Multi-function Shared Services center - an emerging trend

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Shared services organizations are built on a foundation of reducing cost, promoting efficiencies and, ultimately, in achieving high performance. The evolution curve demonstrates that the shared services model has come a long way from the 70s when the focus was on centralizing non-core business processes to the current model of a portfolio approach based on establishing multi-shore, multi-delivery operations with best in breed solution offering. A variety of business functions are currently being outsourced/globalized with IT, F&A and HRO achieving significant maturity. In terms of locations, Indian cities (Bangalore, NCR and Pune) lead the way as the preferred destinations for most of the F&A, HRO and Inside Sales souring. Locations in Eastern Europe and Latin America offer viable alternatives.

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  • Most of the Christians,Jewish,Muslims and Hindus are not well known each of their religious faith.All the Priests,Monks,Imams and also Saints are not properly informing very important religious issues to their community people.In the options of the same people in the World are fighting with each others and the World is not attain peace and unity among all the communities.
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    The Christians and Jewish are doing valuable scientific discoveries in the world and they are suffering due to attack by muslim terrorist which is against Quran verse 22:40 as follows Those who have been expelled from their homes unjustly only because they said: 'Our Lord is Allah.' - For had it not been that Allah checks one set of people by means of another, monasteries, churches, synagogues, and mosques, wherein the Name of Allah is mentioned much would surely have been pulled down. Verily, Allah will help those who help His (Cause). Truly, Allah is All-Strong, All-Mighty.
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Multi-function Shared Services center - an emerging trend

  1. 1. Shared Services Outsourcing: Consolidated Centers of ExcellenceThis report is solely for the use of Zinnov client, Zinnov prospects and Zinnov personnel. No part of itmay be circulated, quoted, or reproduced for distribution from Zinnov LLC. Zinnov LLC Confidential
  2. 2. Scope  This report aims to share insights on an emerging trend of setting up multi-function shared service centers. The benefits and challenges of the new approach are analyzed through in- depth research.  Specifically, the report provides more information on the following key aspects  Evolution history of Shared Services with insights on suitability of various locations for globalization of F&A, HRO and Inside Sales  Information on the emerging trend of setting up multi-function shared service centers, with insights on what is driving the change and how companies are leveraging the new model  A research driven approach to establish the cost savings realized from a multi-function shared service center  An overview of the key benefits and challenges of the new approach Zinnov 2
  3. 3. Agenda Evolution of Shared Services Shared Services – A New Approach Cost Savings Model Challenges & Best Practices Zinnov 3
  4. 4. The approach to shared services outsourcing and globalization has evolved in the lastdecade Research indicates that nearly 80% of Global 2000 companies have adopted a shared services model to deliver their back-office processes Centralization Shared Services Outsourcing & Globalization Portfolio Approach (1970s) (late 1980s & 1990s) (1990s - present) (Leading) Plus or 20% -60% savings Additional 10% - 30% Cost Minus (outsourcing & 10% -15% Savings globalizing) 5% - 10% Single Standardization Best in breed Service Defined service Accountability & & increase in depending on levels, 24/7 & focus service level solution KPIs Desperate solutions Web-enabled; Consolidate ERP Cloud Computing Technology and ad-hoc Middle-ware; and data-marts Solutions solutions Standardization Service Replicated Single country with Multi-shore, Multi-shore; corporate and SBU single & multi partnering and single Multi-delivery; Delivery activities center structure global provider Multi-solution Model Fortune Done Many outsourcing Forward thinking Done 500 & exploring companies Adoption globalizationSource: Outsourcing Info, Outsourcing Blog, Shared Services Outsourcing Network (SSON), Zinnov Analysis Zinnov 4
  5. 5. Companies have been increasingly outsourcing/globalizing their support functions Maturity of Support Functions for globalization Companies such as Oracle and HIGH IBM globalize most of their HR IT* and F&A process F&A to Shared GLOBALIZATION RATE Services Centers Customer Support Human Resources Today companies are capable of globalizing processes such as ADM and Testing end-to-end Procurement Inside Sales Sales & Marketing Process such as lead generation, requirement analysis and delivery management are expected to be increasingly globalized LOW Laggards Rapidly Growing Mature MATURITYSource: Zinnov reports on globalization landscape 2007, 2008, 2009, NASSCOM Strategic review 2009 Zinnov 5 5
  6. 6. Discussion – F&AIn F&A, services with varied complexity across the BPO value chain are currently beingoutsourced/globalized to low cost locations F&A Value Chain Financial General Closing & Procure to Pay Order to Cash Treasury & Tax Planning/ Compliance Accounting Reporting Analysis Credit & Order Revenue, Expense Close Banking Planning and Requisition Material Internal Audit Management Accruals Management Operations Support Purchasing / Billing/Invoice Fixed Assets Statutory/GAAP Capital Planning Base Cost SOX Project Procurement Management Accounting Adjustments & Allocation Reporting Management Deduction/ Dispute Inventory Accounting and Cash Flow Regulatory T&E Accounting Consolidation Mgmt Accounting Reporting Analysis Compliance Invoice Data Cash Appls. & Account Trial Balance Business/Sales Control Self Risk Management Capture Collections Reconciliation Analysis Analysis Assessment Reporting & Inter Company Budgeting Management Dispute Resolution Internal Reporting Tax Accounting Reporting and Reconciliation Accounting Forecasting Analysis Financial Finance and Payment Accruals and Portfolio Analysis Statements Tax Returns Accounting Processing Reserves Analysis Strategy AP Helpdesk Journal Entries External Reporting Transfer Pricing Account Transaction Tax Reconciliation Vendor Management High Propensity to globalize Medium Propensity to globalize Low Propensity to globalizeSources: Zinnov clients’ portfolio analysis reports, Vendor RFI/RFP responses, Zinnov Shared Services Report, Zinnov Primary & Secondary Research Zinnov 6 6
  7. 7. Discussion – F&AIndian cities lead the way as preferred destinations for globalizing F&A related work Talent Attractiveness Vs Globalization Suitability – F&A HIGH Bangalore Shanghai Globalization Suitability Pune1 NCR2 Manila MEDIUM Pune1 Sao Paulo Buenos Aires Bratislava Kuala Lumpur Budapest Moscow Bucharest LOW LOW MEDIUM HIGH Market Maturity 1 Pune includes Mumbai; 2 NCR includes Delhi, Noida and GurgaonNote : Size of bubble indicates availability of talentSources: Zinnov talent pool studies 2008-2009, Zinnov Country analysis reports, Zinnov clients’ portfolio analysis reports, Vendor RFI/RFP responses Zinnov 7
  8. 8. Discussion – HROIn HRO, most process are currently being outsourced/globalized to multiple locations as aresult of matured built over the years HR Value Chain Workforce Learning, Compensation Recruiting and Strategy andAdministration Payroll Benefits Training and Global Mobility and Labor Staffing Governanceand Leave Mgt Performance Compensation Global HRIS System Payroll Defined Benefits Learning Tool General Sourcing Assignments HR Policy Management Processing Administration Administration Administration Management Employee Data Surveys and Job Defined Employee International Regulatory Management Analysis Contribution Offer Management Content and CBT Reimbursements Relocation Compliance AdministrationShort Term Leave Executive SWP (Strategic Health and Welfare Executive Training - Domestic Travel and Processing Compensation Managed Payroll Workforce Administration Sourcing Instructor Relocation Planning)Long Term Leave Rewards Temporary Garnishments Annual Performance Expatriate Tax Processing Statements Workforce Labor Relations and Liens Enrollment Planning Compliance Management Workers Union Pay Vendor Competencies and Compensation Management Cobra Management Skills Severance Background Career and Administration FSA and Claims Verification and Succession Checks Planning Safety HR Administration Support Line Time andAttendance Mgt. High Propensity to globalize Medium Propensity to globalize Low Propensity to globalize Source: Zinnov HRO Report 2007, Zinnov Shared Services Report 2008 Zinnov 8 8
  9. 9. Discussion – HROAsian cities rank higher in globalization of HRO related work; Latin American locations areexpected to mature quickly in the coming years Talent Attractiveness Vs Globalization Suitability - HRO HIGH Globalization Suitability Bangalore NCR 2 Pune 1 MEDIUM Sao Paulo Buenos Aires Sydney Manila Shanghai Cebu City Prague Krakow Bucharest LOW San Jose LOW MEDIUM HIGH Market MaturityNote : Size of bubble indicates availability of talent 1 Pune includes Mumbai; 2 NCR includes Delhi, Noida and GurgaonSources: Zinnov talent pool studies 2008-2009, Zinnov Country analysis reports, Zinnov clients’ portfolio analysis reports, Vendor RFI/RFP responses Zinnov 9
  10. 10. Discussion – Inside SalesIn Inside Sales, Lead generation and Requirement analysis sub-processes have higherpropensity to be globalized Inside Sales Value Chain Requirement Periodic Update Planning and Delivery Lead Generation Analysis and Finalize Solution and Knowledge Identification Management fulfillment Session Business Review with Identify Revenue Marketing Strategy for Follow-up with client for Coordinating with client RFI Process the customers once in Opportunities Lead generation meetings representatives three/six months Database creation of Market Research on Client Understand Customer Deal Finalization and Day to Day interactions Arrange Site Visits Prospective Clients Organization Structures Business and Needs Closure with leading vendors Lead generation Coordinate with Through E-mail or Reporting/Escalating Resource Requirements Aligning customer needs Technical team for Phone issues Implementation Liaising between Creating Awareness internal departments Target Market Identify the Right amongst the customers like Finance, Logistics, understanding Solution about the new Solutions After Sales, Technical Support, Marketing Presentation /Proof of High Propensity to globalize concept/ Demonstration Medium Propensity to globalize Low Propensity to globalizeSources: Zinnov clients’ portfolio analysis reports, Vendor RFI/RFP responses, Zinnov Shared Services Report, Zinnov Primary & Secondary Research Zinnov 10 10
  11. 11. Discussion – Inside SalesBangalore and NCR1 are most suitable for companies to undertake Inside Sales activities;locations in Eastern Europe and Latin America offer viable alternatives Talent Attractiveness Vs Globalization Suitability – Inside Sales HIGH Mexico Bangalore Singapore Globalization Suitability Krakow Warsaw NCR 1 MEDIUM Prague Budapest Beijing Moscow Manila Guangzhou Kuala Lumpur Makati City Sao Paulo LOW LOW MEDIUM HIGH Market Maturity Note : Size of bubble indicates availability of talent pool 1 NCR includes Delhi, Noida and GurgaonSources: Zinnov talent pool studies 2008-2009, Zinnov Country analysis reports, Zinnov clients’ portfolio analysis reports, Vendor RFI/RFP responses Zinnov 11
  12. 12. Agenda Evolution of Shared Services Shared Services – A New Approach Cost Savings Model Challenges & Best Practices Zinnov 12
  13. 13. An emerging trend in shared services space is that functions such as finance, HR and IT arebeginning to get combined Preference of companies to outsource/globalize support functions Preference of companies to outsource/globalize support functions Current Scenario: in Single function centers Emerging Scenario: in Multi Function centers Low High Low High F&A + M&S Procurement Inside Sales F&A + IT Procurement F&A + HR + IT Customer Support F&A+ HR + Procurement HR F&A + HR F&A IT + F&A + Procurement ITSource: 2008 Zinnov Shared Services report. This report was based on the survey results from R&D Globalization Council members on Shared Services offshoring Zinnov 13
  14. 14. Improving service, achieving standardization, and reducing cost are the top three reasonsfor setting up a multi function shared service centers Key Drivers for Establishing Shared Services Impact Level Reasons for Changing Trends Improve Services & reduce costs • The obvious benefits of shared services are cost savings. However, the growing trends Standardization of services & processes suggests the changing perception of Shared Services as strategic business units for service & operational excellence Reduce administration costs • Create job enrichment & augment skills of Support corporate strategy internal support employees and customers of the service Group similar tasks and reduce redundant • To meet the changing landscape of business, tasks companies are expanding the use of shared services for processes in more complex and Enable flexible growth knowledge-oriented areas that have traditionally been closer to business i.e. R&D, Engineering, Sales & Marketing, Simplify roll-out of technology Analytics etc Improve working capital High LowSource: Interviews with key industry stakeholders at leadership levels, SSON, Zinnov Analysis Zinnov 14 14
  15. 15. The multi function shared centers are being leveraged by companies to differentiatethemselves Who is doing it? What are the differentiating factors? How are they doing it?  Companies are evolving from stand-  Companies that are moving toward Global  Next-generation SSOs are evolving towards a alone shared service centers for Business Services differentiate themselves three-layer model. Most companies which have individual functions to integrated Global from typical companies in several key established large-volume transaction processing Business Services operations which take ways centers in low-cost labor markets are a multi-function approach a) they establish a performance culture establishing centers of excellence which act as a keyed to problem solving and primary interface to business leaders  Recent research by Shared Services & customer responsiveness Outsourcing Network, indicates that b) they move beyond service level  Companies are re-designing their internal nearly 45% of all companies surveyed agreements to truly focus on training and development programs with a focus had incorporated three or more improving customer satisfaction on cross-department/function training. functions in their shared services c) and even integrate these Multifunction shared service organizations are operations, with some incorporating as considerations into their budgeting also hiring fresh college graduates and many as five functions and investment decisions introducing them to multiple job rotating functionsCase Example Current Scenario Future Scenario: In Transition Offshored Functions Models Delivery Multi-function Business Service Center (BSC) Customer Service Co-located European BSC Geographically Location : Budapest, Hungary Procurement Captive Nearshore Functions: Finance, Customer Service and Operational dispersed Procurement Services Finance Outsourced Expected to be functional : 2009 Network of regional captive centers Strategic Plans: House about 1000 employees in 3 to handle process-oriented years activities that require language, cultural and geographic proximity BP also plans to consolidate operations and set-up a to businesses and customers BSC in Malaysia and USA (Chicago)Source: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 15
  16. 16. Agenda Evolution of Shared Services Shared Services – A New Approach Cost Savings Model Challenges & Best Practices Zinnov 16
  17. 17. Though annualized cost saving in single function centers are lower initially, post steady statemulti-function centers witness high cost savings Illustrative Pre Steady State Post Steady State Incremental Differential Average Annualized Cost Savings High Differential in Annualized Cost Savings Steady State • Single Function Centers • Multi-Function Centers have better cost have better cost advantage advantage Year 1 Year 2 Year 3 and Beyond 1 Function 2-3 Functions 3 or More FunctionsSource: Zinnov Analysis Zinnov
  18. 18. Before steady state: Annualized cost savings in multi-functional shared services centers areabout 5% lesser than single function centers Before Steady State : Annualized Average Cost Savings When Outsourcing/Globalizing Support Functions • Over 80% of the respondents • Cost savings are realized 30% interviewed indicated that the usually after 4th quarter planning horizon for achieving the of implementation set cost savings was 4-5 years Gap in Cost Savings 25% • This is due to higher costs related to initial investment and implementation Average Annual Cost Savings in % ~5% 20% - 25% Gap in Cost Savings 20% ~2% 18% - 20% 16% - 18% 15% 10% 5% 0% 1 Function 2 to 3 Functions 3 to 4 Fucntions Number of Functions Outsourced/GlobalizedSource: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 18 18
  19. 19. Post Steady State: There is an opportunity to realize an additional 15% - 20% annualizedcost savings in multi-functional shared services centers compared to single function centers Post Steady State: Annualized Average Cost Savings When Outsourcing/Globalizing Support Functions • Research indicates that most companies started with transitioning 2-3 functions • Research indicates that 60% initially and then aimed for when incremental saving after Year 2 outsourcing/globalizing 5 or more functions to Additional Cost Savings one consolidated 50% Additional Cost Savings center, cost escalates 2% - 3% due to increased initial 15% - 20% Average Annual Cost Savings in % 40% - 50% (“sunk”) investment and longer realization cycle 40% time of cost saving (usually beyond 5 years) 30% 25% - 30% 20% 10% 0% 1 Function 2 to 3 Functions 3 to 4 Fucntions Number of Functions Outsourced/GlobalizedSource: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 19 19
  20. 20. Our research indicates that the additional cost savings in multi-function centers post steadystate is the result of further optimization of business functions Management Overheads Recruitment and Training Other Costs (including Travel) Key Factors Impacting Cost Savings in Multi-Function Centers Vendor Telecom and IT Management Compliance and ContractSource: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 20 20
  21. 21. Benefits of scalability in multi-function SSO can be achieved by leveraging system platformsand management structures, optimizing workforce utilization, and increasing productivity Annualized Cost Savings Breakup When Outsourcing/Globalizing 2-3 Functions % Cost Cost Parameters Discussion Change Cost savings can be gained  Transition from one process Shared Service unit to multi- Management by optimization of process center involves upfront cost in: 8% - 10% — Process standardization & operational synergies which Overheads management support at leadership levels require higher skill base — Companies opt for strategic hiring during the migration Recruitment and training phase i.e. hiring of transaction managers/program Recruitment & needs can be better managers and function-specific heads. Research indicates Training (including 2% - 5% planned. Knowledge that during this phase, companies follow a 70:30 rule for travel) transfer can be optimized workforce optimization i.e. 30% external hiring and 70% in and well coordinated redeployment & re-skilling Since lesser number of Vendor vendors are engaged  Rise in revenue margins of about 5% - 8% is observed during 2% - 3% Management overhead costs can be transformation within a function i.e. in F&A, movement from reduced high volume, low complexity AP/AR, payment processing to complex tax accounting works increases profit margin Compliance and 1% - 2% Contract Risk Costs marginally increase due to need for enhanced  Business Continuity Plan: Use of multiple service providers, Telecom & IT 1% - 2% external as well as internal, allows companies to mitigate and IT support and infrastructure requirements spread risk. In case of multi-function SSO, BCP is impacted if the planning and implementation is not robustly built in and right Include costs related to matrix to SLA compliances is flawed. Even minute level of occupancy levels, attrition, mistake in planning can impede the transformation process and Other Costs ~3% process improvement and escalate costs business continuity etc. Total Cost Saving 15% -20%Source: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 21 21
  22. 22. Agenda Evolution of Shared Services Shared Services – A New Approach Cost Savings Model Challenges & Best Practices Zinnov 22
  23. 23. Improved efficiency and better talent management are the key benefits for companiesopting for multi-function shared centers  Support functions often need to interact with each other to deliver an end-to-end process. Placing those Improved Efficiency functions under single management in a multi-functional shared service organization (SSO) can enhance & Accuracy seamless process design and execution  Organizations also have the advantage of deploying quality processes such as six sigma across multiple functions Improved Data  Putting multiple functions in the same SSO can make it easier for a company to integrate multiple technology Integrity platforms allowing data to flow seamlessly  It also allows the company to consolidate and work on single master data set  Companies can realize synergies and economies of scale on core shared functions and supporting facilities, site Economies of Scale support and IT infrastructure requirements, and costs  Functional diversity can serve as a laboratory for innovation, readily facilitating the sharing and implementation Easier Cross-functional of effective practices across functions Improvements  Multi-functional shared service organizations can give its employees a greater variety of work opportunities by Better Talent allowing them to cross-train and rotate jobs among different functions Management  Cross-staffing can also give the organization more flexibility to scale up and down in a particular function by allowing people to be redeployed to different functions if neededSource: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 23
  24. 24. However, change management and governance are some of the top challenges faced Organizational Challenges Resistance to change is the single biggest challenge which is aggravated by the unwillingness of functional leaders to relinquish control. Resistance to change also is reflected in resistance to new reporting relationships  Influencing functional executives to look outside of their silos for synergies  Defining and managing a common design/build project across functions  Influencing functional executives to look outside of their silos for synergies Operational Challenges Initial problems associated with standardization of service delivery, management and governance HR Challenges One of the biggest challenges shared service organizations (SSO) face is providing career paths and development opportunities. Multifunctional SSO can provide adequate opportunities for job rotations Governance & Control A multi-functional SSO can also face challenges in balancing the demands of multiple functional stakeholders, and the delivery of end-to-end processes with multi-functional involvement can complicate the SSO’s service chargeback model. For all these reasons, effective governance, control, and service delivery and chargeback management are a must for a multi-functional SSO to yield the desired benefitsSource: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 24
  25. 25. Additional Information  Zinnov has conducted multiple engagement in the Shared services space and has built a strong knowledge base through comprehensive research and analysis.  To get more information on Shared Services, visit  Zinnov ‘s Global Location & Talent Pool Portal. Sign up today for a free trial account http://zinnov.com/US/demo_signup.php  Or, email us at info@zinnov.com Zinnov 25
  26. 26. Zinnov LLC 4701 Patrick Henry Dr. Building 7 Santa Clara Thank You CA – 95054 Phone: +1-408-716-8432 21, Waterway Ave, Suite 300 The Woodlands TX – 77380 Phone: +1-281-362-2773 69 "Prathiba Complex", 4th A Cross, Koramangala Ind. Layout 5th Block, Koramangala Bangalore – 560095 Phone: +91-80-41127925/6 11, First Floor, Paras Downtown Center, info@zinnov.com Golf Course Road, Sector 53, www.zinnov.com Gurgaon – 122002 Phone: +91-124-4378212 @ZinnovThis proposal is solely for the use of Zinnov Client, prospect and personnel. No Part of it may be quoted, circulated or reproduced for distribution outside the 26 Zinnovclient organization without prior written approval from Zinnov. Zinnov LLC ( Confidential) 26

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