Optimisation Improves Outsourcing
The only way to truly benefit from outsourcing is to optimise your business process first. Karsten Soderberg, president and head of global operations at SharedXpertise, tells Jim Banks that outsourcing is not a quick fix.
An emerging concern in the outsourcing market is that many firms are too eager to hand over their processes to service providers, if only to keep in step with their competitors or to realise a short-term cost savings.
In choosing this kind of knee-jerk project, companies may be failing to look at all the options available to them and will almost certainly miss out on the true value that a shared service centre or outsourcing agreement could yield.
Near-sighted approaches to outsourcing may indeed show a quick cost saving, but they could be storing up problems for later on. The strategic approach certainly requires more effort, but can deliver ongoing returns and reveal hidden value.
Adopting the more sophisticated, long-term approach requires that all options – from shared service centres to offshoring – are on the table.
Before any of these options can be considered, however, firms must first look internally at how they can improve their own processes.
Karsten Soderberg, president and head of global operations for SharedXpertise, says: 'Outsourcing in itself does not build excellence. Process optimisations must be incorporated as a vital part of outsourcing projects. This enables them to be set up effectively in a shared service centre or an outsourced facility. Business transformation is not an easy job.'
He believes that without process optimisation as the first step in business transformation, outsourcing options will only deliver 'your mess for less'.
THE BENEFITS OF BUSINESS TRANSFORMATION
According to Soderberg, the rationale behind the need to consider outsourcing or shared service centres for back-office services such as finance/accounting and, increasingly, human resources, is that it follows naturally from the widespread implementation of ERP systems since the late 1990s.
Many corporations, mainly in the private sector, have now moved away from fragmented, inconsistent, incompatible and often labour intensive IT solutions.
This has taken business processes themselves into a new dimension and made it possible for C-level officers to not only get direct, accurate and consistent information about their operations across the world, but also to completely redesign the way those processes are handled.
This leap in process optimisation has come at a time when companies are increasingly focused on the core processes that directly contribute to growth, income and stock value, which leaves the way open for secondary processes to be optimised in ways that were not possible before ERP, including the sharing, streamlining and centralising of services and processes.
Soderberg comments: 'Our research shows that cost-effectiveness is the top priority, so outsourcing or shared service centres, which offer process improvement and lower cost, are big opportunities for C-level executives. They are part of the business transformation process, which has become a necessity for companies to remain competitive.'
Shared services, he feels, offer more than just a new kind of centralisation, in which new and more complex ways of optimising and executing processes, such as accounts payable, customer service, order intake and vendor administration – previously handled locally, have evolved.
He adds: 'Shared service centres, which run as in-house business entities, own the responsibility for the backoffice function, so they drive efficiency and accuracy.'
He adds: 'It is important that shared service centres operate independently, with separate and full profit and loss responsibility to secure the required level of service quality and process efficiency and effectiveness.'
Once processes have been shared and master data coherently structured and managed, this is the time to ask whether those processes are located and operated in the most effective and efficient way. This often leads companies to look at where the processes are based, which brings outsourcing and offshoring into the equation.
According to Soderberg, outsourcing often emerges as a viable and cheaper alternative to in-house shared service centres, particularly in terms of labour costs, effective use of time differences for global coverage and the ability to harness economies of scale. However, it is important to remember that this is only true if a business's processes have first been optimised.
FROM THEORY TO PRACTICE
There is, of course, a gulf between planning business transformation and making it happen. Thorough planning and high-level commitment to the project, however, can eliminate many problems and reveal unforeseen benefits in the implementation stage.
Soderberg explains: 'Outsourcing and business process optimisation projects are generally linked to a well defined business case, where the value of business transformation is identified up front. Cost is often top of the agenda, but later in the project companies often find additional benefit in terms of quality of service, with service providers or shared service centres handling processes to their full potential once they have been optimised.
'Our research shows that the transformation of processes in backoffice areas often reveals many skeletons in the closet. Once they are gone, you can concentrate on process improvement.'
One of the key challenges in bringing business transformation to fruition will be the selection of partners and advisors, either for process optimisation or outsourcing. Quality assurance is a crucial issue, as is change management and communications – both internally and externally.
Soderberg believes the best way to acquire knowledge is to actively join relevant industry associations, where conferences, master classes and peer-to-peer networking will yield valuable insight.
His most valuable piece of advice, however, is to remember that the difficult road to success is often very painful in the initial stages when a significant investment of resources has been made, but no return has yet been generated.
Change requests and problem solving consume a lot of time and effort at this stage, but you will have reached the point of no return.
At this stage, the strength of a firm's network of partners and peers, as well as the commitment of executives driving the change, will make all the difference. Partner selection and executive engagement must, therefore, be of the highest quality.
Soderberg says: 'Top management must understand what they are embarking on and support the transformation process. Companies need to put their best people on the process optimisation project, and must recognise that internal adaptation begins on day one. Management needs to persevere when problems arise, and that is much easier when you have the right partner.'
If outsourcing or shared services become part of a company's business transformation model, they must look hard for partners they can trust.
Soderberg adds: 'The best partnerships are those in which each party has a need for the other. Projects are large and complex, so not everything can be covered in a legal contract. Inevitably, unforeseen problems occur, and you don't want that to lead to endless debate. Partners must look for solutions together.'
Many business transformation projects fall at the first attempt, notes Soderberg, as they fail to meet their original objectives. Restarts are costly and disruptive. SharedXpertise believes that whether in finance/accounting, HR, procurement or supply chain processes, successful implementation is highly dependent on mastering processes, people and technology.
Success does not just rest on a powerful, credible business case, or how to implement business transformation. It is, first and foremost, about ensuring that business processes are clearly defined.
Optimisation then rests on the value of independent and unbiased sharing of information with partners, and the lessons learned from the successes and failures of peers and practitioners.
A good service provider is one that you can trust to share data and networks, and one who will advise on the right kind of service for their clients, be it shared services or outsourcing.
Soderberg explains: 'There are many examples where companies go away with not the cheapest option, but the best cultural fit. They must feel that they will solve complex problems together with their partners, and that is based on trust. Stakeholders need to be involved in a thorough selection process, as partnership and cultural fit are crucial for success.'
Increasingly sophisticated HR management capability, widespread ERP implementation and the growing systems capability of shared service centres or outsourced service providers together will help more companies harness the power of people, processes and technology to deliver corporate value.