Shared Services and Outsourcing: Aren’t we just moving the deck chairs around?

accapr —  27 March 2013 — 21 Comments

tall building, modern CFO

By Deborah Kops, founder and managing principal of Sourcing Change

If you think about our efforts to transform business functions through shared services and outsourcing, are we just trying to make them more efficient and cost-effective? Are we really tackling enough change to make them more relevant to today’s business needs? In effect, aren’t business functions as we know them obsolete, and changing them in-situ is just fodder for conference agendas, full employment for consultants, and topics for bloggers (such as yours truly)?

If you think about it, nothing much has changed in horizontal functions such as finance, IT, HR, marketing and legal for years. Sure, we tweak reporting lines – corporate versus business lines versus geographies; implement technologies to standardise; invest in “transformation” to gain incremental improvement; and change the delivery model through outsourcing and shared services, near-shoring and offshoring. But when it comes down to it, we haven’t really changed the relationship of these functions to the business. We merely focus on cost and efficiency of the same old delivery.

Contrast the dynamism of the so-called ‘front of the house’. Business lines constantly merge, spin off, or break apart in response to the market. Companies merge or divest in order to become more competitive. Yet we hold on religiously to the concept of standardising and consolidating business support platforms, thinking by managing cost we’ll add a lot of value to the business. By setting up shared services and outsourcing, aren’t we just moving the deck chairs to one side of the ship?

That’s not to say that cost-effectiveness and harmonisation are not corporate virtues, and do not create value. But when we focus on building generic platforms, maybe we’re missing a bigger bet. Perhaps it’s time to look at what component of business support functions should be close to or actually within the business. Perhaps, in the thirst for business model innovation, it’s time to admit that it’s conceivable that one size does not fit all. Mono-functional teams may not be our best bet.

If you are an avid follower of the daily HBR blog, you may have read Paul Leinwand and Cesare Mainardi’s 8 February post, Rethinking the Function of Business Functions. In it, the authors submit that “Wal-Mart doesn’t succeed just because of a strong operations group. It has built impressive capabilities that include logistics, inventory processes, buying standards, real estate practices and labour models — most of which it created for itself.” And the post goes on to cite Amazon’s ability to mix it up in new and different ways. In effect, the authors believe that we consider these companies great in part because they incorporated business functions into the business cross-functionally to create value.

The blog goes on to say that mono-functional teams are only oriented to the short-term, conflicting needs of all of their constituents. And, by implication, the value they create sinks to the lowest common denominator. There’s almost no ability to break out, or combine business support functions with the business in new and different ways.

Isn’t this true of shared services and outsourcing? The success of these models is predicated on consistency in structure, performance, service levels, and, most importantly, a customer relationship as opposed to a collaborative relationship. As a result, the perceived value is cost and predictability rather than problem solving and innovation.

Perhaps, after we go through a shared services and outsourcing phase which results in eliminating excess, it will make sense to tear it apart, moving processes closer to the business to create value. One day, sourcing just could be obsolete.

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21 responses to Shared Services and Outsourcing: Aren’t we just moving the deck chairs around?

  1. 

    I read your post with interest.

    I would suggest however, that it is inadvisable to do shared services first [to remove excess waste] or even do shared services at all. By taking this fragmented perspective of services (back office and front office), how would you know what waste actually looks like?

    What looks like waste from the back office, doesn’t necessarily look like waste from the front. What looks like waste from the front doesn’t necessarily look like waste from the back. And what looks like waste across the whole end-to-end system, may not look like waste in either front or back.

    Howard Clark
    Calchas Blog

  2. 

    Thank you for interesting review, but don’t you think that at least nearshore outsourcing ccan be very beneficial in terms of manet, especially taking into account the fianacial cirisis?

  3. 

    Howard, agree your point. believe that finance departments don’t move end-to-end because they are not sure what actually happens in the business! and Victoria–near shore is a good option–all other aspects of finance delivery being equal.

  4. 

    This is a good article, Deborah. I think it’s time for the people in this industry to know the common issues that they may face in the near future. Shared services and outsourcing really do affect the financial aspect of business. I think it’s just a matter of good forecasting and also, proven track records.

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  1. The biggest cause of shared services failure? | Calchas - March 27, 2013

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