Relevance of Shared Services in Emerging Markets

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1 perspective Relevance of Shared Services in Emerging Markets - Rajhesh Panchanadhan Abstract Multiple businesses have leveraged shared services as a lever for cost benefits due to consolidation. Though cost has always been a key factor while adopting shared services in the developed markets, it need not be the case in the emerging markets. We believe that shared services, along with their multiple benefits, which are sure to strengthen the case for adoption of these services, should be comprehensively reviewed. We explore those benefits in this paper.

2 Are shared services relevant in emerging markets? Many enterprises have leveraged shared services as a lever for reducing cost, more so in mature markets. However, are they relevant in emerging markets? It seems so although their adoption in emerging markets is slow. And while cost is the primary driver in mature markets, it is not the only driving force in emerging markets. So what other factors are important in emerging markets? We explore these and more in this paper. Cost not the only driver Shared services evolved in markets where businesses where experiencing: Stagnation in revenue growth Market saturation Increased pressure to reduce cost to make up for the lack of revenue growth So the primary driver in mature markets was cost. It remains to be cost although enterprises in mature markets are seeing greater benefits beyond cost now. However, in emerging markets such as India, China, Brazil, there is limited incremental benefit or value to be derived from cost sharing; since cost of labor is already low and there is no arbitrage to be derived. Key drivers We believe that there are six key drivers for shared services adoption in emerging markets. Companies are getting bigger In 2005, the US, UK and Japan accounted for 60.5% of the world s market capitalization, while Brazil, Russia, India, China, Hong Kong, Taiwan, and Singapore accounted for just 8.3% (1). By the first quarter of 2011, the US, the UK and Japan accounted for 47.4% of world market cap and the most active emerging market exchanges accounted for 21.6% (2). Source: (1), (2) Forbes: What makes emerging markets great investments?

3 Support for growth One emerging markets characteristic is that they are experiencing exponential growth, predominantly due to scale available. The market size itself is large and owing to globalization and reforms by governments, these markets have opened up to foreign businesses and have better access to capital. Therefore, businesses are growing both organically and inorganically within the same market while exploring newer markets. While growth through acquisitions of companies / businesses / newer markets is relatively easier, it is tougher to set up a business operation / service delivery structure that meets the needs of a growing enterprise. And if not set up right, it impedes the ability of the enterprise to serve newer markets / customers efficiently, effectively, and promptly. Shared services provide the required service delivery backbone by consolidating services across countries and markets. It is uniquely positioned to drive the global process model and with all companies / subsidiaries / sub-units / lines of businesses served by a single global process model, seamless delivery and operations is possible. Quicker time-to-market, onboarding of new acquisitions Inorganic growth is one of the primary strategies for businesses in emerging markets. However, acquisition brings in integration challenges as integrating with the parent can be an arduous task, taking years before the parent and the acquired companies evolve to have seamless operations. Shared services enable quick integration of services. The global process model enables companies to on-board their acquisitions quickly as transformation and integration efforts are minimized when a template for operations is ready, tested, and can be applied quickly. Shared services centers (SSCs) are able to drive standardization of processes and services across the organization, lines of businesses, and countries. They are able to create operational consistency across locations creating a what-you-seeis-what-you-get (WYSIWYG) framework with repeatable outcomes, processes, and services. Benefits include: Unified processes across countries and locations for the respective functions One global process model with incountry nuances Operational consistency across locations Standardized policies, directives, and processes Global Process Frameworks A leading healthcare services provider focusing on markets such as India, Singapore, Vietnam, Australia, Hong Kong, and the Middle East embarked on the Shared Services model as they had grown inorganically through acquisitions and wanted to create a common process model through shared services so that newer acquisitions can easily adapt to the global process model and eliminate legacy processes, post integration.

4 Platform for technology implementation Just as SSCs enable a global process model or template-driven integration, it also enables having a single technology platform across lines of businesses. Technology coupled with the global process model enables quick on-boarding of newer services / businesses. Single technology platforms drive efficiencies and enable an end-to-end process view. Often, companies that embark on shared services run a parallel, common ERP implementation initiative. Shared services enables companies to streamline their technology and enables smooth delivery of services using technology. Having a shared services strategy enables companies to drive technology implementation across the organization with the SSC at the forefront of driving the change. An SSC can derive maximum value by having a single all-encompassing technology; typically a single ERP instance serving the organization. Having a single ERP system enables standardization of processes, data and business rules, enables quick deployment of shared services, and helps: Reduce manual touch-points through automation Drive self-service where possible Selective use of best-of-breed solutions Improved visibility across functions and countries Standardized way of reporting / data analysis and insights A large manufacturing firm in Eastern Europe has embarked on a strategy of implementing ERP and consolidating services across the organization. Another retail firm with operations predominantly in Hong Kong, China, Taiwan, Vietnam and emerging geos within Asia Pacific has embarked on implementing a single ERP for their Finance function across multiple countries. The CFO s agenda is to leverage the single instance of ERP to drive shared services, eliminate manual tasks, and support the growth of business. End-to-end view with sufficient control on service delivery Coupled with technology and a global operating model, SSCs are uniquely positioned for an end-to-end view of the business thereby placing sufficient control over outcomes delivered to the business. They are seen as partners in effecting change and transformation. SSCs are able to ensure repeatable and measurable outcomes with centralized control points. By virtue of having visibility to both upstream and downstream processes, they are able to help businesses see the impact across the value chain rather than focusing on functions or departments. SSCs and businesses are able to address issues and drive transformation across the value chain and therefore create business value. Similarly, by deploying multiple tools and measurement, they become the engine to ensure scope and process compliance.

5 Example: A leading construction company focusing on large scale infrastructure projects in India and Asia Pacific embarked on Shared Services to ensure tracking of payments to sub-contractors and plug revenue leakages. The Indian construction industry employs a large number of sub-contractors, who have legacy processes / lack of systems and therefore were unable to track payments.

6 Leverage best practices, concentration of skills Being engines of change, SSCs are able to drive best practices-led transformation as they: Have a concentration of skills Are a hub for best practices Are in a position to create and drive large-scale transformation across the organization, having established centers of excellence or centers of competence We have seen this with a few firms in emerging markets where the management has enabled / empowered the SSC to drive innovation of services / processes / technology across the board. Drive a culture of performance Standardization of processes and services coupled with technology implementations including ERP, workflow tools, dashboards, and other bolt-on tools helps SSCs to track performance on key metrics: Efficiency metrics: By focusing on doing things quickly with minimum cost, time, effort, and higher productivity Effectiveness metrics: By focusing on doing things right and better with improved quality and accuracy By focusing on effectiveness metrics, SSCs are able to deliver greater business impact by improving cash flow, reducing spend, reducing revenue leakage, improving savings and so on In some cases, the reason for establishing an SSC is to ensure that all payments made are tracked. This ensures that the company monitors revenue leakage and plugs potential leakages. SSCs are enabling companies to track, monitor performance across productivity and effectiveness metrics and help create more opportunities for savings, and other benefits that outweigh costs in the long run. Before embarking on shared services While there are clear benefits of shared services, we have seen slower adoption in emerging markets. For example, in India, the first captive shared services centers were setup back in the 1990s with the primary business case based on cost. And local home-grown companies started to adopt shared services as late as the early 2000s. These companies that have embarked on shared services are either yet to move past the business case identification stage or face issues during the program implementation. There are three primary reasons why large-scale transformations and therefore shared services implementation fail or don t achieve their full benefits: Stakeholder buy-in / senior management support Change management Project execution and governance Senior management commitment is often cited as the number one reason for a project s success. Without it, projects can fail through lack of engagement at all levels and particularly at the deployment stage when prioritization and change management are critical for success. Therefore, management support for the overall engagement governance and program management, and contribution from process owners during every stage of this transformational exercise is imperative. Alignment of key stakeholders to organization direction and strategy is another important factor. Program objectives and importance must be communicated across the organization with continuous communication mechanism involving all levels. In fact, Change management is doubly important in organizations which have a culture of low risk-taking and low appetite for large-scale transformation projects. Large programs require robust program management structure to manage complexity, budgets, stakeholders, and risks. Rigor around tracking, monitoring progress, and control of activities, and ability to stay the course with frequent course corrections is important. Timely communication of results, escalations, and a robust and clearly communicated governance structure and decision making structure are important.

7 Conclusion While cost is no longer the key driver, organizations embarking on shared services should get a holistic view of the benefits. Business case may not hold up with comparison of as-is and to-be costs alone. The time period of realizing cost positive may be stretched. However, as we have seen, there are several benefits that can be derived from a robust shared services strategy. Some can be quantified, while others are not directly quantifiable. Leveraging shared services, enables organizations to achieve benefits through: Process synergies and harmonized way of working a. Finance and accounting processes are the same everywhere, except with additional nuances as required, irrespective of the business unit, geography, line of business. Unified policy frameworks / technology b. Having a unified process framework enables organizations to have unified policy frameworks for a majority of the transactional processes. c. A harmonized process framework enables companies leverage technology easily without having to change multiple processes at multiple locations. Best practices and centre s of excellence Leveraging Shared Services enables concentration of skills and knowledge in one place, helping in the creation and cross-pollination of best practices, thus creating a culture of performance and improvement. About the Author Rajhesh Panchanadhan Principal Consultant Business Transformation Services, Infosys BPO Rajhesh has over 10 years of experience spanning IT and business transformation consulting. In Infosys BPO he advises clients on Operations Transformation and Shared Services, with additional responsibility to drive the shared services advisory practice within Business Transformation Services. Rajhesh has a Post Graduate Diploma in Business Management from XLRI, Jamshedpur, a Master s in Computer Applications, and a Bachelor s in Physics from Bharatidasan University.

8 About Infosys Infosys is a global leader in consulting, technology and outsourcing solutions. We enable clients, in more than 30 countries, to stay a step ahead of emerging business trends and outperform the competition. We help them transform and thrive in a changing world by co-creating breakthrough solutions that combine strategic insights and execution excellence. Visit to see how Infosys (NYSE: INFY), with $8.25B in annual revenues and 160,000+ employees, is Building Tomorrow's Enterprise today. Infosys BPO, the business process management subsidiary of Infosys, provides a broad range of enterprise and industry-specific services. We deliver transformational benefits to clients through our proprietary Process Progression Model TM (PPM). These benefits include cost reduction, ongoing productivity improvements and process reengineering. For more information, contact infosysbpo@infosys.com Infosys Limited, Bangalore, India. All Rights Reserved. Infosys believes the information in this document is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document. Except as expressly permitted, neither this documentation nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, printing, photocopying, recording or otherwise, without the prior permission of Infosys Limited and/ or any named intellectual property rights holders under this document.