Next generation themes and value creation for GICs. Mario Tucci Senior Partner Martin Bouza Senior Partner

Transcription

1 Next generation themes and value creation for GICs Mario Tucci Senior Partner Martin Bouza Senior Partner

2 Which are the challenges for Global Services in Latin America? We Help enterprises regionally to optimize their central functions Co-design market entry and globalization strategies Identify and validate operational improvement options including outsourcing, enabling technology and restructuring Coach management teams to imrpove their relation with the global service industry Provide advice on service transitions and new location setup We Work as trusted advisors supporting customers with their high impact business decisions on IT, Businesss Services and Sourcing Strategies Find and elaborate data that generates insights to effectively guide efficiency, agility and responsiveness Advise on sourcing with more than 20 years on the market Understand users, providers, country and institutional organizations around the globe

3 Everest Group is a leading global services research and advisory firm Overview More than 20 years of experience advising Global 1000 Recognized for positioning clients for the next generation of global services combination of deep insights, strategic decision-making approaches, and implementation expertise Distinctive combination of consulting and research capabilities Range of services Strategy Consulting and research services to turn insights into decisions Implementation Consulting services to capture value from decisions Subscriptions Research reports, data sets, customized tracking services Resources Webinars, research, and blogs Over 1,000 engagements, covering IT and business processes Rich data sets and subscription research based on over 75 business processes, 150 service delivery locations, 1500 GICs/captives, 100 service providers, and 18,000 outsourcing contracts We serve enterprises, service providers, and service enablers Enterprises Services Industry Service Enablers Service Providers

4 Table of Contents Next-generation themes relevant to GICs Global Business Services model Delivery of core business functions from GICs Leverage of digital technologies by GICs Service Delivery Automation Creating Centers of Excellence (COEs) Collaboration initiatives by GICs Maturity in terms of value creation

5 Next-generation themes Theme Driving integration and synergies Description Global Business Services (GBS) as an organizational model that drives integration across sourcing models, locations, functions, governance and processes 1 Growing mandate for GICs GICs play a significant role in delivering functions / processes which are close to core business operations Enterprises are increasingly adopting digital technologies such as analytics; in fact, players prefer to offshore analytics work to GICs given the complexity of work and value of services delivered Service Delivery Automation can be used to go beyond cost saving towards standardization and consolidation of delivery Centers of Excellence (COEs) allow GICs to develop their skills and capabilities to address specific concerns and develop unique competencies 2 2a 2b 2c 2d Driving impact through collaboration Mature GICs are leading and driving enterprise-level initiatives that involve collaboration across multiple ecosystem entities: GIC-parent collaboration GIC-vendor collaboration Intra-company GIC collaboration Inter-company GIC collaboration 3

6 Global Business Services (GBS) Definition and framework (Page 1 of 2) 1 What is the Global Business Services model? Global Business Services (GBS) attempts to bring sourcing models and other global services aspects under a common umbrella to ensure better organizational alignment, efficient utilization of resources, provide better visibility to customers, and enable tighter governance What are the business drivers that influence GBS adoption? Economies of scale and scope Simplification Access to talent Visibility Agility Delivery quality Enhanced business intelligence

7 GIC / shared services Vendors Global Business Services (GBS) Definition and framework (Page 2 of 2) 1 FRAMEWORK Enterprise Governance interacts with the enterprise and delivery organization to manage relationships, measure quality / performance and manage change / transitions. Involves: Organization design Contract administration & mgmt. Sourcing & negotiation Financial management Risk management Relationship management Reporting & compliance Change management Transitions Performance management Components identifies the key pillars for which sourcing strategy and planning is needed. Includes: Sourcing model Location strategy Talent model Scope of work / functions Service delivery Sourcing strategy and planning A strong foundation centered around sourcing strategy and planning is required. Involves: Strategic vendor Sourcing strategy Business case Research & intelligence Demand management management

8 Characteristics of the GBS model 1 Dimensions Objective Functional scope Leadership and governance Process reengineering / innovation Locations delivery / network Typical characteristics of Global Business Services Seek benefits beyond typical cost savings Service focus, agility, scalability, and innovation are the other key drivers Expect GBS to act as a business unit To create a value-centric delivery model Multiple general and administrative functions Includes business- critical processes End-to-end process perspective Strategic partner in business Leadership is usually part of the C-suite team / typically has board approval/visibility Governance is centralized and coordinated Usually operated like a business unit, can be a separate legal entity Focus on process engineering and innovation Focus on standardization and simplification Process engineering initiatives cut across shared services and outsourcing models Typically centralized hub at one location with regional spokes or regional hubs with spokes Clear definition of role for each location

9 Function IT-ADM IT-IMS BPO Customer care GICs play a significant role in delivering functions / processes within functions that are closer to core business Sourcing mix in offshore headcount (percentage) 65-70% 75-80% 60-65% 30-35% 20-25% 35-40% LEADING FINANCIAL SERVICES FIRMS GIC Service provider Mostly leveraged from service providers given their significant capabilities in this space However, GICs also carry out some transactional back-office activities, contact center and industry specific functions ( e.g., claims processing, payments and collections, etc.) Buyers typically leverage GICs to focus on IT activities where domain knowledge and business intimacy are key considerations 2a BPO non voice 45-50% 50-55% KPO 15-20% 80-85% Mostly delivered through GICs. Work often considered as core to business, e.g., IP / data protection Source: HFS Research, PWC

10 Next generation technologies Digital technologies are being adopted to improve efficiency and achieve competitive advantage 2b Social Social strategy/consulting Social media marketing Social analytics Social content and web development Analytics Core analytics (industry standard analytics tools such as SAS, SPSS, R, etc.) Data architecture and management Mobility Mobility strategy, consulting, and platform development Mobile app. development and maintenance Cloud App. development, migration and deployment Developing and building cloud infrastructure Cloud consulting

11 Organizations have a higher preference of offshoring analytics work to GICs compared to outsourcing because of multiple reasons 2b Historical growth in BFSI GIC headcount supporting analytics ; Number of FTEs in 000s Reasons for offshoring analytics to GICs: Complexity of work: GICs enable better governance and management of services They also provide greater sense of control due to ability to define standards, processes, etc. Value associated with the services: Analytics services impact strategies of organizations. Hence, keeping them in-house helps keeping a better check on the information flow and preventing leakage Speed of services Time-critical services are better provided by GIC due to their integration with buyer organizations Legal and regulatory framework: Due to certain legal and regulatory issues pertaining to privacy of customers data, organizations choose GICs over third-party service providers

12 First principles of service delivery automation (SDA) 2c 1 Automation at its most basic level must utilize technology to replace a series of human actions 2 Much automation is already embedded into software systems 3 Automation for IT is very different than for business processes. 4 Service delivery automation can be accomplished by combining multiple technologies.

13 Business case benefits Large savings on FTE costs Business Process Service Delivery Automation (BPSDA) is primarily driven by the opportunity to further reduce costs Service Delivery Automation (SDA) Other benefits Freeing up resources 2c Up to 85% reduction in FTEs, although common range is 30 to 50% Alternative to offshoring Enable consolidation, standardization, and offshoring Increasing productivity Improving process quality Improving governance and regulatory compliance Enabling ability to scale up operations Enables reallocation of work Source: NASSCOM-Tholons Services Outsourcing Atlas, Question: What is the percentage weight given for each criteria during the Site Selection process?

14 Process optimization and reengineering COE Global sourcing COE Creating Centers of Excellence (COEs) provides GICs with a powerful mechanism to develop focused expertise and capabilities 2d These COEs focus on continuous improvement in processes both within and beyond the GIC Focused on managing sourcing programs across GICs and third-party service providers to manage value and risk related to the outsourced portfolio Managed correctly, global sourcing COEs can extend a GIC s capabilities and reduce the number of interfaces for the parent company Analytics COE Analytics COE provides insights on products, markets, customers, channels, or other core components of the business Technology-led COE Tasked with understanding new technologies, innovation COEs combine that mandate with their understanding of current systems and existing business processes to identify uses of new technologies to solve business problems Standards COE Designs standard processes and operating models which can be reused and repeated across the company Helpful for parent companies with complex organizations multiple geographies, business units, etc.

15 As GICs evolve, their sphere of influence extends beyond their own service delivery to the 3 broader ecosystem Collaboration with intra-company GICs Reasons for collaboration: Identify areas of collective contribution and generate value for parent Learn from other GICs (best practices, knowledge transfer) Build/strengthen a collective brand for the GIC model within the company Benchmark against others Collaboration with parent Reasons for collaboration: GIC viewed as extension of parent and an equal partner GIC leading global initiatives Global, enterprise-level leadership roles based in GIC GIC s talent model and leadership roles aligned to collaboration objectives GICs Collaboration with GICs of other companies Reasons for collaboration: Operational excellence Regulatory aspects, such as transfer pricing, incentives Talent development Innovation Collaboration with vendors Reasons for collaboration: Augment vendor resources for specific needs ( e.g., manage demand variations, niche skills) Oversee and manage service providers in an operational role Engage as a strategic vendor manager in a governance role Source: 2015 Tholons Top 100 Outsourcing Cities Top Players

16 Contents Next-generation themes relevant to GICs Maturity in terms of value creation End-to-end ownership and Global Process Owners (GPO) Collaboration with vendors Alignment on value addition and quantification Creating talent value proposition

17 Driving maturity through value creation These priorities will enable GICs to not only evolve in their role but also drive greater business impact for parent organization 1 End-to-end ownership and Global Process Owners (GPOs) 2 Collaboration with service providers (vendors) Strategic priorities for GICs 4 Creating talent value proposition 3 Alignment on value addition and its quantification with parent stakeholders

18 Evolved GICs often have a defined mandate to function as dedicated and full-time Global Process Owners (GPOs) 1 When a GIC is a / an Low cost provider Internal partner Strategic entity Job responsibilities Limited evidence of dedicated and full-time GPOs Process owners (with additional responsibilities) largely responsible for tracking and monitoring SLAs for each activity in various subprocesses (e.g., invoice processing in PO) GPO role is typically formalized and mandate includes only shared services Driving continuous process improvement, standardization, and rationalization for process clusters Decision-making on automation vs. manual processing GPO role is typically formalized and mandate includes shared services organization and broader parent organization (selective) Driving best practices beyond shared services Extent of process ownership Largely responsible for tasks Responsible for end-to-end / majority of global delivery End-to-end ownership of one or two large functions globally Examples Mid-size bank: 25 process owners for individual activity clusters in F&A and PO Leading healthcare major: Eight GPOs for individual clusters in F&A and PO; mandate for overall shared services organization Leading CPG major: 11 GPOs across finance, HR services, and procurement Leading technology firm: Three GPOs having global ownership for Order-to- Cash (O2C), accounting, and learning Source: Interviews with shared services; Everest Group analysis

19 Degree of impact Collaborating with vendors and driving value for parent organization through their strategic leverage is becoming a priority for GICs 2 Approaches to leverage vendors Adoption level among GICs High Low High Low Source: Contracting / staff augmentation Strategic sourcing Opportunistic outsourcing when pain- points are encountered, e.g., sourcing specific phases of a development project Purchasing services while retaining control and accountability, e.g., body shopping, staff augmentation Low Everest Group analysis Function-wise sourcing Level of sourcing maturity Strategic sourcing of processes in a planned and coordinated manner, e.g., strategic partnership, managed services High The nature of current collaboration between GICs and vendors is predominantly tactical, as very few GICs view vendors as strategic partners to achieve parent objectives GIC-vendor relationship is typically arm s-length as both parties perceive potential erosion of competitive advantage and control To be able to achieve strategic leverage of vendors, GICs must Have a deliberate view on capabilities to be leveraged from vendors Structure demand and do integrated planning with vendors Develop greater governance and strategic vendor relationship capability

20 Impact delivered High To move to an increased role in the enterprise, the GIC needs to establish its case of value addition 3 Stage 4 Stage I Stage 2 Credible internal provider Stage 3 Value addition partner Strategic entity driving innovation Low Typical characteristics Prevalence (percentage of GICs in each stage) Low-cost set-up Usually recent set-ups (less than 3 years) Small to moderate scale 1 (<300 FTEs) Limited coverage of functions Teams for select anchor functions Multiple pilots and transitions in process Have been set up for 3 to 6 years, achieved steady scale and growing Scale 1 usually between 300 to 2,000 FTEs Established credentials in few functions, trying to add new capability Main focus on predictable and high quality delivery, process efficiency and capacity augmentation Have been set up for 6 to 10 years and growing at a steady rate Scale 1 usually between 2,000-5,000 FTEs Significant variety in functions served Main focus on transformational process improvements, high-skill capabilities, vendor management, enhanced customer experience, and products for emerging/local markets Have been set up for at least more than 8 years and growing at a steady rate Scale 1 more than 5,000 FTEs Multi-function delivery hubs, have end-to-end ownership of processes Main focus on innovation and new products/services, revenue streams that are significant contributors to enterprise top-line and global leadership in select delivery areas for the enterprise ~30% ~40% ~25% <5% 1 Average typical scale. Scale of GICs differs depending on processes served Source: Everest Group (2015)

21 Mean rating across parent respondents Future expectations on value beyond cost savings Mean rating across respondent category Alignment with parent stakeholders on forms of value addition is a key enabler in GIC growth and evolution 3 Enhance efficiency of processes undertaken Seen as center of excellence Stimulate creation of new products/ services and drive innovation Mean rating across GIC respondents Source: Everest Group GIC Value Diagnostic Survey 2012 Enhance effectiveness of processes Drive process transformation Provide access and flexibility to hire niche skills 1 = Low priority 3 = High priority According to Everest Group GIC Value Diagnostic Survey conducted in Q4 2012, GIC and parent stakeholders are misaligned on most values beyond savings There is a stronger alignment between GIC and parent stakeholders on process-related value additions, compared to those providing access to niche skills and driving innovation Stronger alignment on process-related value additions is primarily on account of Maturity of GIC capabilities in these areas Relative ease of measuring and quantifying the impact created Getting an alignment on importance and expectations from a wider set of value additions is critical if GICs want to evolve into a strategic entity for the parent organization

22 Action Defining metrics Recommended best practices for GICs to operationalize value measurement in order to create greater synergies with the parent Description Ensure that metrics to assign a dollar figure to different types of value addition are quantifiable to the best possible extent GICs need a robust quantification methodology to calculate impact of value additions such as process transformation, risk reduction, contribution to impact on revenue, innovation, and improvements in effectiveness or quality Be consistent with definitions of metrics (e.g., productivity); they can often be misleading 3 Ongoing tracking and measurement Be disciplined at multiple levels (e.g., process, function and overall GIC) Develop database and mechanisms to verify actuals in relation to expected improvements; verification likely to involve parent involvement to ensure robustness Articulating value GICs need to proactively initiate the conversation with the parent After initial buy-in, GICs need to utilize an ongoing dialogue with the parent to adjust metrics and build credibility on the measurement (i.e., ensure parent coowns the assessment)

23 Overall vision for GIC talent Talent retention and mitigating impact of attrition Establishing brand as an employer of choice Leadership development practices Source: Everest Group analysis Creating a compelling talent value proposition is one of the key strategic endeavors for GICs 4 Strategic leverage of GIC to drive innovation, higher ownership, and local/regional business growth Enhanced talent value proposition through global career paths / mobility programs and cross-functional opportunities Strong focus on permanent employees to align with a broader vision and talent proposition for GIC Stronger emphasis on non-financial levers as opposed to financial levers for talent retention; financial levers more effective for individual contributors / SMEs Focus on individual development plans for promising talent Emphasis on making delivery more resilient, and enforcement of HR policies to mitigate attrition impact Employer of choice branding important for both current and prospective employees Emphasis on work culture, thought leadership, referral programs, and university engagement programs to establish brand Developing organization/people leadership competencies, while keeping deep domain/technical expertise as the foundation Leverage of expats in early stages to drive knowledge transfer and higher alignment with parent Nurturing local leadership to manage and run delivery

24 Thank you! Martin Bouza Mario Tucci Dallas (Headquarters) New York Toronto London Delhi Stay connected Websites Blog

25 Appendix: Back-up slides

26 Appendix Global Business Services (GBS) Extended framework 1 Framework Enterprise Governance interacts with the enterprise and delivery organization to manage relationships, measure quality / performance and manage change / transitions. Involves: Choosing between horizontal and vertical organization structures Set clear risk management strategies to ensure business continuity Contract administration and management Ensure smooth relationships between service delivery organization and Sourcing and negotiation end customer Financial management Reporting & compliance Change management and transitions Performance management Components identifies the key pillars for which sourcing strategy and planning is needed. Includes: Sourcing model preferences Well-thought of location strategy, either focused on decentralization through regional/local centers, or centralization with more global centers/hubs and supporting spokes Talent model including assessment of skill and scale, managing concentration risk, workforce optimization, etc. Scope of work / functions that will go under the GBS umbrella Service delivery includes defining roles and responsibilities of providers and enterprise/customers Sourcing strategy and planning A strong foundation centered around sourcing strategy and planning is required. Involves: Organization s need to define a strategy that aligns the core business strategy and answers questions around what to source, where to source and how to source A detailed business case which incorporates both quantitative and qualitative benefits, costs, risks to assess and baseline the value that GBS can provide Vendor management surrounding vendor selection, structure, capabilities and scope of vendor management Research and intelligence based on market trends, pricing models, cutting edge technologies and sourcing models Demand management in alignment with overall business growth plans

27 Business process level Technology level Appendix SDA automation architecture Automation can be applied at different layers of the process stack from the supporting IT and the platform, all the way up to actual business processes Generic automation Enabling tools which can be applied to many situations without regards to the context of what the automation is accomplishing Activity-specific automation Tools which are designed to be relevant only to context of certain types of activities (e.g., contact center, doc. processing) Industry-specific automation Tools which are configured to be applicable to industryspecific activities (e.g., price comparisons, compliance) Application development, management, and testing automation Managing entire application lifecycle from concept, design, build, to test resulting in reduced time-to-market and increased product quality Infrastructure automation Addressing complete infrastructure cycle across architecting, deploying, provisioning, and support functions

28 Appendix Adoption of Service Delivery Automation (SDA) will challenge traditional service delivery models Potential for significant headcount reduction by automation FINANCE EXAMPLE Benefits of automation Cost savings Process scope Accounts payable Accounts receivable General ledger Payroll Tax Financial planning & analysis Internal audit Portion that can be automated Percent Additional scalability and flexibility Improved service delivery Quality Speed Better ability to manage Governance Security Business Continuity

29 Definition RPA is a sub-set of BPSDA; it is automation which interacts with a computer-centric process through the User Interface (UI) of the software which supports that process. It processes structured data using pre-defined rules. Thus, it replicates human action for repetitive tasks Adoption Appendix Robotics Process Automation RPA is a non-invasive procedure which replaces FTES and requires no change in existing systems Trends in adoption of RPA-based solutions Percentage share of deployment 1 Finance & accounting outsourcing Customer care 9% outsourcing 9% 100% = 46 Transaction processing Data entry in high volume, repeatable, and computercentric processes In system upgrade scenarios, double and concurrent data entry into old and new systems during the period of change Procurement outsourcing 17% 65% Process-agnostic 1 Till end of June 2014 Source: Everest Group (2015)

30 Appendix Automation of business processes could see a move towards reshoring as companies opt for automation as the primary means of cost saving and efficiency Impact of Robotics Process Automation (RPA) on F&A on-shore scenario based on 1 robot replacing 1.6 FTEs Percentage reduction in cost 100% 56-62% 44% 38% Automation could boost reshoring, creating more opportunities for nearshore locations With the number of FTEs reduced, delivery centres are likely to become smaller with smaller office footprint This will minimize the impact of high cost of office space in UK We are likely to see increased demand for data centre space as automated services demand for servers goes up Cost of onshore F&A operations Reduction due to RPA implementation

31 Annual business impact delivered by GIC Business impact of value drivers other than arbitrage and efficiency exponentially grows with evolution of the GIC model BEST-IN-CLASS GICs Value beyond arbitrage as a proportion of arbitrage 20-30% 60-80% % Revenue impact Risk mitigation Savings on vendor spend Customer effort reduction Effectiveness Efficiency Arbitrage Stage 2 Stage 3 Stage 4 Critical enablers of business impact Process engineering and automation High-skill capabilities Global ownership/leadership, revenue addition

32 Martin Bouza Mario Tucci Dallas (Headquarters) New York Toronto London Delhi Stay connected Websites Blog