Thursday, August 11, 2016

Business Case for Investing in Shared Services

To go Captive, or Outsource?  That’s an increasingly common question among CFOs and other business leaders.

It’s become quite common for companies to organize their business support functions into “shared services” operations for a range of good reasons, notably around efficiency and effectiveness of common processes.  Shared Services may take varying organizational and functional form depending upon the nature of the business and the degree of similarity across business units.

It’s also quite common for the Shared Services organization to carry responsibility for deciding whether, or not, to outsource some or all of the processes they are charted with delivering to the business.  After all, the process owners should be in the best position to weigh the relative merits of available alternatives for driving continuous improvement in costs, capabilities and capacity.

Several years ago I adopted the view that balance among those “three C’s” of cost, capability and capacity serve as the best way to foster an objective evaluation of the range of service delivery options that a Shared Services organization might choose among.  My perspective was informed by a situation in the consumer services segment where the CFO asked me to lead an evaluation of outsourcing service providers for North America Finance & Accounting (F&A) functions.

As is often the case in such evaluations, we started with capturing the current state of play – the spectrum of resources and costs associated with performing those functions, the volumes of services delivered and their degree of commonality, and a qualitative sense of service benchmarks. What I found was not surprising – an F&A team that was struggling to meet the demands of varied business units, each believing that they carried unique requirements, utilizing systems and tools that were substandard, and toiling through manual processes for reconciliation, correlation, analysis, and reporting.  In essence, a tired organization that was frustrated by the fact that their mission was not supported by leadership commitment and required investment.

I wish I could say that this was an unusual situation, or one that represents the far-ago past, but it is not. 
Even with the increasing adoption of the organizational convention of Shared Services, I find that many companies lack the fortitude to weigh the merits of investing in themselves prior to choosing to spend money with external parties.

After completing the baseline assessment, the CFO asked, “Should we just turn this over to an industry service partner to bring best practices into our business, or is it better to solve this problem for ourselves?”  My reply surprised her – I said that accountability for these processes would never be relegated to anyone other than her, and that it was time to treat investment in the Shared Services organization just like she would any other business investment. 

We set about to build the business case for evolving the Shared Services function from its rudimentary form to that of a true business-enabler.  Where there had been starvation for investment in the past, minds were opened to the merits of bringing technology to bear alongside process rationalization to simplify the business support functions across the firm.

The breakthrough for this company came through two important factors:

1)      Leadership of the Shared Services needed to step forward and own the roadmap for incremental evolution through wave of iterative cost/capability/capacity enhancement.  The CFO and the business leaders needed to know that there was a responsible executive driving the strategy with full focus, and
2)      There needed to be a distinction drawn between process ownership and technology programs.  Like many other companies, any program of change that sounded like a big ERP deployment was met with great disdain and skepticism.

The three pillars of cost levers, capability enhancements and capacity agility were used to put forward the business case in terms that the business would recognize and appreciate.  It also provided a ready framework for considering new opportunities for innovation – whether to be pursued internally or via industry partnerships.

Outsourcing was held as a potential means for achieving the future state of operations, but it was never positioned as the end unto itself.

Reflecting back on this, having recently reconnected with the people involved in that situation, I am amazed at what was achieved.  A proud organization emerged from the process that took ownership of creating a business services utility with direct linkage to the business results.  The business case structure was employed for both other support processes and for deployment to other regions of the world, including for the creation of a captive offshore delivery network, and outsourcing was used strategically to address certain elements of the process ownership model.

I was most impressed by the degree to which the build-versus-buy evaluation created a culture of enablement among the people involved.  They owned the assessment, and the recommendation, and the implementation. 
Companies need to look at their Shared Services organizations as change-makers, not as unfortunate back-office resources that are handed a mess to sort out with sweat equity alone.

Peter Allen applies many years of operating experience as a top executive and strategic advisor for companies of all shapes and sizes, with focus on technology-enabled business services. He is now Chief Evangelist at Peter Allen & Partners and Senior Advisor for Alvarez & Marsal.

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