Global Business Services
Thoughts on Global Business Services, the challenges of operating in a global environment, and the solutions the world’s leading companies are implementing to gain a competitive edge.
1. China's Ex-pats: Emerging Asia Beckons. Chris Devonshire-Ellis at china-briefing.com discusses changes in the Chinese employment system and its effect on foreign workers:
http://www.china-briefing.com/news/2011/11/18/chinas-ex-expats-emerging-asia-beckons.html
2. IASB and Japanese Regulators Work on Convergence. Inaudit.com covers the latest discussions.
http://inaudit.com/events/iasb-japan-regulators-working-on-ifrs-gaap-convergence-11166/
3. Accenture signs 5-year BPO contract for Accounts Payable outsourcing. Accenture partners with Statoil, an international energy company with a presence in 40 countries.
http://www.offshoringtimes.com/Pages/2011/BPO_news3244.html
4. IMF Sees "Buildup" of China Bank Risk Needing More Oversight
5. Shared Services Slash Costs. Treasury & Risk Magazine disucsses a Hackett study that focuses on the move to multi-function shared services.
http://www.treasuryandrisk.com/2011/11/15/shared-services-slash-costs
A press release from business process outsourcer Genpact announces the opening of a new delivery center in Dubai, UAE. Here's an excerpt from the press release:
Genpact Limited (NYSE: G), a global leader in business process and technology management, today announced the opening of its Dubai, United Arab Emirates (UAE) global delivery center. The 80-seat modern center set up in Dubai as a licensed partner of Dubai Outsource Zone (DOZ) will provide business process services such as claims processing, customer service, collections, treasury operations, finance and accounting, analytics and risk-related services for clients in the Middle East and North Africa.
"We are delighted to begin operations in Dubai and hope to grow this center into a 500-person center in the next three years," said Tiger Tyagarajan, President and CEO, Genpact, speaking at the opening. "Not only will the center deliver business impact through our uniquely scientific Smart Enterprise Processes (SEPSM) framework, it will also help our clients make smarter business decisions through our Smart Decision Services comprising analytics and research, reengineering and risk management."
Setting up operations closer to clients is part of Genpact's growth strategy and the decision to set up in the UAE is based on the excellent infrastructure, supportive government policies, connectivity with the rest of the world, and the ease of doing business in Dubai. Genpact now has delivery centers in 17 countries around the globe.
"The Dubai center will increase our capabilities to deliver services in Arabic and we will initially be focusing on clients in the UAE, Kuwait, Qatar, Bahrain, Oman and the Kingdom of Saudi Arabia markets," saidVishal Pandit, SVP and Business Leader, Middle East at Genpact. "We will be providing project-based analytics and reengineering services as well as transaction processing and customer care services."
Dubai Outsource Zone caters to organisations specialising in services such as business process outsourcing, knowledge process outsourcing and legal process outsourcing. Additionally, it offers an environment that attracts different elements of the value chain, including banking and finance, insurance, IT, legal and airlines.
Despite the global slump, and perhaps because of it, the outsourcing industry is struggling to find enough trained workers to meet expected demand for outsourcing. Mayala Business Insight has an article describing the problem. Here's an excerpt:
THE outsourcing industry may be hard-pressed in adding 80,000 to 100,000 new jobs every year due to what is now described is the acute problem of declining trained manpower.
But despite this, the country’s information technology and business process outsourcing (IT-BPO) industry remains optimistic of hitting double-digit growth in revenues this year.
"80,000 is a stretch," said Trade Secretary Gregory Domingo at the sidelines of the 3rd International Outsourcing Summit (IOS) at Sofitel Manila yesterday.
Addressing the delegates earlier in his welcome remarks, Domingo said: "It is a supply-side problem, not a demand-side problem."
Coming from a wide base of 600,000 workers in the industry, adding 80,000 to 100,000 workers every year suited to the industry’s requirement is a challenge.
Here's the link to the full article: Outsourcing Threatened by a Lack of Trained Workers.
A recent survey conducted by HfS Research shows that buyers of outsourcing services are looking for more than low cost when it comes to outsourcing relationships. The survey asked purchasers of outsourcing services what they thought was important and compared their responses to what providers of outsourcing services thought buyers wanted from them.
It's no surprise that some metrics like pricing aligned pretty well between providers and buyers. What is surprising is the degree of difference between the two groups when it came to the soft lever of transformation such as governance and change management. The survey revealed that buyers placed a higher level of importance on these soft transformational levers. Shown below is a graph which summarizes the survey results:
Source: HfS Research
What is surprising is that outsourcing providers underestimate how much help clients would like in managing change in their organizations. This is obviously an opportunity for those providers, but they'll need to make their capabilities clear so that buyers clearly understand the value these providers are rendering over the contract lifecycle.
You can read the entire post at The Undisputed Facts of Outsourcing Part 7: Service Culture is the New Differentiator.
There's still time to register for the IQPC Shared Services and Outsourcing conference in Krakow, Poland. The Conference will be held on 9-10 March, 2011.
Some of the many topics to be covered include:
In addition to the many workshops, this conference represents a great opportunity to network with others who are on the shared services and outsourcing journey. I recommend that you attend if you are able to do so.
A number of India-based companies have made no secret of their desire to break the mold of an "Indian only" company. Many have established country presences in the U.S., the U.K. and elsewhere. In a recent news article, The Hindu Business Line reported that Genpact plans to substantially add to their headcount in the U.S.
An excerpt from the article:
Offshore BPO major Genpact is planning a major ramp-up of its ‘onsite' presence by doubling the US workforce to 2,000 professionals in the next 2-3 years. It currently has about 1,000 professionals in the US, across functions such as revenue cycle management, mortgage processing and loan modification.
“This whole area of business process management and driving improvement in business processes will demand more onsite presence, more domain-specific capabilities and very high-skilled re-engineering capabilities. I think we need to be closer to our customers when we do this kind of work. So we are very comfortable from a business model and demand perspective, with regard to our hiring plans in the US,” the Genpact President and CEO, Mr Pramod Bhasin, told Business Line.
You can read the full article here: Genpact plans to double US headcount in 2-3 years
Dalian, China has been a favored location for companies looking to service the Japanese market due in part to the high number of Japanese speakers in that area. China Briefing, which covers business developments in the Chinese market, has an article discussing Dalian's move to restrict foreign workers in organizations with small capital investments. As noted in the article, this new ruling will have little effect on manufacturing concerns as they require relatively high capital investments. Rather, it's likely to impact IT and BPO operations that are not as capital intensive.
An excerpt from the article:
The Dalian government introduced a new policy [Effective August 1, 2010] restricting the ability of foreign investors with a registered capital of under RMB3 million to obtain work permits for their foreign staff, effectively stopping foreign employees that want to work for such companies from being able to apply for a Z visa to work in China.
This measure is likely to affect companies in the service and IT sectors more than the manufacturing sectors, as service and IT enterprises tend not to be capital intensive, relying instead on generating income to grow their operations. The policy is likely to have a particularly large negative effect on innovation and entrepreneurship in the area.
Corporations looking to locate a site in China should look at how this impacts their evaluation criteria, including the ability to use foreign workers. You can read the full article here.
In a world marked by globalization, new countries and cities are regularly developing the maturity necessary to be seriously considered as a service delivery location. A balance is needed between the critical mass necessary to obtain economies of scale and the opportunity to move processes and activities globally to refine the global delivery model and leverage lower labor rates. Additionally, it can make sense to grow the support processes in geographies that require additional support, such as an expansion of operations in Asia or Latin America.
In Asia, China is well established as a logical place to locate support centers. Shanghai, Shenzhen, Dalian and Beijing are well know sourcing centers; however, due to rising wages, companies are looking to 2nd tier cities to locate manufacturing facilities and related support facilities. The Philippines is a good choice when English speaking skills are required. Even Vietnam is working to become a destination of choice for offshore work, although now it's mostly known for its IT capabilities. And of course, India has multiple established cities for shared services, although, as with China, companies are considering 2nd tier cities there also.
In EMEA, companies have located in Budapest, Prague and Krakow, although there are a number of choices. Companies looking for a labor cost advantage but who either desire or require a "near shore" facility like Eastern Europe for it's skilled workforce, good infrastructure and relatively low cost.
In Latin America, Costa Rica has long been a favorite for North American companies due to the time zone proximity (Central U.S. time zone during Standard time and Mountain U.S. time zone during Daylight Savings), reasonable English language skills and a stable political environment. Brazil, as a dominant economic force in Latin America, is also the choice of many companies, particularly Sao Paulo and Rio de Janeiro.
And don't forget rural sourcing. Even in high cost countries like the U.S. there are companies experimenting with rural locations as a way of retaining work onshore yet achieving cost reductions. The point of all this is that, to put it mildly, globalization is creating the opportunities to develop a global Finance organization using a variety of tools. This includes creating a delivery model that takes advantage of developing talent markets. World-class Finance organizations incorporate this thinking into their existing and future plans to deliver Finance services to their companies.
A key decision in the development of a global delivery model will be the decision to outsource specific functions. There are a variety of reasons why a company may choose to outsource a finance process, including access to current technology, access to industry specific knowledge and ability to scale up capabilities without a large capital investment. A detailed business case detailing the reasons for the outsourcing decision should be created. The same hold true for the retained finance organization. There will be very good reasons why some finance processes will be retained in-house, including reasons related to governance and control.
However, despite the best efforts of the sourcing team to evaluate the overall delivery strategy in the captive vs. outsourcing decision, the reality is that conditions change and assumptions that were once thought reasonable are proved to be untrue. As part of the ongoing effort to maximize the effectiveness of the delivery structure, the Finance Management team should periodically reevaluate the need to outsource a process that was previously handled in-house. It may be that supplier capabilities have matured in that area or that competition among suppliers has pushed prices down further.
Keep in mind that the process works both ways. Sometimes an outsourcing relationship isn’t working out as planned and it makes sense to insource the process to provide better service. A company with outsourcing contracts should be continuously reviewing the suppliers performance according to the Service Level Agreement (SLA). It could also be that a company's strategic direction has changed and it makes sense to bring some capabilities back in-house.
World-class companies use a portfolio approach to delivering finance services. There will almost always be a mix of captive and outsourced activities. In a dynamically changing world, it's incumbent upon finance organization to stay on top of the best ways to deliver those services.
A brief article at Philstar.com discusses growth projections for Philippine outsourcing. The president of the Business Processing Association of the Philippines states that they continue to have ongoing discussions with companies about moving processes to their country. Here's an excerpt:
Business Processing Association of the Philippines (BPAP) CEO and President Oscar Sanez said Monday that for this year the Philippine outsourcing industry targets 26 per cent growth and projects revenues will total $9.5 billion.
"Many companies are under pressure to reduce their cost structure and have considered outsourcing and offshoring to boost their competitiveness," he added
The outsouring sector is one of the country's fastest growing industries, accounting for about five percent of the GDP and employs more than 400,000 people. Last year, despite the global meltdown, the sector posted a 19 percent growth, hauling in $7 billion of revenue.
The Philippines is an attractive country due to strong English language skills and low labor costs. An interesting point in the article is that outsourcing now accounts for five percent of GDP. While wage inflation has been a concern, the Philippine government is actively working to contain inflation. It'll be interesting to see if 2010's actual numbers are in line with this prediction.
One of the cultural shifts that occurs when moving processes to a captive Shared Service Organization or to a 3rd party outsourcing relationship is that managers must reinvent themselves to manage effectively in the new environment. In a traditional environment, a Finance manager has a number of people under his or her direct control. They typically reside in the same geographic area, if not the same actual building or floor. In this environment, a manager can speak directly with their people, receive immediate verbal feedback and read their body language. All of these inputs feed into the manager's evaluation process to determine if organizational and process goals are being met.
An organization with a captive SSO or 3rd party outsourcing relationship must learn to manage differently if they are to be effective in governing that relationship. No longer can they manage by the old rules. Gone are the days when a manager can "manage by walking about". There is much less in the way of verbal feedback and non-verbal cues. In its place, a manager must learn to monitor and analyze metrics to manage processes.
An effective governance model for shared services or business process outsourcing relationship will incorporate a feedback system that enables the effective monitoring of processes. These metrics will be focus on both the effectiveness and efficiency of the process. Of course, these metrics will be tied to the metrics defined up front and embedded into the service level agreement. The manager's job is now focused much more on the analysis of data and root cause analysis to understand how successfully the organization is executing those processes.
This change does not come easily for many managers. They have succeeded in their careers because they became very adept at managing by the traditional rules. As the organizational structure shifts from one of hierarchy to one of influence, a number of the managers may not effectively make the transition. As part of the change management process, organizations must educate and train managers in the new realities of managing. They must also provide the monitoring tools and data necessary to successfully manage in the new environment.
FAO Research, an independent research firm focused exclusively on the FAO and procurement outsourcing markets, has put together a list of criteria that companies have used to achieve success in their Finance & Accounting outsourcing models:
Working with a Sourcing Advisor Upfront: Four of 10 nominees for our 2008 FAO Awards involved sourcing advisors’ guidance that enabled the prospective customers to have a methodology and processes in place that could lead to successful provider selection, and contract, and manage expectations.
Effectively Creating and Demonstrating a Future State: Customers with an FAO 2.0 mindset upfront understand that their engagement is being initiated for more than pure cost-cutting reasons, and that a focus on FAO could help them achieve long-term goals as opposed to short-term wins.
Multiple Supplier Service Delivery Locations: The geographic diversity of FAO service providers’ delivery centers is of extreme importance to FAO customers, as they understand that having access to similar cultures and language skills as their employees and customers as well as having different cost options and geopolitical risk spreading are critical factors for their long-term, global business successes.
Industry Expertise: Companies that aim to achieve FAO adoption seek to align themselves with service providers who have “been there, done that” with peers in their industry. Process knowledge and technical expertise requirements differ by industry, as do the drivers and inhibitors for business success in each industry. Innovative companies understand that and aim to leverage the industry acumen of their suppliers to achieve long-term contract success.
Senior Management Involvement in the Project Upfront and Throughout: Every successful implementation and FAO engagement involves the buy-in and direct involvement of senior management at the start of the project.
Single, Dedicated Point of Contact: Since outsourcing is a services business based on relationships, single points of accountability are crucial to manage the many parties involved in ensuring contract success, including transition managers, governance leaders, administrative personnel, and the like.
Introduction of Flexibility into Service Delivery: Adding a component of variabiliy accommodate evolving business requirements, seasonal fluctuations, etc.
Previous Business Relationship: It’s helpful to know the company you are working with from your previous relations with them, but it’s not always imperative.
Establishing FAO Objectives Upfront: These may include cost saving targets, accomplishments desired, or some other types of quantifiable measures so that you can have realistic goals to achieve and also benchmark against after you embark on the FAO endeavor.
For F&A Outsourcing to be successful, clients need to have well established goals in mind that include more than cost-cutting. As important as that is, the choice of an F&O outsourcing provider must be part of an overall strategy to deliver finance services globally.
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