The End of Outsourcing as We Know It… Part I

At the end of the day, it’s not all about outsourcing and it’s not all about shared services; it’s about focusing on how to globalize processes, how to transform finance (and other) functions, and how to govern it all in a global business services context. There is no dominant model, it’s more about achieving the right balance across all delivery models to achieve the best business goals.

In conjunction with global accounting body ACCA, We spoke to 682 large organizations currently running finance in either an outsourced or shared service framework (or both) – and the results are emphatic: those organizations relying predominantly on outsourced delivery, or predominantly shared services, are viewing their finance delivery performance much more skeptically:

Why do these results signal the decline of the “predominantly outsourced” model?

1) Expectations are clearly higher with outsourcing… and they’re not being met. Only the ability to meet compliance and regulatory goals (42%) is brushing up notably well with the outsourced finance functions. Everything else is mediocre-to-average, in terms of meeting finance performance objectives. This is because many buyers’ outsourcing environments are relatively nascent, and their expectations were likely set to a high level when they embarked upon their engagements. In addition, most governance staff can clearly recall what it was like before outsourcing, and find their new environment a struggle to get things ticking over like they were in the old days. Buyers are clearly finding it hard to make productivity improvements to their finance processes when they outsource heavily, with the main reasons being the cost and complexity of dealing with providers’ change-order processes and also the fact they the operational people running the engagements on both the buyer and provider side are too junior to make decisions. Instead, they get absorbed into the table-stakes of meeting SLAs and running things on budget. Other reasons we will discuss further in our upcoming Sourcing Blueprint document. Our concern at HfS is that if buyers and providers allow these relationships to stagnate, we could get left facing a dangerous commodozitation of operational process outsourcing.

2) Shared Services delivery models aren’t faring much better. Those buyers sticking predominantly to a shared service model for finance are also suffering similarly mediocre performance levels to their outsourcing peers. Only their ability to standardize processes is really coming though as a major plus, with 52% experience really effective results to-date. Clearly, they find it easier to make tweaks to process flows and delivery quality issues. However, when you consider that most of these buyers have been doing shared services for an average time-span of 10-20 years, compared with 1-7 years for outsourcing, you have to conclude that a pure shared services model is not the best answer for those buyers seeking to continually improve their finance performance.

3) Hybrid shared services and outsourcing frameworks are reaping the best results. Those buyers operating hybrid SS&O frameworks are experiencing better finance performance in every single performance category. Clearly a strong, centralized retained organization that augments its shared services processes with outsourced options are enjoying the best of both worlds. Most notably, 54% of the hybrid buyers are finding genuine effectiveness with their ability to transform their finance functions, and similar proportions are encouraged by their ability to transform onto standard processes, meet compliance goals and even globalize their finance operations. Essentially, those buyers that are retaining more of their talent and working with their providers to help with achieving broader finance goals (at least initially), are developing their finance operating structure much more effectively. This indicates that buyers who leverage outsourcing to fulfill specific needs and blend it more effectively with their overall finance operations, are more comfortable with where they are going. At the end of the day, it’s not all about outsourcing and it’s not all about shared services; it’s about focusing on how to globalize processes, how to transform finance (and other) functions, and how to govern it all in a global business services context. There is no dominant model, it’s more about achieving the right balance across all delivery models to achieve the best goals.

The Bottom-line: Many buyers have little choice but to find GBS partners, or face a purgatory of inferior BPO and shared services

Buyers need staff who are ready to embrace these new global services environments. We’ve been hearing many buyers talk about populating their retained teams with staff who’ve only really ever worked in a globally sourced environment. And on the service provider side, buyers need delivery teams which can work with these retained teams to meet their business objectives, in addition to cranking out the administrative work. Should a provider fail to do much more than facilitate standard process delivery (yes, we all know they exist) the buyer needs to evaluate how to bring in external help to plug the gaps to globalize processes and work consultatively and strategically with the retained team.

We are now seeing the rise of Global Business Services partners to work with buyers in “process integration” roles, where they can help their clients’ retained teams manage their whole business services mix across outsourced, shared services and inhouse models. This is not too dissimilar from the service integrator roles we have seen in the IT world, with some of the higher-value integrators stepping up to help their clients manage the whole morass of service delivery. However, unlike IT where it’s easier to disaggregate services and run multi-vendor environments, it’s a lot more challenging when you deal with business processes, hence we expect those buyers with provider partners which have invested in domain capabilities to have a major advantage over those providers which really can’t do much more than provide butts on seats.

We see a true divide developing between the providers only focused on standard delivery, and those which have high-caliber process experts on their bench. The problem is many buyers today do not discover how poor their provider is until after then signed the deal, and it’s not easy to put in requests for consultative help after they’ve outsourced. However, for many buyers, they don’t have a lot of choice but to start campaigning internally for funds to improve their current sourcing delivery frameworks because they are far too beholden to the capabilities of the provider they signed up with.

Essentially, if your provider is starting to sound and acts like a glorified staffing company, you might just want to open up conversations with GBS partners which can work with you to optimize what you have already invested in. However, we recommend you’re MUCH better off finding this out before you give them the kitchen sink…

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