Over the past decade, most mid-to-large-sized companies have adopted shared services models, most with the goal of cost reduction. However, today we see opportunities to advance business models and innovate Global Business Services (GBS) platforms to improve competitiveness. Taking KPMG’s extended global enterprise (EGE) framework along with our ongoing survey*of GBS executives, we’d like to show you what’s possible now and what’s next.
What’s happening now?
Overarching research findings show that many organizations are rapidly gaining GBS maturity, but at different levels across functions and geographies, and based on different overall organizational operating models. Understanding the different levels of maturity and where your company is compared with others is the first step in understanding and plotting your organization’s rise as it travels up the maturity model.
Global Business Services (GBS) Maturity Model
Moving up the maturity curve is hard. Companies often get “stuck” below their desired level for a variety of reasons. Of the firms with which KPMG spoke, about a third placed in the higher maturity Strategic or Differentiated levels of the maturity model, and the other two-thirds placed at the Rationalized or Optimized levels.
Mature GBS organizations use multiple elements in their service delivery toolkits. These include multiple service delivery models including outsourcing, offshoring and shared services (and increasingly, cloud); multiple value levers including cost savings, innovation, business insights, etc., and more sophisticated organizational models, including stronger governance and end-to-end process ownership
Breaking through maturity levels requires strong governance and a commercial orientation. The strongest correlation to higher GBS maturity was observed through the GBS organizations’ maturity on Governance and their degree of Commercial Orientation. Strong governance is always required when weaving together complex initiatives, but the need for a commercial mindset is a bit less obvious.
A longer-term vision is critical. One of the biggest areas of difference between the most mature organizations and the rest was in Process Improvement Sequencing. The more mature organizations deploy multiple improvement strategies, and they have well defined, long-term sequencing for improvements. The less mature organizations are more opportunistic in their improvement efforts.
The greatest hurdles to maturity are cross-functional and global integration. Most organizations in KPMG’s research set, even the more mature ones, do not have consistent maturity when it comes to the functional and geographic slices of their GBS organizations. The finance and IT functions tend to be more mature, as do their North American and European GBS organizations. Cultural and organizational factors, e.g., level of Enterprise Resource Planning (ERP) adoption and standardization, are the other limitations to the levels of maturity to which an organization strives and how quickly it moves along the maturity curve.
Show me the money! Cost savings are still the number one reason for companies to advance their GBS maturity. They seek additional value drivers not only to support but also to advance the business, and constantly evaluate these value drivers against cost-benefits and returns on investment. The more mature organizations are looking beyond simple cost savings. They seek strategic benefits such as ability to support the growth agenda, e.g., integrating acquisitions, accelerating technology and policy deployment, and enabling innovation into services and business processes. These strategic benefits are weighed against the cost-benefit analysis specific to the organization.
Maturity matters. Organizations with mature GBS models create greater shareholder value. While likely not wholly attributable to the service delivery model, organizations with mature GBS models have an average return on equity (ROE) of 20.7 percent versus an average of 16.7 percent for the less mature organizations. The ability of an organization to plan, implement and improve its support infrastructure is a core competency that can provide a competitive advantage while delivering greater financial performance.
Pull quotes: “Before the shared services organization was established, it would take eighteen months to rollout a new process; with shared services in place it takes a quarter.” (Global 100 IT industry participant) “SAP drove standardization and eliminated inefficiencies from the system – this was a necessary first step to implement shared services.” (Global 500 Entertainment industry participant)
While organizations that reported successfully transitioning up the maturity curve also reported greater benefits, they highlighted the increasing challenges of making that transition. Their challenges can be summarized into two categories:
Economic Challenges: As the first wave of labor arbitrage and process improvement benefits are realized, organizations need to seek additional value levers to sustain and continue to build on the economic benefits of GBS. Continued cost savings come from additional levers such as process standardization, integration of technology and improvement of capital structures. However, many of the more mature organizations also seek to help improve the enterprise top line through integration of more complex activities into the GBS portfolio and use of technology and business intelligence to advance business decision making. These additional benefits come with additional effort and costs, and they require evaluation against the organization’s investment thresholds.
Cultural and Organizational Challenges: Here, the issue is having to continually convince the key stakeholders to allow the GBS organization to run a larger, more complex portfolio of services--to think beyond transaction processes and, in many cases, to layer the GBS structure against a highly regional or business-unit focused structure. As one GBS leader put it, “I know we’ll be successful when we shift from having to sell the next great idea to creating an environment where innovation is expected by our customers.”
Achievements, to be sure. Across functional, process and competitive lines. The following figure illustrates the benefits organizations can achieve by improving GBS capabilities across major support processes. GBS success in this new model depends on the ability to dynamically assemble a variety of capabilities--regardless of where they reside geographically or functionally--into a seamless end-to-end process that is focused on specific business outcomes.
GBS Achievement Matrix
In October and November 2011, KPMG and its research partner, Market Probe, conducted a series of in-depth interviews with global business services executives across a mix of Fortune and Global 500 corporations in the U.S. and Europe. These executives were asked detailed questions on global business services maturity, using the KPMG GBS maturity model as a guide to evaluate each company. As part of the interview, respondents were asked to rate the maturity of their organization on a 4 point scale per 22 questions focused on governance, commercial orientation, standardization, organizational excellence, global process ownership and global scope.
The companies spanned a cross section of industries, including food and beverage (4), IT (3), financial (3), media and entertainment (2), industrial (2), consumer services (1), pharmaceutical (1), apparel (1) and CPG (1). Fourteen companies were in the Global 500, three were in the Fortune 500 and one was in the Software 100. Four were Global 100 companies. The average age of their global business services organizations is approximately six years. The 18 companies fell into various categories with some companies in more than one: Global 500, 14; Fortune 500, 3; Software 100, 1, and Global 100, 4..The respondents were either heads of global shared services and outsourcing, or managers of a specific functional area such as IT or F&A. In most cases, they reported to the COO, CFO or CIO. Most have been in their present roles for over three years, and have 10 years plus of overall global business services management experience.
The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG LLP.
Stan Lepeak is global director of research with KPMG LLP Shared Services and Outsourcing Advisory
Rick Bertheaud is a principal with KPMG LLP Shared Services and Outsourcing Advisory