Off-Shoring Your Shared Services

Several months ago I was visiting with a former client (we’ll call her Nancy) who had engaged us several years earlier to establish a US-based shared services center. Operations were now running smoothly, cost structure was good, service levels pretty high. However, Nancy was under cost pressures from her boss, the CFO. The CEO and Board had mandated a 20% across-the-board cost reduction in SG&A. Her Shared Services Center, that employed over 600 employees and consumed considerable IT resources, was a big target. Naturally she started to consider alternative service delivery models, most notably outsourcing and off-shoring. After a few meetings with the CFO, they decided upon assessing the feasibility of establishing a company-owned captive in a lower-cost off-shore location.

Three months later they had made little progress. Nancy and the CFO were cycling through the same questions from meeting to meeting. Why? They were operating on anecdotal information and really did not understand the off-shore markets and capabilities.  Here is a sampling of their concerns:

“…We should only off-shore non-core activities. Which ones are those…?”

“…No way we can off-shore General Ledger processing. It’s too core to the business…”

“…We can’t off-shore T&E processing – that would mean giving out access to credit cards!”

“…The Accounts Payable process will degrade since our current A/P folks know the business contacts so well and they quickly resolve invoice discrepancies…”

“…payroll is off the table! It’s too high risk. What if the CEO’s paycheck was wrong??”

They viewed off-shoring as risky. In this case, their risk is a result of uncertainty and lack of information. Since she and her boss were not sure of the answers, they cycled through the same questions with no resolution.

The news is full of anecdotal information about off-shoring. However, many of these articles are mis-leading and biased. The best advice is to purchase research reports through a credible research or advisory Firm that specializes in off-shoring or outsourcing. Alternatively, a few Firms also specialize in conducting market scans to specifically match off-shore trends and capabilities to your specific objectives. Here is the short-list of what you will want to learn:

ü      “Peer” company trends in your industry

§         What are other similar companies doing? (chances are they are doing a lot)

ü      The impact of off-shoring within that Peer group.

§         What have been the costs and benefits to them and has that put your company at a competitive disadvantage?

ü      Functions and specific work activities within those functions that lend themselves to off-shoring.

§         What is possible to off-shore?

ü      Specific country capabilities mapped to functional areas. Some countries have a deserved reputation for being better at some functions than others.

§         India? China? Philippines? Malaysia? Costa Rica? Poland?

ü      Labor trends by country

§         Is India still viable with all the press about wage inflation? (it is)

§         Where are the most English-speaking college graduates?

§         What are country-specific customs that may impact work productivity or quality?

ü      Off-shore service levels versus US-based service levels

§         For example, what is the average A/P cycle time in typical Indian processing center?

ü      Investment and governmental trends by country

§         Is the environment business-friendly, and what is the forecast?

Armed with credible industry and global benchmarks, companies can then make fact-based decisions about their future-state. Nancy did engage our help in understanding the off-shore trends, which went a long way to dispelling myths within her organization. They went on to conducting a high level design, sold it to their Executive team, and are now undertaking the final design of their soon-to-be new off-shore centers in Warsaw and Mumbai. Final projected run-rate savings: 24% with no degradation in processing quality.

To learn more about off-shoring trends and global capabilities, visit http://www.outsourcingleadership.com/