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FRIDAY
May 20th 2011
YEAR 2 | No 20
Opportunities and challenges for shared services By: Mark McMullen professionaloutsourcingmagazine.net
Mark McMullen of Scottish Development International discusses the challenges, and
opportunities, for shared services over the next 24 months. page 3
Is your contracting process a source of value, or is it undermining value? By: Tim Cummins ssonetwork.com
The top-five rules to switching outsourcers By: Susie West
sharedserviceslink.com
The outsourcing trend is building momentum. Finance shared services leaders are carving up their processes by identifying the activities they add no value to and the tasks that add no value to the company so they can be ring fenced and managed by an external provider. page 2
That is a question we should all be asking, especially following the results of a recent IACCM study on ‘The State of Sales Contract Management’. page 5
Sustainability: how finance contributes to an integrated approach By: Sandra Higgison sharedserviceslink.com Until recently, most companies dealt with sustainability by adding a couple of well-meaning paragraphs to the annual report... page 5
The top-five rules to switching outsourcers By: Susie West sharedserviceslink.com The outsourcing trend is building momentum. Finance shared services leaders are carving up their processes by identifying the activities they add no value to and the tasks that add no value to the company so they can be ring fenced and managed by an external provider. As outsourcing matures as a mainstream activity, it brings with it new challenges. The first wave of five and ten-year contracts is coming to an end and customers are deciding whether to stay with their current outsourcing providers or swap. Managing the transition from a Genpact or Accenture to a Wipro or HP, or vice versa, can be complicated and warrants a level of consideration that some companies are ill prepared for.
If you’ve decided to change outsourcing provider, here are sharedserviceslink.com’s five rules to help with a smooth handover: 1/ Training As a company you may not be best positioned to train your new business process outsource (BPO) provider. You owned the training when you first handed activities over to a BPO provider and you can probably remember the intense weeks together in training rooms and the job shadowing. At that time, both parties had a vested interest in providing robust and effective training. This time there’s a significant difference: the trainer has lost a contract and has nothing to gain from delivering a successful training programme to the competition. If anything, it may wish to sabotage rather than support the training, especially if the people delivering it may be about to lose their jobs once they’ve trained their replacements. This is tricky but
critical to get right. And don’t forget, your trainers also have to maintain their F&A service at the same time. Action: When you draw up the contract with your BPO provider, include clauses on how it will hand over and train another provider should you not renew the contract. Ask for the detail and ensure, from a practical perspective, your BPO provider is willing to be highly co-operative. Logistically, your new provider may not be invited into the incumbent’s premises, so find temporary offices nearby where you can hold the training. 2/ Integrity of numbers and systems It is likely that your financials will only be accessible from your original provider’s systems. How comfortable will they be sharing their live system with a competitor? This will have an impact on the training they provide. Consider giving somebody ownership for managing the integrity of the financials and the live system during the hand over. This could be a fourth party, outside the triumvirate, like a management consultant or it could be one of your team. Action: Try to avoid surprises. How would you feel if your numberone competitor needed to access systems and data that you had owned for 10 years to support a customer you were losing? It’s an awkward moment in business. It requires discussion and agreement upfront when you sign the initial contract with your BPO provider. Ensure this is clearly outlined and understand how the new provider will have access to the information it needs to set itself up. 3/ Ownership and accountability You need to plan the transition and the various handover points. Consider bringing in a fourth party for this. There are many people involved in the handovers, at the very least the people passing the baton and those taking it. It is vital to give the ‘passing’ and ‘taking’ teams clear lists of responsibilities that are signed off by you and both BPO providers so everyone understands how the process will be governed. Action: Some management consultants have been through this ordeal several times and have built up a useful level of experience so consider bringing in a fourth party. And don’t feel like you need to use your normal management consultants; tender for the work as you would a normal BPO transition. 4/ Stick to your transition dates When you decide to switch providers, your existing outsourcer may set deadlines for the transition with penalties if they’re missed. If you can, make sure you discuss and agree the dates and consequences between you, your original and your new providers, and perhaps have a fourth party oversee the arrangement. Action: Penalties are fine if they’re drawn up between everyone involved. If it’s not included in your BPO contract, it’s worth
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having a clause that relates to the potential handover between providers, and says that deadlines and penalties will be drawn up and agreed by everyone involved at the time. It’s not really practical to define these details ten years before you need to enforce them. 5/ Post-go-live support Your original BPO provider’s duties are not over once your new outsourcer has gone live. You will need a small team to stay with the project after the transition to help keep it stable. And you will want that team to be made up of your original provider’s best people. Be careful though as paranoia may well kick in if the first BPO provider fears its people will be poached as they build relations with the succeeding provider. Action: When you draw up the initial contract, ensure you have a clause covering your post-go-live support should you switch provider. And make sure this support includes a specific number of people for a set period of time, or until a definitive deliverable is complete (ie it has completed two month ends within two working days). Conclusion Changing service providers can be complicated and awkward. But as the shared services market continues to adopt outsourcing into the operational mix we will be better prepared for the challenges. And if you’re just signing a new contract, make sure you know what will happen should you decide to jump.
Opportunities and challenges for shared services By: Mark McMullen professionaloutsourcingmagazine.net Mark McMullen of Scottish Development International discusses the challenges, and opportunities, for shared services over the next 24 months. With a steady recovery on the horizon, now is the perfect time to streamline operations and cut costs by adopting shared services, argues Mark McMullen, head of Financial Services at Scottish government business development agency, Scottish Development International (SDI). “The last few years have seen a certain amount of ‘navelgazing’ from many businesses, as they consider what they do, why they do it and how they do it. At the same time, with profits and investments significantly down over the last few years, companies across all sectors are searching for ways to
increase efficiency and productivity, and to reduce costs. So they’re increasingly looking at low-risk and low-cost shared services locations to consolidate functions and, ultimately, to cut costs,” says McMullen. The benefits of shared services are well-documented, including cost savings, improved efficiencies, streamlined operations, consolidated and centralised back and front office functions, and consistent business processes. But it is precisely these benefits that make shared services particularly attractive during times of economic austerity. With challenging operating conditions predicted to continue for at least 12 to 24 months, companies are increasingly turning to shared services to streamline their business operations. “Companies are now emerging from the ‘navel-gazing’ stage and we’re getting more and more requests for information about shared services implementations. Companies now want to move this process forward, and so we’re entering a period of moving from the ‘planning stage’ to the ‘implementation stage’,” says McMullen. Furthermore, as companies consider their entire business models, it is not just the HR, IT, and finance departments that are coming under the shared services microscope, with front office functions also being considered for the shared services option. “The HR, IT and finance departments are the obvious candidates for shared services, but as companies look more closely at their operations, they’re finding other parts of the business that could perform more efficiently and profitably through shared services, which allows them to do things at lower cost, more efficiently and from a centralised location. We’re talking about front end functions, those first touchpoints for customers,” says McMullen. McMullen believes that Scotland is perfectly placed to advantage of the current economic situation and of these emerging trends. Since 1997, when power manufacturer Eaton Corporation set up its European Shared Services Centre in Glasgow, Scotland’s shared services sector has gone from strength to strength and is now home to shared services centres for multinational corporations that include Dell, IBM, Shell and many others. Functions covered include accounts, customer service, HR and payroll on a pan-European basis. The Scottish shared services sector alone accounts for around 3,000 jobs, with a further 90,000 employed in the outsourcing and call centre industries. “Scotland is not a low-cost location. We do not compete with India, The Philippines, and so on. But we do offer a higher value, lower cost and lower risk shared services environment. There is always a risk for any company setting up any new operation, whether that’s a shared services hub or a new
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factory. So we aim to minimise that risk by providing a politically stable environment with a proven track record, and access to a flexible and highly skilled workforce,” explains McMullen. At the same time, Scotland offers good property prices, a high standard of living and solid transport links. It is this mix of qualitative and quantitative benefits that companies should look for when considering shared services locations, and why Scotland is well-placed to help companies through the predicted period of austerity.
shared services: “We’re also trying to introduce new markets to the shared services concept. For example, we have an office in Japan, and have maintained relationships with many of the electronics manufacturers that were in the UK in the 1980s and 1990s. Japan has not embraced the shared services model in the same way as Europe and the US, so in March we are running a series of roadshows with manufacturers in Japan to introduce the concept of shared services.” McMullen also sees the Public sector as a large opportunity for shared services. While the majority of companies operating shared services hubs in Scotland are in the private sector, that could change as the announced budget cuts bite into the public sector purse. “A lot of public sector organisations have already looked closely at shared services and the consolidation of functions, even before the austerity cuts. So I think we will see a trend towards shared services and outsourcing in the public sector over the next few years as it faces significant budget cuts,” he says, adding: “In turn, we hope that the shared services private sector could then absorb some of the inevitable job cuts in the public sector,” he says.
One of SDI’s main weapons in persuading companies to choose Scotland as a shared services location is the use of existing advocates. “SDI can talk about the benefits of Scotland for shared services, but it’s a lot more influential if the companies already here act as advocates for us. We find that they’re more than happy to be a part of the shared services ‘forum’ in Scotland, and willing to demonstrate the benefits to others and share their experiences. The shared knowledge and experience we can offer is a very strong selling point for any company considering Scotland for the shared services option,” explains McMullen. McMullen also argues that shared services can benefit many companies, regardless of their stage of development. “We’re looking to promote shared services to both mature sectors and high-growth sectors. For example, it is dangerous to presume that established energy companies have already adopted shared services,” he says. “On the other hand, the shared services message is equally relevant to fast-growth, early stage companies, such as those in the renewable energy sector. Early stage companies should not wait until they have different offices and functions dotted across Europe or the US before thinking about shared services. So we’re having the shared services discussion with renewable energy companies very early, so we can help them manage their back office infrastructure to support the growing business,” explains McMullen.
However, McMullen acknowledges that many organisations will continue to face challenging operating conditions for the foreseeable future. In turn, SDI will have to work even harder to promote the shared services message. “Companies are reconsidering their entire business models, but regardless of what the final decision may be, there is always a cost involved in doing that. The main challenge for shared services is getting sign-off: it is increasingly difficult for companies to justify spending on any project. As a result, the decision-making process is taking much longer than it did three to five years ago,” he explains. However, there are growing reasons for optimism. “The ultimate message is that Scotland is very good at shared services centres, we have a strong record, our advocates can demonstrate strong ROI, increased efficiency and reduced costs. We will continue to tailor our message to different organisations and sectors, but ultimately, the message is that any company can take advantage of the efficiencies and cost savings provided by shared services, particularly over the next 24 months.”
At the same time, SDI is trying to attract new markets to
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Is your contracting process a source of value, or is it undermining value? By: Tim Cummins ssonetwork.com
Most organizations have not yet grasped the scale of lost revenue or lost savings opportunities tied up in their contracting process. The size of this opportunity and the approaches needed to drive improvement will be revealed in the white paper ‘The State of Sales Contract Management’ and also in presentations at AribaLIVE and in webinars later this month. Meantime, how would you answer these questions: -Do you see contracts as a source of competitive disadvantage for your organization, or for your trading partners? -Is your legal team or contracts group effectively managing risk, or is their inflexibility or risk aversion actually proving to be a source of risk? -Have you automated your contracting process – and if so, have you benchmarked its performance?
It revealed the extent to which contracting process and practices act as a barrier to good business decisions, with 40% of survey participants saying that their contracts are a definite source of competitive DISadvantage! And if you are in Procurement, don’t stop reading – this data is relevant to you as well. Because if your suppliers are not achieving value, nor are you. The study has confirmed frequent weaknesses in internal collaboration, leading to imprecise requirements and poor communication. Those are the types of weaknesses that can permeate a business, leading to problems in performance on customer commitments and inaccurate information flowing to operations teams within the supplier. The study highlighted the impact of these issues – for example, how they lead to claims and disputes over price, acceptance, scope and a range of other contract-related topics. These failings cost money and damage corporate reputations. The situation has been getting harder to manage, as the complexity of today’s business relationships and supply networks increases. To quote from the report: “The internet age and growing deal complexity have resulted in increasing confusion over what constitutes ‘the contract’”. Yet a few companies are mastering this complexity by ensuring that they have a process and systems tightly coupled with their sales activity. And one key finding is that “Automation has a consistently beneficial effect on the quality and integrity of the process, yielding substantial increases in the satisfaction of all internal business groups”.
Sustainability: how finance contributes to an integrated approach By: Sandra Higgison sharedserviceslink.com
Until recently, most companies dealt with sustainability by adding a couple of well-meaning paragraphs to the annual report. This light-touch approach is no longer good enough.
Even at a time when businesses have retrenched to focus on cost reduction and their core strategies, there are growing demands to prove that sustainability has permeated throughout their operations.
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Typically thought of as something for real estate, HR and procurement teams to worry about, few people talk about the role of finance to ensure sustainability activities have a positive effect on a company’s triple bottom line – its social, environmental and economic impact. In a recent letter to The Economist, Deloitte’s Global Chairman and CEO elect succinctly described how sustainability needs to be woven into the fabric of a business. “Generalised statements about the purpose of business outside of profit are no substitute for the rigour of an enterprise defining its contribution to society through its core activities. This should shape its strategy, values and operations – and should then also be reflected in the traditional corporate social responsibility (CSR) activities it undertakes.” Sustainable functional silos? To learn more about sustainability activities within organisations, sharedserviceslink.com attended the Sustainable Purchasing and Supply Chain Summit in London. More than 200 procurement professionals discussed issues such as responsible sourcing, collaboration with suppliers and how to take a fresh look at their purchasing strategies. The drivers for sustainability among procurement functions were interesting. Andrew Coulcher, Director of Business Solutions at the Chartered Institute of Purchasing and Supply (CIPS) summarised the findings of a recent member survey. It found that reducing business risk, minimising carbon footprint and increasing innovation were important, but few people said they aimed to increase profit by pursuing sustainable activities. What stood out from the presentations, aside from the inspiring, and often scary stories, from some of the speakers, was that there was little, if any, mention of procurement teams working with the finance function on these initiatives. It wasn’t surprising that few finance professionals attended (perhaps two among the whole gathering), it was a purchasing and supply chain event after all. Similarly, our events at sharedserviceslink.com are predominantly finance dominated, but a recurring theme is how finance must work more closely with its purchasing peers. When we asked the panel of speakers, including the Cabinet Office, John Lewis Partnership and CIPS, to what extent they were, or have witnessed others, working with finance on these initiatives, there was a moment’s hesitation before anyone stepped forward to respond. The general consensus was ‘not much’, but they all agreed that there should be tighter integration and collaboration between the functions. Sustainability seems to be like many other enterprise initiatives, such as performance improvement, that are often addressed on a functionally piecemeal basis. For example, procurement can deliver sustainable and ethical sourcing while HR can
encompass the CSR team that supports community work and volunteering. Facilities can ensure buildings are as efficient and green as possible while IT can move expensive hardwarebased systems to the cloud. But where does finance fit in? A recent report from professional services firm Deloitte examines the various areas where finance and sustainability intersect. In particular it focuses on sustainability reporting, and tax and regulatory drivers. Finance has an obvious place in helping to design appropriate metrics and KPIs to demonstrate the impact of sustainability to stakeholders both internally and externally. And if governments are encouraging the private sector to pursue sustainability through tax incentives and regulatory changes, the finance team will ensure that it captures all the benefits and meets compliance requirements. What the report doesn’t cover, however, is how finance can contribute to the sustainability agenda by changing its own processes and behaviours. All automation initiatives will play a part here but e-invoicing seems an obvious sustainabilityled initiative that not only eliminates paper but also drives economic bottom-line benefits by enabling earlier payments and improving relations with suppliers. A push towards e-invoicing by finance and a drive towards sustainable sourcing by procurement both require close collaboration with suppliers. Rather than approach them separately, would it not make sense to adopt a coordinated approach to join up these activities? This is easier said than done, but a more joined up approach should not only help embed sustainability across the organisation at all the functional intersection points but also but also demonstrate that an integrated approach will have a real impact on the bottom line.
Editores
Conselho Editorial
Rodrigo Lang Thaissa Lemos Vanessa Saavedra
Caio Fiuza Eduardo Saggioro Vitor Marques
Diagramação Jessica Müller
Contato: pesquisas@institutodegestao.com.br
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