits admin 76 Vendor management 63 Fixed assets 74 Recruitment 61 Tax 50 Catalog management 53 Learning 49 Management 53 Spend analytics 56 Compensation 45 reporting Performance Regulatory 47 43 Strategic sourcing 52 management Budgeting 35 Mobility 38 Compliance 50 Treasury/risk 33 Regulatory 38 Internal audit 30 Category management 38 Employee relations 34Two-thirds of the enterprise survey respondents included F&A, whereas only half the respondents included HR and procurement.IT infrastructure, IT applications, and contact center were included by nearly 33%, while knowledge services was included byonly 20% of the respondentsSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 22 EGR-2012-0-R-0666
    • Enterprises are pulling advanced value levers to furtheroptimize horizontal functionsLevel of agreement with statement Strongly Somewhat Somewhat Strongly disagree Disagree disagree Neutral agree Agree agreePercent of enterprise respondents F&A Approach to F&A shared services and outsourcing is end-to-end process driven 4 12 15 12 26 19 12 (Order-to-Cash, Procure-to-Pay, Record-to- Report) as opposed to function driven ProcurementBeyond indirect or non-core spend, direct spend 5 19 10 16 19 23 8 (or core spend) is increasingly managed by our procurement shared services and/or outsourcing HR A key focus for our HR services is to increase 4 2 4 31 35 24 self-service and mobilityThe most common improvement initiatives for capturing more value (e.g., centralization/consolidation,standardization/reengineering, offshoring/nearshoring, tools and technologies) are also pursued morefrequently in horizontal functions than vertical functionsSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 23 EGR-2012-0-R-0666
    • A quarter of enterprises utilize offshoring as a key componentof service delivery for horizontal functions. However, aslightly greater portion indicate the oppositeLevel of agreement with statement Strongly Somewhat Somewhat Strongly disagree Disagree disagree Neutral agree Agree agreePercent of enterprise respondents F&A 13 17 9 21 12 22 6 Offshore and nearshore delivery is a key Procurement 13 16 10 23 14 21 3 component of service delivery strategy HR 12 25 6 22 11 19 5Among all 28 industries analyzed, respondents from government, utilities, and healthcare providers had thelowest level of offshoring while banking, insurance, and life sciences had the highest level of offshoringSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 24 EGR-2012-0-R-0666
    • Similar to overall views on SaaS/cloud, many organizationsare undecided on newer technologies even in horizontalfunctionsLevel of agreement with statement Strongly Somewhat Somewhat Strongly disagree Disagree disagree Neutral agree Agree agreePercent of enterprise respondents F&A 18 23 7 35 10 7 Our technology strategy for involves significant Procurement 15 16 9 41 9 10 leverage of Saas/BPaaS based solutions HR 10 20 4 38 15 9 4 HR is the function most open to new technologies, which is also reflected in market offeringsSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 25 EGR-2012-0-R-0666
    • Outline Executive summary Overview of shared services and outsourcing strategies State of traditional horizontal functions Variations by industry Different approaches used by mature organizations Perspectives of service providers and influencers Copyright © 2012, Everest Global, Inc. 26 EGR-2012-0-R-0666
    • Summary of key messagesVariations by industry Looking at the responses across industries, several key themes emerge regarding scale, the level of adoption, and approaches Retail & hospitality, financial services, and healthcare segments report the largest shared services and outsourcing programs. In all industries, the relative level of adoption of shared services is higher than outsourcing Services-oriented industries, such as financial services, transportation & logistics, and retail & hospitality, include more vertical functions in their scope than product-centric industries such as manufacturing and energy. In all industries, judgment-intensive processes in F&A are less likely to be included in the scope The range of vertical functions represented is very broad, tending to mostly reflect customer-related transactional activities and supply chain-related activities. This is further reflected in the types of improvement initiatives being pursued for various vertical functions Copyright © 2012, Everest Global, Inc. 27 EGR-2012-0-R-0666
    • Healthcare, BFSI, and retail have the largest scale of sharedservices and outsourcingOverall scale of shared services and outsourcing Less than 500-1,000 1,000- 2,500-5,000 More thanPercent of enterprise respondents 500 FTEs FTEs 2,500 FTEs FTEs 5,000 FTEs Public sector 73% 13% 7% 7% Government, non-profit / NGO, education Aerospace and defense, automotive, chemicals, Manufacturing 66% 10% 12% 5%7% consumer packaged goods, consumer durables, industrial products, and engineering & construction Transportation & logistics 69% 19% 13% Travel and transportation, freight & logisticsTechnology & communications 45% 18% 11% 7% 18% Telecom, hi-tech, and information services Energy & resources 50% 21% 7% 21% Oil and gas, metals & mining, agriculture, and utilities Retail & hospitality 29% 24% 6% 12% 29% Retail, hospitality & tourism BFSI 32% 22% 11% 5% 30% Banking, capital markets, and insurance Healthcare 41% 14% 14% 32% Life sciences, Healthcare payers, Healthcare providersSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 28 EGR-2012-0-R-0666
    • The extent of shared services and third-party outsourcingvaries by industryExtent of shared services and outsourcing adoption by industryAverage score on a five point scale for all responses per industry Average shared 3.5 services adoption Below average Above average adoption of shared adoption of shared Healthcare services and above services and payersExtent of third-party outsourcing average for outsourcing 3 outsourcing Information Media & Travel & services entertainment transportation Banking Chemicals Telecom Capital markets Insurance 2.5 Engineering & Life sciences Oil & gas Average outsourcing construction adoption Freight & Hi-tech Utilities Retail logistics Healthcare providers CPG Above average 2 adoption of Below average Automotive shared services adoption of Government and below shared services Industrial products average for and outsourcing outsourcing 1.5 1.5 2 2.5 3 3.5 4 4.5 5 Extent of shared services More than three-quarters of industries report adoption of shared services greater than the mid-point and only two industries report greater adoption of outsourcing than shared services Copyright © 2012, Everest Global, Inc. 29 EGR-2012-0-R-0666
    • Services industries have a higher representation of verticalfunctionsAverage number of functions Horizontal functions Vertical functionsBanking, capital markets, & insurance 3.6 2.3 Transportation & logistics 3.2 2.3 Retail & hospitality 3.7 1.9 Healthcare payers & providers 3.0 1.4 Technology & communications 3.1 1.4 Energy & resources 3.6 1.1 Manufacturing 2.6 1.1 Public sector 4.3 1.0 Average = 3.3 Average = 1.6Services industries have more robust mid-offices – which tie more closely to external customer serviceactivities with linkages to financial processes such as billing and account set-up and managementSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 30 EGR-2012-0-R-0666
    • Similar to the overall view, adoption of transaction-intensiveprocesses outpaces judgment-intensive inclusion across allindustriesInclusion of F&A processes Judgment-intensive F&A processesPercentage of enterprise respondents Transaction-intensive F&A processes 93% 84% 85% 73% 75% 70% 65% 66% 46% 41% 39% 39% 42% 39% 33% 30% BFSI Transportation Public sector Retail and Technology & Manufacturing Healthcare Energy and and logistics hospitality communications resourcesIndustries that consider F&A to be vertical-specific are less likely to include F&A in shared services and outsourcinginitiatives. For example, nearly 30% of the BFSI respondents consider F&A to be industry-specific – highest across allindustries. Consequently, BFSI has a relatively lower degree of F&A inclusion in shared services and outsourcing Copyright © 2012, Everest Global, Inc. 31 EGR-2012-0-R-0666
    • Key vertical-specific functions in shared services andoutsourcing by industry (page 1 of 2) Average number ofIndustry vertical functions Key vertical-specific functionsAutomotive Master data, customer data, vendor data management; asset and inventory 0.9 management supportBanking Retail banking account open/closure and servicing; loans & mortgage servicing; 2.0 cards servicing and statement processing; transaction processingCapital markets Application processing, account servicing; investment operations, order 3.0 managementChemicals Master data, customer data, vendor data management 1.2Consumer packaged Master data, customer data, vendor data management; order processing and 1.9goods fulfillmentEducation Eligibility and registration 0.8Engineering and Document and record management 1.0constructionFreight and logistics Document processing; billing 1.8Government Records management; application processing 1.0Healthcare payers Claims processing and management; claims adjudication, disbursements, 2.2 subrogation; member on-boarding, records management; underwriting and risk assessment supportHealthcare providers Revenue cycle management (eligibility, billing, coding, receivables, payer services); 1.0 healthcare information management (records management, electronic health record)Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 32 EGR-2012-0-R-0666
    • Key vertical-specific functions in shared services andoutsourcing by industry (page 2 of 2) Average number ofIndustry vertical functions Key vertical-specific functionsHi-tech Master data, customer data, vendor data management; order management and 1.6 fulfillmentIndustrial products Master data, customer data, vendor data management; engineering support services 1.2Information services Sales and marketing support; billing & royalty support 1.3Insurance Underwriting and actuarial data processing and analysis; L&P policy servicing and 2.4 records management; L&P claims processing and management; eligibility, verification, fraud detection and managementLife sciences Drug discovery and research support; clinical trials and pharmacovigilance 0.8 administration; distribution planning and analysis, defect handling, and reverse logisticsMedia and Publishing and distribution management; advertising sales support; subscription and 1.7entertainment order managementOil and gas Supply chain planning & support; asset and inventory management support 0.8Retail Logistics and supply chain administration; store operations & property services 2.0Telecom Order management and provisioning; sales and marketing support 1.1Travel and Operations and fleet administration; records and document management; sales and 2.9transportation reservations supportUtilities Meter-to-cash (billing, payment processing, credit and collections); field services and 1.1 meter data administrationSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 33 EGR-2012-0-R-0666
    • Improvement initiatives reflect business context of a verticalfunctionFive most common vertical functions for each improvement initiative Reengineer & Technology & Talent pools & Centralization Offshoring standardize analytics collaboration Banking:  Capital markets:  Banking  Oil & Gas: Asset  Retail: Advertising – Loan & mortgage Order management, – Loans and and inventory and marketing servicing investment ops mortgage management support – Check  Freight & logistics: servicing  Manufacturing:  Manufacturing: processing, Billing – Transaction – Engineering Engineering support remittances, lock-  Information services: processing support services services box Billing & royalty – Cards servicing – Order processing  Banking: Hi-tech: Order man. support and statement and fulfillment Commercial banking and fulfillment  Media: Subscription processing  Hi-tech: operations Telecom: Sales and and order  Insurance Vendor/customer  Insurance marketing support management – L&P and P&C master data – Underwriting and Healthcare  Manufacturing: claims processing management actuarial support providers: Revenue Order processing and management  Banking: Risk, FX, – Claims cycle management and fulfillment – Claims regulatory, fraud adjudication, Manufacturing:  Healthcare adjudication,  Retail: disbursements, Vendor/customer providers: Revenue disbursements, Merchandising subrogation master data cycle management subrogation analytics support management Transaction- Link to supply chain / Judgment-intensive Link to revenue management intensive business decisions with unique skillsSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 34 EGR-2012-0-R-0666
    • Outline Executive summary Overview of shared services and outsourcing strategies State of traditional horizontal functions Variations by industry Different approaches used by mature organizations Perspectives of service providers and influencers Copyright © 2012, Everest Global, Inc. 35 EGR-2012-0-R-0666
    • Summary of key messagesDifferent approaches used by mature organizations Mature organizations were identified based upon their self-reported maturity in comparison to peers. On average, they are slightly more centralized and notably larger than their peers Further, these organizations have adopted a greater end-to-end mindset, but focus more of their energy on non-process improvement themes such as increasing collaboration with business users and being effective at change Despite their focus on factors beyond process, mature organizations are more oriented to focus on cost and meet financial objectives. Interestingly, they are not notably more oriented towards adopting SaaS/cloud technologies, but are more likely to implement new tools These mature organizations also include more scope in their service delivery models, moving beyond transactional processes in F&A and also greater inclusion of vertical-specific functions Copyright © 2012, Everest Global, Inc. 36 EGR-2012-0-R-0666
    • Mature organizations were identified based upon theirresponse to the survey; they have a greater representation oflarge organizations and also more centralization Degree of centralization Sourcing model preference Fully 15% 27% centralized Best fit 41% 39%Definition of matureorganizations Prefer outsourcing 6% 6% Maturity is defined based upon Somewhat 77% 68% Prefer shared self-reported maturity in centralized 46% 48% comparison to peers services Not structured to centralize 5% 8% Retain in business 5% 9% Mature organizations are defined as those indicating Mature Less mature Mature Less mature they “agree” or “strongly agree” that they are mature in Annual revenue of organization Scale of shared services/outsourcing comparison to peers US$ billion FTEs Less mature organizations are 14% 12% those that “strongly disagree,” >5,000 29% >50 31% 15% “disagree,” “somewhat 18% disagree,” or “neutral” that they 16% 20% 1,000-5,000 18% are mature in comparison to 10-50 peers 39% 500-1,000 12% 1-10 30% 57% <500 41% <1 29% 19% Mature Less mature Mature Less mature Copyright © 2012, Everest Global, Inc. 37 EGR-2012-0-R-0666
    • Having already adopted an end-to-end philosophy, matureorganizations increasingly look for value beyond processimprovement – instead focusing on users and driving changePercentage of enterprise respondents Priority initiatives F&A approach is Collaboration with Successfully end-to-end Consolidation business users implement change Mature 80 48 48 57Less mature 39 61 31 12Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 38 EGR-2012-0-R-0666
    • Mature organizations show greater financial orientation andare somewhat more interested in new technologies Cost reduction is most important Consistently meet financial objectivesFinancials Disagree 5% Disagree 2% 6% 12% Somewhat agree/disagree 22% Somewhat agree/disagree 56% 52% 60% Agree 76% Agree 39% 42% 28% Mature Less mature Mature Less mature Currently use SaaS/cloud Plan to increase use of SaaS/cloudSaaS/cloud Disagree 19% 20% 35% Disagree 43% Somewhat agree/disagree 54% 64% Somewhat agree/disagree 35% 48% Agree Agree 27% 22% 17% 16% Mature Less mature Mature Less mature Copyright © 2012, Everest Global, Inc. 39 EGR-2012-0-R-0666
    • Mature organizations have a relatively higher focus ontechnology, collaboration, and offshoring and less focus onreengineering and consolidationImportant actions for optimizing current service delivery MaturePercentage of enterprise respondents Less mature 70% Re-engineer/standardize processes 86% 48% Increase consolidation/centralization 58% 57% Implement new tools and technologies 46% 48%Increase collaboration with business users 31% 22% Increase level of offshoring/nearshoring 17% 27% Leverage analytics / business intelligence 28% 13% Deepen talent pool / expertise 10%Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 40 EGR-2012-0-R-0666
    • Within F&A, mature organizations include greater scope,particularly in areas beyond traditional accounts payable andreceivableScope of F&A shared services and outsourcing MaturePercentage of enterprise respondents Less mature Accounts payable 93% 91% Accounts receivable 84% 78% General ledger 91% 73% Fixed assets 86% 58% Tax 66% 42% Regulatory reporting and compliance 59% 39% Management reporting and analytics 71% 47% Budgeting/forecasting 50% 34% Internal audit 39% 26% Treasury and risk management 43% 30%In addition to including more processes within the F&A function, mature organizations include 10-20% greater scope in HR,procurement, and vertical functionsSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 41 EGR-2012-0-R-0666
    • Outline Executive summary Overview of shared services and outsourcing strategies State of traditional horizontal functions Variations by industry Different approaches used by mature organizations Perspectives of service providers and influencers Copyright © 2012, Everest Global, Inc. 42 EGR-2012-0-R-0666
    • Summary of key messagesPerspectives of service providers and influencers Service providers report the greatest focus and growth in more mature industries such as banking, insurance, telecom, and hi-tech Both influencers and service providers believe that a “best-fit” sourcing strategy is the prevalent trend, largely similar to the overall reported philosophy of enterprises Although service providers are often investing in the areas where enterprises are focusing their improvement initiatives, there are notable misalignments such as underestimating the importance of increasing collaboration with business users and over-emphasizing analytics and offshoring For new technologies such as SaaS/cloud, service providers are notably more optimistic about the future level of adoption by enterprises, although few strongly agree adoption is increasing The advice of influencers to service providers most strongly emphasizes increasing understanding of business context and developing the required capabilities to truly provide the desired scope of services. Other areas for improvement include performance management, change management, and innovation Copyright © 2012, Everest Global, Inc. 43 EGR-2012-0-R-0666
    • Banking emerges as the most important and fastest growingindustry for service providersRanking of industries in terms of importance for Relative growth of third-party outsourcingthird-party service providers services in last 12 to 18 months by industryWeighted score1 #1 Industries with fastest growth Banking 347 1. Banking Insurance 184 #2 2. Telecom 3. Insurance Telecom 154 #3 4. Consumer packaged goods 5. Hi-tech Hi-tech 110 #4 Retail 107 #5 Industries with slowest growth Government 106 #6 24. Metals and mining Healthcare providers 25. Automotive 105 #7 26. Engineering & construction 27. Hospitality & tourism Information services 91 #8 28. Non-profit / NGOConsumer packaged goods 89 #9 Capital markets 78 #10 1 Score is a weighted calculation. Items ranked first are valued higher than the following ranks, the score is the sum of all weighted rank countsSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 44 EGR-2012-0-R-0666
    • Enterprises, service providers, and influencers consider“best-fit” to be the preferred sourcing model Sourcing model expectation for enterprises Percentage responses Best-fit (either shared services or outsourcing, 39% 44% based upon situation) 54% Prefer third-party outsourcing 7% 15% 41% Prefer shared 47% services 24% 10% Retain in business 7% 6% 5% Enterprises Influencers (perception of Service providers trend of clients) (perception of trend of clients)Nearly 40% of the service providers consider third-party outsourcing to be the preferred sourcing model, compared toonly 7% of the enterprises. Influencers report a mix most similar to the non-shared services respondents in theenterprisesSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 45 EGR-2012-0-R-0666
    • Service providers’ perceptions are not completely alignedwith clients’ prioritiesEnterprise and service provider perceptions on shared services and outsourcing initiativesPercentage responsesHigh Areas over-emphasized by service providers Consolidation/ Reengineering/ Service provider centralization standardization Analytics and business Tools and intelligence technologies Offshoring/ nearshoring Areas under-invested by Talent pools / service providers expertise Collaboration withLow business users Low Enterprise / service recipient HighInfluencer perspectives mirror enterprises more closely than service providers. While the overall ranking of initiativesremains similar, influencers place greater emphasis on centralization/consolidation and analyticsSource: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 46 EGR-2012-0-R-0666
    • There is a significant “adoption gap” in the use of SaaS/cloudtechnologiesPlans to increase the use of SaaS/cloud technologies Service providersPercentage of responses Enterprises45% Adoption lag between supply and demand30%15% 0% 1. Strongly 2 3 4. Neither 5 6 7. Strongly disagree agree nor agree disagreeMost enterprises continue to sit on the fence regarding the use of SaaS/cloud technologies – demand (enterprises /service recipients) is trailing supply (service providers)Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 47 EGR-2012-0-R-0666
    • Service providers’ inability to understand the client contextemerges as the biggest capability gapService provider capability gaps identified by influencers for F&A, HR, and procurementDegree of inclusion “Tailoring cookie cutter solutions to fit client needs” Client context “Understanding the impact on business” “Knowledge of specific industry processes” “Moving up the value chain; providing R2R analysis capability” Scope of services “Consolidate procurement and sourcing platforms” “Being good enough in all transactional HR services” “Business outcome, definition, and transaction pricing” Performance management “Track, manage, and report KPIs... and the savings created” “Review services and service levels annually to adapt to client needs” “Strategic advice is absent – too much off the shelf solutioning” Change management support “Team continuity from sales cycle into operations” “Transitions – people transfers and industry-specific requirements” “Lack in proactive innovation and proactive process reengineering ”Innovation and continuous improvement “Not looking for innovations and continuous improvements to add more value to the customer” “Leadership skills of middle management” Talent and expertise “Lack of senior professional people to support the business focus” “Ability to provide adequate subject matter expertise” “Platform-based offerings with transaction pricing” Technology “Tools to ensure value-added sourcing” “Do not provide enough SaaS services for HR”Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012 Copyright © 2012, Everest Global, Inc. 48 EGR-2012-0-R-0666
    • About the survey The 10 to15 minute survey was Mix of respondents Roles of enterprise respondents conducted via the Internet and 100% = 663 100% = 272 collected responses from enterprises, Business COE Other third-party outsourcing service Industry user of providers, and industry influencers – services 9% influencers 5% 27% Enterprises Corporate each with different, but parallel sets of 5% 41% strategy 6% questions. The length of survey varied significantly, based upon the number of Vendor 7% 60% mgmt. 10% Shared functions for which a respondent chose 32% Strategic services/ to provide input Service captive sourcing/ providers procurement SSON and Everest Group jointly promoted the survey globally with Roles of service provider respondents Roles of influencer respondents email invitations, newsletters, social media, and websites 100% = 210 100% = 181 Service Other Senior Business/equity Other The survey collected over 650 delivery 8% management analyst 10% responses across enterprises (272), Solution 7% 5% 32% Technology service providers (210), and industry design 9% provider 15% influencers (181). A profile of the roles 16% of respondents is provided below Marketing 70% 28% Consultant/ Respondents were distributed across Sales and business advisor all sizes of organizations development Copyright © 2012, Everest Global, Inc. 49 EGR-2012-0-R-0666
    • Glossary of key termsTerm DefinitionBPaaS Combined technology and service delivery solution which provides business outputs (e.g., paycheck)Captive Entity in the offshore location that provide services exclusively to the parent companyCloud Services delivered to match variable volumes through a virtualized model, particularly as it relates to the underlying technology infrastructureHorizontal function Activity which tends to be similar across industries such as finance, HR, procurement, and IT infrastructureNearshore Delivery of services from a location which tends to be physically and culturally “similar” to the region receiving the services, motivated primarily by a desire to utilize easily accessible talent poolsProcess The operational flows of activities within a function. For example, within the F&A function, processes include accounts payable, accounts receivable, general ledger, management reporting, and others.Offshore Delivery of services from a location which tends to be physically and culturally “remote” from the region receiving the services, motivated primarily by a desire to access lower cost talent poolsOutsourcing Contracting with a third-party to provide a defined serviceSaaS Software as a service (SaaS) is software that is deployed over the internet and/or is deployed to run behind a firewall in the local area network or personal computerShared services Separate internal entity within the company to perform specific services across business units. Shared services can be located in onshore or offshore geographiesVertical function Activity which is notably unique to an industry. Examples include order management in hi-tech, merchandise analytics in retail, and loan and mortgage servicing in bankingFunction Business support activities which encompass multiple processes. Examples include F&A, HR, order management in hi-tech, and loan and mortgage servicing in banking Copyright © 2012, Everest Global, Inc. 50 EGR-2012-0-R-0666
    • About Everest Group and SSONEverest GroupEverest Group is an advisor to business leaders on the next generation of global services with a worldwidereputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- andmiddle-office business services. With a fact-based approach driving outcomes, Everest Group counselsorganizations with complex challenges related to the use and delivery of global services in their pursuits tobalance short-term needs with long-term goals. Through its practical consulting, original research, and industryresource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcingmodels, technologies, and management approaches. Established in 1991, Everest Group serves users ofglobal services, providers of services, country organizations, and private equity firms in six continents acrossall industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com.The Shared Services & Outsourcing NetworkThe Shared Services & Outsourcing Network (SSON) is the largest and most established community of sharedservices and outsourcing professionals worldwide, with over 60,000 members. We provide the roof underwhich key industry experts and organizations share their experience, knowledge and tools, and yourpractitioner peers connect with others all over the world, face to face, and online. SSON focuses on developingits members through providing training, tools, and networking opportunities. Our staff work from internationaloffices in New York, London, Sao Paulo, Singapore, Sydney, Johannesburg, Berlin, and Dubai to researchcurrent trends and developments in shared services Copyright © 2012, Everest Global, Inc. 51 EGR-2012-0-R-0666
    • Everest GroupLeading clients from insight to actionEverest Group locations Dallas (Headquarters): info@everestgrp.com +1-214-451-3000 New York: info@everestgrp.com +1-646-805-4000 Toronto: canada@everestgrp.com +1-416-865-2033 London: unitedkingdom@everestgrp.com +44-207-887-1483 Delhi: india@everestgrp.com +91-124-496-1000 www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com Copyright © 2012, Everest Global, Inc. 52 EGR-2012-0-R-0666