Markets are volatile, consumer confidence is down, jobs are being lost, revenues are falling, and profits are being wiped out. Many firms and industries are in pain and struggling to adjust to the new economic reality. In today’s business climate, it seems impossible to invest for the future when company survival is at stake.
Should firms be investing in shared services and outsourcing at this time, or limiting investment and just seeking to weather the economic storm in the hope of finding clear water once the storm abates?
I would argue that investing now makes sense. Why?
The Board View
Many CEOs and CFOs have recently set much clearer short-term objectives and targets for revenue growth, cost reduction and transformation. Given low asset values, M&A provides a valuable new source of growth, and cost reduction targets are typically at least 20 percent. Shared services and outsourcing play a critical role in operationalizing and achieving these objectives and targets through rapid post merger integration (PMI) of shared services functions, and by accelerating cost reduction improvements and gain sharing using strategic partnerships with outsourcing service providers. A case in point – many North American banks are rapidly undertaking PMI of shared services functions and consolidating/re-negotiating their outsourcing contracts.
The Executive View
The economic crisis has opened executive minds to the benefits of shared services and outsourcing. Many business leaders are re-evaluating their organization’s core competencies through a different lens and concluding that many functions and processes can be performed more efficiently and effectively in shared service centers and/or by third-party providers. A good example is the U.S. healthcare industry in which many executives are considering new shared and outsourced service delivery models. For critical “outsourceable” functions and processes, service provider financial stability remains a key criterion, and many providers continue to grow their markets and capabilities, with strong balance sheets.
The Provider View
Whether an internal or external provider of shared and/or outsourced services, there remains plenty of demand and supply. Mature customer organizations still undertake many processes and functions outside their shared services organizations that don’t provide competitive advantage or are executed in an operationally inefficient or ineffective way. Through more sophisticated account management, innovation and strategic commercial partnering, much of this new customer demand can be captured. On the supply side, there are significant opportunities to drive harder bargains with providers of services, equipment and labor (both permanent and contingent workers).
The Government/Regulatory View
Historically, many regulators have been risk averse when considering the use of shared services and outsourcing by the firms they regulate. The spectacular rise of emerging multinational providers and increasing international real economy trade continues to provide an impetus for bi-directional cross-border shared services and outsourcing which regulators can no longer ignore. It remains uncertain what impact, if any, the Obama administration will have on cross-border shared services and outsourcing, but the need for U.S. economic growth is unlikely to be sacrificed on the pyre of increased trade protectionism.
Armed with a strong case for investment and aligned stakeholder interests, the focus for business leaders driving shared services and outsourcing operations and initiatives is clear. Build on the vision and urgency for change set by corporate leaders, define how global shared services and outsourcing will help deliver that vision, build a robust investment / business case for change and then lead and execute the investment plan with urgency, pragmatism, creativity, skill and focus by strategically collaborating with your providers.
The ROI for successful shared services and outsourcing investments remains significantly higher than corporate and equity returns. And in a world of scarce capital and economic uncertainty, there is a compelling case for diverting capital and financing from less attractive investments and leveraging shared services and outsourcing as a strategic opportunity to emerge from the storm fitter, leaner and more competitive.