Bringing transformation to all of your support functions - A viewpoint paper
We talk a lot with our clients about their business services, and many of them no longer want to focus on just one functional area. They want to know how they can get the most from all of the elements of their back office - crossing the functions of HR, IT, procurement, property and finance.
Although the starting points for these discussions vary, our clients share common end goals - increased efficiency and consistency of process, significantly reduced cost, enhanced quality and the business agility required to support growth.
We refer to these broad-ranging programs as business transformations because when they are done well, they transform the entire organization - not just by reducing cost, but by instilling a cultural legacy of continuous improvement, by driving out waste and duplication and by freeing up time for the business to make better decisions. Cross functional business services generate greater value than it is possible to achieve through single function initiatives - yet early implementations across multiple functions have offered mixed results.
By their very nature, covering a broader range of services, these projects are more complicated than they used to be. Done poorly, shared business services become complex and bureaucratic. They add complex and heavy structures and are often in competition with thirdparty alternatives. However, there are sufficient examples of successful programs to analyze and distill the lessons learned. Organizations that have got it right have achieved significant payback on their investment.
Over 65% of organizations have made cost savings of up to 40% on their support functions.1 They've done this by either creating a shared service organization and/or outsourcing some part of them. The challenge is always to increase the scope of services transferred out of the core function. However, businesses often apply this approach to only one function at a time, resulting in a jumble of operating models and technologies. This leaves them unable to focus on the important things, such as driving growth and boosting profitability or efficiency.
This viewpoint paper covers the seven areas that we believe organizations need to get right to successfully deliver these cross functional business transformation projects:
1. Know your problem
2. Sell the change
3. Stand behind your benefits case with confidence
4. Balance clear vision with detailed design
5. Start early, move fast
6. Understand the upfront costs
7. Remember that the retained functions change too.
Know your problem
Companies need to follow a rigorous approach and allow sufficient time for data validation. Without confidence in the numbers, the business case will not stand up to scrutiny.
How do you know you need to transform your business services?
Your organization could benefit from Business Transformation if you have some or all of the following:
- A complex business model
- A need to reduce support function costs or improve the service they provide
- Recently made or are about to make changes in scale
- Existing shared service centres (SSCs) or outsource contracts needing improvement or renewal
- New people in leadership positions
- Considered shared services or outsourcing in the past for a single function, but not across multiple areas
- A common Enterprise Resource Planning (ERP) system in place or are in the process of evaluating a new system.
Creating a robust baseline with common definitions is essential. The data will form the basis of the business case and will inevitably be challenged. Companies need to follow a rigorous approach and allow sufficient time for data validation. Without confidence in the numbers, the business case will not stand up to scrutiny. In addition, without a baseline it will be impossible to measure benefits in the future. Understanding how you are performing today needs to involve internal comparisons of how you are performing, as well as an assessment of your performance compared to peers.
Consultation with the business needs to happen at two levels. Firstly, on the broader business agenda, you need them to articulate their prediction of the future demand for business services and explore with them any opportunities to reduce demand by simplifying the business - for example, by reducing the number of legal entities or management structures. Secondly, at a more tactical level, you need to understand how happy they are with the current level of support and if they are getting what they want.
The way in which the business is organized (formally and informally), and the degree to which business units and individuals are empowered to make decisions, will have a far reaching impact on the program. For example, you will need to consider how this will influence things like the makeup of the project team, the organization design for business services and the likely pace of change.
A project team must establish a realistic picture of what has worked well or failed in the past and learn from these experiences. In particular, they really need to identify the necessary level of consultation with the business required to gain its support and maintain momentum.
In our experience, organizations that do not understand from the outset the scale and sophistication of the task they are undertaking are the ones who experience unnecessary delays and put their programs at risk of failing.
Our 2010 Business Services survey (Diagram 1) highlighted that over the past 20 years, organizations have achieved value through consolidation of support functions, with programs focused mainly on finance and HR. The leading organizations were establishing multi-function business services, which meant they were able to achieve increasingly more savings from process improvement, simplification, automation and global sourcing..
Sell the change
Selling the change involves working with the senior stakeholders to get them to understand the vision - to answer questions such as: "Why are we starting this complex program?"; "Why must it happen now?"; and "What benefits are we hoping to get out of it?" It is vital that you also help them to understand how the change will impact their part of the business.
Business transformation programs are typically driven from the board down. However, the project sponsor needs to work with a small group of key individuals - ideally including both those working within business services and within the business - to articulate the vision and create an initial draft of what a revised structure would look like within the organization.
Through the process of "knowing your problem", you will have gathered insight on the right way to sell the change to your business. For example, on engagements we've worked on, we have conducted or participated in numerous senior stakeholder interviews in client organizations. These interviews generally outline the vision and identify the changes required to the proposed operating model. While the stakeholder process can be time-consuming, without it you risk investing significant time, effort and cost in the design stage putting together something which the business does not actually want.
This essential, early involvement from senior stakeholders will reveal their intent and commitment and the level of support and challenge you'll be likely to receive in implementing the program.
The outputs of this stage will provide a useful tool for motivating people, but they will not create consensus. It is in the process of engagement, rather than the final output, where much of the value lies - you are likely to identify some of the significant hidden issues (including levels of support) which can undermine so many of these programs. The insight gained can help avoid costly delays, unnecessary digressions and circular discussions which impact program value and results.
3. Stand behind your benefits case with confidence
Given the scale and complexity of a cross functional shared services initiative and the size of the potential rewards, organizations need to commit to making a significant upfront investment. For this reason, program teams and sponsors must understand the key levers and assumptions which drive cost and benefit. Successful program teams are the ones that manage expectations, being clear on the return on investment that can be expected in terms of cost reductions, process improvements and efficiencies - and also being clear on how long it will take for this return to manifest (often between two to five years).
What value can you expect from business transformation? The value of these programs is often measured in terms of cost savings. Harder to quantify are benefits such as decision-makers having more time to focus on driving profitable growth or the value associated with the creation of a scalable platform.
An organization implementing cross functional shared services should expect to generate efficiency through headcount reduction and the associated infrastructure costs. Savings can also be gained through systems rationalization and, in some cases, property overheads. In fastmoving businesses, there are opportunity cost savings in the ability to grow the business without additional administrative costs. The actual level of benefits realized will depend on how aggressive you are with the operating model.
So which is the best operating model for business transformation? There is no best practice operating model to deliver maximum value. Every organization must decide what will work best for them, having reviewed the growing number of successful operating and delivery models. For example, depending on its individual aims, circumstances and constraints, an organization may choose to own its entire shared services operation (a "captive model"); outsource elements to create a "hybrid model"; or aim to outsource most of its business services infrastructure.
In some successful programs, operating models have evolved, with organizations initially establishing a stable, successful captive shared services organization and then moving to a hybrid model by introducing outsourcing to drive further cost savings. Some organizations seek to develop a cross functional program from earlier investments in a single shared service function such as finance, HR, IT or procurement.
Having made informed choices and decisions, the working hypothesis of the operating/delivery model must be refined with key stakeholders to gain buy-in early. Programs will rarely proceed unchanged and, while the end result is unlikely to alter significantly, it is likely that the route will evolve over time.
The route to multi-functional business services will vary by company. But it is clear that the leading players share a number of common attributes:
- They work in partnership with the functional business teams, freeing them up to make better decisions
- The business unit has a single point of contact as well as customer focused teams
- Activity is located based on value to the business
- They rely on a service infrastructure management layer providing consistent governance and rigour across support functions
- They speak with a common language so messages around â€Üthis is how to do things' are clear
- They have strong functional ownership, or in some cases end-toend process ownership, with good practice shared globally
- They have fewer managers with larger spans of control, creating a flatter structure
- They take culture seriously and embed a culture of customer service and continuous improvement
- Business transformation leads the business in searching out valuable services, sourced globally
- They place a high emphasis on incentivizing their staff
- They have achieved simplicity - having the right people, with the right skills, following global process in an appropriate cost effective location.
1. PwC. 2010. Why global sourcing? Why now?
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