The Next Generation Shared Services through BPO

By Dennis Winkler, Director, Jim Matthews, Managing Consultant, Alsbridge

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The Next Generation Shared Services through BPO

Executives are all asking similar questions of their shared service organizations (SSO):

  • “How do I get to the next level of shared services and realize more value?”
  • “How do I change my SSO model to expand services and go global?”
  • “How do I drive continuous process improvement initiatives?”
  • “How do I deal with social media and big data?”

Depending on timelines, costs or politics, many first-generation SSO initiatives started out with a goal of centralizing business processes to meet short-term budgetary goals primarily through FTE reductions. With today’s business environment, executives are now aligning their shared services goals with overall long-term corporate goals, and the SSO’s vision is expanding to a broader strategic role in sourcing.

With the demands and opportunities of globalization, companies are developing new sourcing models with a focus on outsourcing transactional processes under control of the SSO as well as adding more value-added processes to it.

SSOs are moving to the next generation by implementing the following processes and capabilities:

New operating models – new services and new geographies

First- generation SSO operating models started as a consolidation of processes such as finance and accounting into a central location. Then many SSOs evolved to a consolidation of multiple business processes in an entrepreneurial, separate business unit, stand-alone shared services operation.

Next generation SSOs are now shifting to global integrated service delivery models with regional hubs and centers of excellence. Many multi-national companies are creating regional service centers in lower cost areas, and the majority of large corporations have more than one shared service center. There has been significant growth lately in Latin American centers (serving US and Canada), Eastern European (serving EMEA), and China and the Philippines (serving Asia Pac).

Other SSOs are blending their offerings into hybrid models (shared services and BPO) providing back-office, transactional services through BPO arrangements. The BPO provider already has established operations in the geographies that the SSO and its business units are looking to grow into. By leveraging the BPO’s existing infrastructure, the SSO can improve speed to market, avoid start-up costs and still take advantage of labor arbitrage savings.

The types of services SSOs are offering are expanding to include not only the typical transactional processes but also:

  • True end-to-end services, such as procure-to-pay
  • More cutting-edge services around big data analytics and social media
  • Customer-facing and competency-based processes, such as vendor management

Again the BPO advantage of having pre-existing infrastructures and an experienced team providing these services is causing more SSOs to leverage their service provider for these higher-end services instead of building it themselves. This is especially true when they require technology investments and specialized skills that may not be available in the local SSO market.

Continuous improvement process

The first generation of SSO typically took a project approach to implementing process improvements with the focus often on reducing specific operating costs and/or achieving a stable level of operating maturity.

To move to the next generation, SSOs must implement a continuous improvement strategy. The next generation SSO has its own in-house consulting group with Lean Six Sigma skills that is constantly analyzing the SSO business processes against benchmarks and best practices and determining the best path to achieve process optimization through standardization and process re-engineering. Successful SSOs recognize that “going live” is only the beginning—to continue to add value, they must persistently standardize, consolidate and re-engineer.

Mature SSO organizations that have a BPO relationship typically align their provider with developing and executing their continuous improvement strategy. The SSO and BPO provider teams typically work together on certain end-to-end process improvement initiatives and separately on other initiatives where each respective party owns the cost/benefit. For example, a BPO provider that has guaranteed certain on-going process improvements as part of future reduced fees may take the lead and own implementing middleware that would provide a standard data-entry screen that could then feed various client systems to enable more efficient processing of data by the provider team.

Continuous improvement departments are the driving force for not only cost-cutting process efficiencies but also operational and relationship improvements. The continuous improvement team should be focused on proactively addressing change management issues-identifying, communicating and transitioning the cultural, technology, personal and process changes that are an inherent part of the shared service and outsourcing lifecycles.

Service management

First generation shared services management focused on cost controls and basic operating metrics for the shared service center portfolio management, being a blend of resource allocation, risk assessment, and balanced scorecard analysis. The benefits of developing service management include optimizing customer service, improving customer satisfaction and reducing overall service costs.

Companies are expanding their sourcing options. As a result, their make/buy decisions are leading many SSOs to sourcing strategies that include outsourcing as an enabler of standardization and process reengineering as well as a way to drive on-going continuous improvement strategy across all functions and geographies.

In order to move to the next generation, the SSO should establish a service management framework and processes for those services associated with supporting the shared services organization. New generation SSOs are managing both the internally-provided functions and the business process outsourcing relationships of sourced functions.

The SSO must drive optimization and management of its mixed services portfolio by developing a strong governance organization, with a focus on compliance and measurement. The commitment must be to best practices and benchmarking KPIs that have a direct business impact. There should be an emphasis on innovation, not just cost and quality. A strong service management framework will allow the SSO to manage its BPO providers through a shared scorecard that rewards the BPO providers that are achieving the SSO goals and proactively manages the lower performers to raise the bar or have their workload/future opportunities erode over time.

Relationship management

The key to relationship management is building stakeholder consensus. The SSO director should continuously leverage key stakeholders to understand customer requirements. With BPO providers focused on quality of processes, the SSO is now able to work with the business units to coordinate process improvements of people, processes and technology. Too often SSOs are siloed off instead of strategically integrated with the business units.

The With the next-generation shared services, the value proposition is a shift in focus from just reduced costs toward developing the intangible assets of the enterprise. The SSO operating model must attract, retain and develop profitable customers. At the same time, the enterprise must be able to seamlessly work with other providers in order to provide faster time to market and better customer value.

The SSO director must clearly align the SSO operating model and the BPO provider to corporate goals and strategy to present the value side of the equation to the stakeholders/customers. Ongoing measurement and management of the SSO’s customer relations will drive continuous improvement as well as continuing expansion of services.

Technology innovations

Research shows that technology changes every 18 to 24 months. However, companies only change every three to five years, due to mergers and acquisition, customer demands and business or regulatory requirements. Historically, some benefits of shared services were consolidating business processes on common IT platforms and creating common languages and databases. This may have required moving to a single ERP version, cleaning up data bases (such as item, vendor and customer master files) and providing access via servers and seat licenses. With globalization, SSOs now have to deal with the need for faster innovation, heightened security issues and global business demands.

New-generation SSOs are leveraging their BPO provider to take advantage of their investment in new technology, automating processes to reduce costs and improve service levels. Many SSOs are adopting cloud-based BPO services to consolidate on common platforms, which maximize the use of hardware and software applications. They are developing global knowledge strategies in which data management is a value-added process, where the SSO can use its BPO provider platform to organize, control, update and increase company knowledge.

The next generation

More companies are seeking to focus their energies and resources on their core competencies to take advantage of strategic opportunities and needs. For those organizations that have implemented shared services, one of the next steps in the maturity level continuum is to evaluate BPO to determine how to gain further value. SSOs are in a perfect position to manage these third-party providers for their companies as they typically have already developed a strong governance organization. With an internal relationship to the customer and on-going collaboration with the stakeholders, they are able to proactively manage the mixed service portfolio and provide continuous improvement and on-going productivity savings.

Long gone are the days of SSO vs. BPO. Instead, we’re seeing BPO as one of the main enablers of today’s next-generation shared service organizations.

About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, BPO, IT Outsourcing, and Cybersecurity Managed Services. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides valuable insights and guidance to buyers and managed services executives. Contact him at [email protected].

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