There are three broad imperatives that organizations are striving to implement in order to meet the changing needs of the business and enable global growth.
These are:
Creating global leverage
Making decisions with better/broader information
Enabling agile execution.
Deeply held misconceptions about globalization, information and agility are holding organizations back from making necessary adaptations. In contrast, our empirical data illustrates the true state of business services as they exist at thousands of companies today.
In the following pages, we refute ten of the most common of these myths, and in so doing, we provide the foundation and justification for changes in business services.
Creating global leverage
Myth #1: My business structure is too unique and complex to manage processes from end to end.
Reality: While finding the optimum balance between globally integrated services and locally customized ones is challenging and fluid in nature, most companies are capable of integrating far more of their services than they realize.
Whether at the cross-functional, functional or process-group level, having a single, global process owner makes it easier to understand how to optimize the end-to-end process and provide the proper infrastructure for growth. Within each process, there are likely to be global elements that can be adapted to match existing standards, such as for strategy, technology and operating frameworks.
The real challenge is not in creating a blueprint in which everything is globally managed, but rather finding the optimum balance between global process ownership and local control. When they fail to define specific roles and rules of engagement between global and local processes, companies create a “zone of ambiguity” that prevents achievement of maximum efficiency and effectiveness.
Myth #2: Most companies have just started to globalize business processes.
Reality: To date, 20 percent of companies have maximized the globalization of their policies/standards, function management, supporting technology and process design and build components.
Moreover, this trend is expected to gather steam over the next two to three years. By the end of that short time span, the percentage of companies with the maximum possible level of business process globalization in most process domains will have doubled.
Globalizing the practices required for business services delivery supports the enterprise’s overall global business structure, permits greater efficiency and effectiveness in the delivery of business services, and ultimately contributes to world-class performance.
Myth #3: The cost of redesigning processes so they can be managed from end to end would be prohibitive.
Reality: The cost of fragmented processes actually far exceeds the cost of transforming them.
Comparing a $10 billion company in our database against one that could be constructed of ten individual $1 billion companies, we found that finance-function costs can be reduced by 44 percent through standardization, reuse of infrastructure investments, and gains in the utilization of talent and other resources. Realization of economies scale, scope and skills is essential to optimized business service delivery performance.
Making decisions with better/broader information
Myth #4: In their current form, enterprise performance management (EPM) activities are adequate for meeting the companies’ needs.
Reality: EPM needs to become broader in scope, and finance and planning professionals need to spend more time helping the business understand where it is going, rather than where it has been.
While the data in EPM scorecards and dashboards is frequently presented at the enterprise level, it is usually a summary of historical and financial information, and lacks non-financial measures and forward-looking indicators.
Peer-group companies incorporate non-financial measures into performance measurement and analysis just over half the time, and most focus on historical reporting.
World-class companies do a somewhat better job, but both groups need to do better.
Myth #5: Companies need more information than they have today to make better decisions.
Reality: The problem is not that executives in business units need more information, but rather they need easier access to the right information for decision making.
Self-service access to performance information is rare outside of controlling/financial planning and analysis activities. Moreover, there is a low level of confidence that the choice of information used in key performance indicators (KPI) is even appropriate.
Hackett research has found that controlling/ FP&A functions that have more time and resources to devote to value-adding analysis and decision support (achieved by improving the quality of data and making it easier to compile) have higher confidence in their KPIs. The focus should not be on ways to create more information, but rather on the tools for identifying key data elements and organizing them for self-service performance review.
Myth #6: Business units own all of the data they need to run their operations effectively.
Reality: Even if it were true that the business units own all the data they need, in the absence of a well thought out data-governance strategy, the data itself is of little use.
Good data governance allows the business to extract maximum value from the data it collects and creates.
Most companies allow their business units to customize too many processes and information flows. This creates inconsistencies that hinder the company from harnessing the vast store of information and intelligence residing in each BU.
This is a weakness at all companies. Even among top performers, only 63 percent of companies have global standards governing all of their business performance reporting. Among the peer group, the percentage is just 16 percent. Business services leaders can provide valuable guidance and centralization of this vital function.
Enabling agile execution
Myth #7: Centralization, standardization and globalization erode service quality.
Reality: According to Hackett research, when companies move business support services to low-cost locations, most find that not only are costs reduced, but quality of service improves.
Both top-performing companies and the peer group have found this to be true, with the primary difference being in the magnitude of the improvements. For example, top companies report that cycle time for delivery of services fell by up to 26 percent, compared to 8 percent for the peer group.
Overall, top performers experienced twice the cost savings and a 5X improvement in the quality of services compared to the peer group. The key is taking an end-to-end process view, which enables simplified steps; consistent presentation and quick access to targeted data; and the ability to identify appropriate areas for consolidation and cost cutting.
Myth #8: Deep functional expertise is all that is needed to run a global business services (GBS) organization successfully.
Reality: Running a successful GBS organization requires significant service delivery capabilities as well as functional expertise.
By its very nature, globalized business services delivery cuts across traditional functional boundaries, geographies and business units. It requires the ability to manage both the cost and quality of services.
World-class companies are far ahead of the peer group in recognizing how to manage and measure service delivery organizations, and are more successful in meeting their goals.
Instead of focusing on improving functional knowledge, top performers are biased toward professionalizing roles in the GBS organization, as distinct from function management. This is reflected in their emphasis on service strategy, service design, service operation and continuous improvement in alignment with the overall goals of the business.
Myth #9: A single instance of an ERP system is all that is needed for service excellence.
Reality: Enabling technology is an important contributor but is not in itself sufficient for service excellence.
It is true that a handful of top-performing GBS organizations have chosen to focus on other aspects of their service delivery model (SDM), putting off resolving technology questions until later in their transformation. But many more have concentrated on dealing with the work and expense of migrating to a single ERP instance without addressing other components of their SDM.
However, ERP investments will not yield operational efficiency improvements without holistic redesign of the SDM.
ERPs are “enablers” but work in concert with all of the other components.
Myth #10: Once technology and processes are optimized, service levels will be world-class.
Reality: While often overlooked, our research tells us that employee engagement is the crucial third leg of the stool.
Only 33 percent of employees report being engaged – but, worse, 20 percent are actually disengaged. This lack of commitment to the organization makes it very difficult to successfully transform and provide high-quality service.
Beyond treating skills and talent as an important component of the SDM, it is essential to make managers at all levels of the company responsible for employee engagement. This is an area where success breeds success: companies with double-digit growth reported 21 percent higher employee engagement than those with single-digit growth, according to a recent Hackett study.
Top performers have significantly higher rates of responsibility for employee engagement at executive levels of the company, compared to the peer group.
Strategic implications
Establishing global process ownership and improving quality while also lowering costs can seem like an insurmountable challenge. But the fact is that leading organizations are doing these very things, and in so doing, increasing their competitiveness.
In globalizing business services delivery, patience is essential, since global business growth is itself an ongoing evolution. Companies undertake these transformations due to differing strategic imperatives, and they progress toward maturity at different rates.
Standardization of a global process, for example, is simple in concept but requires hard work to implement successfully. Deciding just how much work can and should be customized at the local level versus standardized is a perpetual balancing act, and the proportion changes over time as companies find that more and more activities can indeed be standardized with good outcomes.
Likewise, better information often begins with simply obtaining more information, but must evolve into disciplined data governance and analytic structures. The key is to be cognizant of the needs of individual building blocks within a holistic SDM so that business functions are in a position to act with agility when confronted with changes in business needs.
Developing a better understanding of what is truly possible and the paths that leaders have taken to get there can help build an internal case for change – based on fact, not myth.
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