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Organisations now consider virtually all functional areas and activities outside the core value chain as candidates for alternative delivery mechanisms.
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© 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
© 2011 IBM Corporation
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
© 2011 IBM Corporation
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
© 2011 IBM Corporation
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:
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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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© 2011 IBM Corporation
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
© 2011 IBM Corporation7
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
© 2011 IBM Corporation8
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
© 2011 IBM Corporation9
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
© 2011 IBM Corporation10
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
© 2011 IBM Corporation
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
© 2011 IBM Corporation
Source: Everest Group – July 2010
Benefits from a hybrid model(Percentage of cost)
© 2011 IBM Corporation
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
© 2011 IBM Corporation14