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Everest Group and the Shared Services & Outsourcing Network (SSON) conducted the first-ever survey focused on vertical industry strategies in shared services and outsourcing. The survey covered 28 vertical industries, 8 horizontal functions, and 164 vertical functions. It addressed a wide range of topics from scope to improvement initiatives to sourcing models to technology strategies.
Citation preview
Report: March 2012
A joint study by Shared Services & Outsourcing Network (SSON) and Everest Group
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
Summary Report Vertical Industry Strategies for Shared Services and Outsourcing Survey
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Introduction and background
Much of the growth in shared services and outsourcing has been oriented along traditional horizontal functions such as finance & accounting, human resources, and IT. However, with increasing maturation and innovation in strategies, differences across industries are emerging, additionally, vertical functions unique to an industry are increasingly playing an important role
In order to better understand these trends, Everest Group and the Shared Services & Outsourcing Network (SSON) conducted the first-ever survey focused on vertical industry strategies in shared services and outsourcing
The survey covered 28 vertical industries, 8 horizontal functions, and 164 vertical functions. It addressed a wide range of topics including scope, improvement initiatives, sourcing models, and technology strategies
This report summarizes the findings from over 650 responses across enterprises, service providers, and industry influencers
How to learn more Visit the websites of SSON and Everest Group for
more information, including fact sheets with results for specific industries
Results from the survey will be featured at Shared Services & Outsourcing Week (SSOW) events around the world in 2012
China Shanghai 23-25 October 2012 Germany Berlin 20-23 November 2012 India Gurgaon 04-06 December 2012
Australasia Melbourne 16-19 April 2012 Europe Amsterdam 14-16 May 2012 Asia Singapore 04-06 September 2012
www.ssonetwork.com research.everestgrp.com/VISSSO-survey
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Table of contents (page 1 of 2)
Section I. Executive summary 5 Executive summary 6 Snapshot of key analyses 7 How to interpret this report 8 Section II. Overview of shared services and outsourcing strategies 9 Summary 10 Success, maturity, and focus on cost 11 Centralization and sourcing model 13 Improvement initiatives, ability to change, and SaaS 17 Section III: State of traditional horizontal functions 20 Summary 21 Scope 22 Delivery model, offshoring, and technology 23 Section IV: Variations by industry 26 Summary 27 Scale and sourcing model adoption 28 Horizontal and vertical function adoption 30 Improvement initiatives for vertical functions 34
Topic Page no.
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Table of contents (page 2 of 2)
Section V. Different approaches used by mature organizations 35 Summary 36 Profile of mature organizations 37 Improvement initiatives 40 Scope of F&A 41 Section VI. Perspectives of service providers and influencers 42 Summary 43 Service provider industry focus and growth 44 Sourcing model trends 45 Alignment of investments to improvement initiatives 46 SaaS/cloud adoption expectations 47 Influencer views on service provider gaps 48 Appendix About the survey 49 Glossary of key terms 50
Topic Page no.
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Outline
Executive summary
Overview of shared services and outsourcing strategies
State of traditional horizontal functions
Variations by industry
Different approaches used by mature organizations
Perspectives of service providers and influencers
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Executive summary
With the increasing maturation of shared services and outsourcing, many organizations report that their programs are successful and able to consistently meet financial objectives
However, far fewer organizations consider themselves to be mature in comparison to their peers and most are still primarily focused on process improvement over other sources of value
Further, most shared services and outsourcing groups are more oriented towards traditional horizontal functions such as F&A and HR rather than vertical functions, which are closer to the core business activities
In order to deliver the required results, organizations primarily favor a shared services model. Many organizations also state a bias for a “best-fit” sourcing model, but this is not demonstrated in reality
Finally, although many respondents indicate technology is a key initiative, they are generally not yet convinced that it is appropriate to adopt SaaS/cloud technology models
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Snapshot of key analyses
Financial and value management Percent of respondents agreeing with statement
Representation of horizontal and vertical functions Average number of functions included
Shared services and outsourcing adoption by industry Relative focus of respondents by maturity level Percent of respondents
62
76
87
Cost reduction is the most important objective
Consistently meet financial objectives
Business cases include value beyond cost savings
3.4
3.3
2.1
1.2
Services industries
Product industries
Horizontal functions
Vertical functions
48
31
Collaboration with business users
Successfully implement change
57
12 Less mature
Mature
1.5
2
2.5
3
3.5
1.5 2 2.5 3 3.5 4 4.5 5Extent of shared services
Exte
nt o
f thi
rd-p
arty
out
sour
cing
Above average adoption of shared
services and outsourcing
Below average adoption of shared services and outsourcing
Below average adoption of shared services and above average for outsourcing
Above average adoption of
shared services and below
average for outsourcing
Average outsourcing adoption
Average shared services adoption
Capital markets
Oil & gas
Hi-tech
AutomotiveGovernment
Freight & logistics
Industrial products
CPG
Healthcare payers
Travel & transportation
Media & entertainment
Insurance
Chemicals
Retail
Banking
Utilities
TelecomEngineering &
construction
Information services
Life sciences
Healthcare providers
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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How to interpret this report Key definitions and visual conventions
Key definitions Improvement initiatives: Questions about seven
improvement initiatives were asked for each function (horizontal and vertical functions), and also asked about in aggregate. These seven include the following: – Increase consolidation/centralization – Reengineer/standardize processes – Implement new tools and technologies – Leverage analytics and business intelligence – Increase collaboration with business users – Increase level of offshoring/nearshoring – Deepen talent pool/expertise
Functions: Business support activities which encompass multiple processes
Horizontal functions: Activities which tend to be similar across industries such as finance, HR, and IT. Eight horizontal functions were covered in the survey
Vertical functions: Activities which are different by industry. Examples include order management in hi-tech, merchandise analytics in retail, and loan and mortgage servicing in banking. The survey covered 164 vertical functions
Visual conventions Many questions in the survey were asked in terms of the extent to which a respondent agreed or disagreed with a statement. Respondents were given seven options to select from and these are shown on charts in this report using the color scheme provided below
In order to draw attention to the most important data and summarize key insights, the report uses the standards provided below
Strongly disagree Disagree
Somewhat disagree Neutral
Somewhat agree Agree
Strongly agree
Notable data findings Additional insights
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Outline
Executive summary
Overview of shared services and outsourcing strategies
State of traditional horizontal functions
Variations by industry
Different approaches used by mature organizations
Perspectives of service providers and influencers
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Summary of key messages Overview of shared services and outsourcing strategies
Respondents from enterprises report a high degree of success with their shared services and outsourcing efforts, although only a quarter consider themselves mature in comparison to their peers. Further, respondents demonstrate a clear focus on meeting financial objectives while also pursuing sources of value beyond cost savings
IT horizontal services are the most centralized, with vertical functions being the least centralized. Shared services is the preferred sourcing model with “best-fit” as a strong second, although much less commonly adopted when looking in detail at functional approaches
Moving forward, respondents indicate: – The greatest focus on process-centric improvement initiatives and lesser priority being placed on
analytics and offshoring – In order to accomplish these improvements, respondents see their leadership as being effective in
supporting initiatives, but less confident in their effectiveness in executing change efforts – SaaS/cloud technologies vary widely in adoption and many are undecided to slightly biased towards
increased adoption
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Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Although over 60% of the enterprise respondents consider their efforts to be successful, only 26% feel confident that they are mature in comparison to their peers
Level of agreement with statement Percent of enterprise respondents
1
6
5
12
18
10
17
13
20
17
11
19
20
26
33
24
15
13
9
11
Strongly disagree Disagree
Somewhat disagree Neutral
Somewhat agree Agree
Strongly agree
Our shared services and/or outsourcing program is generally
considered to be a success
In comparison to other organizations, we are mature users of shared
services and outsourcing
In comparison to other organizations, our strategy for shared services and
outsourcing is clear and well-conceived
Larger organizations demonstrated a tendency to perceive themselves as successful and mature in comparison to peers
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Three-quarters of enterprises meet their financial objectives. Surprisingly, almost 90% respondents reported including sources of value other than cost in their business cases
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Level of agreement with statement Percent of enterprise respondents
1
2
1
1
3
6
1
3
6
16
3
8
14
14
8
17
20
30
23
29
34
22
45
33
22
10
19
9
Strongly disagree Disagree
Somewhat disagree Neutral
Somewhat agree Agree
Strongly agree
We consistently meet our financial objectives
We regularly refine our objectives to target new sources of value
Cost reduction is the most important objective for our shared services
and/or outsourcing strategy
In addition to cost savings, we consider other sources of value in our
business cases
The comparatively low portion of respondents who indicated cost reduction as the most important objective suggests that increasing maturity has led to broader value propositions
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15%
9%
4%
10%
5%
39%
30%
19%
31%
32%
23%
28%
32%
27%
40%
23%
33%
45%
32%
23%
Vertical functions
Horizontal F&A, HR, procurement
Aggregate across functions
Not centralized
Somewhat centralized
Mostly centralized
Percentage of enterprise responses
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Centralized
Horizontal IT functions
Overall philosophy
Break-out of functional answers
Sentiment independent of function
Aggregate of over 1,000 functional answers
IT functions are the most centralized at 77%, comparatively almost half of the vertical functions are centralized – which is not far from the overall philosophy of organizations
Within the vertical functions, product-oriented industries were twice as likely to have decentralized delivery as services industries
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Most organizations prefer shared services, with “best-fit” in a strong second position – and both expected to grow
Roughly 80% of the respondents expect to grow their use of shared services and/or outsourcing. Only one percent expect to reduce the efforts, with 19% anticipating no change
Enterprise sourcing model preference Percentage of enterprise responses
Future sourcing model trend Percentage of enterprise responses
7%
47%
7%
39%
Retain in business
Prefer shared services
Prefer third-party outsourcing
Best-fit (either shared services or outsourcing based upon
situation)
45%
12%
23%
19% Increase shared services
Increase third-party outsourcing
Increase both third-party
outsourcing and shared services
No change
Reduce shared services and outsourcing (1%)
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Although respondents from shared services organizations most heavily favored shared services, all respondents indicated a similar preference for “best-fit” sourcing
Percentage of enterprise responses
7% 6% 8%
47% 56%
33%
7% 18%
39% 38% 41%
All respondents Respondents in shared services/captives
Others
Best fit
Prefer internal shared services/captives
Prefer third-party outsourcing
Retain in business
Although a high portion of respondents in the “Others” category have responsibility for vendor management and other outsourcing roles, less than 20% indicate that outsourcing is the preferred sourcing model
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Only IT functions which are much more centralized come close to matching the overall sourcing model philosophy
Percentage of enterprise responses
“Best-fit” sourcing philosophy is common, but seldom matches reality – and being adopted less than half as often as the overall philosophy suggests
7% 17% 15%
24% 9%
47%
57% 65% 55%
47%
7%
6% 7%
14%
39%
18% 14% 14% 30%
Overall philosphy Aggregate of functional answers
F&A, HR, procurement horizontals
Vertical functions IT infrastructure & applications horizontals
Retain in business
Prefer shared services
Best fit
Prefer outsourcing
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Process-centric improvement initiatives are rated as highest priority
78
53
50
38
28
19
13
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Reengineer/standardize process
Increase consolidation/ centralization
Implement new tools and technologies
Increase collaboration with business users
Leverage analytics and business intelligence
Increase offshoring/nearshoring
Deepen talent pool/expertise
Process-centric levers for improving
Percentage of enterprise responses rating as a top 3 priority
Consistent with other areas of the survey, offshoring received modest focus as being an important lever for capturing more value
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Most organizations believe that their leadership is effective in supporting initiatives, but only a quarter of them express confidence in their effectiveness in executing change
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Level of agreement with statement Percent of enterprise respondents
2
3
6
6
14
18
12
15
25
31
28
21
13
6
Strongly disagree Disagree
Somewhat disagree Neutral
Somewhat agree Agree
Strongly agree
We are effective in executing our change management plans
Our senior management is effective in supporting shared services and/or
outsourcing initiatives
Confidence in ability to effectively execute change varies significantly by maturity (see later section for more details)
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Current use of SaaS/cloud technologies is broadly distributed and neutral on future plans, with a slight bias towards increased adoption
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Level of agreement with statement Percent of enterprise respondents
16
11
20
8
7
4
23
38
15
19
17
17
2
3
Strongly disagree Disagree
Somewhat disagree Neutral
Somewhat agree Agree
Strongly agree
We plan to significantly increase the use of SaaS/cloud technologies
We are currently using SaaS/cloud technologies for some functions
The hi-tech and travel & transport industries indicate a greater interest in these new technology models, in contrast to more regulated or information-sensitive industries (e.g., banking, healthcare)
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Outline
Executive summary
Overview of shared services and outsourcing strategies
State of traditional horizontal functions
Variations by industry
Different approaches used by mature organizations
Perspectives of service providers and influencers
Copyright © 2012, Everest Global, Inc. EGR-2012-0-R-0666
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Summary of key messages State of traditional horizontal functions
The survey included a deep-dive into the traditional horizontal functions of F&A, HR, and procurement
Although judgment-intensive processes are less commonly included, the representation is generally a third-to-half of the respondents
Additionally, respondents indicated a strong bias for pursuing new sources of value through changes in delivery model such as end-to-end approach in F&A, core spend in procurement, and self service and mobility in HR
By contrast, respondents were more mixed in their use of offshoring and nearshoring, with a wide distribution of approaches
Similar to overall adoption of new technologies, respondents are often undecided on the role of SaaS/BPaaS in their F&A, HR, and procurement strategies – with HR demonstrating a greater openness to new technologies
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Across horizontal functions, adoption of transaction-intensive processes outpaces judgment-intensive processes
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Two-thirds of the enterprise survey respondents included F&A, whereas only half the respondents included HR and procurement. IT infrastructure, IT applications, and contact center were included by nearly 33%, while knowledge services was included by only 20% of the respondents
Inclusion of processes in horizontal functions Percentage of enterprise respondents answering for function
93
82
82
74
50
53
47
35
33
30
Accounts payable
Account receivable
General ledger
Fixed assets
Tax
Management reporting
Regulatory
Budgeting
Treasury/risk
Internal audit
F&A
66
63
63
53
56
52
50
38
Procurement
86
81
76
61
49
45
43
38
38
34
Human resources
Employee data
Payroll
Benefits admin
Recruitment
Learning
Compensation
Performance management
Mobility
Regulatory
Employee relations
Day-to-day purchasing
Accounts payable
Vendor management
Catalog management
Spend analytics
Strategic sourcing
Compliance
Category management
Transaction-intensive Judgment-intensive
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Enterprises are pulling advanced value levers to further optimize horizontal functions
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Level of agreement with statement Percent of enterprise respondents
4
5
12
19
4
15
10
2
12
16
4
26
19
31
19
23
35
12
8
24
Strongly disagree Disagree
Somewhat disagree Neutral
Somewhat agree Agree
Strongly agree
F&A Approach to F&A shared services and
outsourcing is end-to-end process driven (Order-to-Cash, Procure-to-Pay, Record-to-
Report) as opposed to function driven
HR A key focus for our HR services is to increase
self-service and mobility
Procurement Beyond indirect or non-core spend, direct spend
(or core spend) is increasingly managed by our procurement shared services and/or outsourcing
The most common improvement initiatives for capturing more value (e.g., centralization/consolidation, standardization/reengineering, offshoring/nearshoring, tools and technologies) are also pursued more frequently in horizontal functions than vertical functions
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A quarter of enterprises utilize offshoring as a key component of service delivery for horizontal functions. However, a slightly greater portion indicate the opposite
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Level of agreement with statement Percent of enterprise respondents
13
13
12
17
16
25
9
10
6
21
23
22
12
14
11
22
21
19
6
3
5
Strongly disagree Disagree
Somewhat disagree Neutral
Somewhat agree Agree
Strongly agree
F&A
HR
Procurement
Among all 28 industries analyzed, respondents from government, utilities, and healthcare providers had the lowest level of offshoring while banking, insurance, and life sciences had the highest level of offshoring
Offshore and nearshore delivery is a key
component of service delivery strategy
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Similar to overall views on SaaS/cloud, many organizations are undecided on newer technologies even in horizontal functions
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Level of agreement with statement Percent of enterprise respondents
18
15
10
23
16
20
7
9
4
35
41
38
10
9
15
7
10
9 4
Strongly disagree Disagree
Somewhat disagree Neutral
Somewhat agree Agree
Strongly agree
F&A
HR
Procurement
HR is the function most open to new technologies, which is also reflected in market offerings
Our technology strategy for involves significant
leverage of Saas/BPaaS based solutions
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Outline
Executive summary
Overview of shared services and outsourcing strategies
State of traditional horizontal functions
Variations by industry
Different approaches used by mature organizations
Perspectives of service providers and influencers
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Summary of key messages Variations by industry
Looking at the responses across industries, several key themes emerge regarding scale, the level of adoption, and approaches
Retail & hospitality, financial services, and healthcare segments report the largest shared services and outsourcing programs. In all industries, the relative level of adoption of shared services is higher than outsourcing
Services-oriented industries, such as financial services, transportation & logistics, and retail & hospitality, include more vertical functions in their scope than product-centric industries such as manufacturing and energy. In all industries, judgment-intensive processes in F&A are less likely to be included in the scope
The range of vertical functions represented is very broad, tending to mostly reflect customer-related transactional activities and supply chain-related activities. This is further reflected in the types of improvement initiatives being pursued for various vertical functions
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Healthcare, BFSI, and retail have the largest scale of shared services and outsourcing
Overall scale of shared services and outsourcing Percent of enterprise respondents
73%
66%
69%
45%
50%
29%
32%
41%
13%
10%
18%
21%
24%
22%
14%
7%
12%
19%
11%
7%
6%
11%
14%
5%
7%
12%
5%
7%
7%
13%
18%
21%
29%
30%
32%
Public sector
Manufacturing
Transportation & logistics
Technology & communications
Energy & resources
Retail & hospitality
BFSI
Healthcare
Government, non-profit / NGO, education
Aerospace and defense, automotive, chemicals, consumer packaged goods, consumer durables, industrial products, and engineering & construction
Travel and transportation, freight & logistics
Telecom, hi-tech, and information services
Oil and gas, metals & mining, agriculture, and utilities
Retail, hospitality & tourism
Banking, capital markets, and insurance
Life sciences, Healthcare payers, Healthcare providers
Less than 500 FTEs
500-1,000 FTEs
1,000-2,500 FTEs
2,500-5,000 FTEs
More than 5,000 FTEs
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
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1.5
2
2.5
3
3.5
1.5 2 2.5 3 3.5 4 4.5 5
The extent of shared services and third-party outsourcing varies by industry
Extent of shared services and outsourcing adoption by industry Average score on a five point scale for all responses per industry
More than three-quarters of industries report adoption of shared services greater than the mid-point and only two industries report greater adoption of outsourcing than shared services
Extent of shared services
Exte
nt o
f thi
rd-p
arty
out
sour
cing
Above average adoption of shared
services and outsourcing
Below average adoption of shared services and outsourcing
Below average adoption of shared services and above average for outsourcing
Above average adoption of
shared services and below
average for outsourcing
Average outsourcing adoption
Average shared services adoption
Capital markets
Oil & gas
Hi-tech
Automotive Government
Freight & logistics
Industrial products
CPG
Healthcare payers
Travel & transportation
Media & entertainment
Insurance
Chemicals
Retail
Banking
Utilities
Telecom Engineering &
construction
Information services
Life sciences
Healthcare providers
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Services industries have a higher representation of vertical functions
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Average number of functions
3.6
3.2
3.7
3.0
3.1
3.6
2.6
4.3
2.3
2.3
1.9
1.4
1.4
1.1
1.1
1.0
Banking, capital markets, & insurance
Retail & hospitality
Healthcare payers & providers
Technology & communications
Energy & resources
Manufacturing
Public sector
Transportation & logistics
Services industries have more robust mid-offices – which tie more closely to external customer service activities with linkages to financial processes such as billing and account set-up and management
Average = 1.6 Average = 3.3
Vertical functions Horizontal functions
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Similar to the overall view, adoption of transaction-intensive processes outpaces judgment-intensive inclusion across all industries
Inclusion of F&A processes Percentage of enterprise respondents
Industries that consider F&A to be vertical-specific are less likely to include F&A in shared services and outsourcing initiatives. For example, nearly 30% of the BFSI respondents consider F&A to be industry-specific – highest across all industries. Consequently, BFSI has a relatively lower degree of F&A inclusion in shared services and outsourcing
Judgment-intensive F&A processes
Transaction-intensive F&A processes
41%
30%
46% 39% 39% 39% 42%
33%
65% 66% 70% 73% 75%
84% 85% 93%
BFSI Transportation and logistics
Public sector Retail and hospitality
Technology & communications
Manufacturing Healthcare Energy and resources
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Industry Average number of vertical functions Key vertical-specific functions
Automotive Master data, customer data, vendor data management; asset and inventory management support
Banking Retail banking account open/closure and servicing; loans & mortgage servicing; cards servicing and statement processing; transaction processing
Capital markets Application processing, account servicing; investment operations, order management
Chemicals Master data, customer data, vendor data management
Consumer packaged goods
Master data, customer data, vendor data management; order processing and fulfillment
Education Eligibility and registration
Engineering and construction
Document and record management
Freight and logistics Document processing; billing
Government Records management; application processing
Healthcare payers Claims processing and management; claims adjudication, disbursements, subrogation; member on-boarding, records management; underwriting and risk assessment support
Healthcare providers Revenue cycle management (eligibility, billing, coding, receivables, payer services); healthcare information management (records management, electronic health record)
Key vertical-specific functions in shared services and outsourcing by industry (page 1 of 2)
0.9
2.0
3.0
1.2
1.9
0.8
1.0
1.8
1.0
2.2
1.0
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
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Industry Average number of vertical functions Key vertical-specific functions
Hi-tech Master data, customer data, vendor data management; order management and fulfillment
Industrial products Master data, customer data, vendor data management; engineering support services
Information services Sales and marketing support; billing & royalty support
Insurance Underwriting and actuarial data processing and analysis; L&P policy servicing and records management; L&P claims processing and management; eligibility, verification, fraud detection and management
Life sciences Drug discovery and research support; clinical trials and pharmacovigilance administration; distribution planning and analysis, defect handling, and reverse logistics
Media and entertainment
Publishing and distribution management; advertising sales support; subscription and order management
Oil and gas Supply chain planning & support; asset and inventory management support
Retail Logistics and supply chain administration; store operations & property services
Telecom Order management and provisioning; sales and marketing support
Travel and transportation
Operations and fleet administration; records and document management; sales and reservations support
Utilities Meter-to-cash (billing, payment processing, credit and collections); field services and meter data administration
Key vertical-specific functions in shared services and outsourcing by industry (page 2 of 2)
1.2
1.3
2.4
0.8
1.7
0.8
2.0
1.1
2.9
1.1
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
1.6
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Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Improvement initiatives reflect business context of a vertical function
Banking: – Loan & mortgage
servicing – Check
processing, remittances, lock-box
Hi-tech: Order man. and fulfillment
Telecom: Sales and marketing support
Healthcare providers: Revenue cycle management
Manufacturing: Vendor/customer master data management
Capital markets: Order management, investment ops
Freight & logistics: Billing
Information services: Billing & royalty support
Media: Subscription and order management
Manufacturing: Order processing and fulfillment
Healthcare providers: Revenue cycle management
Banking – Loans and
mortgage servicing
– Transaction processing
– Cards servicing and statement processing
Insurance – L&P and P&C
claims processing and management
– Claims adjudication, disbursements, subrogation
Oil & Gas: Asset and inventory management
Manufacturing: – Engineering
support services – Order processing
and fulfillment Hi-tech:
Vendor/customer master data management
Banking: Risk, FX, regulatory, fraud
Retail: Merchandising analytics support
Centralization Reengineer & standardize Offshoring Technology &
analytics
Link to revenue management Transaction-intensive
Link to supply chain / business decisions
Retail: Advertising and marketing support
Manufacturing: Engineering support services
Banking: Commercial banking operations
Insurance – Underwriting and
actuarial support – Claims
adjudication, disbursements, subrogation
Talent pools & collaboration
Judgment-intensive with unique skills
Five most common vertical functions for each improvement initiative
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Outline
Executive summary
Overview of shared services and outsourcing strategies
State of traditional horizontal functions
Variations by industry
Different approaches used by mature organizations
Perspectives of service providers and influencers
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Summary of key messages Different approaches used by mature organizations
Mature organizations were identified based upon their self-reported maturity in comparison to peers. On average, they are slightly more centralized and notably larger than their peers
Further, these organizations have adopted a greater end-to-end mindset, but focus more of their energy on non-process improvement themes such as increasing collaboration with business users and being effective at change
Despite their focus on factors beyond process, mature organizations are more oriented to focus on cost and meet financial objectives. Interestingly, they are not notably more oriented towards adopting SaaS/cloud technologies, but are more likely to implement new tools
These mature organizations also include more scope in their service delivery models, moving beyond transactional processes in F&A and also greater inclusion of vertical-specific functions
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Mature organizations were identified based upon their response to the survey; they have a greater representation of large organizations and also more centralization
Definition of mature organizations Maturity is defined based upon
self-reported maturity in comparison to peers
Mature organizations are defined as those indicating they “agree” or “strongly agree” that they are mature in comparison to peers
Less mature organizations are those that “strongly disagree,” “disagree,” “somewhat disagree,” or “neutral” that they are mature in comparison to peers
5% 8%
68% 77%
27% 15%
Mature Less mature
Degree of centralization
5% 9%
48% 46%
6% 6%
41% 39%
Mature Less mature
Sourcing model preference
19% 29%
30% 39%
20%
18% 31%
14%
Mature Less mature
Annual revenue of organization US$ billion
41% 57%
12%
16% 18%
15% 29% 12%
Mature Less mature
Scale of shared services/outsourcing FTEs
Not structured to centralize
Somewhat centralized
Fully centralized
Retain in business
Prefer shared services
Best fit
Prefer outsourcing
<1
1-10
>50
10-50
<500
500-1,000
>5,000
1,000-5,000
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Having already adopted an end-to-end philosophy, mature organizations increasingly look for value beyond process improvement – instead focusing on users and driving change
F&A approach is end-to-end
48
31
Collaboration with business users
Priority initiatives
Successfully implement change
80
39
48
61
Consolidation
57
12 Less mature
Mature
Percentage of enterprise respondents
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
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Mature organizations show greater financial orientation and are somewhat more interested in new technologies
76%
42%
22%
52%
2% 6%
Mature Less mature
Consistently meet financial objectives
Agree
Disagree Somewhat agree/disagree
SaaS/cloud
Financials
39% 28%
56% 60%
5% 12%
Mature Less mature
Cost reduction is most important
Agree
Disagree
Somewhat agree/disagree
27% 16%
54% 64%
19% 20%
Mature Less mature
Plan to increase use of SaaS/cloud
Agree
Disagree
Somewhat agree/disagree
22% 17%
35% 48%
43% 35%
Mature Less mature
Currently use SaaS/cloud
Agree
Disagree
Somewhat agree/disagree
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Mature organizations have a relatively higher focus on technology, collaboration, and offshoring and less focus on reengineering and consolidation
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Important actions for optimizing current service delivery Percentage of enterprise respondents
Mature
Less mature
70%
48%
57%
48%
22%
27%
13%
86%
58%
46%
31%
17%
28%
10%
Re-engineer/standardize processes
Increase consolidation/centralization
Implement new tools and technologies
Increase collaboration with business users
Increase level of offshoring/nearshoring
Leverage analytics / business intelligence
Deepen talent pool / expertise
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Within F&A, mature organizations include greater scope, particularly in areas beyond traditional accounts payable and receivable
93%
84%
91%
86%
66%
59%
71%
50%
39%
43%
91%
78%
73%
58%
42%
39%
47%
34%
26%
30%
Accounts payable
Accounts receivable
General ledger
Fixed assets
Tax
Regulatory reporting and compliance
Management reporting and analytics
Budgeting/forecasting
Internal audit
Treasury and risk management
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Scope of F&A shared services and outsourcing Percentage of enterprise respondents
In addition to including more processes within the F&A function, mature organizations include 10-20% greater scope in HR, procurement, and vertical functions
Mature
Less mature
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Outline
Executive summary
Overview of shared services and outsourcing strategies
State of traditional horizontal functions
Variations by industry
Different approaches used by mature organizations
Perspectives of service providers and influencers
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Summary of key messages Perspectives of service providers and influencers
Service providers report the greatest focus and growth in more mature industries such as banking, insurance, telecom, and hi-tech
Both influencers and service providers believe that a “best-fit” sourcing strategy is the prevalent trend, largely similar to the overall reported philosophy of enterprises
Although service providers are often investing in the areas where enterprises are focusing their improvement initiatives, there are notable misalignments such as underestimating the importance of increasing collaboration with business users and over-emphasizing analytics and offshoring
For new technologies such as SaaS/cloud, service providers are notably more optimistic about the future level of adoption by enterprises, although few strongly agree adoption is increasing
The advice of influencers to service providers most strongly emphasizes increasing understanding of business context and developing the required capabilities to truly provide the desired scope of services. Other areas for improvement include performance management, change management, and innovation
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Banking emerges as the most important and fastest growing industry for service providers
78
89
91
105
106
107
110
154
184
347
Capital markets
Consumer packaged goods
Information services
Healthcare providers
Government
Retail
Hi-tech
Telecom
Insurance
Banking #1
#2
#3
#4
#5
#6
#7
#8
#9
#10
Relative growth of third-party outsourcing services in last 12 to 18 months by industry
Industries with fastest growth
1. Banking 2. Telecom 3. Insurance 4. Consumer packaged goods 5. Hi-tech
Industries with slowest growth
24. Metals and mining 25. Automotive 26. Engineering & construction 27. Hospitality & tourism 28. Non-profit / NGO
Ranking of industries in terms of importance for third-party service providers Weighted score1
1 Score is a weighted calculation. Items ranked first are valued higher than the following ranks, the score is the sum of all weighted rank counts Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
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Enterprises, service providers, and influencers consider “best-fit” to be the preferred sourcing model
7% 6% 5%
47%
24% 10%
7%
15% 41%
39% 54%
44%
Enterprises Influencers (perception of trend of clients)
Service providers (perception of trend of
clients)
Retain in business
Prefer shared services
Prefer third-party outsourcing
Best-fit (either shared services or outsourcing,
based upon situation)
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Nearly 40% of the service providers consider third-party outsourcing to be the preferred sourcing model, compared to only 7% of the enterprises. Influencers report a mix most similar to the non-shared services respondents in the enterprises
Sourcing model expectation for enterprises Percentage responses
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Service providers’ perceptions are not completely aligned with clients’ priorities
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Enterprise and service provider perceptions on shared services and outsourcing initiatives Percentage responses
Influencer perspectives mirror enterprises more closely than service providers. While the overall ranking of initiatives remains similar, influencers place greater emphasis on centralization/consolidation and analytics
Serv
ice
prov
ider
Enterprise / service recipient
Reengineering/ standardization
Consolidation/ centralization
Tools and technologies
Collaboration with business users
Analytics and business intelligence Offshoring/
nearshoring
Talent pools / expertise
Areas over-emphasized by service providers
Areas under-invested by service providers
Low High
Low
High
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There is a significant “adoption gap” in the use of SaaS/cloud technologies
Enterprises
Service providers Plans to increase the use of SaaS/cloud technologies Percentage of responses
0%
15%
30%
45%
1. Strongly disagree
2 3 4. Neither agree nor disagree
5 6 7. Strongly agree
Adoption lag between supply
and demand
Most enterprises continue to sit on the fence regarding the use of SaaS/cloud technologies – demand (enterprises / service recipients) is trailing supply (service providers)
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
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Service providers’ inability to understand the client context emerges as the biggest capability gap
Service provider capability gaps identified by influencers for F&A, HR, and procurement Degree of inclusion
Source: Vertical Industry Strategies in Shared Services & Outsourcing survey, January-February 2012
Technology
Talent and expertise
Innovation and continuous improvement
Change management support
Performance management
Scope of services
Client context “Tailoring cookie cutter solutions to fit client needs” “Understanding the impact on business” “Knowledge of specific industry processes”
“Moving up the value chain; providing R2R analysis capability” “Consolidate procurement and sourcing platforms” “Being good enough in all transactional HR services”
“Business outcome, definition, and transaction pricing” “Track, manage, and report KPIs... and the savings created” “Review services and service levels annually to adapt to client needs”
“Strategic advice is absent – too much off the shelf solutioning” “Team continuity from sales cycle into operations” “Transitions – people transfers and industry-specific requirements”
“Lack in proactive innovation and proactive process reengineering ” “Not looking for innovations and continuous improvements to add more value to the customer”
“Leadership skills of middle management” “Lack of senior professional people to support the business focus” “Ability to provide adequate subject matter expertise”
“Platform-based offerings with transaction pricing” “Tools to ensure value-added sourcing” “Do not provide enough SaaS services for HR”
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41%
32%
27%
About the survey
The 10 to15 minute survey was conducted via the Internet and collected responses from enterprises, third-party outsourcing service providers, and industry influencers – each with different, but parallel sets of questions. The length of survey varied significantly, based upon the number of functions for which a respondent chose to provide input
SSON and Everest Group jointly promoted the survey globally with email invitations, newsletters, social media, and websites
The survey collected over 650 responses across enterprises (272), service providers (210), and industry influencers (181). A profile of the roles of respondents is provided below
Respondents were distributed across all sizes of organizations
Mix of respondents
Enterprises
Service providers
Industry influencers
100% = 663
60% 10%
7% 6%
5% 5%
9%
Roles of enterprise respondents
100% = 272
Shared services/ captive Strategic
sourcing/ procurement
Corporate strategy
Vendor mgmt.
Business user of
services
COE Other
32%
28%
16%
9% 7%
8%
Roles of service provider respondents
100% = 210
70%
15%
5% 10%
Roles of influencer respondents
100% = 181
Senior management
Sales and business development
Service delivery
Solution design
Other
Marketing
Consultant/ advisor
Technology provider
Business/equity analyst
Other
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Glossary of key terms
Term Definition
BPaaS Combined technology and service delivery solution which provides business outputs (e.g., paycheck)
Captive Entity in the offshore location that provide services exclusively to the parent company
Cloud Services delivered to match variable volumes through a virtualized model, particularly as it relates to the underlying technology infrastructure
Horizontal function Activity which tends to be similar across industries such as finance, HR, procurement, and IT infrastructure
Nearshore Delivery of services from a location which tends to be physically and culturally “similar” to the region receiving the services, motivated primarily by a desire to utilize easily accessible talent pools
Process The operational flows of activities within a function. For example, within the F&A function, processes include accounts payable, accounts receivable, general ledger, management reporting, and others.
Offshore Delivery of services from a location which tends to be physically and culturally “remote” from the region receiving the services, motivated primarily by a desire to access lower cost talent pools
Outsourcing Contracting with a third-party to provide a defined service
SaaS Software as a service (SaaS) is software that is deployed over the internet and/or is deployed to run behind a firewall in the local area network or personal computer
Shared services Separate internal entity within the company to perform specific services across business units. Shared services can be located in onshore or offshore geographies
Vertical function Activity which is notably unique to an industry. Examples include order management in hi-tech, merchandise analytics in retail, and loan and mortgage servicing in banking
Function Business support activities which encompass multiple processes. Examples include F&A, HR, order management in hi-tech, and loan and mortgage servicing in banking
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About Everest Group and SSON
Everest Group Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research, and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies, and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations, and private equity firms in six continents across all industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com. The Shared Services & Outsourcing Network The Shared Services & Outsourcing Network (SSON) is the largest and most established community of shared services and outsourcing professionals worldwide, with over 60,000 members. We provide the roof under which key industry experts and organizations share their experience, knowledge and tools, and your practitioner peers connect with others all over the world, face to face, and online. SSON focuses on developing its members through providing training, tools, and networking opportunities. Our staff work from international offices in New York, London, Sao Paulo, Singapore, Sydney, Johannesburg, Berlin, and Dubai to research current trends and developments in shared services
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Everest Group Leading clients from insight to action
Everest Group locations
www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com
Dallas (Headquarters): New York: Toronto: London: Delhi:
info@everestgrp.com +1-214-451-3000 info@everestgrp.com +1-646-805-4000 canada@everestgrp.com +1-416-865-2033 unitedkingdom@everestgrp.com +44-207-887-1483 india@everestgrp.com +91-124-496-1000
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