PwC 10 Minutes on Creating Value Global Business Services

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Like most business leaders, you’re probably demanding more than ever from IT, human resources, and accounting. Shared services and outsourcing can help. But if you want your back office to provide …

Like most business leaders, you’re probably demanding more than ever from IT, human resources, and accounting. Shared services and outsourcing can help. But if you want your back office to provide better value — and your organization to be more efficient, flexible and innovative — a global business services model could be the answer. More info: http://www.pwc.com/us/en/10minutes/creating-value-global-business-services.jhtml

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  • 1. 10Minutes on creating value from Global Business Services December 2012 Beyond shared services and outsourcing Highlights Organizations expect shared services and outsourcing to deliver benefits beyond cost savings, like innovation and greater organizational flexibility. A Global Business Services (GBS) model helps provide these intangibles by focusing on business strategy and customer needs. Moving to GBS can be a catalyst for bridging functional silos and implementing end-to-end processes. Transforming an organization’s support services requires diligent planning, unified management, and a focus on continuous improvement. When it comes to your company’s back office, the typical reaction is to think overhead. This mindset has led operations leaders to steadfastly cut costs while continuing to deliver essential services like human resources, accounting, and IT more efficiently. One way they do this is through shared services and outsourcing—and it’s working: 95% of companies said that these delivery models were either very or somewhat effective at reducing their costs.1 But saving money simply isn’t enough anymore. Large companies, in particular, recognize that they can—and should— demand more. When asked about the most important objectives for shared services and outsourcing, they ranked increasing process efficiency, improving organizational flexibility and scalability, and supporting global growth ahead of cutting costs.2 Yet traditional approaches, outsourcing in particular, rarely deliver these additional benefits. So how do companies achieve these goals and turn the back office into a value generator? Leading organizations are adopting a Global Business Services (GBS) model, which takes an integrated, customer-focused approach to managing shared services and outsourcing and links everything back to business strategy. Why the time is right for GBS Today’s business environment continues to change rapidly—and so has the way companies think about outsourcing and shared services: 1. Educated global workforce. Countries like India that once served as a hub for low-cost workers now provide trained professionals in areas like engineering and legal services. At the same time, organizations continually look to new geographies for lower-skill operations. 2. Low-cost, high-performance enabling technology. Communications hardware and software, network connectivity, cloud computing, and enterprise software continue to improve—as do their prices. This makes it possible for companies to deliver complex business processes remotely, with workers far from home offices. 3. Economic uncertainty. Lingering economic troubles in the US and Europe mean company leaders should balance conflicting priorities of trimming costs while simultaneously seizing opportunities for growth in emerging markets. PwC and HfS Research, The Evolution of Global Business Services, 2011. 2 PwC and HfS Research, The Future of Global Business Services, 2012. 1
  • 2. At a glance What makes Global Business Services different? Traditional outsourcing and shared services Global Business Services Why do it Reduce costs and improve efficiency Improve efficiency, flexibility, scalability, innovation—and reduce costs Strategy Driven by operational excellence; provide essential services at the lowest cost Aligned with larger corporate goals and customer needs, such as global expansion, growth through M&A, the need for agility, and innovation Structure and governance Organized and managed by each function, such as HR, IT, or finance and accounting Unified governance model that manages all aspects of services, including service delivery models, change management, and performance management Business processes Focus on intra-functional processes Standardized end-to-end, interfunctional processes that have been retooled to best meet customer needs Technology Systems support individual functions and processes and are not easily integrated Simplified and standardized systems
  • 3. 01 Changing expectations demand a new approach What companies want from outsourcing and shared services has changed Change in importance of program objectives since initiated Gain access to talent and capabilities Drive cultural change Improve compliance capabilities Drive process efficiency (i.e. cycle time, quality) Align support services with global corporate strategy Transform processes (e.g. cross-functional process redesign, automation) Outsourcing and shared services have become standard practice for most businesses: Today, 9 out of 10 organizations with $3 billion or more in revenue use shared services, and 97% have outsourcing relationships.3 And nearly half of the companies in the recent PwC-HfS survey have six or more functions outsourced or in shared service centers.4 of GBS, changing their approach to delivering, managing, and measuring services. GBS operations are structured with the primary goals of serving internal and external customers, enhancing agility, and supporting the corporate strategy. Some GBS organizations even function as independent forprofit entities that offer IT, HR, tax advisory, and other services to internal clients. While companies continue to ramp up their use of outsourcing and shared services, they’ve changed very little else. And that’s the problem: They say they want much more from these programs than the cost reductions envisioned at the outset— flexibility, access to talent, cultural change, and improved compliance.5 But organizations are discovering that as they add more delivery centers or service providers, their outcomes tend to suffer due in part to the complexity that an increase in scope and scale brings. They are also challenged to deliver on goals that have not been specifically planned for and against which they are measuring performance. An important part of the GBS approach is determining the optimal locations for an organization’s service centers or which outsourcing providers to engage. For example, one $10 billion company that is active in 80 markets worldwide used a GBS strategy to consolidate its disparate accounting functions into three regional shared services centers in Latin America, Europe, and Asia. With this change, the company reduced costs for providing those services by 25% in the first year. The centralized services environment also improved the quality of work and provided enhanced controls and compliance. Catching up to the business Improve access to technology Support global growth strategy Increase scalability and flexibility of operations Reduce costs -20% 0% 20% 40% 60% 80% 100% So while the business environment has changed and companies’ requirements have evolved, many organizations remain stuck in the past, relying on fragmented outsourcing contracts and shared services centers. Instead, they should think in terms Source: HfS Research and PwC PwC and HfS Research, The Evolution of Global Business Services, 2011. PwC and HfS Research, The Future of Global Business Services, 2012. 5 Ibid. 3 4
  • 4. 02 How GBS enables business strategy GBS organizations differ from typical service delivery approaches primarily through their tight alignment with corporate strategy. Whatever a company’s business priorities, GBS becomes a lever to help support them. M&A integration. When companies undertake a merger or acquisition, it can be challenging to deliver on promised synergistic cost savings. One global agribusiness that grew through M&A suffered inefficiencies because its support services overlapped. And to position the new business to grow efficiently, it needed to deliver these services globally. To meet both goals, the company developed a GBS model for its back office operations, which established regional delivery centers and resulted in savings of $100 million per year.6 Estimated outcomes from shared services and outsourcing programs Driving innovation into services Quality Contribution to corporate business strategies Productivity/ operating efficiency Internal operating costs 0% 20% Strong positive impact (> 20%) Modest positive impact (+5 to 20%) Minimal impact (+/- 5%) Source: HfS Research and PwC 40% 60% 80% 100% Modest negative impact (-5% to -20%) Strong negative impact (> -20%) Global expansion. GBS also supports expansion into new markets. A global conglomerate active in 120 countries wanted to seize an opportunity in emerging markets. Its back office delivered quality support, but its shared service centers and outsourcing relationships couldn’t scale rapidly into new geographies. The organization adopted leading GBS practices in strategy, governance, and business processes. Efficient business processes and centralized management allowed the conglomerate to more quickly scale operations where it needed them. Subsequently, it was able to rapidly capture emerging market opportunities.7 6 7 PwC and HfS Research, The Evolution of Global Business Services, 2011. PwC and HfS Research, The Three Tenets of Global Business Services Execution, 2011. Improved business processes. Because GBS looks at customer and business needs first, it often brings with it a change in an organization’s business processes. And this, in turn, improves efficiency and client service quality. A multibillion dollar global card payment company that we worked with discovered this when it adopted GBS and developed a customer service operation that emphasized easyto-use digital platforms. This new customer service operation increased revenues by over 10% a year while saving almost 10% in costs. New product and service offerings. Sometimes GBS turns out to be so successful it generates new revenue streams for a company by taking internal services and adapting them to meet a market need. One manufacturing company’s logistics group ensured timely delivery of the company’s products and parts to its facilities, rental outlets, and retail distributors in its supply chain. The company created a subsidiary to offer similar services to external clients, which was ultimately spun off as an independent company.
  • 5. 03 If it ain’t broke, why fix it? If the case for GBS is so compelling, why haven’t more organizations implemented GBS models to transform their business services—and their entire organizations? The most obvious reason is that traditional shared services and outsourcing have saved and still save money, although those cost savings may plateau over time. The savings achieved might seem “good enough,” so business unit leaders may resist uncomfortable changes. The gaps between expectation and performance Governance process execution compared to its importance to organization Transition management Performance management Innovation or process reengineering Streamlined business processes Alignment with corporate strategies Service provider selection Contract negotiation Defining scope Service provider invoice management Business case management Demand management and forecasting Change management 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Execution Source: HfS Research and PwC One way to avoid this resistance is to have senior leadership visibly drive the GBS initiative. With this approach, business unit leaders can make their decision on the basis of real business value and enablement of the corporate strategy. This not only assuages management concerns, it also provides real incentives for the GBS organization to deliver on its goals. Importance A transition to a GBS model requires an organization to rethink its business processes and consider how it can more effectively meet customer and business needs by working across functional and business unit silos. That’s often much harder than it sounds. Some companies find they need outside help to evaluate the opportunities and necessary changes objectively or to learn about leading GBS practices in their industry. For example, operations leaders would need to reimagine an order-to-payment process handled by a single group, rather than passing through many uncoordinated hands in accounting and logistics. A single team and singular approach GBS management crosses the boundaries of traditional functions, regions, and business units. Centralized governance teams that oversee all aspects of a company’s services—business case development, contract negotiation, demand management and forecasting, change management, and more—create the best outcomes in terms of productivity, innovation, and cost savings.8 And the work continues: Managing a GBS group isn’t as simple as drawing up a new organizational chart. Company leaders should create a culture of continuous improvement. After the transition to a GBS organization is complete, it is this culture that drives the GBS unit to deliver the highest quality and most efficient business processes.9 Our survey found that companies that manage their GBS organization diligently and consistently after the transition continue to achieve superior results, especially quality of services, productivity, and innovation.10 PwC and HfS Research, The Future of Global Business Services, 2012. PwC and HfS Research, The Three Tenets of Global Business Services Execution, 2011. 10 PwC and HfS Research, The Future of Global Business Services, 2012. 8 9
  • 6. 04 Becoming a Global Business Services organization Operations leaders who want to seize these benefits for their organizations understand that a transformation to GBS is not simple. It affects many functions, business units, and processes. Here’s where they’ll need to focus the organization: Start with business goals In GBS, everything starts with shared goals. For example, instead of thinking in terms of functionally siloed requirements like build a new data warehouse, the organization begins by asking why? Through discussions with stakeholders, including business unit leaders, the company would determine that the real goal of gathering and analyzing data across functions is to achieve a better understanding of supplier and customer needs and service. Collaboratively, the organization can determine the best solutions to meet that goal. Aligning the services strategy with business strategy improves outcomes across the organization Shared services and outsourcing estimated impact Strong positive impact (> 20%) Modest positive impact (+5 to 20%) Have a clear vision Minimal impact (+/- 5%) Modest negative impact (- 5% to -20%) Operating costs Aligned Source: HfS Research and PwC Productivity Unaligned Business strategy Quality Innovation You have to know how your GBS organization can create value for your company before it can begin to do so. Economies of scale can create real savings, whether by aggregating purchases of goods or services or by standardizing business processes. Leveraging specialized skills can also create value. When specialized workers—such as legal or tax compliance teams—collaborate, they can improve their strategies and share their skills with a greater range of internal clients. Focus on customers and solutions Instead of being organized by function, GBS is oriented around customer needs, often spanning multiple functions. Serving customers and managing more comprehensive services requires both a different mindset and skillset than in a traditional global sourcing approach. Recognizing this, one large media company changed the title and job requirements for a GBS position from IT manager to MBA business manager. Those in the redefined role solved customers’ problems more effectively than when handled by prior IT staff.11 Re-examine business processes When many companies outsource operations, they “lift and shift” business processes. That is to say, they transition a process “as is” to an internal service center or an outsourcing partner. However, when the initiative stops there, such transfers usually yield mostly cost savings, leaving other objectives on the table. Manage the change Measuring how well services deliver on business goals and sharing that insight with internal and external stakeholders are crucial. Our survey revealed that companies that manage performance achieve superior results in cost savings, productivity, quality, and innovation.12 And that’s really the goal of a GBS model: delivering strategic benefits by managing the back office as rigorously as any business division. PwC and HfS Research, The Three Tenets of Global Business Services Execution, 2011. 12 PwC and HfS Research, The Future of Global Business Services, 2012. 11
  • 7. Upcoming 10Minutes topics Toward a more flexible supply chain Cybersecurity realities Volatility has become a fact of life in today’s business landscape. Yet, after years of global expansion, many companies’ supply chains are brittle, unable to respond to frequent fluctuations in demand and supply. This 10Minutes explores strategies companies can deploy to make their supply chains more agile and adaptable. Nearly 80% of large US businesses suffered a known security breach in the past year, risking company growth, competitive positioning, shareholder value, even national security. With so much on the line, company leaders must begin thinking and acting differently when it comes to security. A company that thinks like its adversaries—looking at its unique business ecosystem and identifying its most crucial assets—should have a distinct advantage over those that do not. Industry series: The customer-centric utility After a century in which their operating model changed little, regulated utilities now face empowered customers, the evolving smart grid, and deregulation. An emerging customer-centric model dictates that customers view their utilities as service providers rather than solely distributors of electricity, gas, or water. This 10Minutes explores what utility companies should consider when reshaping themselves around the customer. The boardroom agenda Significant changes in corporate governance are impacting boardroom dynamics, compelling directors to spend more time on board work and prompting them to reconsider their oversight approach. Directors expect to increase their focus on critical areas including board composition, risk management, strategy, and IT oversight. This 10Minutes explores how directors are working to overcome challenges and improve their oversight roles.
  • 8. How PwC can help To have a deeper discussion about business services transformation, please contact: Charles Aird Global Leader, Shared Services & Outsourcing Advisory practice PwC 732 598 7600 charles.l.aird@us.pwc.com 10Minutes are now available in 60 seconds. Download the FREE 10Minutes app. Learn more through videos, interactive graphics, slideshows, and podcasts. Tom Torlone US Leader, Shared Services & Outsourcing Advisory practice PwC 408 534 2414 thomas.torlone@us.pwc.com Derek Sappenfield Director, Shared Services & Outsourcing Advisory practice PwC 703 918 6218 derek.sappenfield@us.pwc.com Is your organization using Global Business Services? We’d like to hear more about the benefits you have realized and the challenges you face. Just send an email to: 10Minutes@us.pwc.com. © 2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. 10Minutes® is a trademark of PwC US. PwC US helps organizations and individuals create the value they’re looking for. We’re a member of the PwC network of firms with 180,000 people in 158 countries. We’re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/us. LA-13-0120