Shared services centers and outsourcing are both hot with today’s businesses looking to cut costs and increase efficiencies as much as possible. What are the differences between the two models? This is Part I of a three-part roundtable discussion on important perspectives on these popular business models. Part I roundtable participants are Krist Davood, Group CIO of Schiavello; Joseph Soalheira, Advisory Board Member of the Shared Services & Outsourcing Network (SSON) global community; and Peter Barta, CEO of Everest Group Asia Pacific. All three are among many industry experts presenting at the upcoming 13th Annual Australasian Shared Services & Outsourcing Week.
What are the differences between internal shared services and outsourcing when it comes to change management with the end users?
Krist Davood: The outsourcing model is always viewed with suspicion with the majority of staff, as it implies a loss of knowledge to an indifferent external party. Managing this perception is the key to a successful change management process for an outsourcer. An in-source model – or shared services center – faces the challenge of implementing rigorous governance processes.
Doesn’t outsourcing also involve implementing rigorous governance and new procedures?
Peter Barta: That’s correct. Fundamentally speaking, there is no difference between the two models. This is true whether one considers the common pitfalls or the operational objectives of the change.
What are some of the pitfalls?
Barta: Ineffective change management can result in a fragmented work environment, which may lead to suboptimal resource utilization in the end-to-end processes. Also, shadow organizations may emerge, driving duplicated effort and higher costs. In both cases, these pitfalls limit the organization’s ability to capture value from the strategy.
Davood: Key Success Indicators (KSIs) rest on delivery capability and/or technical capability. Shared services’ ability to provide a “delivery function” with the appropriate level of technical expertise is critical to its value proposition. Managing change in this model involves ensuring one point of reference regarding technical expertise and delivery expertise.
The challenge is to get the right blend of governance-based rigor into place versus the need for prompt service. Change management is the key as internal users will always look to get the service via a “back door.” The better the change management process, the better the acceptance among staff.
Joseph Soalheira: Both shared services and outsourcing are strategies to change and transform the organization to ensure that end users get increased customer service at an effective price. One of the critical differences is in the asset ownership, whatever the definition of asset maybe. In shared services (or insourcing), the assets are usually owned by the organization and the focus maybe on process simplification and organizational alignment to reduce costs in a sustainable manner.
But in the pure outsourcing model, the asset is usually owned by the service provider. The end user or customer may never actually know that the service is being provided by an external party. If the outsourcing results in improved or better service delivery and the end user actually sees the savings of the process streamlining in a seamless way, than you have a win-win situation for the organization, outsource partner and end user. And if the change process and management are highly cost effective, then the outsourcing delivers maximum value to end users. This would be the result of an effective change management program that would benefit the organization and end users alike.
Barta: Transforming the organization through either of these two models involves three objectives: driving out unnecessary costs, ensuring quality of service, and ensuring appropriate controls. Managing change needs to focus on collaborative teaming by the service provider (the outsourcer or the shared services center) and the end user organization to help embed a continuous improvement ethic.
Is continuous improvement key to the value proposition in both models?
Soalheira: A continuous improvement program must go hand in hand with a change/transformation program. Outsourcing can bring clarity and streamlining of processes in a very short period of time to reduce costs while maintaining business as usual and high levels of customer service. The new service provider, particularly in a greenfield operation, has the potential to design its processes, systems and organisational structures, as per world best practice, from the outset.
You can use both Business Process Modelling (BPM) and/or Lean Six Sigma to ensure that your processes are streamlined, the players are clearly identified, you minimize touch or hand-off points, the resources used are optimised, etc. In addition, you also need a process review that is continuous and looks for innovative solution. In other words, the shared services center or the outsourcing arrangement must be strategically focused on the future while delivering better service, more service, at lower cost.
What are some of the techniques on the critical path for achieving continuous process improvement in these business models?
Davood: Current best practices stipulate that an outsourcing organization differentiate itself by offering multi-skilled staff. They are the “A Team” who are experienced across various disciplines across multiple platforms.
Barta: As I mentioned earlier, success depends on avoiding the common pitfalls and on driving the operational outcomes. The process is similar for both outsourced and shared service models, with a key prerequisite being a collaborative continuous improvement ethic on both sides of the table.
There is a range of first principles to be observed across the key process steps of planning (strategy formulation), transition, and controlling (continuous improvement).
What are some of the principles?
Barta:The first is prioritizing and sequencing improvement opportunities in the business case. Next is completing readiness assessments and remediating known issues. The parties also need to execute a comprehensive program to capture and codify knowledge and transfer it as appropriate. It’s also important to implement a management system to monitor and communicate results.
Peter Barta is CEO at Everest Group Asia Pacific. For over 20 years his extensive commercial expertise has served the strategic interests of world-leading organizations in over a dozen countries in sectors as diverse as financial services, energy, resources, manufacturing and distribution, government, transportation and telecommunications. Before Everest, he was Chief Financial Officer for EDS Australia / New Zealand, where he established and led the new business planning function as a shared service supporting 12 countries.
Krist Davood is Group CIO of Schiavello. He focuses on all parts of information technology including networks, infrastructure and applications. He brings with him over 20 years of IT experience in manufacturing, construction, utilities and telecommunications industries in Asia, Europe and Australia. He possesses strong skills in product management, delivery credentials and strategic planning.
Joseph Soalheira, Advisory Board Member, SSON, has over 12 years of leadership in shared services management including extensive experience in the design, roll-out and management of shared services initiatives in the local government and telecommunications sectors. In his current role at Brisbane City Council, in the Corporate Strategy Office, CEO’s office, he specializes in organizational and business reviews, process and efficiency improvements, and change management.
Since 1998, freelance writer Kathleen Goolsby has studied outsourcing relationships’ successes, failures, trends, and best practices. She has interviewed more than 860 executives at buyer and service provider companies and is the author of “Critical Requirements for Building and Sustaining a Successful Outsourcing Relationship,” a chapter in Global Outsourcing Strategies: An International Reference on Effective Outsourcing Relationships (December 2006, Gower Publishing). As a freelancer, she also currently serves as the Senior Writer for Outsourcing Center (whose parent company is sourcing advisory firm, Alsbridge) and has authored dozens of articles as well as white papers. In a past role, she was editor of Outsourcing Venture (a former print publication). You can contact Kathleen at ksgoolsby@gmail.com.
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