For CFOs, the world was once a simpler place. The role of the finance function was clear: To keep costs down and allocate funding for growth while closing the books in an accurate manner. Working largely within their own borders and dealing with predictable markets, CFOs centralized and consolidated the finance function, reducing costs and maintaining tight internal controls.
Shared services played an important part in this effort. By centralizing back-office activities, CFOs helped bring down costs while maintaining uniform levels of quality throughout the organization. However, over time, as companies globalized their businesses and shared services demonstrated the value it could deliver, the model started to change. Fast forward to 2013 and we find a growing number of organizations rethinking the model and converting functional, back-office-focused shared-services centers to globally integrated business-services organizations that include end-to-end process support across such functional areas as human resources, procurement, IT, customer service and marketing.
A number of factors are driving CFOs to take a new look at shared services. For example, globalization in the face of ongoing economic volatility and persistent change in the business world is reshaping commerce. Supply chains now span the globe, and CFOs are trying to manage risk and analyze profitability across a range of global markets. Divergent economic growth rates, distinctive consumer preferences, varied competitive environments and different currencies, cultures, tax regimes and regulations require management processes and operating models that can adapt quickly to changing strategies and market conditions.
Instead of focusing on the relatively affluent but slower growth markets in North America and Western Europe that have driven global economic growth for half a century, today organizations are challenged to deliver profitable growth across a broad range of markets with very different requirements for success. A consumer products company wanting to do business in India may have to work with hundreds of thousands of small, independent retailers to reach potential customers across the country.
To accomplish this, companies may have to quickly enter or exit markets, assimilate acquisitions and manage divestitures, adjust marketing and promotional programs in response to changing consumer behavior, and redeploy resources to high growth markets while continuing to drive profitability and maintain control. Having such agility requires maximum flexibility and rapid access to good data, not just in core transactional processes but across high-value performance management and business-analysis processes as well. This data, however, is often stored in organizational silos and may not be accessible to those who need it.
Ideally, an enterprise could provide the analytics, infrastructure, discipline and expertise necessary to cope with market volatility and the associated risks. To accomplish this, leading companies such as GlaxoSmithKline, Procter & Gamble, UPS and Dow Chemical are moving from shared services to a more globally integrated business services (IBS) model. Such a model can deliver higher-value services on an enterprise-wide basis in a consistent, high-quality and cost-competitive manner that leverages both captive and outsourced solutions. As such, IBS organizations are becoming strategic partners to the enterprise by supplying services that can help resolve end-to-end business problems and deliver increased enterprise value.
The footprint of IBS organizations is not limited to administrative and support functions, but it includes more middle- and front-office activities – getting close to the market, the customer and the business. In addition, IBS is designed to leverage and expand on the traditional shared-services foundation of solid service management and keen focus on process and organizational standardization. The operational decisions made by IBS organization are no longer focused solely on cost management but are now balanced with the responsibility – shared jointly with the business – for managing risk and driving growth.
We have seen companies such as Dow Chemical support their overall corporate strategy by simplifying, consolidating and standardizing processes through their business services organization. As a result, Dow is more prepared today to navigate fluctuating raw materials prices and handle rapid changes in customer demand. The business services organization also contributes to corporate revenues by selling services to divested companies.
Organizations are also realizing the significant value that can come from aligning business services within the right governance model to create an enterprise-wide master data, reporting and analytics capability. Such a capability can support the organization and each of its business units, helping them outmaneuver and outperform competitors.
With a strong master data and reporting foundation in place, analytics can benefit IBS’s customers by providing insights about a company’s customer base, data that directs how a company repositions its products in the market, ideas on how to drive more profitable sales or information to better manage its resources in the face of persistent volatility, and changing market conditions. In all of these cases, the IBS organization partners with the business to use data and analytics to make an impact on the product and the marketplace as well as on top-line sales and bottom-line savings.
Our research and conversations with companies indicate that organizations are redefining their service models and modifying their governance to better align with the overall business strategy and to deliver the agility and flexibility to support global business operations. They are implementing new and innovative services – particularly those related to analytics – to drive business performance. For example, at Procter & Gamble, the business services organization supports the company’s digital marketing efforts on a global basis. Cost reduction, while still important, has become secondary to delivering broader business outcomes that drive value.