Beyond shared services and outsourcingHighlights

Organizations expect shared services and outsourcing to deliver benefits beyond cost savings, like innovation and greater organizational flexibility.

A Global Business Services (GBS) model helps provide these intangibles by focusing on business strategy and customer needs.

Moving to GBS can be a catalyst for bridging functional silos and implementing end-to-end processes.

Transforming an organization’s support services requires diligent planning, unified management, and a focus on continuous improvement.

December 2012

10Minuteson creating value from Global Business Services

When it comes to your company’s back office, the typical reaction is to think overhead. This mindset has led operations leaders to steadfastly cut costs while continuing to deliver essential services like human resources, accounting, and IT more efficiently. One way they do this is through shared services and outsourcing—and it’s working: 95% of companies said that these delivery models were either very or somewhat effective at reducing their costs.1

But saving money simply isn’t enough anymore. Large companies, in particular, recognize that they can—and should—demand more. When asked about the most important objectives for shared services and outsourcing, they ranked increasing process efficiency, improving organizational flexibility and scalability, and supporting global growth ahead of cutting costs.2 Yet traditional approaches, outsourcing in particular, rarely deliver these additional benefits.

So how do companies achieve these goals and turn the back office into a value generator? Leading organizations are adopting a Global Business Services (GBS) model, which takes an integrated, customer-focused approach to managing shared services and outsourcing and links everything back to business strategy.

Why the time is right for GBS

Today’s business environment continues to change rapidly—and so has the way companies think about outsourcing and shared services:

1. Educated global workforce. Countries like India that once served as a hub for low-cost workers now provide trained professionals in areas like engineering and legal services. At the same time, organizations continually look to new geographies for lower-skill operations.

2. Low-cost, high-performance enabling technology. Communications hardware and software, network connectivity, cloud computing, and enterprise software continue to improve—as do their prices. This makes it possible for companies to deliver complex business processes remotely, with workers far from home offices.

3. Economic uncertainty. Lingering economic troubles in the US and Europe mean company leaders should balance conflicting priorities of trimming costs while simultaneously seizing opportunities for growth in emerging markets.

1 PwC and HfS Research, The Evolution of Global Business Services, 2011.

2 PwC and HfS Research, The Future of Global Business Services, 2012.

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At a glance What makes Global Business Services different?

Traditional outsourcing and shared services

Global Business Services

Why do it Reduce costs and improve efficiency Improve efficiency, flexibility, scalability, innovation—and reduce costs

Strategy Driven by operational excellence; provide essential services at the lowest cost

Aligned with larger corporate goals and customer needs, such as global expansion, growth through M&A, the need for agility, and innovation

Structure and governance

Organized and managed by each function, such as HR, IT, or finance and accounting

Unified governance model that manages all aspects of services, including service delivery models, change management, and performance management

Business processes

Focus on intra-functional processes Standardized end-to-end, inter-functional processes that have been retooled to best meet customer needs

Technology Systems support individual functions and processes and are not easily integrated

Simplified and standardized systems

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01

Changing expectations demand a new approach

Outsourcing and shared services have become standard practice for most businesses: Today, 9 out of 10 organizations with $3 billion or more in revenue use shared services, and 97% have outsourcing relationships.3 And nearly half of the companies in the recent PwC-HfS survey have six or more functions outsourced or in shared service centers.4

While companies continue to ramp up their use of outsourcing and shared services, they’ve changed very little else. And that’s the problem: They say they want much more from these programs than the cost reductions envisioned at the outset— flexibility, access to talent, cultural change, and improved compliance.5 But organizations are discovering that as they add more delivery centers or service providers, their outcomes tend to suffer due in part to the complexity that an increase in scope and scale brings. They are also challenged to deliver on goals that have not been specifically planned for and against which they are measuring performance.

Catching up to the business

So while the business environment has changed and companies’ requirements have evolved, many organizations remain stuck in the past, relying on fragmented outsourcing contracts and shared services centers. Instead, they should think in terms

of GBS, changing their approach to delivering, managing, and measuring services. GBS operations are structured with the primary goals of serving internal and external customers, enhancing agility, and supporting the corporate strategy. Some GBS organizations even function as independent for-profit entities that offer IT, HR, tax advisory, and other services to internal clients.

An important part of the GBS approach is determining the optimal locations for an organization’s service centers or which outsourcing providers to engage. For example, one $10 billion company that is active in 80 markets worldwide used a GBS strategy to consolidate its disparate accounting functions into three regional shared services centers in Latin America, Europe, and Asia. With this change, the company reduced costs for providing those services by 25% in the first year. The centralized services environment also improved the quality of work and provided enhanced controls and compliance.

3 PwC and HfS Research, The Evolution of Global Business Services, 2011. 4 PwC and HfS Research, The Future of Global Business Services, 2012.5 Ibid.

-20% 0% 20% 40% 60% 80% 100%

Reduce costs

Increase scalability and flexibilityof operations

Support global growth strategy

Improve access to technology

Transform processes (e.g.cross-functional process

redesign, automation)

Align support services withglobal corporate strategy

Drive process efficiency(i.e. cycle time, quality)

Improve compliance capabilities

Drive cultural change

Gain access to talentand capabilities

Source: HfS Research and PwC

What companies want from outsourcing and shared services has changed Change in importance of program objectives since initiated

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02

How GBS enables business strategy

GBS organizations differ from typical service delivery approaches primarily through their tight alignment with corporate strategy. Whatever a company’s business priorities, GBS becomes a lever to help support them.

M&A integration. When companies undertake a merger or acquisition, it can be challenging to deliver on promised synergistic cost savings. One global agribusiness that grew through M&A suffered inefficiencies because its support services overlapped. And to position the new business to grow efficiently, it needed to deliver these services globally. To meet both goals, the company developed a GBS model for its back office operations, which established regional delivery centers and resulted in savings of $100 million per year.6

Global expansion. GBS also supports expansion into new markets. A global conglomerate active in 120 countries wanted to seize an opportunity in emerging markets. Its back office delivered quality support, but its shared service centers and outsourcing relationships couldn’t scale rapidly into new geographies. The organization adopted leading GBS practices in strategy, governance, and business processes. Efficient business processes and centralized management allowed the conglomerate to more quickly scale operations where it needed them. Subsequently, it was able to rapidly capture emerging market opportunities.7

Improved business processes. Because GBS looks at customer and business needs first, it often brings with it a change in an organization’s business processes. And this, in turn, improves efficiency and client service quality. A multibillion dollar global card payment company that we worked with discovered this when it adopted GBS and developed a customer service operation that emphasized easy-to-use digital platforms. This new customer service operation increased revenues by over 10% a year while saving almost 10% in costs.

New product and service offerings. Sometimes GBS turns out to be so successful it generates new revenue streams for a company by taking internal services and adapting them to meet a market need. One manufacturing company’s logistics group ensured timely delivery of the company’s products and parts to its facilities, rental outlets, and retail distributors in its supply chain. The company created a subsidiary to offer similar services to external clients, which was ultimately spun off as an independent company.

6 PwC and HfS Research, The Evolution of Global Business Services, 2011.7 PwC and HfS Research, The Three Tenets of Global Business Services

Execution, 2011.

0% 20% 40% 60% 80% 100%

Internaloperating costs

Productivity/operating efficiency

Contribution tocorporate business

strategies

Quality

Driving innovationinto services

Minimal impact (+/- 5%)

Modest negative impact(-5% to -20%)

Strong positive impact (> 20%)

Modest positive impact (+5 to 20%)Strong negative impact(> -20%)

Source: HfS Research and PwC

Estimated outcomes from shared services and outsourcing programs

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03

If it ain’t broke, why fix it?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Transitionmanagement

Performancemanagement

Innovation or processreengineering

Alignment withcorporate strategies

Serviceprovider selection

Contract negotiation

Defining scope

Service providerinvoice management

Business casemanagement

Demand managementand forecasting

Change management

Execution Importance

Source: HfS Research and PwC

If the case for GBS is so compelling, why haven’t more organizations implemented GBS models to transform their business services—and their entire organizations?

The most obvious reason is that traditional shared services and outsourcing have saved and still save money, although those cost savings may plateau over time. The savings achieved might seem “good enough,” so business unit leaders may resist uncomfortable changes.

One way to avoid this resistance is to have senior leadership visibly drive the GBS initiative. With this approach, business unit leaders can make their decision on the basis of real business value and enablement of the corporate strategy. This not only assuages management concerns, it also provides real incentives for the GBS organization to deliver on its goals.

Streamlined business processes

A transition to a GBS model requires an organization to rethink its business processes and consider how it can more effectively meet customer and business needs by working across functional and business unit silos. That’s often much harder than it sounds. Some companies find they need outside help to evaluate the opportunities and necessary changes objectively or to learn about leading GBS practices in their industry. For example, operations leaders would need to reimagine an order-to-payment process handled by a single group, rather than passing through many uncoordinated hands in accounting and logistics.

A single team and singular approach

GBS management crosses the boundaries of traditional functions, regions, and business units. Centralized governance teams that oversee all aspects of a company’s services—business case development, contract negotiation, demand management and forecasting, change management, and more—create the best outcomes in terms of productivity, innovation, and cost savings.8

And the work continues: Managing a GBS group isn’t as simple as drawing up a new organizational chart. Company leaders should create a culture of continuous improvement. After the transition to a GBS organization is complete, it is this culture that drives the GBS unit to deliver the highest quality and most efficient business processes.9 Our survey found that companies that manage their GBS organization diligently and consistently after the transition continue to achieve superior results, especially quality of services, productivity, and innovation.10

8 PwC and HfS Research, The Future of Global Business Services, 2012.9 PwC and HfS Research, The Three Tenets of Global Business Services

Execution, 2011. 10 PwC and HfS Research, The Future of Global Business Services, 2012.

The gaps between expectation and performance Governance process execution compared to its importance to organization

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04

Becoming a Global Business Services organization

Aligning the services strategy with business strategy improves outcomes across the organization Shared services and outsourcing estimated impact

Operations leaders who want to seize these benefits for their organizations understand that a transformation to GBS is not simple. It affects many functions, business units, and processes. Here’s where they’ll need to focus the organization:

Start with business goals

In GBS, everything starts with shared goals. For example, instead of thinking in terms of functionally siloed requirements like build a new data warehouse, the organization begins by asking why? Through discussions with stakeholders, including business unit leaders, the company would determine that the real goal of gathering and analyzing data across functions is to achieve a better understanding of supplier and customer needs and service. Collaboratively, the organization can determine the best solutions to meet that goal.

Have a clear vision

You have to know how your GBS organization can create value for your company before it can begin to do so. Economies of scale can create real savings, whether by aggregating purchases of goods or services or by standardizing business processes. Leveraging specialized skills can also create value. When specialized workers—such as legal or tax compliance teams—collaborate, they can improve their strategies and share their skills with a greater range of internal clients.

Focus on customers and solutions

Instead of being organized by function, GBS is oriented around customer needs, often spanning multiple functions. Serving customers and managing more comprehensive services requires both a different mindset and skillset than in a traditional global sourcing approach. Recognizing this, one large media company changed the title and job requirements for a GBS position from IT manager to MBA business manager. Those in the redefined role solved customers’ problems more effectively than when handled by prior IT staff.11

Re-examine business processes

When many companies outsource operations, they “lift and shift” business processes. That is to say, they transition a process “as is” to an internal service center or an outsourcing partner. However, when the initiative stops there, such transfers usually yield mostly cost savings, leaving other objectives on the table.

Manage the change

Measuring how well services deliver on business goals and sharing that insight with internal and external stakeholders are crucial. Our survey revealed that companies that manage performance achieve superior results in cost savings, productivity, quality, and innovation.12 And that’s really the goal of a GBS model: delivering strategic benefits by managing the back office as rigorously as any business division.

11 PwC and HfS Research, The Three Tenets of Global Business Services Execution, 2011.

12 PwC and HfS Research, The Future of Global Business Services, 2012.

Modest negativeimpact

(- 5% to -20%)

Minimal impact(+/- 5%)

Modest positiveimpact (+5 to 20%)

Strong positiveimpact (> 20%)

Operatingcosts

Productivity Businessstrategy

Quality Innovation

Aligned Unaligned

Source: HfS Research and PwC

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How PwC can help

To have a deeper discussion about business services transformation, please contact:

Charles AirdGlobal Leader, Shared Services & Outsourcing Advisory practicePwC732 598 7600charles.l.aird@us.pwc.com

Tom TorloneUS Leader, Shared Services & Outsourcing Advisory practicePwC408 534 2414thomas.torlone@us.pwc.com

Derek SappenfieldDirector, Shared Services & Outsourcing Advisory practicePwC 703 918 6218 derek.sappenfield@us.pwc.com

Is your organization using Global Business Services? We’d like to hear more about the benefits you have realized and the challenges you face. Just send an email to: 10Minutes@us.pwc.com.

© 2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. 10Minutes® is a trademark of PwC US.

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