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Shared Services: Great Potential, Significant Risks

Companies can cut finance process costs by more than 40% through the use of shared services and also improve customer satisfaction, process quality, and productivity, but many companies never see these gains due to common errors in their sourcing decision making or implementation efforts, according to new research findings from The Hackett Group.

Hackett's 2006 Enterprise Book of Numbers analysis found that nearly one in every five companies see process costs drop by more than 40% as a result of their shared services implementations.  But more than 30% of all companies see process costs remain unchanged or actually increase as a result of shared services implementations, and another 12% see only small cost reductions.  Similar results were found in analyses of the impact of shared services on customer satisfaction, process quality, and productivity.

In a separate study of European companies, Hackett found more balanced results, with most companies showing between 10% and 40% cost reduction as a result of finance shared services implementations.  Hackett's analysis found two major factors drove the differing results.  U.S. companies are often more aggressive in their shared services implementations, while European companies take a more conservative approach, weighing potential return on investment and possible risk.  This leads European companies to generate less dramatic cost savings, but also ensures that there are far fewer cases among European companies where the use of shared services causes costs to increase.  In addition, Hackett believes that European companies are more likely to be taking advantage of wage arbitrage due to the close proximity of Eastern European labour markets.

'Shared services are clearly a powerful technique for improving efficiency and effectiveness in corporate finance,' said Hackett Senior Business Advisor Tom Bangemann.  'But it takes commitment, focus, and initiative to get it right.  Companies that bring these to the table reap significant rewards.  But those that don't can feel all the pain and see none of the gain.  Worse yet, they can even find that their costs increase.'

According to Hackett Senior Business Advisor Penny Weller, 'Companies that get the most out of shared services implementations treat them like an independent business, and emphasize elements such as customer satisfaction, performance measurement, and accountability.  Shared services can't be just a corporate mandate that companies try to enforce. The best also focus on change management, and understand that eliminating the lion's share of decentralized activity in corporate finance takes time, communication, and the backing of senior management.  You can't expect to re-educate everyone overnight.  If you get this part wrong, people dig their heels in and you end up with 'shadow systems' that undercut centralization efforts.  Finally, shared services must be seen as an opportunity for process improvement.  Standardization and simplification are where a lot of the savings come from.  They need to be an integral part of the change effort.

'The value of successful shared services even extends well beyond short-term ROI,' explained Weller.  'It's the first step to further reducing cost structures through globalization.  Once finance processes have been centralized and standardized, they become portable, and it becomes much easier to take advantage of labour arbitrage opportunities available offshore, either through captive operations in low-cost labour markets or by outsourcing.'

 Top Stories

Majority of organisations turning to datacentres
According to a survey conducted by Computacenter Services majority of the firms are consolidating and centralizing their IT systems into data centres to increase the efficiency and reduce the management costs.  About 54% of the respondents felt the need to move towards a more centralized IT environment, while about 25% of the organizations had already completed the task.  Among other key findings, about 84% of the respondents have high expectations from the quality of customer services.  Only 8% of the organizations were using the shared services architecture, while about 20% were considering using the shared services.

Somerfield signs 7 year, $65M deal with TCS
Under this new agreement, TCS will take over the entire IT operations, asset management and planning for UK-based small-format food retailer - Somerfield and provide a fully managed IT infrastructure and applications service within Somerfield, aimed at meeting its current and future business demands.  As part of the agreement, TCS will manage 3rd party hardware, software and services contracts with an estimated value of over $100M over the duration of the agreement.

Glasgow wins 200 new tech jobs as JPMorgan expands
JPMorgan has announced its plans to increase its IT headcount to about 200 at its European Technology Centre in Glasgow, UK in the next two years.  At present, the centre employs about 700 IT professionals who are engaged in designing and developing financial IT systems for JPMorgan's investment banking and asset management divisions worldwide.  The bank is expected to receive about GBP 3M as regional assistance from the Scottish Executive, Scotland's governing body, for expanding its Glasgow centre.

Woolworths Inks an Outsourcing Pact with C&W
Woolworths, a U.K.-based retail group, has signed an outsourcing contract with Cable & Wireless (C&W), a U.K.-headquartered communication-services provider.  Under the terms of the five-year contract, C&W will manage the IP-based Local Area Network (LAN) at Woolworths’ data centres, head office, remote corporate sites and about 820 shops of the company across the U.K.

Rhodia awards IBM and ADP a seven-year contract to Optimize its HR Processes
Chemical manufacturer Rhodia has signed a 7-year agreement with IBM and ADP to optimize its Human Resource (HR) department by outsourcing the administrative and support areas of key HR processes.  The contract is expected to decrease the costs of Rhodia by 30%.  ADP will provide payroll services and IBM will support processes in HR such as training, recruitment, compensation and benefits, as well as workforce administration.

NHIS Outsources IT Services to Kanbay
NHIS, non-profit organization creating employment opportunities for people with severe disabilities, has selected Kanbay International, to provide IT outsourcing support, such as application development support, network and server management, help desk and desktop and user support.

Church's Chicken outsources financials to WNS
Restaurant chain Church's Chicken announced that it will outsource its financial and accounting to an Indian company.  WNS will handle functions such as accounts receivables, accounts payables, bank account reconciliation, and general ledger maintenance.

Amadeus to increase outsourcing jobs to India
Leading global IT solutions provider to travel industry, Amadeus yesterday said it is looking at increasing outsourcing jobs to India by shifting them from Europe and North America.  The company was looking outsource to work in the areas of development and support services in India, executive vice-president commercial David V Jones said here. 

Greater Pacific Capital acquires 40% stake in HGR
Greater Pacific Capital (GPC), a London-based strategic investment firm, has acquired a 40% strategic stake in Hinge Global Resource (HGR), a leading Chinese IT Services and BPO company.  GPC is planning an investment of around $500M in India over the next two years.  GPC is also exploring strategic joint investments between Indian and Chinese companies, primarily in India's burgeoning real estate and infrastructure sector, pharmaceutical sector, and manufacturing and IT services companies.

Brady Corp opens BPO units in India
US-based Brady Corporation on Tuesday said it has set up its manufacturing and BPO centres in Bangalore.

 Service Provider News

Deloitte to hike India headcount to 12k
Deloitte has announced its plans to increase its Indian headcount from the present 7,500 to 12,000 professionals by 2010.  According to Manoj Singh, CEO-APAC, Deloitte, the company is planning to invest about US$50M by 2010.  According to William G Parrett, CEO, Deloitte, the company has offices in about 13 locations across India and the company is investing in personnel, technology, and infrastructure sectors in the country and Asia Pacific region.

IBM to Set Up Global Delivery Centre in Chengdu, China
The centre will provide its application development and maintenance services to the company's clients in several languages.  It will also provide its services to the IBM Global Procurement Centre located in Shenzhen, China.  IBM is planning to recruit the Chinese local talent along with professionals from other parts of China and from IBM operations worldwide.  The new GDC will help in strengthening the company's existing network of centres across China in Shenzhen, Dalian, and Shanghai.  IBM provides services to its clients based in America, Europe, and Northeast Asia through these centres in China.

Accenture Opens New Software Lab In India
Accenture has opened an R&D centre in Bangalore, India.  It is the fourth centre in the R&D space for the company, with the others being in California, Illinois, and Sophia Antipolis.  According to the company estimates, its R&D team will have about 100 professionals in its new centre.  The company has about 23,000 professionals across 7 Indian cities and 10 facilities.  The Indian headcount comprises about 18% of the total organization's headcount.  The company has about 275 clients globally.

Metavante, TD Banknorth signs contract renewal
Metavante has won a card processing contract renewal with TD Banknorth.  Metavante will continue to monitor about 750 ATMs of the bank.  In addition, it will provide card personalization services and process debit and prepaid debit card transactions to the bank.  The company will also provide various wealth management services to the bank.

Capgemini to transform Gloucestershire County Council IT systems
Gloucestershire County Council has awarded the IT transformation contract to Capgemini until 2011.  Both the companies are expected to save money through this transformation contract.  The council wants to change the IT systems in its finance, human resources, and payroll departments and create integrated business processes.  The transformation will be completed through SAP software and will be jointly installed by the council and CapGemini’s teams.

TSYS to Process Rabobank’s Consumer-Credit Portfolio
TSYS has won a card processing contract with Rabobank.  TSYS will process the consumer-credit portfolio of Rabobank.  The company will also support the new card launched by the bank in September 2006 and is expected to convert about one million accounts of the bank to TS2 platform by 2Q 2007.

EDS, Fonterra extend contract
Fonterra has renewed its ITO contract with EDS for a four-year period.  The original contract was signed in December 2003 for a seven-year period and was valued at US$380M.  EDS will continue to provide IT infrastructure services, such as midrange servers, desktop and laptops, local area networks, voice and data networks, helpdesk services, and utility software to Fonterra.

Bank of Bahrain and Kuwait (BBK) has established its BPO services company, Invita, in Bahrain
Invita's covers business process outsourcing, including interactive and non-interactive processes, on-demand contact centre and customer relationship management and consultancy and training services.

ICICI OneSource is now Firstsource
ICICI OneSource on Thursday rechristened itself as Firstsource Solutions Ltd while announcing its plans to tap the capital markets to part finance its acquisition plans, debt repayment and other corporate purposes.