After the decentralization wave in the 80s, Shared Services had their Renaissance in the 90s. Organizations recognized that processes should be managed E2E, standardized and be rather centralized than scattered to optimize the organizational value chain. Following those targets, shared services centers were build rather locally than near or offshore and additionally they provided economies of scale and taxation advantages. This is what I call the Stage I of the shared services, the global market was not open and technology was not ready yet to go beyond those boundaries.
Over the last years Shared Services have changed dramatically moving towards Stage II. The industrialized societies evolve to one that is knowledge and service oriented. Customers don’t just buy a product. They buy a service! Emerging markets as China, India and Eastern Europe opened their market and started investing into infrastructure and education. Technology became a key enabler for virtual collaboration across time and space. Video conferencing, screen and file sharing and chat functions belong nowadays to the standard desktop and mobile tools for every employee. Knowledge becomes virtual and accessible for everybody anytime and any place. India became a major hub for offshore services with a yearly sector turnover of 150 billion USD and a further yearly increase ratio of 10% (The Economic Times). Mega cities and office parks were built offshore driven by this new demand for services providing extremely attractive opportunities to the large community of academics in those countries that continues growing dramatically. Human resources are not the bottleneck in those markets! Management and leadership style had to change significantly not only to cope with the culture differences but also with the increasing complexity, the focus on trust and limited control. Stage II is already real for many industries but several still are catching up because they were either caught up in their own complexity or don’ t have the need (yet) to transform their business model.
III. Extend and Improve.
While in Stage II the services run offshore were rather covering support processes now in Stage III companies started transitioning offshore also high value activities which normally are performed by a center of excellence, development or design team or are even strategic in nature. This was implemented to leverage knowledge, mitigate capacity bottlenecks, and cover the E2E processes but also for cost and employee motivation reasons. Some Engineering companies started early building offshore design centers. Many are now considering the same to mitigate the larger capacity bottlenecks becoming more and more present because the economy is growing fast and onsite resources are rare (McKinsey expects in Germany by 2020 a human resource shortage of 2,0 million while Prognos AG expects 4,1 million). Further characteristic of this Stage III is the focus of the offshore organization on efficiency and quality gains through continuous improvement (e.g. Lean, Agile, DevOps) but also through internal competition. An internal sourcing process helps to assign services to the location that fits best the TCO criteria set.
Stage IV is again strongly technology driven. Process Automation or Robotics and some early Machine Learning algorithms enable shared services to automate highly repetitive and standardized activities and processes. I estimate that 30% of the activities within ITO and 40% within BPO can be automated (well in line with McKinsey estimate). It is higher within BPO due to nature of the work that is mainly driven by rulebooks while within ITO the number of Standard Operating Procedures is rather lower and large amount can be covered with a captive solution manager that provides system and process monitoring, data consistency, configuration validation, root cause analysis and much more.
Stage V will open new markets for shared services, as the earlier markets will become increasingly less attractive due to the cost structure but also supply capabilities. We will also see more Artificial Intelligence covering activities while human resources can focus rather on creative and interpretive activities.
Summary: what you should do.
Your company does not necessarily have to pass thorough all stages and in the order given. I see a large advantage of the second movers. They can leverage and build on the knowledge and experience from the early adopters. We also observe in India that mature shared service centers are now increasingly focusing on Continuous Improvement and especially process automation, releasing capacity and easing the labor market. Overall we will observe that shared services will more rapidly mature and be capable to cover larger parts of the overall value chain. The competition for services in India will increase through continuous improvement but also by foreign market protectionism and new supply markets.
Topics: SSC, BPO, ITO, Value Chain, Continuous Improvement, RPA, Market Development, Cost Savings