Global Business Services (GBS) Journey to Excellence. kpmg.com

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1 Global Business Services (GBS) Journey to Excellence kpmg.com

2 Executive Summary 01 The adoption of Global Business Services as the preferred service delivery model is a high priority for most large companies today. However, a survey of 482 global services practitioners conducted by HfS and KPMG LLP 1 (KPMG) suggests that companies often reach a midpoint in GBS maturity and then pause. We have found that only those companies that continue on their GBS journey can reap the full rewards of their investment. This paper describes the importance of GBS, key factors that enable GBS maturity, and how companies can develop a GBS strategy based on their unique business models and objectives. 1 Research study conducted by HfS Research and KPMG LLP in December 2014.

3 Driving Value on the GBS Journey The Five Levels of GBS Maturity * Level 5 3-5% Yr-on-Yr + business outcomes * Level 4 to 5 3-5% + business outcomes * Level 3 to % Level 05 * Level 2 to 3 5-7% Level 04 * Level 1 to % Level 03 Level st Quartile Performers** Level Average Performers** FRAGMENTED SUB-SCALED SCALED INTEGRATED STRATEGIC Decentralized service delivery model Duplicative functions, processes, and technology Little central control and governance over business support services Supply-driven delivery model Consolidated delivery model Leverage economies of scale for highly transactional services Shared services or outsourcing typically on a single-function, regional basis Multifunctional service delivery model that operates in siloes Variation around the inclusion and level of processes, technology, and governance standardization Transition to demand-driven delivery model Enterprise-wide multifunctional, transactional and specialist business service model Coordinated processes, technology, governance, and multichannel delivery for scale and adaptability Demand-driven delivery model Multifunctional, multichannel business service delivery synced end-to-end Provides transactional, and analytic services Managed through integrated, outcome-oriented governance Demand-driven delivery model *Typical savings with progressive maturity **Based on 150 companies in KPMG GBS Maturity Research Study 02

4 03 What is GBS? The Global Business Services (GBS) model describes a collective set of resources, capabilities, and systems to deliver integrated support services such as IT, finance and accounting, human resources, and procurement across an organization. To deliver these services more efficiently and effectively, GBS consolidates and leverages common applications and business processes, models, and leading practices. As the name implies, this is often done on a global scale, using multiple service delivery models including elements of internal captive shared services, outsourcing, and centers of expertise (COE). Business service maturity can be divided into five levels, as shown in the chart on the previous page. Each level provides a higher percentage of savings and return on equity (ROE). Companies performing at Levels 4 and 5 typically achieve 3 to 5 percent higher ROE than those at Level 3 or lower. Moving from Level 1 to 2 focuses on efficiency with value driven though standardization, simplification, scale, labor arbitrage, transparency, and control. Level 1 represents the starting point where service delivery is decentralized, where each function, business unit, or geography operates independently, and where a significant amount of duplication exists. Oftentimes, discrete business process delivery is shadowed within individual business units in addition to the business service function itself. The move from Level 1 to 3 typically represents the greatest opportunity for operating cost reduction. These initiatives often produce a 25 to 35 percent, or greater, reduction in cost as highly transactional services are consolidated and automated across multiple functions. At Level 3, the delivery of services is still functionally oriented. From an organizational and governance perspective, the level of integration across functions can vary from loose coordination in areas such as common infrastructure and service management, to a full GBS organization with individual functional service delivery lines reporting to a common executive. While this journey can take a number of years and involve a two-step evolution (migrating from 1 to 2, then from 2 to 3), some organizations have made a transformational leap from 1 to 3 in as little as two years. From Level 3 to 5, the focus moves to business outcomes. Value is driven though end-to-end optimization, agility, analytics, insights, innovation, governance, and compliance. Level 4 represents a significant shift in approach and control that integrates the delivery of end-to-end business processes such as Order-to-Cash. This effectively breaks down functional silos that historically delivered pieces of end-to-end processes such as credit and collections within finance, customer service in sales, and order fulfilment in operations. At this point, functional heads must give up direct control of a portion of their delivery resources to the GBS organization. Level 5 is the optimized stage that adds a more strategic perspective. The GBS organization typically becomes an independent operating unit on par with the business service functions. It provides fully integrated end-to-end process services including transactional, expert, and analytic services. Cost reductions may only be an additional 5 percent at this level, but the real benefit comes from its business impact.

5 Understanding the benefits of GBS maturity GBS is designed to: Deliver improved business services across an integrated platform Drive both efficiency and business outcome Evolve capabilities and service delivery in alignment with company needs. The value proposition for GBS typically evolves as organizations journey through GBS levels. As organizations move from Levels 1 to 3, the primary focus is on efficiency. As they evolve beyond that point, the focus tends to expand to include broader outcome drivers. The journey to a scaled (Level 3) model Focus on Efficiency: Value driven through standardization, simplification, scale, labor arbitrage, transparency, and control Continuing transformation beyond Level 3 Focus on Outcomes: Value driven through end-to-end optimization, agility, analytics, insights, innovation, governance, and compliance Levels 4 and 5 are where the GBS functions contribute the most value to the enterprise. Benefits achieved at these levels build from cost savings, but they tend to align more closely with the company s overall strategic imperatives. When done well, this orientation on outcomes drives business value far exceeding administrative cost savings achieved in a scaled operation. Recently, a GBS organization in a highly acquisitive consumer packaged goods company started actively focusing on the time it took to fully integrate an acquired target. What previously required over 30 months was accelerated to less than 9, leveraging scalable delivery and technology platforms, thereby returning tens of millions of dollars of synergy savings per company acquired. Another company created an analytics service offering within their GBS organization and ran dozens of initiatives through that group, supporting objectives such as third-party spend reduction, Days Sales Outstanding (DSO) acceleration, product costing and profitability, and policy compliance. Benefits from each initiative were tracked over a seven-year period, with a cumulative realized benefit exceeding US$2 billion. Not surprisingly, these same two organizations now track performance against these value drivers as part of their quarterly performance scorecards, thus institutionalizing and quantifying agility and insight as KPIs for GBS.

6 Key Objectives for a Mature GBS Initiative 05 Adopt a commercial orientation Successful GBS Level 4 and 5 companies adopt a commercial orientation. These groups increasingly think of themselves as a business within a business. Quite simply, this means that they have to operate like an internal service provider in competition with external providers. This includes a defined service catalog, the ability and willingness to commit to service-level standards, and services provided at agreed prices. GBS organizations at Level 1 through 3 may not yet demonstrate the level of discipline, process, and tools necessary to document their services, service levels, and associated fees. However, less mature initiatives should infuse this mentality and start preparing the foundation as soon as practical. As commercial orientation matures, the GBS organization becomes easier to do business with; prices become more competitive, and service levels more compelling. Customer satisfaction improves to the point that internal customers ask the GBS to provide additional services. This represents a major threshold in GBS maturity when there is a pull for services rather than having to push them. This shift occurs with most mature GBS initiatives, providing momentum and enabling the quick addition of business service functions. Generally speaking, there is a tipping point beyond which GBS benefits increase at a higher rate a point where economies of scale begin to have an accelerated impact. Our experience is that this can occur when three or more business service functions are included within the GBS. However, the number of functions within a GBS is more of a symptom rather than the cause of the success. A commercial orientation is not an attribute that can be adopted without the enabling infrastructure. GBS service delivery environments are extremely complex and have a large number of inputs and outputs that must be aggregated across delivery channels (principally, captive centers, centers of expertise, and outsourcing relationships). Additionally, consistent service delivery and service governance processes must be adopted and implemented across all in-scope functions, enabling the GBS organization to provide business-unit reporting independent of the delivery channel. For those processes to be most effective, they must be enabled and automated with Enterprise Service Management (ESM) and Governance tools. These tools, backed by commercial disciplines, enable Service Catalogs that provide for the efficient ordering and tracking of GBS services, much like online ordering at consumer retail sites. These tools effectively simplify, automate, and clarify consumer experience in a digital storefront.

7 Develop a clear GBS brand By adopting a commercial orientation, almost every GBS organization at Level 5 has a clearly defined and articulated brand. This makes sense because a GBS organization that is competing to become a preferred supplier of services needs to have an identity, just like its external competitors. As a GBS organization matures, its brand shifts from improved efficiencies to increased effectiveness and business outcomes. This is done by offering higher value-add services that leverage COEs for things like analytics, services governance, and enabling tools. In the case of a leading consumer goods GBS organization, their brand identity shifted from being the lowcost provider to one known for innovation. Another consumer goods GBS organization has effectively positioned itself as a provider of Process Excellence. Once again, more mature GBS groups previously gained efficiencies, and are now focused on effectiveness and producing business results. Just like most providers, GBS groups want to move up the value chain to have a more meaningful impact on the business. The brand should highlight the way the GBS group can best meet that objective. Once a brand identity is selected, the GBS must morph its operating model and value proposition to align with that brand. For example, an innovation brand requires an in-depth understanding of each business unit, its drivers, challenges, and objectives. From an operating model perspective, this requires the introduction or development of skills and attributes that are much more aligned with design thinking than cost savings. Similarly, a GBS organization with a Process Excellence brand must focus its operating model on understanding the end-toend business processes and how they can best be enabled. This GBS brand will be advanced in service management and service governance with sophisticated analytics supporting experts for each business process. 06

8 07 Establish end-to-end process owners Level 4 is where discrete, vertically oriented processes such as Accounts Payable, Accounts Receivable, and Order Processing are combined into a horizontal, end-to-end business process such as Order-to-Cash. This requires a fundamental shift in orientation as well as control. Prior to this shift, a leader reporting to the function head managed each discrete process. Unfortunately, it is easy to optimize individual subprocesses at the expense of the end-to-end process. Once the orientation is shifted, the subprocess owners answer to the end-to-end process owner. This enables the process owner to adjust resource levels, modify skills, improve handoffs, develop service levels, and provide reporting to optimize the process from start to finish. A good cross-functional example of an end-to-end process is employee onboarding. At Level 3, the Human Resources function hires, and then adds the new employee to payroll and benefits. Facilities provides an office, and IT sets up the network, issues a computer, and provisions system access. At Levels 4 and 5, all of these activities are integrated into a seamless process with a single owner. This creates a much better user experience with the onboarding process and helps the new worker become productive more quickly. Once again, the focus is on business outcomes. GBS groups that successfully move from Level 3 to Level 4 designate global process owners and modify their governance structures accordingly. This means that the roles and responsibilities for each process previously owned by the functional executive are transferred to the respective global process owner. In addition, the decision rights related to the process are also transferred. This transfer represents a significant shift in control, but successful mature GBS groups plan for, execute, and enforce these changes effectively. The attributes described above do not automatically materialize. They are the by-product of a number of dimensions that must be present and integrated. In the next section, we see a model of these dimensions and actions associated with each one to help ensure success. Function 1 Function 2 Function 3 Function 4 Function x Historical Functional Alignment Order-to-Cash Procure-to-Pay Record-to-Report Hire-to-Retire Process Alignment

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10 The 10 Dimensions of GBS Excellence 09 As depicted in the graphic on the next page, GBS maturity can be measured by the following 10 dimensions. Different companies will weight each dimension according to specific business models and operational goals. The first two dimensions (Delivery and Sourcing Strategy and Service Portfolio) represent the what of a GBS vision. The other eight dimensions represent the how. Delivery and Sourcing Strategy Companies need to align the GBS value proposition with corporate strategy and imperatives. The vision for providing business services, the level of aggregation, and the delivery mechanisms and channels are all defined as part of delivery and sourcing strategy. Service Portfolio Service portfolio defines the functional breadth, process depth, the nature of services (i.e., purely transactional or encompassing judgment, controlling, and expert services), geographic coverage, and business unit penetration of GBS service delivery. Data and Analytics Capturing, mining, and analyzing operational data is the next plateau for adding value. Global analytics within GBS can provide insight into corporate strategy and improve overall enterprise operations. In addition, a set of analytics and dynamic dashboards can be used to evaluate and shape GBS performance. Talent Management Effective talent management practices are designed to ensure that GBS people and leaders are recognized for their insight, innovation, and customer orientation. In addition, KPMG surveys suggest that employees recognize that GBS provides a more rewarding road map for careers, especially for operations and governance executives. Process Excellence Global process ownership should incorporate both the GBS and non-gbs portions of an end-to-end process. Research shows that companies with higher levels of GBS maturity and optimization have the highest levels of process integration across both geographies and functions. Process standardization needs to be driven to the extent allowed by business diversity and statutory requirements. Enabling Technology Research suggests that Level 4 and 5 companies move aggressively to a holistic, digital services environment. This includes leveraging robotics; bringing operations closer together for customers, buyers, and the service providers; building more digital, mobile, and socially-centric services and engagement models; and virtualizing the work force and the services organization. More standardized IT applications and systems increasingly in a cloud environment enable a more integrated IT environment that is critical to creating more end-to-end GBS operations across the enterprise. Beyond providing core operational services, integrated IT can enable the other key capabilities needed for GBS operations, such as data analytics that can optimize both GBS and enterprise operations. Enterprise Service Governance GBS serves as an independent operating unit on par with other functions and business units providing services based on policy and requirements. The governance and accountability model should be closely aligned with functional leaders and other managers. GBS services need to be accessible through an intuitive, simple interface that drives effective consumption.

11 Commercial Perspective The GBS brand should be clearly defined and supported according to the overall GBS value proposition and strategic agenda. A customer relationship model should be put in place to align services to business needs. Formal supply-demand of services can optimize consumption and evaluate service sourcing through formal analytics. Running GBS like a business and making costs variable are long-term objectives that can drive business alignment. Tax and Risk Optimization Establishing a GBS model often results in wholesale movement of work around the world. Whether accomplished through deployment of captive centers or a network of third-party outsourcing relationships, these changes can, if not executed well, impose new operating risk, financial risk, business continuity risk, and tax liabilities. Effective tax and risk optimization recalibrates the enterprise s control framework and considers tax consequences in the relocation and pricing of GBS services. 10

12 Not a One-Level-Fits-All Approach 11 Level 5 should not be the default goal for every GBS initiative. Even those companies that do aspire to achieve Level 5 must navigate each level along the way and carefully assess the time and effort required to reach the next level. In some companies, the goal of moving to a multifunctional GBS environment is just too difficult to pull off, and might even pose a distraction that itself is detrimental. Difficulties might involve a timing constraint or could be longer term. Inertia can be a roadblock, along with interpersonal dynamics and politics. Companies have sometimes underestimated the degree of difficulty and commitment required to reach higher levels of maturity. The C-suite, and even the board, have to be committed to bringing cross-functional processing and knowledge bases into a common organization that then globalizes its delivery model. Not surprisingly, KPMG s research has found that roughly half of the companies that have started the GBS journey are on Level 3, regardless of how long they have been working in a leveraged model. They have aggregated work into a center and sent work offshore to either their own captive centers or to a third party. They are enjoying the benefits of economies of scale and many of those companies have taken out the easy wins from this model, sometimes encouraging them to stay at Level 3. In any case, the goal for these companies is simply to be the best GBS level 3 group they can be. They can still execute on many of the GBS dimensions noted above and work through upstream or downstream process owners to realize as many of the Level 5 benefits as possible. In this way, these companies may never get to a Level 5, but can still achieve a strong Level 3 or even a low Level 4 maturity score, with the related business benefits. Change and Program Management: With effective change and program management, GBS groups can achieve greater realization of expected benefits, reduce resistance to adoption, and mitigate risks that might undermine the value of the initiative. Communication is key. In KPMG surveys, mature GBS organizations most often cite communications as the area that should have been emphasized more. Instead of launching directly into the GBS initiative, more resources should have been invested in selling why the change was needed. In addition, GBS managers need to communicate frequently, listen closely, share performance results on a regular basis, and solicit feedback from all stakeholders.

13 Getting to Great A successful journey toward GBS maturity begins with the end in mind. As noted previously, Level 5 is not necessarily the default goal for every company. GBS leaders should gain consensus on the appropriate level of GBS required to meet the company s specific objectives. A thorough assessment of current capabilities should be used to develop an overall strategy, followed by a detailed action plan based on the following 10 objectives: 1. Vision for creating or advancing GBS linked with the organization s core mission and strategic imperatives. 2. Enthusiasm and alignment for the future state design across GBS leadership and the executive team that will lead the change. 3. A future-state operating model defined at a level of granularity to spark understanding and buy-in. 4. A fact-based business case and transformation road map, leveraging external comparator analysis that drives value through target operating model deployment and outcome-based objectives. 5. Development of teams prepared, capable, and empowered to design and then implement the delivery model vision. 6. Technology architected for innovative solutions that enhance user experience, drive productivity, standardize master data, and enable business insight. 7. Detailed solutions defined for end-to-end processes that leverage leading practices and orient delivery towards outcome-based objectives. 8. A strong voice of the customer influence in defining the service portfolio and identifying and prioritizing improvement opportunities. 9. Passion and culture from GBS and key stakeholders to continuously deliver exceptional value-add services. 10. A clear focus on developing a GBS brand that features innovation, insight, talent, a commercial orientation, and value realization. Along with careful planning and strategic alignment, the GBS journey always requires flexibility. The more mature organizations deliberately create wide flexibility in their delivery models by using multiple service delivery options such as shared services, outsourcing, and cloud. They become adept at managing demand and consumption of services across these delivery model options by drawing up or down on them as their business requirements change. Building on a flexible approach and keeping in mind the key dimensions for GBS maturity, companies can use GBS to better align their operating model for efficiency and effectiveness, optimize and enable their global footprint, help create traction in emerging markets, optimize capital investments in technology, and help manage global risk and compliance. 12

14 About the Authors 13 Rick Bertheaud Rick Bertheaud is a principal in KPMG LLP's Shared Services and Outsourcing Advisory practice and leader of its Strategy and Shared Services Competency. Rick has more than 25 years of experience in management consulting and senior financial management positions, including roles as a corporate controller and chief financial officer. This mix provides Rick with the analytical tools, practical know-how, and executive perspective to help clients shape their finance transformation programs. Rick is sought after for global business services strategy, assessment, outsourcing advisory, and governance. He has helped leading organizations model and leverage services across Life Science, Consumer Products, Industrial Manufacturing, and Financial Services. Rick has spoken and developed papers for Shared Services and Outsourcing Network events, Executive Finance and Shared Services News, and Business Trends Quarterly. Rick's experience before joining KPMG includes a successful tenure as controller for a division of ARAMARK; corporate controller for OMNI Construction; CFO for Exxel Container, Inc.; and client executive for EquaTerra (acquired by KPMG in 2011). Rick can be reached at rbertheaud@kpmg.com.

15 Bob Cecil Bob Cecil is a principal in KPMG LLP s Shared Services and Outsourcing Advisory practice, part of KPMG LLP s Management Consulting For more than 25 years, Bob has helped companies realign their structure, governance, and management processes; establish shared services centers; evaluate and transition services to outsourcing arrangements; plan and transition processes to offshore centers; reengineer administrative business processes; and reduce overall cost structure and spend on goods and services. Prior to joining KPMG, Bob was an executive director at EquaTerra (acquired by KPMG in 2011), and a managing director at Gunn Partners. He is an acknowledged industry spokesperson, specializing in transformation of general and administrative processes via various advisory boards, research contributions, published articles, and industry speaking engagements. In both 2012 and 2013, Bob was elected to Shared Services and Outsourcing Network s esteemed G6 North American panel of industry visionaries. Bob can be reached at rcecil@kpmg.com. 14

16 About KPMG s Shared Services and Outsourcing Advisory (SSOA) practice KPMG s SSOA practice is the world s largest independent third-party sourcing advisory, backed by the global reach of KPMG s member firm network including 30,000 professionals across the Americas, Europe, the Middle East, and Asia Pacific. KPMG advisors have deep functional knowledge in all the major business support functions including technology sourcing, finance and accounting, human resources, procurement, customer contact, and facilities management. KPMG advisors are also supported by a broad set of intellectual property, tools, and industry-leading research, including our quarterly Sourcing Advisory Global Pulse Survey providing insights into trends in end-user organizations usage of GBS costs. Contact us Rick Bertheaud Principal Shared Services & Outsourcing Advisory T: E: rbertheaud@kpmg.com Bob Cecil Principal Shared Services & Outsourcing Advisory T: E: rcecil@kpmg.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name,