| Outsourcing is changing the shared services environment - Irish operations need to adapt if they are to survive |
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Shared services operations have come under increased focus over the last number of years for a variety of reasons. Successful experiences with shared services are driving organisations to expand their use of shared services operations and broaden the kinds of processes delivered. In addition, organisations that have grown through acquisition - the number of which are increasing thanks to soaring levels of M&A activity - find that shared services not only help eliminate redundant functions reducing costs, but moving to common processes and data enables operational synergies to be realised.
Similarly, as companies and their investors look to reduce costs, they are finding that shared services are helping to increase process standardisation and automation. Shared services are increasing value to business units by reducing efforts required to support administrative activities, allowing more time to be focused on core business activities and customers. | | Shane Mohan |
The survey is particularly useful from an Irish perspective. Ireland has traditionally been a very attractive location for shared services and the survey enables us to ascertain what these companies’ future plans are for their shared services centres and ultimately, how this may impact on Irish operations. Four particularly relevant themes emerged in the survey: expanding the scope of shared services, the focus on cost control and efficiency, location and the move towards outsourcing of selected activities. At first glance there might be some apparent conflict between expanding scope, particularly into high value, knowledge based activities on one hand, and on the other hand continually focusing on cost reduction. However, this gives an opportunity to those organisations flexible enough to adopt their shared services strategy.
Expanding the scope of shared services
The survey found that, as organisations are becoming more comfortable and successful with shared services, they are expanding the type of processes delivered via shared services. Transactional processes such as accounts payable and human resource administration still dominate the scope of shared services operations – and 83 per cent of respondents intend to increase the number of transactional processes. However just under half of the respondents were also looking to add processes that are more strategic and higher value added in nature such as internal control, preparation of management information, and legal and regulatory compliance activities.
Cost Control and Efficiency
Three key benefits of shared services identified by the survey were reduced costs, more efficient and effective processes, and increased control at a lower cost. Companies are adopting a range of tools and techniques to achieve these objectives including:
- Enterprise Resource Planning (ERP) systems improvement. e.g. e-invoicing, self services, scanning, etc.
- Process simplification and standardisation
- Increased focus on performance measurement and customer satisfaction
- Performing control activities within shared services
Location
One of the major trends to emerge over the last five years is to outsource business processes or offshore them to cheaper locations. This year’s survey found that relocation is certainly on the agenda for many organisations. In fact, 40 per cent of all survey participants plan on relocating their shared services operations, with 29 per cent planning to do this in the next one to three years. The predominant reason for this planned relocation is to reduce costs; 56 per cent identified this as the main reason, while 28 per cent said they were looking to improve service via relocation. Other factors include expanding operations, moving closer to customers or other operations, and combining or consolidating functions.
When looking at location factors it is reassuring from a local perspective to see that 41 per cent of respondents view labour quality as the main driver of location decisions, with labour availability the second most prominent issue – 38 per cent of respondents cited this as a critical issue. This is certainly in Ireland’s favour as our skilled labour pool has been a key factor in attracting shared services to this country. However, 24 per cent of respondents did identify labour costs as a critical location factor giving a competitive advantage to locations in Eastern Europe and Asia.
When all of the above is considered, it is clear that many organisations believe they can maintain, or even improve service and quality, while reducing costs through a move to an offshore location – but this still seems to be at the higher volume, transactional level.
Outsourcing
Every discussion around the future development of a shared services operation nowadays has to consider the option of outsourcing. At first glance, the prospect of potentially significant cost savings presents a compelling argument and outsource providers are pushing the potential cost and other benefits such as performance improvement and flexibility. However, outsourcing is a complex and high risk area that requires the careful consideration of many factors including strategic fit and viability, readiness, relative cost/cost savings, and vendor fit. Many organisations are deciding to first optimise their existing shared services operations in order to produce an optimum baseline position against which to evaluate the relative merits of alternative operating models such as offshoring and outsourcing, or indeed a combination of all three.
Conclusion
Companies are adopting much more flexible strategies when deciding where to locate their shared services centres. These strategies often involve a number of locations, and the use of outsourcing to third parties is often seen as desirable where it can be shown to achieve a balance between costs, benefits and risks. They are also demanding more from their shared services in terms of expanded scope, reduced cost and better service. What is clear is that the focus and operating models for shared services, both in Ireland and internationally, will evolve significantly over the coming years. Over 130 international shared services leaders responded to the survey, including many with operations in Ireland. |
Shane Mohan is a partner in Deloitte Consulting.
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| Article appeared in the August 2007 issue.
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