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.

1. Shared Services Outsourcing:
Consolidated Centers of Excellence
This report is solely for the use of Zinnov client, Zinnov prospects and Zinnov personnel. No part of it
may be circulated, quoted, or reproduced for distribution from Zinnov LLC.
Zinnov LLC Confidential

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. Agenda
Evolution of Shared Services
Shared Services – A New Approach
Cost Savings Model
Challenges & Best Practices
Zinnov 3

4. The approach to shared services outsourcing and globalization has evolved in the last
decade
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 globalization
Source: Outsourcing Info, Outsourcing Blog, Shared Services Outsourcing Network (SSON), Zinnov Analysis Zinnov 4

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
MATURITY
Source: Zinnov reports on globalization landscape 2007, 2008, 2009, NASSCOM Strategic review 2009 Zinnov 5
5

6. Discussion – F&A
In F&A, services with varied complexity across the BPO value chain are currently being
outsourced/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 globalize
Sources: Zinnov clients’ portfolio analysis reports, Vendor RFI/RFP responses, Zinnov Shared Services Report, Zinnov Primary & Secondary Research Zinnov 6
6

7. Discussion – F&A
Indian 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 Gurgaon
Note : Size of bubble indicates availability of talent
Sources: Zinnov talent pool studies 2008-2009, Zinnov Country analysis reports, Zinnov clients’ portfolio analysis reports, Vendor RFI/RFP responses Zinnov 7

8. Discussion – HRO
In HRO, most process are currently being outsourced/globalized to multiple locations as a
result of matured built over the years
HR Value Chain
Workforce Learning,
Compensation Recruiting and Strategy and
Administration Payroll Benefits Training and Global Mobility
and Labor Staffing Governance
and 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
Administration
Short 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 and
Attendance 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. Discussion – HRO
Asian cities rank higher in globalization of HRO related work; Latin American locations are
expected 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 Maturity
Note : Size of bubble indicates availability of talent 1 Pune includes Mumbai; 2 NCR includes Delhi, Noida and Gurgaon
Sources: Zinnov talent pool studies 2008-2009, Zinnov Country analysis reports, Zinnov clients’ portfolio analysis reports, Vendor RFI/RFP responses Zinnov 9

10. Discussion – Inside Sales
In Inside Sales, Lead generation and Requirement analysis sub-processes have higher
propensity 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 globalize
Sources: Zinnov clients’ portfolio analysis reports, Vendor RFI/RFP responses, Zinnov Shared Services Report, Zinnov Primary & Secondary Research Zinnov 10
10

11. Discussion – Inside Sales
Bangalore 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 Gurgaon
Sources: Zinnov talent pool studies 2008-2009, Zinnov Country analysis reports, Zinnov clients’ portfolio analysis reports, Vendor RFI/RFP responses Zinnov 11

12. Agenda
Evolution of Shared Services
Shared Services – A New Approach
Cost Savings Model
Challenges & Best Practices
Zinnov 12

13. An emerging trend in shared services space is that functions such as finance, HR and IT are
beginning 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
IT
Source: 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. Improving service, achieving standardization, and reducing cost are the top three reasons
for 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 Low
Source: Interviews with key industry stakeholders at leadership levels, SSON, Zinnov Analysis Zinnov 14
14

15. The multi function shared centers are being leveraged by companies to differentiate
themselves
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
functions
Case 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. Agenda
Evolution of Shared Services
Shared Services – A New Approach
Cost Savings Model
Challenges & Best Practices
Zinnov 16

17. Though annualized cost saving in single function centers are lower initially, post steady state
multi-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 Functions
Source: Zinnov Analysis Zinnov

18. Before steady state: Annualized cost savings in multi-functional shared services centers are
about 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/Globalized
Source: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 18
18

19. Post Steady State: There is an opportunity to realize an additional 15% - 20% annualized
cost 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/Globalized
Source: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 19
19

20. Our research indicates that the additional cost savings in multi-function centers post steady
state 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
Contract
Source: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 20
20

21. Benefits of scalability in multi-function SSO can be achieved by leveraging system platforms
and 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. Agenda
Evolution of Shared Services
Shared Services – A New Approach
Cost Savings Model
Challenges & Best Practices
Zinnov 22

23. Improved efficiency and better talent management are the key benefits for companies
opting 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 needed
Source: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 23

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 benefits
Source: Interviews with key industry stakeholders at leadership levels, Outsourcing Blog, Outsourcing Info, SSON, Zinnov Analysis Zinnov 24

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

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