Insights

Transforming Your Operating Model in an Uncertain Economic Environment

The past months have proven that this is an unprecedented time for the way we conduct business in a global economy. As economic conditions remain uncertain, companies are looking for strategies to reduce operational costs without sacrificing service to the business and its customers.

A recent American Productivity & Quality Center (APQC) survey noted that 56 percent of financial leaders are prioritizing improved levels of service while maintaining or decreasing costs during an economic downturn. At the time this study was conducted, COVID-19 was a mere blip on the radar, and it was clear that many companies were already thinking about measures to address a looming recession.

Today, the need to address cost transformation has accelerated at an exponential rate. One of the key levers considered by companies in this response is the centralization of functions into a Shared Services Center (SSC), Global Business Services (GBS), or Business Process Outsourcing (BPO) operating model:

What are the benefits and considerations?

  • Cost Savings When It Counts

Labor arbitrage in the case of moving to a lower cost location is often a key reason for entering into one of these models. For example, work performed in the Philippines is significantly cheaper than similar work performed in the United States. Note that with a BPO model, companies are able to reduce costs related to wages, benefits, and infrastructure. For SSC and GBS, it is important to consider the upfront investment such as technology, infrastructure, and knowledge transfer that will be required when determining future cost savings. 

  • Better Support for the Business and Customers

Flexible support models allow for more rapid responses to shifting business needs and help to deliver the necessary level of service expected by the business (e.g., refund policies for recent cancellations due to statewide shelter-in-place mandates). Delivering consistent messaging and standardized processes can become even more streamlined when they are performed under the oversight of a single operating organization. However, keep in mind that depending on the terms of the agreement, an outsourced BPO provider may be less flexible and open to these changes.

  • Allow Leadership to Remain Focused on Strategy

Unique customer and business-facing scenarios present themselves almost daily. Given the environment, functional and department leaders are tasked with creating the strategies to maintain cashflow, build revenue, and further reduce costs. This could very well mean designing brand new processes, which is no small feat. Those in shared services can help support issue escalation and process governance by triaging incoming requests and serving as the first line of defense in problem solving. This enables business leaders to define strategies aligned to their business and focus on top priority issues, trusting their business partners in the shared services organization.

  • Measuring Success

Through the standardization of processes under a single umbrella organization or outsourcing partner, an opportunity presents itself for these operating models to better measure and report metrics related to company strategy. Whether through contracted Service Level Agreements (SLAs) and reporting with the BPO provider, or consistent data definition and collection techniques from those in the SSC/ GBS, these operating models allow for “one source of the truth” when it comes to cost, productivity, and alignment to the overall strategy. Appropriately defining, measuring, and presenting these success metrics will become essential in the time to come. 

 

How do we decide which processes and functions move to the new model? 

Not every process is right for outsourcing. Process complexity, expertise, language, and timing needs are all considerations when it comes to the ideal processes for these operating models. However, some processes and functions are more common to operate under these models than others. Key assessment activities include:

  1. Identify and assess the steps in the current process (current resourcing and costs).
  2. Identify optimal placement (which activities can be performed where).
  3. Determine whether processes should “lift and shift,” transform and shift, become automated, or a hybrid of these options.
  4. Determine location criteria and weightings (cost and other attributes) to identify optimal locations where the work can be performed at a reasonable cost.
  5. Document specific requirements for the operating model (technology enablement, metrics, and functional interactions).
  6. Construct a business case to capture and track the financial and non-financial benefits and costs related to moving towards one of these models.

 

Which model is right for us?

The organization’s current structure plays a significant role to determine the service delivery model that is right. With time being of great importance, questions around the organizational complexity, existing BPO relationships, level of technology infrastructure, global presence, language needs, time-zone requirements, and regional/ geographic process differences are just a few of the criteria businesses will need to consider as they make this determination.

Leveraging existing relationships and geographical presence is likely to be the most optimal scenario in the current environment. Businesses who act both quickly and thoughtfully can recognize timely benefits. Companies can consider a piecemeal approach of identifying an initial set of activities for placement (e.g., accounts payable or payroll) and building from there. Whether setting up an SSC/ GBS or entering into a BPO agreement, a flexible plan for expanding service delivery capabilities will position companies to meet their strategic objectives.

With that said, those companies who have a long-term plan for their operating model will recognize greater benefits. These models are meant to deliver so much more than quick savings. For instance, the time to (1) identify processes to be performed within a GBS, (2) identify an office location, (3) stand up a new office and infrastructure, (4) recruit in a remote setting, (5) document current processes, (6) recruit and hire new employees, (7) and train and transfer responsibilities may be too large of an undertaking for companies looking for quick results. This also applies for a BPO requiring vendor selection, negotiation, contracting, technology access, and training.

Each of these steps for establishing a GBS/ SSC or BPO creates a challenge, but also an opportunity for savings and improved service. At the same time, the effort related to vendor selection, negotiation, and contracting with a strategic and potentially costly BPO provider could present similar challenges.

 

Conclusion

Whether responding to economic uncertainties or planning for the future, these operating models are a powerful enabler of a broader strategy for companies. Knowing many other companies are already on this strategic journey, are you prepared to further transform your operating model?

 

Our latest guidebook provides leaders with a roadmap to enhance resiliency plans, simplify operations, address new financial requirements, and more. To download, please click the link below.

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