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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Economic Game Planning for Services Evolution

I had a recent experience attending a round-table discussion with executives who are sharing approaches for evolving their outsourcing strategies in the face of changes occurring among the service provider landscape.  Each of the participants represented leading institutions, and all had considerable experience in the selection and contracting of technology-enabled services.

It’s always enlightening to me to participate in a candid exchange of challenges and opportunities among some of the more accomplished practitioners in the art of services contracting. 

Much to my surprise, my greatest take-away conclusion centered on the degree to which many companies continue to focus on staff augmentation or labor-based capacity arrangements.  Despite much of the marketplace rhetoric to the contrary – notably promoted by yours truly – around the shift to “As A Service” modes of contracting, this conversation gave me pause.

Just about every one of the 12 global firms represented in the discussion was more focused on matters relating to retention of talent, sizing bench resources, and matters of cost-effective resource management.  I found this odd, given my own experience in seeing progressive strategies in other sectors.

Our discussion revealed the reasons for this apparent reluctance, among these firms, to embrace new forms of services contracting.

1)      Buying “As A Service” would require that requirements are well-understood and expressed, and enterprise services interfaces are well-defined.  Most of the companies in my conversation admitted that they lacked the confidence in the business direction and lacked the investment in the required services architecture to allow for subscribing to market-based offerings.  As such, “As A Service” is a strategy for only selected and specialized functions today.

2)      Incumbent providers aren’t paving the way to transition from labor-based arrangements.  There was a fair amount of disdain expressed for the heritage ITO and BPO services providers when it comes to evolving existing service models towards more market-based and leveraged arrangements.  The firms felt that the rhetoric around outcome-oriented contracting is not yet mature among existing services providers.

3)      Managers don’t know how to operate in an “As A Service” world.  That is, the executives who are responsible for business functions and services have grown up being trained to manage people and effort and processes.  They have not yet acquired the skills to manage services interfaces. 

Reflecting on these three obstacles to innovation in adopting market-defined services, I can’t help but observe the self-fulfilling prophesy attendant to the cycle.  In my simple world of expression, what I heard was:

a)      I can’t buy “As A Service” because I don’t know what to ask for, or how to plug the service into my company’s operations;

b)      Further, my existing providers aren’t investing in services that reflect their awareness of my industry’s needs – which means that there either isn’t much commonality or there isn’t a willingness of the market to buy differently; and

c)      Even if there were built-for-purpose alternatives to buying labor capacity, my organization isn’t prepared, equipped, or motivated to do so.

I won’t overly generalize, but I sense that there’s something behind this logic.  This group of highly-experienced practitioners felt constrained in the ability to drive greater value creation by the lack of institutional commitment to running their businesses in a different way.  Instead, they are focused on developing Service Level Agreements that are tied to performance and retention … a weird intermingling of the what with the how.

As I reflected on this conclusion, I was drawn to compare what I had heard with other examples in my past of aggressive adoption of platform-based “As A Service” modes of operating.  What was different?

The differences start with senior business leadership who are enlightened around the fact that innovation in services demands that much of the sacred legacy approaches need to be left behind, including many of the rituals that have defined the role of managers.  I can recall, easily, a dozen or more really accomplished CIOs, CAOs, Shared Services executives, or COOs of major companies who owned the strategy to reorient functions away from effort and towards predictable outcomes. 

One such executive taught me a great lesson on how to operationalize this shift in thinking about the contracting for services.  She promoted the use of an “Economic Game Plan” as the central nexus for managing a broad portfolio of business support functions, including those outsourced in whole or in part.

The EGP is a means of expressing the handful of levers that are available for any given business function to drive down costs, align capacity with demand, and improve quality of performance.  She insisted that this technique be applied to all of the business functions in her company, and that this form the basis for a multi-year plan around standards, fixed/variable cost bets, disruptive innovations, and service partner selection.

The EGP is not a procurement tool; it’s a management utility.  What my client experienced through its adoption was a steady improvement in the awareness and competency of her staff to understand that they are managing moving pieces, and that a good leader will develop keen awareness of the various levers available at any given time to respond to change.

The executive who sponsored this liked to tell her team that the adoption of standards and focused accountability was not driven by the desire to lock down on what’s comfortable and convenient, but rather to enable agility and change when the business required flexibility.

I’ve been a disciple of Economic Game Planning ever since that experience.  It’s a technique to foster a conversation among the service recipients and service providers that enables evolution.

I sense a great opportunity to educate companies in the art of the possible when functions are assessed through an Economic Game Plan, rather than through the lens of “can we find cheaper people to do this work?”

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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The Eco-System Effect

There aren’t many companies that aren’t obsessively focused on strategies for growth.  Regardless of the industry, even the most wildly successful businesses need to feed the monster by delivering consistent and high levels of top-line expansion.

One manager early in my career told me, “Growth solves all problems, and hides most sins.”  I didn’t fully appreciate the substance of that wisdom when I first heard it, but I see it applied in practice today.

I’ve observed an interesting common recipe for identifying and acting upon new ways to expand services revenues.  I call it the Services Eco-System Effect.

I spend a good percentage of my time on this topic – helping companies of various sorts figure out ways to expand faster than they might on their own.  It’s a privilege for me to work on such a sensitive and urgent topic, with some really great companies.

When I enter into a situation where senior leadership has elected to call an intervention by having an outsider review the growth strategy, it’s often because the tried-and-true techniques of the past aren’t yielding the expected results.  A new play is required, and positions on the playing field need to be realigned.

It is most common for companies to be looking inward for ways to drive improvement in their sales effectiveness.  Some of the more common points of emphasis include:

·         Challenging demand generation models, often focusing on digital marketing, brand promotion, and progressive techniques for getting noticed by the prospective customers in their target markets.

·         Enhancing the influencer community, with promotions of rankings or assessments by analysts serving as the credentials for new opportunities.

·         Refinement of the channel network, looking to align incentives for representatives to carry the proposition more prominently.

·         Modifying the sales coverage, compensation, rewards, and recognition programs, with hopes that the sales force needs some refreshed incentive to work harder.

·         More purposeful application of market development funding to enhance positioning.

·         Investing in sales techniques and training to help the feet on the street to engage more effectively.

·         Refining the account management practices to allow for greater cross-sell and up-sell within existing customers.

Most sales leaders know how to assess and enhance their organizations in these ways.  So, while modest improvements are possible through an internal intervention, I’ve found the greatest improvement opportunities by helping to think externally.

While this might sound trite, the most common missing dimension that I encounter is near-sightedness in terms of service application.  Most companies that describe their business models as being “B-to-B” are short-changing their proposition. 

I like to provoke new ways of thinking about the business by asserting that all businesses are “B-to-B-to-B” or “B-to-B-to-C”.  Every business has customers.  And, they have suppliers, partners, and a network of business partners.  That’s the Eco-System to which I refer.

My operating thesis is that growth in B-to-B services is accelerated by a refreshed positioning of relevance within the Eco-Systems that exist within every industry segment.  Often, this entails converting a product offering into a services offering – selling the hole, not the drill bit.

Just about every situation I’ve seen over the past several years has been constrained by thinking of B-to-B in isolation.  Conversely, if a salesforce positions its offerings as central to the economic network of its targeted customers, an entirely new universe of opportunity emerges.

The idea is that each business in the "ecosystem" affects and is affected by the others, creating a constantly evolving relationship in which each business must be flexible and adaptable in order to survive, as in a biological ecosystem.

Too often, businesses tend to constrict the value proposition of their offerings to the domain of the buyer, and ignore the benefits of a network effect within an Eco-System that exists around shared objectives, dependencies, and relationships.  Do your buyers really need to own your product, or might they capture greater value through the beneficial effect of your product delivered as a service?

The answer to the question around future sources of material growth may not come from tweaks to the internal protocols for selling discrete products.  The answer may come from a repositioning into new propositions for relevancy to the Eco-Systems of your customers, often through services. 

Peter Allen has 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 Senior Advisor for Alvarez & Marsal, and Chief Evangelist at Peter Allen & Partners.

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The Fading Allure of Pure Play Services

In the long history of IT outsourcing, there was a prominent strategy among many IT Services companies to position themselves as “pure play” services firms.  This was meant to counter-act the competitive alternative offered by companies that were simultaneously product manufacturers and services companies.  See: IBM, HP, Xerox, Fujitsu, etc.

The paradox here is that product companies tended to think that they need to have a services arm in order to optimize the sales/service channel to the market.  Yet, that services arm tended to command lower profit margins than the product business lines, and risked having the provider being seen as biased with respect to servicing products that are not part of the manufactured portfolio.

Pure Services companies, on the other hand, promote their objectivity.  They promise to serve multiple product families brinigng efficiency through leverage of process and scale.  Some even advocate agnosticism in terms of the products being serviced.

In my experience, the win rate for large IT Outsourcing contracts wasn’t materially different among the pure play contenders versus the product-plus-services providers.  None the less, it was a healthy point of competitive debate in the selection process.

The question I am increasing asked is this: “What does it mean to be ‘pure play’ in the era of ‘As A Service’, and will there be a shift towards favoring a pure play proposition?”

I had the pleasure recently to experience a sales pitch to a banking IT executive in which an IT services provider was touting its objectivity and independence with respect to the cloud infrastructure offerings it was suggesting to serve as the foundation for a rather ambitious transformation.  The central assertion was that the bank should not be beholden to any particular technology suite, but would be better-served by selecting a service provider that was firmly established for services, and not selling products.

The bank executive listened for only a few moments before he interrupted the pitch to say, “You guys don’t get it.  We don’t care what products are under the covers.  Independence doesn’t matter when we are buying outcomes.”

The meeting ended abruptly, as the service provider’s script was now turned on its head.

Based on the interactions I am seeing in the market, enterprises are increasing leaning towards buying/subscribing to turn-key services solutions that unify the various component parts into holistic offerings.  The actual product underpinnings are less relevant than the committed level of features, functionality, and service integration.

The effect of this shift in buying tendency means that there is a third breed of service option.  We have the emergence of service contenders who are removing the complexity relating to underlying components of a technology stack and bringing well-engineered services solutions to the table.  Commonly labeled “Business Process as a Service” or some variant thereof, these are platform-oriented “As A Service” stacks that present a new proposition when considered alongside the traditional product and pure-play service alternatives.

So, the answer to the question of what it means to be pure play in an “As A Service” world is that companies must compete on the basis of built-for-purpose functionality, as opposed to general-purpose run/operate.  Independence has diminishing relevance.

Recent M&A within the industry that is shifting non-differentiated service capabilities among companies is considerably less interesting and less relevant than the development and scaled deployment of BPaaS platforms, regardless of the heritage of the provider.

Call yourself pure play if you like, but the market won’t care unless the play is built “As A Service.”

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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Playing the Innovation Card

Playing the Innovation Card

In 1964, U.S. Supreme Court justice Potter Stewart famously characterized pornography with the quote, “I know it when I see it.”  The same is true for innovation in the art of commercial services.

I’ve been party to hundreds of commercial outsourcing arrangements – serving on the side of the buyer and on the side of the services provider.  Invariably, the topic of innovation arrives at the table from one party or the other.

Enterprise buyers seek to assure themselves that any resulting contract won’t yield “same mess for less” by challenging the contending providers to commit to a process whereby innovation in the services is confirmed and committed.

In a reinforcing fashion, the industry service providers, eager take the bait, offer up vague and unspecific promises of future features and functions that evolve with the broader market.

I liken these conversations to mutual assured misunderstandings, and ultimately disappointment and dispute. In short, both parties are speaking without communicating – and setting expectations that will fail to be met.  Buyers think that evolution of the services is baked into the price, while providers think they’ve locked down scope with a menu of future options available for additional fees.

The guidance I apply to these situations starts with the buyer, and the principle that nothing good comes without a cost. If innovation in the services is important, then it is essential to understand how that innovation is funded.

Buyers/Subscribers to an outsourced service are expecting that they are the beneficiaries of investment made by the services provider to serve a market of customers.  That is, there is leverage in the service model that spreads costs relating to the design, evolution, and delivery of the services across a multitude of like-minded buyers.

With this model in mind, it is reasonable to expect that the service provider is continually testing the market that it is serving to understand future opportunities to enhance and evolve the features and functions, drive down service costs, and improve the risk profile of the services it is delivering.  That’s just good business practice, right?

Well, if the commercial arrangement is viewed (by either party) as being “bespoke” (custom-made to fit a particular buyer), then the economic logic erodes rather obviously.  My caution to buyers: if you’re the only subscriber to a service, then innovation will take the form of specific and defined commitments that can be measured and priced distinctly.

But that’s not the way that most companies want to buy innovation in a services arrangement.  They don’t want to pay extra for unique and proprietary enhancements. They want the innovation to come as the market evolves with new capabilities.

Once this economic reality is appreciated by the buyer, it’s time to focus on buying “As A Service” offerings that are established in the marketplace and which are serving multiple subscribers. That orientation yields a very focused conversation with the contending service providers and removes much of the ambiguity around the term innovation.

The counsel I provide to ambitious service providers is to be very well-prepared for this form of discussion with an educated and informed buyer.  Pretenders will be smoked out quickly and failure to pass the test of a worthy innovation model will likely result in disqualification for further consideration.

The successful services provider will frame the topic of innovation through four dimensions that are directly relevant to the buyer’s future-view of the services continuum.  They include:

• The reach that the service provider has as they serve markets and sense innovative ideas to assess and invest in over time. This is an important test – whether the provider is serving a broad enough base of customers with essentially identical services.
• The cost of acquiring and developing those ideas, and the funding sources for such investments. Service providers need to affirm that they have an investment model in place.
• The risk involved in trying to turn them into marketable products, including processes for customer engagement. The risk of innovation is worth emphasizing, and using as a key selling point with the buyer. And,
• The speed with which the new features and functions can be brought to market. This often entails promotion of partner relationships, innovation laboratories, lighthouse clients, and the like.

Innovation need not be a four-letter word.  It is a central thesis of true “As A Service” contracting conventions. Aspiring service providers can use this topic to differentiate from lesser-prepared competition, but the sales process must be genuine and transparent around the topic.

Conversely, buyers who want assurance that innovation is baked into the services need to insist that the principle of buying market-defined offerings is applied in the source-selection process with prominence.

In these way, both parties will know innovation when they see it.

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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The Art of the Services Sale

A few years ago I sat with a senior executive of a global consumer products company reviewing our week’s findings.  We had just concluded a parade of prospective services provider presentations, and it was time to reflect.

Dave was a finance executive, accustomed to quantitative precision. Our week had been spent listening to six services companies try to impress upon Dave their unique abilities to service his global operations.  Precision was as far from reality as one could imagine.

As our reflections concluded, Dave asked one final question of me.  “Can you explain to me why this industry is fixated on capabilities, when what we’re trying to buy is services?”

Dave was frustrated by what he had just experienced – broad and general claims about undefined and unmeasurable expressions of effort that were entirely disconnected with his business priorities.  Not from a minority of companies, but from all of them. Having heard from industry peers complaints regarding the lack of innovation via outsourcing, Dave’s doubts about the outsourcing proposition were only exacerbated by the experience.

Dave compared what he had seen presented by the leading companies in the fee-for-service outsourcing industry to what his company had achieved for themselves via a Global Shared Services mode of operation.  He looked for a service catalog, committed service levels, volume-based pricing, a talent management utility, alignment of rewards for productivity … all of the traits that typical service companies employ. He had hoped to find new sources of leverage that would accrue new classes of benefits.

Outsourcing is hardly a novel concept.  It’s a business convention that has been in play for over a hundred years.  That reality made Dave wonder how it could be that the IT Outsourcing and Business Process Outsourcing industries could be so backward in the definition of services.

In trying to explain what he had just experienced, I noted that the ITO/BPO service providers generally trace their roots to one of two heritages.  Very few providers are built-for-purpose service providers.  The mindset and management muscle of these companies are informed by a grounding in systems integration or offshoring.

Companies with a systems integration DNA are very requirements-driven. They are literal.  They thrive in solving problems as if they’d never been solved before – approaching each situation with an eye to building a unique and distinct solution.  Commonly, the end result is a well-engineered design but lacks scale or market-based application.

Conversely, companies that trace their origins to the offshoring industry are much less fixated on the specific requirements, opting to promote value by recruiting, cultivating, and deploying the best talent.  These providers rely on the Client to define HOW a job is to be performed, and pride themselves on finding excellent talent to complete the tasks.  The companies tend to standardize work very well and deliver with predictable results.  But, the scale potential is limited. Wage arbitrage is a lever that can be pulled only a few number of times.

As one might imagine, both of these classes of services companies tend to promote capabilities.

In the commercial services industry, the term “capabilities” is a red flag.  A capability is considered the inverse of a commitment.  A systems integrator is certainly capable of building an elegant solution to a set of requirements.  And, an offshore services company is equally capable of excellent human capital management.  Neither, however, conforms to the expected definition of a “service.”

Today I guide both buyers and providers of commercial services around the lexicon and terminology of alignment. Service providers are using different words, and making new claims, around their commitment to progressive forms of offerings.  Some are using the “As A Service” phrasing.  Some are promoting outcome-based pricing.  Yet, the depth and reality of their commitment to true services proposition are easily tested by discriminating buyers.

On the other side of the equation, many companies profess to want to buy market-based service offerings yet insist on imposing a spectrum of stale and constraining requirements on the prospective service providers. Having it both ways rarely works.

I’ve found that a handful of principles are effective tools to foster the conversation around buying and selling/delivering true “As A Service” relationships.  One of the more significant is “Buy from a Market.”

The parties must recognize that buying standard and industrial services is the foundation for a true “As A Service” relationship.  At its heart, prescription of a solution by the buyer is to be avoided at all costs.  The service provider’s ability to drive leverage is central to making this model work. 

Relatedly, a more comprehensive and scenario-based business case format must be used to capture derivative benefits that are not customary in traditional services contracting.  And, there needs to apply different forms of diligence, ultimately proving the Supplier’s commitment to a Services life-cycle and existence of a market of like-oriented subscribers.

To drive this point, I often facilitate conversations around the innovation investment model for the contracted services.  Clients are expecting their providers to have a strategy for funding the evolution of their services over time.  If a provider stumbles on this question, it’s a sign that they are not fully committed to being in the “As A Service” business.

For a service provider to win in this environment, they must break down the traditional silos of service capabilities and show up with a unified offering in all respects.  Showing up with a team of people who carry the flags for their own parochial business elements only reveals the lack of alignment and integration behind a built-for-purpose service proposition.

Acceptance of new forms of risk is table stakes - and directly related to the fact that the provider is serving a market, not a sole client.  An effective selling technique is for the service provider to be clear on the risks that they are taking on by committing to the commercial services under consideration. In earlier forms of outsourcing – whether via a systems integration or offshoring worldview – the provider often allocated considerable risk to the Client.  “As A Service” shifts this risk, and that fact should be clear in the sales process.

Transparency requirements will increase, in various forms. The term “Service Catalog” must be pervasive – in how the provider thinks about and communicates its propositions, and how the Client will manage variants in service classes.  Further, the approach to diligence on the Client’s environment is critical – the provider must be expert at knowing whether it’s offerings are fit for purpose.

In a fee-for-service world, Dave expects a market-based, fee-for-service conversation.

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.

Image:  https://www.flickr.com/photos/esalesdata

From Effort to Outcomes

As a 22 year-old, I was immersed into the eye-opening experience of my first real job.  While the era was long ago, well before Silicon Valley defined the meaning of a “startup” culture, I thrived at being fresh talent in a company that was buzzing with energy for the work it was doing.

Based in Cambridge, MA, just outside the walls of Harvard and MIT, the company was on a mission to change the world through the use of innovation in networking technology.  Most of the employees were casual in appearance, wore sandals, and enjoyed the free espresso that served as the focal point for conversations.

This era was one where email had not yet been deployed as a basic communication utility, so the potential of an interconnected universe of companies, research institutions, and individuals was still being formulated. The notion of connecting people via technology was at the center of the company’s focus.

With two years of experience under my belt, I was called to meet the new Senior Vice President who had joined the company to lead the business unit that I worked within.  With trepidation, I walked into the plush offices of one of the most senior people in the company.  Bob Halligan looked me over and said, “I’ve heard a lot about you.” 

 

My reply was a rather sheepish, “Thank you.  I try hard.”

Mr. Halligan didn’t miss a beat with his response: “A lot of people try hard.  Your reputation is framed by results.”  Some encounters stick with you for your entire life.

Fast forward to today’s highly-interconnected economy whereby individuals and businesses are able to interact and conduct their affairs with almost frictionless ease thanks to the growing fabric of technology-enabled services.  As consumers, we are conditioned to expect transactions of all forms to be effective and efficient.  We’ve lost tolerance for the well-intended best effort, and have shifted our expectations towards fast and perfect.

What matters most to us is the quality of the result, with diminished concern for the path required to achieve that outcome.

I’ve developed perspectives that I’ve been calling “The As a Service Economy” through the most recent years of a long history in the Outsourcing and Shared Services industries.  These operating conventions are used by companies to drive cost efficiency in their business operations.

Today, there continues to exist a considerable percentage of corporate spend allocated to effort-based work.  The popular use of offshore labor to execute transactional work processes has perpetuated this mode of operating.  Managers tend to define and direct work to groups of people who are well-intended, toiling to execute tasks using the collective knowledge and learnings of their work units. 

Tribal knowledge is still pervasive as the way things get done in many, many companies.

The promised transformation of work processes through the deployment of technology platforms for standardization of workflows, and consistent organization of data, has not yielded the impact that most executives imagined when they launched these deployments. ERP solutions have not materially refactored the way that business processes are executed.

There will be arguments to the contrary, but my experience leads me to believe that “As A Service” is redefining the corporate services architecture to remedy the shortfalls of offshoring, outsourcing, and ERP adoption.  There are five truths that contribute to my worldview on this:

1.     Most CIOs and heads of Shared Services are serving as the point of leadership for the adoption of platform-based, industrial-grade Services.  These are commonly components to the enterprise digital transformation, as they are built-for-purpose elements that require orchestration and integration among the service eco-system.

2.     These strategies commonly entail a migration from legacy resourcing models - people, processes, and technology - to embrace adoption of new forms of operating.  No big bang, but a purposeful evolution.  Companies are chipping away at effort-based work processes and embracing outcome-assured service utilities.

3.     There are readily-accepted proof points.  Salesforce.com, AWS, WorkDay, Coupa, and others are the trailblazers for the new way of running the enterprise.  The objections to utilizing multi-tenant platforms are being overturned in favor of market-based service offerings.  Companies are dismantling their installed base of facilities and organizations in order to adopt market-defined services.

4.     This strategy is not constrained to back-office functions.  Increasingly, we are seeing the bundling of front-office applications with the attendant operating infrastructure into turn-key business services.  This is an important shift away from optimizing the horizontal service categories like storage, compute, payroll, and the like.

5.     A final summary observation - many of the companies that are employing “As A Service” techniques for how they BUY services, are also looking to apply those same mechanisms for serving their own markets.  What this means is that the essential skills for designing and implementing a buying strategy for market-based services are valued for helping companies evolve their market-facing propositions.

This transformation of business operating structures has considerable headwinds. Generations of managers have grown up believing that their value is defined, in large part, by the number of people they control, direct, supervise, or manage. Procurement leaders have been trained to advocate for unique and special requirements, not buy “standard” as a primary imperative. “As A Service” modes of operation challenge this mindset. 

Power and influence doesn’t accrue based on the scale of effort one directs, but rather the magnitude of effect that one assures. 

As I work with enlightened executives who are committed to transforming the profile of their businesses, there are many complications attendant to reorienting the functions around outcomes rather than effort.  Yet, most know they need to embrace this opportunity and are developing the roadmaps for migrating their organizations to a new form of service delivery.  The old structures and modes of operating are being chipped away.

All in all, the greatest obstacle to this shift is comfort with the status quo.  If management rewards “span of control”, then executives will seek to build larger and larger organizations. This is why, in my experience, leadership engagement is central to reimagining how the business is organized and operated, and embracing buy/subscribe over build/operate.

At the end of the day, outcomes matter.

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.

Image:  https://www.flickr.com/photos/paulcutarellix

Beware: Robots on the Cow Paths

There’s a growing volume of chatter in the outsourcing industry circles about the breakthrough potential of Robotic Process Automation, or RPA.  I’ve recently seen RPA in action for a few major corporations and I’ve developed a concern over this trend.  It’s a concern based on successful adoption.

For those who haven’t had the pleasure of a first-hand exposure to RPA in action, I can tell you that it’s quite impressive.  Software-based “robots” (personally, I am not a fan of the term, but it’s increasingly being used) run on servers and essentially perform the identical tasks that humans otherwise would perform.  They login to various systems, review lists of tasks, lookup and correlate information from varied sources, and execute well-defined procedures.

The benefits include 24x7 operations (no coffee breaks or absenteeism), predictable quality of performance, speed of execution, and … obviously … lower labor costs.  Other benefits include the ability to audit and measure the performance of tasks that might not otherwise lend themselves to 100% verification.

These virtues have great appeal to companies that use people today to execute rather standardized processes.  Lower cost, higher quality, assured outcomes.  Sounds great, right?

Many observers are worried that the rise of robots to perform transactional business processes, such as accounts payable reconciliations, invoice verification, account change processing, and the like, has the potential to displace thousands of “knowledge workers”, leading to a greater level of social issues around employment rates.

Some of the more prominent corporate advocates among the outsourcing industry, many of which operate with thousands of employees domiciled in lower-cost delivery locations, are the most prominent adopters.  They argue that today’s labor arbitrage outsourcing models need the ability to drive greater sources of benefits to their customers.  The ability pull the lever of lower labor cost is diminished, so we must shift to automation from these delivery centers as the next wave of benefits for outsourcing.

Well, what I’ve seen of RPA in practice introduces, to me, a concern that dwarfs that of displacing workers.

I am old enough to recall the rise of Business Process Reengineering in the early 1990s.  BPR was the brainchild, arguably, of two consulting luminaries, James Champy and Michael Hammer. 

The central thesis of BPR was that “the usual methods for boosting corporate performance—process rationalization and automation—haven’t yielded the dramatic improvements companies need. In particular, heavy investments in information technology have delivered disappointing results—largely because companies tend to use technology to mechanize old ways of doing business. They leave the existing processes intact and use computers simply to speed them up.”  That was twenty-five years ago!

Back then, the BPR advocates argued that speeding up those processes does address fundamental performance deficiencies. “Many of our job designs, work flows, control mechanisms, and organizational structures came of age in a different competitive environment and before the advent of the computer. They are geared toward efficiency and control. Yet the watchwords of the new decade are innovation and speed, service and quality.”  Those are the words of Michael Hammer printed in a prominent 1990 HBR article.

Many of the RPA examples I’ve seen are simply a repaving of the cow paths defined by current systems, processes, and policies.  The RPA robots memorialize the existing procedures in ways that mimic today’s human-based operations.

While today’s RPA initiatives are designed, largely, to be proof-of-concept and pilot in nature, I think that great care should be taken to define the innovation roadmap for the underlying business processes prior to shedding the people who are the most knowledgeable about the processes being robot-enabled.  We need to know that we can redesign, replace, or retire those existing systems and processes – not be held hostage to a robot’s execution of legacy procedures.

Perhaps this assignment is a worthy repurposing of the displaced knowledge workers?

I’ll never argue against automation and the use of technology to drive efficiency, accuracy, and cost effectiveness.  Those are sacred principles in an “As A Service” economy.  Yet, we need to be sure that we don’t lock ourselves into legacy ways of running businesses as the ultimate price for near-term efficiencies.

The robots will execute; they will not redesign.  Not yet.

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.

Image:  https://www.flickr.com/photos/grimrobots

Managing Service Risks in the “As A Service” Economy

The rule of thumb for services contracting, proven over the past 20+ years, was that companies tended to spend 3-5% of their services contract value on “governance.” 

When a company awarded a $100M services contract for outsourced IT or Business Process operations, they typically spent $3-5M on the people and processes focused on service management and governance.

What did these expenses provide?

• Financial Management – handling the authorizations and verifications of the financial obligations of the parties;
  • Invoice Management
  • Performance Credits, Earnbacks, & Critical Milestones
  • Financial Analysis & Planning
  • Contract Pricing Adjustments
  • Chargeback
• Performance Management – reviewing service level and other reporting artifacts that track attainment of committed qualitative performance;
  • Performance Analysis & Service Delivery Management
  • Service Requests and Authorization
  • Change Management
• Relationship Management – ensuring tight alignment among the buy-side and provider-side expectations
  • Forecasting and Demand Management
  • Project Spend Pool Manager
  • Service Catalog Management
  • Customer Satisfaction Measurement
• Commercial Management – accountable for the formal terms among the parties
  • Contract Administration
  • Contract Change Management
  • Contract Issue Management
  • Dispute Resolution
  • Service Provider Audit
  • Governance Library

Invariably, this level of expense and organizational construction resulted in debate on the value returned for such investment, the buy-versus-build alternatives, and the tendency to meddle in the delivery of the contracted services.

I am being asked more frequently about the effect that “As A Service” contracting places on the Service Management & Governance competencies of companies.  In my experience, the level of investment is holding steady, but there is a shift among the functions embodied in the progressive “vendor management” function of companies looking to subscribe to market-defined offerings as a preferred alternative to directing the build of solutions that are specific to the buyer.

The most visible new competency being promoted in this context is Vendor Risk Management (VRM).  Many companies are deploying organizations and processes for continually monitoring the viability of their supply base through the lens of “what if” analyses.  If you think about the “As A Service” fabric of internal and external service participants, the modularity features of “plug replaceable” services is an essential feature that requires active monitoring.

Regulated industries, such as Financial Services and Healthcare, in particular, are experiencing dramatic increases in the requirement to monitor and manage 3^rd-party risks.  These disciplines are analogous to the rigor that other industries, such as manufacturing, have applied commonly to their supply chain for tangible materials. 

Now, these inspections are being applied to information-based services with greater rigor.

The increased investment in VRM within the Service Management framework is being offset, to a degree, by adoption of more automation in the conduct of performance management, financial management, and commercial management.  The functions identified are still required, but the implementation alternatives are more varied under a subscription-oriented arrangement.

As we see companies shift their services strategies to take advantage of the growing portfolio of market-based “As A Service” offerings, I think we will see an accelerated maturity in the professional disciplines around vendor risks, including adoption of automation, analytics, and friction-less switching among service participants.

 

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.

Image:  https://www.flickr.com/photos/ponch-o/3629584486/