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 II of a three-part roundtable discussion on important perspectives on these popular business models. Part II roundtable participants are Krist Davood, Group CIO of Schiavello; Joseph Soalheira, Advisory Board Member of the Shared Services & Outsourcing Network (SSON) global community; Asheesh Mehra, Head of Sales, Infosys BPO Asia Pacific; and Peter Barta, CEO of Everest Group Asia Pacific. All four are among many industry experts presenting at the upcoming 13th Annual Australasian Shared Services & Outsourcing Week.
How can organizations use outsourcing “offensively” rather than defensively for a competitive advantage?
Peter Barta: In essence, “defensive” outsourcing is all about efficiency – lowering the cost of delivering value to the enterprise’s customers. On the other hand, proactive enterprises can use either outsourcing or shared services “offensively” by improving the ways in which value is delivered to customers (sometimes called Business Transformation Outsourcing) or by focusing on strategic outcomes, improving the value delivered to customers. Examples of these outcomes are the adoption of online banking to the implementation of national electronic health records.
Asheesh Mehra: Using global talent and best practices available through outsourcing enables companies to optimize their top line as well – liberating their in-house resources to move up the value chain in delivering more strategic and potentially revenue-generating services to the business. However, there is a finite supply of the best talent in low-cost locations. Organizations moving early will capture and retain the best human capital in these locations, leaving slower moving competitors to fight for the remainder.
Joseph Soalheira: There is neither “offensive” nor “defensive” outsourcing. The decision to outsource cannot just be to gain competitive advantage or take advantage of wage differentials. The decision has to be taken in the context of a vision for the organization that combines high cost-effectiveness in service delivery with optimizing the value of outcomes for all stakeholders.
How can companies optimize the value of outcomes?
Soalheira: Often, outsourcing is just the equivalent of “slash and burn strategies” to reduce costs immediately. Instead, it should be a well thought through strategy that is sustainable in the long term, combining customer relationship management with business improvement, cultural change with process alignment and streamlining, to reduce costs without jeopardizing the brand, the organization’s profile, or the customer base. The outsourcing strategy has to consider asset ownership, security of information, return on outsourcing versus internal delivery, cultural organisational change, and external customer reactions especially if it is the outsourcing and offshoring combined.
What is the best way to avoid the failed outcomes you refer to?
Soalheira: A rigorous business case must be undertaken to ensure that the business or government optimises cost-effectiveness with value of outcomes. Both models will need to deliver operational efficiencies and increased business agility. I believe that you need excellent strategic thinkers for the either model to be successful. You need innovators that are constantly looking for new ways of “delighting” the customers. Above all, you need people that are prepared to go the “extra mile” in search of excellent customer service. This is what ultimately will give the shared-services center or outsourcing provider customer retention.
Business intelligence initiatives are high on the services value chain and enjoying rapid growth these days. How can organizations evaluate whether internal shared services or an outsourcing model is the most effective strategy for supporting business intelligence objectives?
Soalheira: It all depends on what the “business intelligence objectives” really are. But evaluating which model is best for supporting an objective depends on the business case. It is a well known fact that shared services and outsourcing force organizations to acquire excellent knowledge, quantification, and understanding of their baseline; otherwise, their business cases will be highly flawed in terms of future results. To do this, they must have robust business intelligence that enables them to establish a strong business case without inflating their future savings targets.
Mehra: Outsourcing is clearly the model to use when there is a shortage of niche skill sets. Also, if management resources are time-constrained or need to focus on other areas of the business, outsourcing would be a better model than shared services. Generally, significant savings and efficiencies are associated more with an outsourced approach than a shared-services model; organizations looking for a very rapid balance sheet improvement will want to use the outsourcing model.
Davood: The onus is on the external body to differentiate themselves. The in-sourced or shared-services model will be the “underdog.” This will be challenging, as they need to differentiate themselves based on the premise that they are providing a cheaper and yet more effective solution. As financial reporting systems become more granular, it becomes more apparent when an outsourcer’s costs hit the bottom line. But this is not an “apples-to-apples” comparison, as the internal shared-services staff’s costs are captured against payroll as opposed to the outsourced vendor’s costs captured in far more granular detail.
Soalheira: Very large organizations, in particular, can have a range of different systems, processes, databases, various software versions and legacy systems, because they are much decentralized, operate in many countries/states/regions, and their back-office services are highly fragmented. This is particularly evident in government organizations where the “spider web effect” can turn them into massive bureaucracies that are incapable of establishing a “single source of truth” for their business intelligence. So, a critical goal is to kill the web of bureaucracy and establish a baseline that accurately reflects the truth on the ground.
That is why outsourcing can be very tempting but risky; in “throwing the baby away with the bath water,” you can then work in partnership with your outsourcing provider to ensure you achieve this goal very quickly. On the other hand, depending on whether the organization is private or government, it can take a very long time for this to be achieved in a shared-services center.
So neither model is particularly more compelling or effective for supporting business intelligence objectives; the choice depends on business issues that vary across the buyer organization.
Barta: That’s correct. In fact, there has been a significant incidence of hybrid adoption across industries, since both models often offer unique and compelling value in their own right. An organization’s decision-support efforts should holistically consider the sustainable value-creation potential of each model. The value-creation analyses should evaluate both the potential net benefits and also the changed risk profile associated with each mode of operating. The analyses should be structured so as to consider all sources of value from each model, namely lower cost, improved effectiveness, and strategic outcomes.
Finally, the evaluation approach should contrast each model’s outcomes against the other and also against the goals of the organization. This “dueling scenarios” approach to decision making ensures that the choices are comprehensively considered before moving forward.
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.
Asheesh Mehra is the Head of Sales, Infosys BPO, Asia Pacific. His responsibilities include consolidating market share by identifying and targeting new verticals and industry segments and leading the sales force. He has 10 years of BPO experience. Prior to Infosys, he was with WNS Global Services and established the BPO delivery center for Tata Consultancy Services.
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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