Archive for the ‘Outsourcing’ Category

Shared services: friends, that is really not just about cost!

May 22, 2010

An old stereotype, common-known (in a new scenario of the global financial crisis): We implement BPO or shared sevices (SSC) solutions as we want to cut cost. And the global economic crisis would just support that way of thinking (and doing things). However, things are not as simple as they seem to be at first glance…

“Going up the value chain to knowledge-based services isn’t just about cost reduction; it allows you to create a lot of value for the organization.” (Shared services shines in challenging times: Insights from Deloitte’s global shared services survey, p. 8)

Good news for people perceiving F&A (F&A – finance and accounting) BPO and SSC operations in a long-term perspective, adding value for organization running them and developing also advisory services, not just transactional ones: corporations tend to recognize that quality is more important than quantity, although the latest one is obviously not unimportant.

While a few years ago the main reason for implementing a shared services organization was the cost aspect, it is not the most important reason any more. Why is it so? One reason is the increasing role of the F&A function for corporations. Professor Joe Lampel from the Cass Business School in London, describes the situation as follows: “Today (…) it’s much more difficult to obtain money, your own ratings have come under greater scrutiny, and bonds have to be carefully managed. All of these things have put a lot of pressure on the CFO.” No woner then that according to 70% of top performing corporations (according to KPMG methodology, refer to KPMG survey Thriving not just surviving: Insights from leading finance functions) the F&A has significant influence on core operations, for 61% of them the finance function has material influence on marketing, supply chain (55% of respondents) and IT (53%). That clearly means: F&A managers actively influence business leaders to make better decisions across all functions. Therefore timely reporting of business results, delivering accurate budgets and forecasts, and investor relations management are the priorities for the F&A function.

Timely reporting, accurate figures… – it is all about quality. Let’s briefly discuss the findings of some surveys undertaken in the past two years and showing the increasing role of qualitative aspects in the F&A function, incorporated in shared services organizations (SSOs).

Higher transparency, process quality and process security are the most important drivers to implement an SSO according to the study Shared Service Center – the 2nd Generation undertaken by PricewaterhouseCoopers (PwC) in 2008. These objectives are followed by decrease of error rates, increase of customer satisfaction –
and cost reduction, expressed as less important than the previous objectives.

Service and quality improvement, accuracy and timeliness have been given as main reasons for having established or for establishing an SSO by 85% of world-class corporations identified by The Hackett Group in 2008. Service standardization was the next reason for 83% of them and about 80% said that cuts in
administrative costs, headcount and salary/wages reduction are the most important drivers to implement a shared services organization.

The increasing role of F&A (which – as such – “just” represents back-office operations) and the supporting business processes performed by shared service centers make the F&A function and the SSO existing within this function even more important for corporations. Shared services become strategic influencers, offering
corporations a tool to facilitate enterprise growth, improve focus on core business and enhance talent management.

Magdalena Szarafin

http://www.szarafin.info

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(Almost) perfect, at less cost and applicable in the outsourcing and shared services industry

May 22, 2010

Good quality does not cost – it pays. But many companies do not recognize it as they do not know how much things cost due to missing cost calculation in many areas. And that is the reason why it usually takes a long time for them to think their processes over and to implement simple measures assuring reduction in cost of delivering customer satisfaction. The latest one does not have to be as high as the cost of materials!

Good, better, (almost) perfect… – there is always a better way to make things. That is an old approach known as continuous improvement or kaizen and being an integral part of TQM (total quality management). It got very famous in Japan thank to quality gurus of Western origin and then the idea fascinated the rest of the world. Originally applied for industrial processes and by engineers, could be then successfully implemented for administrative tasks. And after the boom of outsourcing and shared services industry has begun, it has also been an attractive approach worth following to improve outsourced or insourced operations.

Six sigma, lean management – they are no more the domain of production, engineering or of in-house made operations. Even more insourcers and outsourcers recognize their importance to cut cost and increase customer satisfaction as quality pays. And the concept of “customer” itself does not just cover external but also internal clients you provide your work to.

While six sigma is a statistical method of quality control, lean management implies a qualitative approach. The main principles of lean / six sigma are as follows:

• they provide a system for improving the performance of a process, product or organisation,
• they help to understand performance from the customers’ perspective (how to put yourself into customers’ shoes),
• they provide a way of thinking in terms of end-to-end,
• they put a stress on making value flow and removing waste,
• they are in fact a pragmatic and rational approach to data and statistical variation.
• they help to treat causes not symptoms (in place of the fire-fighter approach).
• they focus on people, learning and continuous training being crucial to sustained competitiveness of the organisation.

Lean / Six Sigma
Source:Mike Way, Six Sigma and Lean in a shared services environment, presentation Prague 2009

Many organisations could reduce cost and/or increase revenue by reducing waste in existing processes thank to implementing lean / six sigma: Better, faster, safer with lean / six sigma implies quality improvement, reduction of response/reaction times and reduction of operational risks.

That all sounds nice, doesn’t it? Why not try it?

Magdalena Szarafin
http://www.szarafin.info

Shared services: Why? How? What for and how long?

May 19, 2010

Process standardization, simplification, harmonization, cost management, achieving synergies, common systems, practices and ways of doing things, common technology – that is all what can be delivered using shared services. Let’s briefly analyze some statistics delivered by surveys undertaken on shared services

1 or 5? – How many shared service centers in use?

Almost 50% of international corporations with shared services use just one shared service center (SSC) and each fifth has five or more shared service centers. Each third corporation works with 2-4 shared service centers.

The optimal number of shared service centers depends on customer requirements regarding the process complexity and level of process standardization.

How long does the SSC implementation take?

For each second multinational corporation it has taken under 12 months to implement a shared service center. For further 20% it has taken between 12 and 18 months to implement a SSC.

After the implementation of a SSC, it takes shorter than 2 years for the investment in a shared service center to payoff in case of each fifth corporation. For further 60% the amortisation period is between 2 and 4 years.

Which functions and activities are eligible to be relocated to a SSC?

Accounts payable, receivable and account reconciliation are the favourite activities and functions which are likely to be relocated to a shared service center by global corporations. Except of that, global giants use shared service centers to provide services in the following functional areas:

• Asset accounting,
• General ledger,
• Travel expenses,
• Payroll,
• Controlling and reporting,
• Procurement,
• HR administration,
• Treasury,
• Tax,
• IT helpdesk,
• Order accounting.

Why shared services?

Cost reduction, process improvements, increase of customer satisfaction and improvements in quality are the main drivers for corporations to run a SSC. In brief: shared services means establishment of a common languages in a heterogenic, multinational environment.

Shared services vs. IAS/IFRS

The subject of compliance with IAS/IFRS or US-GAAP is an important issue for financial shared service centers. Placing IAS/IFRS reporting in a shared services environment can yield cost savings through consolidation and process efficiencies. It can also help increase the consistency of corporate financial reporting and improve comparability of single financial statements across the corporation.

Shared services organization (SSO): important dimensions

The following dimensions are crucial for a SSO:

• Performance metrics (mainly through a set of key performace indicators: KPIs), customer feedback,
• Service level agreements (SLAs),
• Global and regional process owners.

Cost savings through shared services

The potential for cost savings through shared services vary from function to function. For most organizations it is around 15-20% in a treasury, financial reporting and analysis, procurement and tax function, amounting to even 30-50% in the IT, accounting, facility management and personnel administration functions.

Literature:

1. Heinz-Josef Hermes, Gerd Schwarz, Outsourcing: Chancen und Risiken, Erfolgsfaktoren, rechtssichere Umsetzung, Haufe-Lexware 2005
2. Shared services shines in challenging times. Insights from Deloitte’s 2009 global shared services survey

Magdalena Szarafin
http://www.szarafin.info

Outsourcing is people’s business: Meeting Indescon

August 22, 2009

Is outsourcing model something new for you? Do you have to deal with it – and think how to influence key employees? Or maybe you have problems with not clearly defined goals and objectives in an outsourcing engagement? Or… Maybe you like Murgh Dansek or Alu Channa Masala and want to extend your network?

If you ask yourself these and similar questions, you should definitely have visited the meeting organized by Indescon and held a few days ago in Frankfurt, Germany. And if you could not attend the meeting, read the story and get the feeling about the meeting, outsourcing, networking possibilities, and Indescon itself.

Hot weather has not deterred us from joining the event which took place in Mayur Restaurant – an Indian restaurant located in Frankfurt (thank you for your hospitality and good food served to us!). Ashant Chalasani, the President of Indescon and Pramod Reddy Atla, Director at Indescon have presented the history of the organisation and its objectives. We could also find out many interesting details about themselves: their coming to Germany a few years ago, their engagement to get the Indians living in Germany together and to establish a community, and their business initiatives, understood as a bridge between Germany and India.


Inside of Mayur Restaurant, source: Mayur Restaurant, http://www.mayur-frankfurt.de

Pramod has also presented the reasons why many outsourcing projects fail. Then we could discuss our experiences regarding critical factors in outsourcing initiatives. The results of this (creative!) brainstorming session are as follows:

How to manage an outsourcing model which is new for you? It is important to be well informed: not only about the advantages but also about possible risks. It makes sense to collect best practice cases and to try to implement them. Learning by doing is crucial as well.

How to influence key employee attrition at the vendor? A very sensitive subject, isn’t it? In fact, people make success happen – and not technology, processes or structures. Therefore it is very important to set objectives, to communicate them (in both: formal and informal way) and to consider the cultural aspects of the undertaking: how different people think, interpret facts (as agreements for instance) and react. Incentives are of big importance, too. In companies with high personnel turnover rate a question can be asked who are the key employees?

How to deal with not clearly defined goals and objectives in an outsourcing engagement? Personal relationship between the vendor and the buyer is very important in this context. It is also possible to have independent party between them both to manage the relation. And once again: communication, communication, communication – as much as possible.

What additional measures can be undertaken to protect intellectual property rights? First, the legal framework is very important here: legal circumstances and system of penalties should help a lot. Many companies ask the question about data security while outsourcing them – in many cases the vendors have even more experience with protection of intellectual property than the buyer. Regarding the question of data security and the way: datainformationknowledge I can recommend you another text: Paper-free office – efficient model for a modern company?

How to deal with a service delivered that does not fulfil the expectations? Our team has come to the conclusion that such parameters as quality, quantity and the delivery conditions should be defined in the service level agreement. However, we cannot precisely define everything and we cannot predict everything. Therefore one thing should be clearly communicated from the first day on: that what is delivered is never a finished product, it makes sense to work in a phase system, where the project in dealt into many phases which are subject of delivery to the client. It also makes sense to express realistic expectations by both sides: the vendor and the buyer. And giving the customer the possibility to manage vendor’s team makes it possible to control the results and the project progress.


Meeting Indescon: Open and creative brainstorming session

The atmosphere of the meeting was very open and interactive and we had a very good networking opportunity. We could exchange our ideas about outsourcing, India, innovative business models as IT flat for instance (that will be for sure a topic of another text I am going to prepare) and many more.

Such meetings will be held every month. And I am really happy to attend the next meeting at the end of September – I will write a small report from this event, too.

Magdalena Szarafin
http://www.szarafin.info

_________________________________________________________________________________________________________

The Indo-German Software Competence Network (Indescon) e.V. is a network of German and Indian software companies that view India and Germany as potential export and sourcing markets. As Germany’s largest special interest group for the offshore software development services industry between India and Germany, Indescon offers unique opportunities for networking with potential partners in the two countries. The focus is to provide fresh perspectives to member companies that eventually result in growth and profitability. more >>

Paper-free office – efficient model for a modern company?

August 8, 2009

Workflow software is one of the factors which – according to Thomas L. Friedman – have “flattened” the world and supported globalization and offshore outsourcing. It has also contributed to establishing of the paper-free-office concept and outsourcing digitalization and archiving services. The latest solution helps to cut costs even by 40%

We live in digital era. However, there are still many organizations as private companies and public institutions which prefer the traditional way of printing and archiving documents. The costs of printing and archiving of documents are relatively high and they can easily be reduced. Also the authorization of employees to enter archive areas are neglected in many cases so that employees can see documents which they normally should not have access to. Therefore one of the intelligent solutions is outsourcing.

Many companies avoid to outsource operations as they are of the opinion that outsourcing brings much risk. For instance, sensitive data, processed by an external service provider, would not be safe any more in their opinion. That can be subject for discussion as data is not equal information and information is not equal knowledge. Let us briefly define the difference between these three concepts.

Data is defined as pieces of information that represent the qualitative or quantitative attributes of a variable or set of variables. Information is a collection of data from which conclusions may be drawn. And knowledge means the confident understanding of information with the ability to use it for a specific purpose if appropriate. (Oxford English Dictionary)

The regulations regarding protection of intellectual property differ from each other in different countries. However, if a vendor processes data, it does not automatically mean that they possess knowledge or even information — does not matter what legal circumstances there are in their country. It is definitely easier to create information or knowledge in-house, having better connection to the business made. Therefore, it could now be asked if the data are really safer while processing them in-house then outsourcing them?

As people like to write their ideas on paper and print them out, outsourcing paper archives to third party definitely makes sense. And that not just for cost reason but also due to security reasons described before. Also additional room gained due to outsourcing of paper archives to external party means that the space can be used to perform business processes.

In many countries companies and other institutions are obliged to archive important documents as for instance tax-related documents or invoices for 5 to 10 years. Construction plans should even be archived for a period of 99 years!

Of course, the solution in form of digital signature has made life easier. But this solution is quite new, used for a period of 2-3 years now. Therefore good practice is to outsource digitalization and archiving of documents to third party, specialized in such services and then making them available for secured download to authorized users. Possible cost reduction in this case amounts even to 40 percent. And more security of data can be achieved as well.

Magdalena Szarafin
http://www.szarafin.info

Business Transformation Outsourcing – What’s that?

July 25, 2009

Traditionally, in the outsourcing agreements the conditions of the service are specified. However, some outsourcing providers offer more than “just” outsourcing: they do not just bring service defined but they also try to search for opportunities for innovations and process improvements. That is a classical win-win situation, where both parties invest capital but they both benefit from the success achieved. This modern approach to outsourcing is also called Business Transformation Outsourcing (BTO).

Magdalena Szarafin
http://www.szarafin.info
_______________________________________________________
Magdalena Szarafin has immense knowledge of the outsourcing sector and is one of the authorities in shared services and outsourcing industry analysis. Her research interests include insourcing and outsourcing in connection with the value chain. She is an author of many publications dealing with outsourcing, knowledge management and total quality management (TQM).
Magdalena lives in Frankfurt, Germany and she works as an International Management Accountant in a big multinational group, dealing with preparation of financial statements under IAS/IFRS and local GAAP. In her leisure time she prepares a PhD dissertation focused on shared service centers.
Contact her to leverage her knowledge and in-depth BPO and shared service industry penetration experience.

Outsourcing: What do the clients expect?

July 25, 2009

Flexibility? Cost reduction? Innovations? Risk avoidance? Quality improvements? Any of them? Or maybe all of them? What do companies expect making the decision about outsourcing operations?

A few days ago I visited an interesting conference organized by Computerwoche and held in Offenbach, Germany. Among others, the findings of a study dealing with the expectations and motivation for IT outsourcing and different customer profiles have been presented. This study has been undertaken by Prof. Helmut Krcmar and Dr. Stefanie Leimeister of the Technical University of Munich.

The key finding of the study is as follows: IT outsourcing market consists of different players. The combination of: cost, innovation, technology and business makes it possible to make the market segmentation and to divide the clients into 4 groups: business-efficiency clients, cost-conscious small shoppers, strategists & innovation seekers and IT excellence & reliability clients.

The first group, business-efficiency clients, is service-oriented and expects flexibility and quality improvement. These are bigger companies representing banking, insurance and finance industry, their annual revenues amount to over EUR 10bn and they employ 5000 and more staff.

The cost-conscious small shoppers are focused on cost reduction. They represent electrical engineering, consumer goods industry and IT services. These are middle-sized and big companies, employing 2000-5000 staff and having EUR 1-5bn revenues.

The third group, strategists & innovation seekers, consists of companies from the automobile industry, engineering, and public sector. They are small and middle-sized companies with revenues of EUR 250-500m and under 2000 employees. They expect IT and service innovations, joint product and service development, knowledge transfer from the provider, and access to qualified personnel.

And finally, the group consisting of IT excellence & reliability clients has different motives: IT focus (better and modern IT, cutting edge technology) and/or business focus (quality improvements, qualified personnel, risk avoidance). They represent small companies from manufacturing industry, which employ under 500 staff and generate EUR 50-500m revenues.

The study was conducted among German companies, however, future studies in other countries are planned.

Magdalena Szarafin
http://www.szarafin.info
_______________________________________________________
Magdalena Szarafin has immense knowledge of the outsourcing sector and is one of the authorities in shared services and outsourcing industry analysis. Her research interests include insourcing and outsourcing in connection with the value chain. She is an author of many publications dealing with outsourcing, knowledge management and total quality management (TQM).
Magdalena lives in Frankfurt, Germany and she works as an International Management Accountant in a big multinational group, dealing with preparation of financial statements under IAS/IFRS and local GAAP. In her leisure time she prepares a PhD dissertation focused on shared service centers.
Contact her to leverage her knowledge and in-depth BPO and shared service industry penetration experience.

Think to outsource operations? Why not to Poland?

June 28, 2009

In the past few years a new outsourcing wave has come: after successfully outsourcing of production function to the countries of Central and Eastern Europe, big multinational groups have come to the conclusion that also other functions, for instance the administrative ones can be relocated to CEE.

The preparation for the EU entrance and then the entrance to EU has made the CEE countries more stable and thus more attractive for foreign investors.

There are some important reasons why companies from Western Europe choose the CEE region as their nearshoring destination:

  • membership in the EU: this requires the same legal and institutional framework,
  • performance/cost factor: employees in CEE region are well-qualified and do qualified work at lower hourly rate than the Western European employees,
  • destination: key CEE locations can be reached within a few hours time,
  • cultural background and language skills: Poland, Czech Republic, Hungary and other CEE countries have similar cultural background to that of Western Europe. Many people (mainly the younger generation) speak fluently 2 or 3 foreign languages.

According to NIB (National Irish Bank) Poland ranks second worldwide (after India) in terms of attractiveness to foreign investors. Comparing with Hungary, Czech Republic, Slovakia, Slovenia, Croatia, Poland in on the top of the most attractive BPO destinations. That for good reasons.

The population of Poland amounts to 38.2m. Poland is the biggest market in CEE region in terms of population. The capital town, Warsaw has 1.7m residents.

The GDP growth of Poland was 6.2% in 2006, 6.7% in 2007 and 4.8% in 2008. The unemployment rate decreased from 15.1% in 2000 to 9.5% in 2008.

Warsaw belongs to the most attractive towns in Central and Eastern Europe regarding wages and salaries, comparing with other capitals, as Budapest, Prague or Bratislava.

Poland is located in Central Europe, that is a good location in terms of offering goods and services to both: Eastern and Western parties. Berlin, Moscow, Vienna, Bratislava, Kiev, Vilnius and Minsk can be reached within a few hours from Poland – by rail, car or by air.

Poland also possesses a very good system of education. There are almost 500 universities and other types of higher education schools in Poland and about 2 million people study there. Almost 50% of population between 19 and 24 are students. The fact that big corporations locate their R&D centers in Poland and Polish specialists are very welcome in multinational groups in the country and abroad shows their recognition to high quality level of their educational background.

According to PAIZ (Polish Information and Foreign Investment Agency), foreign companies invested EUR 15.7 bn in 2006, EUR 16.7 bn in 2007 and EUR 11.0 bn in 2008 in Poland. The leading investors are the German (17% of the whole investment volume), the French (11%) and the Dutch companies (10%). There are many attractive incentives for investors, motivating them to invest in Poland. Also the tax rates are relatively low in Poland, CIT rate is 19% for instance.

According to PAIZ, Poland does not intend to compete with India with labour costs but with the possibility to provide more technology advanced projects. As the demand for high-qualified specialists in India in very high, there is the lack of them experienced in the market, which can now be fulfilled by Polish specialists.

Magdalena Szarafin
http://www.szarafin.info

____________________________________________________________

Magdalena Szarafin is a Polish economist, residing in Frankfurt, Germany. She works as an international management accountant in a big multinational group. In her leisure time she prepares a PhD dissertation focused on shared service centers. Her research interests include insourcing and outsourcing in connection with the value chain. She is the author of many publications dealing with outsourcing, knowledge management and total quality management.

BPO vs. Protection of Intellectual Property

June 27, 2009

In contemporary information society data management and intellectual property protection have been an important competitive edge. Knowledge about markets and trends, products and services, competition and own R&D, customer and employees data is much more important than the fixed assets possessed.

Many companies avoid to outsource operations as they are of the opinion that outsourcing brings much risk. For instance, sensitive data, processed by an external service provider, would not be safe any more. That can be subject for discussion as data is not equal information and information is not equal knowledge.

It makes now sense to understand what is the difference between these three concepts.

Data is defined as pieces of information that represent the qualitative or quantitative attributes of a variable or set of variables. Information is a collection of data from which conclusions may be drawn. And knowledge means the confident understanding of information with the ability to use it for a specific purpose if appropriate. (Oxford English Dictionary)

In different legals systems different regulations regarding protection of intellectual property apply. However, if a vendor processes data, it does not automatically mean that they possess knowledge or even information — does not matter what legal circumstances there are in their country. It is definitely easier to create information or knowledge in-house, having better connection to the business made. Therefore, it could now be asked if the data are really safer while processing them in-house then outsourcing them?

However, BPO companies recognize the problem of the lack of trust dealt by their customers and react respectively. Nowadays it is for instance almost impossible to meet an employee at a BPO organization who deals with data of competiting companies. Many BPO companies try to divide people working for different competitors into different offices. Also signing of confidentality agreements is a standard procedure in BPO industry.

Magdalena Szarafin
http://www.szarafin.info

_______________________________________________________

Magdalena Szarafin is a Polish economist, residing in Frankfurt, Germany. She works as an international management accountant in a big multinational group. In her leisure time she prepares a PhD dissertation focused on shared service centers. Her research interests include insourcing and outsourcing in connection with the value chain. She is the author of many publications dealing with outsourcing, knowledge management and total quality management.

Public sector to outsource

June 26, 2009

Public sector has been subject of transformation in many countries for a few years. Under the pressure of tax payers, decision-makers have come to the conclusion that public institutions would deliver high-quality service at the same or even reduced tax burden if they try to act similar to private companies.

If private companies use outsourcing and are successful, also government institutions can do the same.  It is a possibility for them to reduce costs, increase quality and improve performance. Outsourcing also offers them the possibility to create new jobs or get the existing jobs remain in the private sector.

However, offshore outsourcing by public sector is a subject of discussion of many citizens who are of the opinion that one of the task of the government agencies is to contribute to job creation or job retention at least. Therefore, offshoring by public institutions can be seen as politically incorrect.

That is why it is important for the public institutions to choose the suitable vendor in their own country. Such a solution can be a supplement to traditional government measures as subsidies for companies creating jobs in regions with higher unemployment rates.

An example of Washington National Library is very interesting in this context. The Library as a public institution wanted to outsource digitalizing and archiving of documents to a national service provider. Therefore Lakota Technologies, South Dakota has been chosen. The region of South Dakota has not as good cost structure as India or China, however, it offers better cost structure than other US regions.

Magdalena Szarafin
http://www.szarafin.info

_______________________________________________________

Magdalena Szarafin is a Polish economist, residing in Frankfurt, Germany. She works as an international management accountant in a big multinational group. In her leisure time she prepares a PhD dissertation focused on shared service centers. Her research interests include insourcing and outsourcing in connection with the value chain. She is the author of many publications dealing with outsourcing, knowledge management and total quality management.