alternative delivery models in a shared services environment

© 2011 IBM Corporation

Alternative Delivery Models in a Shared Services EnvironmentJennifer Maritz, Director Shared Services Practice, Growth Markets, IBM Global Process ServicesWednesday April 13th, 2011


Key Messages

Delivery models for Shared Services – Centralised vs. decentralised (virtual)– Outsourced vs.. In-house (Captive)

Alternatives to consider– Accounting as a Service (Hosted Platform)– BOT– Managed Services

What each model is– Why choose one vs. the other– Questions


All Back Office processes are candidates for Shared Services

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Corporate - Policy and IT Governance, Internal Auditing,Tax, Treasury (Financing), Legal, Strategic Planning,

Compensation Planning

Organisations now consider virtually all functional areas and activities outside the core value chain as candidates for alternative service delivery mechanisms

Support Services

Divisions Deliver Core

CompetenciesMarket Produce Sell Distribute ServiceDevelop


Today, you have more shared services options and the ability to customise an operational model that best captures opportunity.

Historic approach was two

dimensional:

Based on these factors, there are three broad

avenues to transformation:

Core Non-core

Lift & Shift Transformation

Today’s approach requires nuance:

© 2011 IBM Corporation5

Maturing outsourcing programs increasingly need to integrate their plans for matching supply and demand models

Skill availabilitySustainability

ObjectivesNature of Work Scale

ConcentrationFlexibility

What to sourceFunctionsProcessesTechnologies

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Managing global sourcing

Governance capabilitiesDecision-rights/responsibilitiesMetrics

How to sourceOffshore captiveNear-shore

captiveThird-party

2Where to sourceLocationsGlobal network

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Source: Everest Group – August 2010

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Key Characteristics

Cost-competitive scaled player

Opportunistic scope, both commodity and complex

Delivery network leveraging multiple lower-cost locations

Hands-off relationship management model (akin to that of a supplier)

Operate within internal marketplace

Investment focus on continuous improvement and savings

Drive excellence / improvement theme(s) in global context

Operation improvement culture (Six Sigma, lean)

End-to-end ownership of process, creating solutions versus simply delivering services

Innovation driver at a global company level, e.g., innovation hub for emerging markets

Strong investment in R&D and innovative technology to stay on cutting edge

Metrics and funding process similar to venture capital community

Focus on best talent – arbitrage not key

Operating Mode

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There are generally three basic strategic modes in which shared services can evolve – but each has important implications

Source: Everest Group – August 2010

Low-cost Aggregator

Global COE

Innovation Hub


There are a range of alternative delivery models to consider

Shared Services / Captive

Outsourced Managed Services

Build, Operate, Transfer

Hybrid:Shares Services

+ OutsourcedAccounting as a

Service

• Organisation retains finance function in house

• Services can all be physically co located (either onshore or offshore) or can operate as a virtual SSC

• SSC does not provide services for any other party

• Finance functions are carried out by a third party provider (either onshore / offshore or a combination)

• Outsourcer provides management, delivery teams and facilities and may provide enabling tools

• Organisation retains ownership of applications and platforms

• Outsourcer provides management layer but organisation retains staff (and generally facilities)

• As per the outsourcing model, but, at the end of a given period (could be either a set contract term, or when services are transitioned and stabilised), the services (and staff) are transferred back to the organisation

• Combination of shared services (i.e. captives) and outsourcing with one / multiple partners

• The allocation of services between parties varies depending on complexity

• As per the outsourcing model, but the outsourcer takes responsibility for providing the systems and applications used to deliver the services

DEF

INIT

ION


And each one has its own set of pros and consShared

Services / Captive

Outsourced Managed Services

Build, Operate, Transfer

Hybrid:Shares Services

+ OutsourcedAccounting as a

Service

• Perceived lowest cost

• Most control• IP Protection

• Speed to value• Transfer of

operating and financial risk

• Maximum variable cost

• Shared investment and reward

• More control• Leverage

providers skills

• Rapid expansion capabilities

• Option to transition in-house

• Increases value from combining sourcing models

• Portfolio risk management

• Focuses more on solution value than capacity or relationship

• Focus is on deliverables

• Outsourcing organisation has responsibility for both process and technology

• Management focus required

• Capital investment

• Time to market longer

• New management model

• Perceived loss of control

• Requires management retain accountability

• Potentially lower savings through labor arbitrage

• Potential for conflicting goals

• Not all providers will agree to JVs

• BOT price premium

• Transition risk

• Increased sophistication to design and manage

• Suppliers and captives must think differently

• May limit flexibility, i.e. uses standardisedprocesses and functionality

• Need to determine boundaries between retained / outsourced systems

• Perceived loss of control over technology

PRO

SC

ON

S


Can vary according to scope, scale and locations

Achieve Cost Savings

Service providers have in house tools and enabling technology but these may also be available in the market

Access To Enabling Tools

Transition is service provider’s core business

`Transition and Change Management Risk

AAAS

Recruiting and training are service providers core business

Service providers may be able to provide additional career opportunities as they add clients

All require significant management effort

Service providers are likely to have operations in multiple markets globally

Service providers may be better placed to manage rapid growth

Service provider’s core business

CommentsObjectivesShared

Services / Captive

OS Managed Service BOT Hybrid

Process Standardisation and Best Practice

Adapt to Business Growth and Fluctuations

Adapt to Changing Markets

Management Control and Ongoing Effort

Retention and Development Opportunities

Access to Skills and Training Requirements


In summary … why a hybrid model ?Three Key Differentiators:

Outcome Commitments Speed to Benefits Reduced Risk

Components Internal Operations External Managed Hybrid Model

Capital Investment All internalized Externallyfunded

Less capital investment upfront and on-going greater LT flexibility

Risk All internalized Shared riskContractually underwritten outcomes (Costs, SLAs)

Balanced risk

Speed Normal implementationtime

Leverage existing structure,resources (assets and people)Additional ‘bandwidth’ for change

Achieve benefits faster

Management Focus On operational &administrative activities

Free to focus on strategic, business issues

Increased strategic, business focus

Leverage Own environment Multi client standards, best practice process models, platforms, & collaboration

Greater cost reductionExtend leverage of EPIC

Flexibility Less agile Flexible pricing, ability to quickly increase, decrease size of operations

Speed of adjustment to new business requirementsGlobal reach


Per Everest, on average shared services organizations see a ~40% reduction in costs when they use a deliberate and managed approach for implementing a hybrid model


Source: Everest Group – July 2010

Benefits from a hybrid model(Percentage of cost)


The business case should not be built on cost reduction alone, but also on additional value and bottom-line (revenue generating) benefits

VALUEEffective leveraging of insourcing versus outsourcing models where most beneficial in terms of effectiveness and efficiency while meeting global, regional and local needs.Ability to move up the value chain and provide problem-solving capabilities, specialised knowledge, and consulting-related service offeringsBetter leveraging of resourcesHeightened service quality

BOTTOM-LINE BENEFITSProactive analysis and insightsIncreased sales (e.g. through balanced management of internal sourcing, agencies, and technology to turn around quality new hires faster)Avoidance of building duplicate infrastructure for expertise services by establishing COEs

Source: Everest Group – July 2010