By Cliff Justice, U.S. leader of KPMG’s Shared Services and Outsourcing Advisory network
Most organizations have succeeded in achieving initial cost savings by adopting an outsourcing or shared services model. However, companies that are looking to realize deeper, sustainable benefits from their outsourcing and shared services model should consider a new approach which looks at the global organization holistically.
Getting the EGE Although companies often consider cost savings as the end-goal, outsourcing and shared services arrangements can be tools to create real business value and a competitive advantage well beyond the cost saving aspect. The key to unlocking this value is creating an Extended Global Enterprise (EGE), where the right balance of shared, outsourced and retained services are compiled within a common service delivery framework.
The EGE framework helps companies increase their agility and flexibility, tap into new capabilities and innovations, and gain access to new markets. Consider how just-in-time (JIT) revolutionized manufacturing or how cloud computing is transforming IT. Similarly, the EGE framework is changing the way technology and services are purchased, priced and delivered. And like JIT and cloud computing, the EGE is based upon the principle that companies can access a global network of capabilities and a pool of configurable resources, which can be quickly provisioned to meet evolving market conditions and business objectives.
How the EGE is Different
There are four key differences between the EGE framework and the traditional approach to outsourcing and shared services delivery.
• The EGE is driven by customer need rather than dictated by traditional structure.
The EGE relies on the ability to assemble a variety of capabilities – regardless of where those capabilities reside – into a seamless, end-to-end process. Organizational and geographical boundaries are less relevant, and collaboration becomes essential. It’s driven by customer need – the way the service is consumed – instead of dictated by traditional structure.
• One-size-fits-all service offerings are replaced with a portfolio of retained, outsourced, and centralized service offerings with tiered, tailored, and bundled services across functions.
The EGE takes advantage of companies’ recently expanded options for addressing their service needs. Centers of excellence (CoE) are rapidly becoming critical to the business, providing a framework for bringing together subject matter experts, systems and processes from disparate functional areas. At the same time, technologies and standards such as virtualization, Software as a Service (SaaS), Service Oriented Architecture (SOA) and single instance ERP can facilitate the integration of disparate systems, making it faster and easier to add new capabilities. This technology also makes the physical location of systems completely irrelevant. But to be effective, the services offerings must be carefully selected, balanced and integrated into the overall portfolio.
• Simple vendor management is replaced with a more sophisticated Services Portfolio Management (SPM) organization.
The shift from managing individual functions to managing a portfolio of service offerings requires the creation of a centralized, end-to-end Services Portfolio Management (SPM) organization. Just as an investment portfolio needs constant management to adjust holdings as market conditions and companies evolve, a company’s services portfolio must be periodically realigned to reflect changing business objectives and strategies. The goal of the SPM organization is to:
o Establish superior governance
o Facilitate collaboration
o Foster competition
o Reduce risk
o Optimize return
• The goal of the EGE is to increase agility and competitive advantage – not simply cost cutting.
However, saving money hasn’t taken a back seat. With continual governance and performance improvements, along with process and technology enhancements, organizations may realize additional cost savings with the EGE, even 15 to 20%, depending on the entity’s cost framework prior to implementation.
A Failure to Transform
While the benefits of EGE are easy to see, moving to the new model requires a significant effort and commitment from the top. It’s not easy to persuade managers who have just reduced support costs by up to 30 percent with a traditional sourcing model to revisit issues they thought were resolved, and in some cases, to redo or even undo much of the work that led to their success. And on the other side of equation, support vendors typically have competing agendas.
And as with any organizational change, the EGE is not accomplished overnight, but is an ongoing process requiring special skills, broad expertise, and a roadmap to build capabilities and sophistication over time.
Frequently this change has been termed a “business transformation,” but a more apt term may be “business simplification.” Instead of a siloed and redundant approach with fragmented planning, the end result is a single, common strategy within a common services delivery framework to achieve a common goal.