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Shared Service or Outsourcing?

Organizations are constantly searching for ways to minimise operating costs and maximise service quality. Shared services and business process outsourcing (BPO) models for back-office finance operation have been proven to help deliver these objectives. However, companies are often unsure about how far they should go in their shared services strategy and when to turn to BPO.

BPO as part of the shared services operating model
Modern shared service organizations use several operating models to deliver quality services at minimum costs. For example, accounts payable functions are typically delivered from one common location combining labour cost and technology to maximise efficiency. Tax advice services are part of the centre of excellence model and payroll is usually outsourced, with the provider offering expensive specialist legislationand tax knowledge across a wider pool. With any of these, companies must learn how to manage third-party provider relationships, often the first step on their BPO journey.

The typical benefits for shared services - efficiency and lower costs - mean that this model is often adopted by BPO providers. Major companies have reaped the benefits of establishing internal shared services and then partnered with BPO providers to access cheaper locations. The typical shared service processes are accounts payables/receivables, travel and entertainment, general ledger, fixed assets and inter-company reporting and tax, are now leading the trend BPO.

Can companies leapfrog to BPO and what are the benefits? A typical BPO journey, as explained above, is to establish internal shared service operations first. This strategy enables companies to get to know processes, fix any critical areas and reap early benefits through consolidation and standardisation.

An alternative strategy is to leapfrog direct to BPO. Companies choosing this strategy for finance back-office operations could accelerate savings and enable the business to focus resources on growth. The internal shared services model needs investment. With BPO, organizations could instead use this cash to become true business partners, concentrating on added-value activities such as marketing, finance or investment appraisal.

The expected benefits for companies taking thye direct BPO route are:
- accelerated financial savings
A BPO supplier can impose more discipline, control, transparency and speed up process improvement activities such as purchase order compliance or electronic invoicing;
- flexible cost structure
Variation in volumes can be linked to BPO charge rate. Capital expenditure is limited to initial transition costs;
- higher quality services from day one
Turning back-office activities into someone's front-office will have positive effect on the quality of service delivered to the business;
- freeing up resources
Financial, human, IT, facilities and other resources can be freed up and redeployed;
- risk sharing
A BPO provider will share risks as it invests in the long-term partnership; and
- overcoming the lack of expertise in shared services and transition knowledge

How can companies decide what strategies to take? Leading companies look at several factors before making a decision. Internal shared services are more suitable if:
- process consolidation benefits from the largest part of the business case,
- internal resources and skills are available to manage large transformation programmes, and
- stakeholders are risk averse and see BPO as a high-risk strategy.

Going direct to BPO is more preferable if:
- the company's strategy requires resources and skills to be focussed elsewhere,
- the business case is dependent on fast process re-engineering and improvement, and
- the business bemands a rapid improvement in serives quality.

Upfront investment is reduced for the customer, and while the BPO investment sees a return through margin charged, they can also be encouraged to deliver and share savings that offset this margin.

To ensure success, companies going direct to BPO must:
- ensure stakeholders' buy-in and support for the BPO business case. Communicate to keep up the momentum and manage expectations throughout the transformation;
- establish cultural fit and compatibility with the BPO provider. This will enable the two organizations to deliver synergies;
- ensure service level agreements are structured to meet business needs, and align penalties and rewards;
- establish service oriented culture within the business. BPO is a partnership with clear responsibilities split between the two parties;
- establish transparent baseline and implement robust perfromance management. Ensure responsibilities are clear and understood;
- minimise business disruption during transformation; and
- allow time for negotiation period and learning about how the commercials work from both parties' perspectives.

Shared services and BPO models are not mutually exclusive but whether you choose to start out with shared servides or leap straight to BPO, doing your homework first is vital for success.

Richard Plasek
Malaysia
20 Dec 2006

This article is abstracted from the New Straits Times, Saturday, December 16, 2006.

The writer is a management consultant (finance transformation and operational research) at CapGemini Consulting, UK. This article first appeared in Insight, Cima's online newsletter for its members.

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What a Difference A Decade Makes

Ten years may not seem like a long time, but at the pace of change in business, it sometimes feels like a lifetime.

For example: When Outsource Marketing first launched in 1997, outsourcing was not some trendy term for staffing CSRs and software programmers in India. It would be eight years before Tom Friedman's The World Is Flat was published and introduced people to the notion that the global economy had arrived.

Marketing has changed even more dramatically during the past 10 years than any other similar period in the past. Why? Technology and its incredible impact on how we access and process information.

In 1997:
* There were fewer than 500,000 Internet Web sites
* Google, YouTube, MySpace or the iPod didn't exist
* Cell phones were just phones

Now there are more than 100 million Web sites, 35 million blogs, and cell phones are hand-held computers that can multitask phone calling, text messaging, photography, video downloading, digital music files and an endless variety of games. It was in 2004 O'Reilly Media coined the phrase Web 2.0--a group of second generation Web-based services.

A decade ago, high-tech acronyms such as CRM, PPC, SEO, MP3, DSL and DVR were yet to join the lexicon. Television consisted of sports, movies and shows you watched on a set in the living room and maybe on another in the kitchen or bedroom. Now TV programming--all 580 channels--can now be TiVo'd, recalled on demand or viewed on a laptop, MP3 player or cell phone. Cable providers now offer high-speed broadband, as well as local and long-distance phone services.

New tech, new media, new Marketing
What does all this mean for marketers? A change in the landscape, a whole new set of consumer and customer segments and a wealth of new tools that still must be smartly deployed and effectively targeted.

Marketing in today's crowded, infoglutted world is more exciting than ever, but it's challenging in new ways. Here are three key dynamics affecting small and mid-market businesses, and some new media strategies to connect customer with your message.

1. Marketing is now in the hands of the people.
As coined by Peter Kim, from Forrester Research in Reinventing the Marketing Organization, participation is now the fifth "p" joining price, product, placement and promotion.

Whether it's blogs, consumer produced Super Bowl commercials or e-mail sharing, customers have never been in such control. Embrace that change. Give your customers opportunities to generate testimonials, feedback and suggestions for product improvements. Allocate time to listen to what they say and respond promptly and honestly. Product and service improvements start with feedback from your own customers.

Instead of being talked at, customers now expect being talked to. Wikis, e-mails, live chat, bulletin boards, texting and video sharing are just some of the ways the word gets spread. Start with the right product (that's never out of date), couple it with good customer service, and you won't need to be afraid of interactive communication--as much communication as you can handle.

American Idol and similar television reality shows are the epitome of the new customer participation model. Instead of just sitting back and watching shows, viewers are now choosing who they want to see by voting. Be creative and think about how you could develop your own company's "fan base." With the technology tools now available, you can deepen your relationships with customers and create the dialogue that leads to loyalty.

2. Online media are mandatory in today's marketing mix.
The Internet continues to absorb more and more of the advertising dollar, leaving other media with less. Newspaper readership is declining. Network TV ratings have declined steadily over the past 10 years. With Internet search engines, consumers can find what they want, rather than be pushed toward purchases with advertising messages. In fact, 66 percent of high school students report that they get their news and information from Web portals such as Yahoo! and Google. More than one-half of U.S. broadband customers said that a recent purchase was influenced by an online message (36 percent by shopping sites and 15 percent by search sites), exceeding the impact of TV commercials (11 percent) and magazine ads (6 percent), according to a 2007 study by market researcher Media-Screen.

"Even the most intensive users of newspapers and magazines spend less time reading these publications than they do online or watching TV," a 2007 Jupiter Research study confirmed.

While a Web site is a marketing "must-have" for today's businesses, additional online presence is also required. E-mail newsletters, blogs, interactive Web elements (videos, podcasts, direct response tools) keep your site fresh and relevant. Targeted e-newsletters are a great way to provide inexpensive yet highly valued information of interest to customers and prospects. New tools now make it easy to personalize the messages and track e-mail opens and click-through rates.

3. Integration is the key to success.
Do all these new media seem like a bit much for any one customer? Possibly. Most people average more than 3,000 commercial message exposures a day, and the volume continues to grow. (Reality check: After you've bought your next $12 movie ticket, count the commercials and previews you have to sit through before the film begins). Creating clear, concise messages that are smoothly integrated is absolutely crucial to successful customer communications.

That's because, despite all the new technologies, this marketing principle hasn't changed: You must start with a relevant position, supported by consistent communications, to achieve a desired position with your target audience.

It used to be that companies could get away with broadcasting clever commercials that generated awareness, and even sales. Now, thanks to infoglut, your company and product and service positioning must be clearly evident across all media. Every customer contact point--how you answer your phone, your e-mails, your customer service and your advertising--need to project the reason why your company provides a unique, relevant value for your intended audience.

Ten years goes by quickly, doesn't it? In 1997, Outsource Marketing started as a way to help companies get the best, most efficient marketing. Even as we strive to keep pace with evolving trends, that remains our most fundamental mission.

Kathy Cox
27 Apr 2007

Kathy Cox, Outsource Marketing's Marketing Integrator and New Media Strategist, is a former marketing executive and entrepreneur who negotiated the Seattle Mariners' first cable TV contract, helped launch Northwest Cable News and founded ParentOrganizer. Having worked on both the client and agency sides of the business, she is uniquely qualified to provide a wide variety of clients with strategic guidance on utilizing new media channels.