Shared services on the rise

Shared services centres promise greater efficiency in the Age of Austerity. Chris Middleton, Managing Editor of Professional Outsourcing, and Simon Tennant (pictured), Head of Finance Consulting at PA Consulting Group, report.

Shared services centres (SSCs) are on the many organisations' agendas for 2010 and beyond. In the Age of Austerity, there is a strong public sector trend towards folding discrete outsourced operations together to increase efficiency. That, at least, has been a recurring theme in recent Government presentations - such as by Fiona Spencer, director of the Shared Services Directorate at the Home Office. (See the Public Sector feature, in the Summer issue of Professional Outsourcing magazine.)

Creating a shared 'factory of excellence' is one way of describing shared services, as opposed to dozens of discrete 'cottage industries', perhaps, which are less efficient to run. Shared services promise to cut waste out of organisations where IT functions are often duplicated between departments.

The reality is not always so simple. Speaking to Professional Outsourcing at NASSCOM this year, John Torrie, UK CEO of Steria, said: "The issue is that everyone wants to be the first and everybody's shared service to be based around their authority, or their department, and everybody else has to join them. That creates difficulties in persuading other people to join the kernel of operations."

During the 2010 Shared Services & Outsourcing (SSO) Week in Edinburgh in May 2010, there was certainly a buzz about future prospects in the outsourcing world - despite the ambiguous nature of Government contract decisions over the next few months.

Which Government programmes will still go ahead, how much of them will be outsourced, which schemes will be scrapped, and who will pay in any eventuality are decisions that remain in the Chancellor's briefcase - for now. We will see greater detail from George Osborne on October 20.
Return on investment is also high on the agenda: both new and existing contracts will have to demonstrate their value as well as their cost. The gauntlet is down for both customer and service provider to pick up, managed by sourcing professionals.

"The challenge for this industry in the next few months and years will be to step up to a new level of leadership," said Rochelle Hood, SSC project manager of communications hardware maker Harris Corporation at SSO Week.

"We need to ask ourselves whether we are really sole providers or truly 'players'. I think that there is a great deal to reflect on in terms of what do we do to move ourselves up the value stream, and how we choose to sit at the table and really drive changes that serve our organisation."

Some within the shared services sector see a golden age of outsourcing ahead - which may mean more troubled, rather than simplified, industrial relations within the UK economy and beyond.

Celebrating a golden age too early, or too conspicuously, would be unwise. The initial optimism has evaporated among some providers now that the scale of Government cutbacks is clear.

Nevertheless, there is untapped potential in the UK economy across many sectors, but also residual anger about the depth, impact and cause of the recession. That means hidden and unpredictable costs - human and financial - as well as profits for the taking. Outsourcers, take note.
Shared services present corporate, national and international opportunities, suggested Phil Fersht, CEO of sourcing community Horses for Sources, at SSO Week. "The increasing prevalence of innovation as a differentiator - it's becoming a greater topic of conversation.

"New territories are making more of a mark - Egypt, Morocco, Bangladesh. There are geographies [sic] and governments that are making a conscious decision to build a shared service economy and develop it into a meaningful part of their country."

No doubt the services sector will increasingly approach the public wearing a domestic mask, behind which overseas operations and ownership will hide. That is merely to suggest that outsourcers should be more sensitive to public perceptions - and more perceptive about public sensitivity, at least concerning jobs that may be won or lost.

The Government itself is banking on an increase in private sector jobs fuelling the recovery, but few economists believe the height of those expectations to be realistic. One reason is that the Government is the largest single user of IT in the UK, with five Government departments (plus the Royal Mail) among the top ten technology consumers. Local and central Government are also massive customers for the services sector. The scale of Whitehall cutbacks will inevitably hit the private sector hard.

Whatever your political standpoint, Mr Cameron's 'Big Society' idea is another way of saying 'Small Government', or 'Increased Privatisation', but he is canny enough to know that a well-packaged Big Idea guarantees better PR than, for example, his predecessor's low-key grit and pragmatism.
But outsourcing or sharing services is not an end in itself but an ongoing process, and that is something that customers seem less bullish about as we exit recession. "There is a lack of enthusiasm, a lack of confidence and a lack of ability to move people from a traditional sort of mindset in BPO to something beyond," said Aubry Joachim, 2009/10 global president of the Chartered Institute of Management Accountants (CIMA), at SSO Week.

"In most organisations, less than 40% of its shared service centre capacity is actually used, and therefore you may have the best tool in the shed but unless you have someone that uses it..."
Last quarter witnessed some more overt causes of anxiety than the usual industry rumours buzzing about in the sunshine. Government was in a state of flux and the economic recovery was in its earliest days.

Despite that, the sight of 800 delegates and 200 exhibitors at the SSO conference in May suggested that people have money to spend, and both vendors and delegates alike displayed signs of relief, even cautious optimism, about the months ahead. Back then the coalition Government had been confirmed and an economic recovery - although not guaranteed to be sustainable - was at least emerging.

Simon Tennant is head of Finance Consulting at PA Consulting Group. He attended the event and gives Professional Outsourcing his personal assessment of both the mood and the emerging trends he witnessed at the show, and how these may affect us through the autumn and into 2011.

Chris Middleton

Simon Tennant reports

From the very first speaker at the SSO Week conference, it was clear that the last year had been frenetic. Industry consolidation and opportunism had not been widely expected, but had featured strongly. ACS was acquired by Xerox and captive centres were commercialised, as the private sector de-leveraged with sale and leaseback deals engineered by UBS, Aviva and Phillips. All of these offloaded substantive processes to external providers.

And, of course, the conference was aware that scandal had been stalking the outsourcing world again - as it had last year with Satyam. Recently, we have seen countless column inches devoted to the EDS and BskyB affair, and its wider implications for the services sector and beyond.
There were a surprising number of delegates present with a thirst for embarking on shared services for the first time, as well as others wishing to take their captive arrangements down an outsourced route over the next year or two.

In particular, a number of pan-European, middle-market organisations - with turnover of approximately €1 billion - were in discussion with some cash-strapped manufacturing companies around a shared services agenda, with all the various skills and language complexities that entails.
Packaging and selling captive shared services can have a beneficial impact on liquidity, and for organisations de-leveraging and struggling with cash, that is an attractive proposition. At Shared Services and Outsourcing Week an 'ask the audience' instant survey revealed that 80% of attendees would consider a sale/leaseback of their captive centres.

Although that figure may not be a statistically watertight, leaseback is certainly a subject exercising the minds of client organisations at the moment.

Public sector delivery

A number of national government departments were represented at the conference from the UK and mainland Europe, and it is clear that national deficit reduction programmes will be assisted by outsourcing. This will entail both capturing shared service efficiencies faster (and often for the first time), as well as gaining the service effectiveness of world-class transaction centres.

Interestingly, it was acknowledged, both on and off the conference platform, that while the economic climate will increase scrutiny of the number of jobs going offshore, a re-emergence of onshore 'front of house' operations will go some way towards mitigating negative public perceptions of outsourcing.

Not surprisingly, more and more Indian providers are keen to enter, or further, a UK BPO presence. With the new coalition government in place, opportunities exist in tackling the UK's national debt, but to succeed they will have to take this 'front of house' constraint on board.

Corporate business services

In the breakout sessions, a rise in interest around corporate business services (CBS) was evident. We can expect to see an increase in harmonisation of disparate in- and outsourced arrangements across multiple functions over the next few years.

If done effectively, CBS can bring increased cost transparency and higher levels of savings; more integrated and effective service delivery; greater change flexibility and 'future-proof' services, and clearer and more robust governance, separating demand from supply.

Shared Services

Excellent discussions emerged in the Finance breakout sessions debating how shared services can rise up the value chain and drive changes from a strategic perspective - rather than have mere transactional remits demanded from them as a fait accompli.

The opportunities here appear boundless, as retail organisations undertake their data-mining and analytics through shared transactional services organisations (in- and outsourced). Business partnering was frequently cited as a centre of excellence, and those client organisations with a CBS agenda are seeking to standardise levels of service for their business-partnering communities across HR, finance and IT corporate services.

Be brave

Buy-side (client) conservatism seems to frustrate BPO providers. One outsourced service provider said that 80% of their clients demand contracts preventing them from undertaking work outside of a given processing centre. As a result, they are not able to work more effectively by managing peaks and troughs and sharing work around the world with other centres.

Company policy, together with regulatory and data protection laws, are sometimes the reason for contractual limits, of course.

As we emerge from the global economic crisis there is a clear opportunity for existing and emerging BPO customers to be more realistic by leaving the sourcing location decisions of their provider services to the professionals - where possible.

Conversely, supply-side conservatism seemed to frustrate a number of clients, with an alleged lack of innovation flowing through delivery terms once deals have been clinched.

In re-letting BPO contracts, claims of really looking for proven innovation delivery elsewhere will surely become common in clients' selection criteria for BPO awards.