Next-Generation Shared Services & Outsourcing

The following is the first part of a panel session which took place at the Shared Services & Outsourcing Summit that ran in London in February 2009. Many topics regarding the future of Shared Servcies & Outsourcing were addressed including recent trends in sourcing.

Chairperson: ...I am going to ask you to introduce yourselves quickly, very briefly, who they represent and what their background is.

Zulfigar bin Zainuddin: Good morning my name is Zulfigar bin Zainuddin. I am with the multimedia development corporation in Malaysia; we are a government agency that promotes the development of what is known as the multimedia super corridor in Malaysia, which is the ICT project for the government of Malaysia. One of the key tracks which we develop in Malaysia is Shared Services and Outsourcing. And today I am here to share our experience of how we have actually assisted and developed about 150 multinationals, who have Shared Service operations in Malaysia, so feel free to ask any questions, any challenges, or any areas of what you can do in Asia, thank you.

Sanjiv Somani: I am responsible for growing outsourcing and offshoring across UBS. Joined about three years ago, prior to that I worked in McKinsey, advising many clients including UBS, and other than that I have done various operational roles in Banking Operations and IT.

Jairo Rojas: My name is Jairo Rojas, I’m the director general of an organization called Basler which is the British education software development organization. It represents about 200 software companies of all different kinds of levels, from the big boys of SAB, to Microsoft, to the smaller ones our main function is to help our industry to perform better, develop standards, look at issues, and lobby the government to where the industry is going, with certain situations. And of course right now shared services is something that is coming up very high on our agenda, and of these kinds of implications that it will bring when we start thinking of, we’re not going to sell a license, but actually a license is going to be shared amongst different operations, and that is where my interest is for this situation.

Vince Smallhorne: Good morning I am Vince Smallhorne, I am responsible for Oracle’s BPO strategy for Western Europe. I come at this from from two angles; number one being how we can help our customers and other organizations execute BPO strategy, whether that is TIX sourcing, software and service, BPO, BPU, or just joint venturing. But also looking at Oracle internally, how we have deployed Shared Services, how we moved our finance functions and HR functions offshore and near shore, and now we have brought in...the latest count is 44 companies in shared services during the past three years, which is an interesting challenge.
Niek Visarius: Good morning, my name is Niek Visarius, for the past six years I ran a Shared Service operation for Rockwell Automation, based in Rotterdam, so went through the centralization within Europe, and off shoring to Eastern Europe, the functions that we represent are finance, IT, customer services and supply chain...
Chairman: Ok, thank you very much. Now the subject of this facilitated discussion, and this is your event, we are not going to sit here and talk to each other; is the question of who or what is driving or is going to drive the next generation of Shared Services and Outsourcing? Will that be further advances in technology? Will that be bringing in even more processes into the Shared Service environment; will it be as moving into the high value shared services? In the shared service environment, will it be a burgeoning of ideas like off shoring, so you have got an array of talent in front of you here, I shall exclude myself from that, and what I’d like to do is to get some questions on the floor around this subject. Issues that you would like to bring to the panelists on that particular subject. So who’s going to kick us off here? Who has got a question around what is going to drive the next generation of shared services.

Attendee: Several of the speakers over the last two days have said one of the successes of a Shared Services operation was implementing a single system, an IT system, SAP or Oracle. In our company in particular there is much less of an appetite to have a large investment to replace the ERP system. So I suspect that in the current environment, that is going to be true for a lot of people. So, with that as a trend in mind, how do you see the shared services being built, despite having multiple ERP systems beneath them?

Chairman: I think that is a great question, I am going to answer that myself, but I am actually going to start by thinking Jairo here, who represents the software developer’s association, what do you think of that?

Jairo: Yes, from the software industry point of view, that is a very good question. I think in Spanish we say, there are many ways to kill a chicken, I think in English you say, there are many ways to skin a cat. Fortunately, Basler in this country is a great promoter of standards and processing future. At the moment some of the things that we are doing is bringing our 200 members, specifically about forty of them, including Oracle and SAP, and the very small companies to see how we will be able to achieve those things. Because we are well aware that it is not only the companies that will be able to buy the very large systems that can achieve that method, so therefore things that you need to look into are...you know we have been dealing for years with data clening, and data cleansing and where the data is, and where the resource is. So yes, probably a very large percentage of people who will be thinking about doing what you are doing, having exactly the same question - do I spend £15million or £20million pounds on a system that will be perfect, or do I concentrate the efforts on looking at what are the best practices? I don’t think that any particular system will guarantee a perfect environment for all the things that you are trying to achieve, but best practices will always bring you there, and there is always the opportunity to look at organizations like Basler, the computer society, the chartered accountants, there are many organizations around the country that are going to help you to contribute, to get what you want to get with the best practice way of doing it. A lot of the smaller companies are coming up with brilliant ideas in terms of how you will be able to achieve that, you have got regional companies like Mamod, who are coming out with brilliant ideas on how they are going to do that in the retailer industry. We have got a member company which is a rather small company called Innovis, which, they have come out with a brilliant way of how they are going to standardize when it comes to logistics systems, and having one centre to store all the SKU’s for their distribution systems in one place, that is actually going to save a lot of money to a lot of people who don’t have the resources to go into big areas. So there is a lot going on, you know there are many organizations like Basler who are willing to help.

Chairman: Thank you, that’s great. Vince from Oracle has a view on that I am sure.

Vince: For me there are two extremes; yes at one end there is the by employ standards solutions be it Oracle, SAP or something else. On the other extreme we see a whole bunch of organizations saying, no problem, just wrap it in the workflow and we can solve the problems for you. I think the reality is somewhere in between, and what is important from my perspective is that whatever you do, whatever you purchase, whatever piece of technology or technologies that you choose to deploy. There is clear value associated, so if it is workflow, if it is analytics, if it’s a core platform, then be very clear as to why you are doing, what value it brings to the organization., how it takes you on your journey towards your ultimate goal - be it shared services or inter sourcing. And approach it in bite size chunks, so you can buy a bit, deploy it, see the value and then move on. I think the days of rip and replace for core platforms are gone, especially in today’s economic climate, so my advice would be of course buy Oracle, but in reality whatever you purchase, have a strong business case wrapped around it.

Chairperson: Ok, thank you, let’s take another question.

Attendee: With regards to HR data and personal data; to what extent do you think that the philosophy of social networking means that people will want to start owning their data themselves, and having that data there for portable between organizations. What impact will that have on enterprise wide HR systems?
Vince: For me it’s an interesting one, I think there are a number of different dimensions pulling on this issue, there is at one end the issue of data security, and people wishing to have their data secured and ensuring that their data is kept in a single location, then being pulled in the other direction by the desire to have more flexible open systems, and if you look forward into the next three to five years you hear about things like Cli Computing coming along and how many organizations will be collaborating naturally to share these esoteric stand alone systems that we will all use and plug into. I guess the reality will come along in due course, but certainly we are seeing a big drive from many organizations, to want to understand how they can drive collaboration within their organizations, I think that social networking is driving that collaboration, and internal organizations are struggling to keep up to an extent. But I still believe that there is going to be that tug of war that goes on, between the IT function saying that we have got the data here, we need to keep it secure, we need to keep it manageable, but then it’s to the business and individuals to say that it is my business I want be able to share it, to use it as I see fit, for my own job function, but also for my career and my social and business based networking.

Chairperson: Thank you Vince, Sanjiv did you have anything to add to that?

Sanjiv: I am not sure that I understood your question fully, but I will answer it from a slightly different perspective which is, while individuals may be willing to share data on social networking sites, as a corporate, we are responsible for protecting employees and client data. The sensitivity is only getting more and more, so that does remain an issue from a corporate perspective. I have seen this issue becoming more difficult and more pronounced rather than less. I have sat on umpteen discussions, and where we have had lawyers, and legal/compliance functions, helping decide what we can or cannot do, based on the contracts that we have. Hence I would strongly advise anyone looking at things that involve client or employee data, to early on engage control functions, to see what is possible and what is not possible. Otherwise you may go too far on the journey only to realize that there are certain things that you cannot do, or you need active approval of either your clients or your employees, and that may not always be possible.

Chairperson: Ok, thank you Sanjiv, let Jairo say something then I will come to you.

Jairo: That is a particularly good question because , yes, we are in a world now where we do enjoy using our facebook and Linkedin, but we as the software industry have to look at it from another point of view which is that it is very clearly now, and if you listen to the news it has been said that it is going to be quite difficult to find people five years down the line who actually want to come into the IT functions and do the programming and do these things, because it is not fashionable anymore to study physics and chemistry and things like that. Therefore it would be very easy to think what we are going to do in terms of the future, if people don’t want to come in terms of technology industry. Well we are having to look at it completely differently, in another way is that all these people that are going to be developing our technology are people that are coming from happily using the facebook, and all of these social methodology. Therefore we as a software IT industry are looking at it, and are already having some big discussions about it at European levels, in terms of how we are going to change our ways of developing solutions, we can include all the social networking technology into our ways of developing our product so that this generation that is coming up with that as a standard will be able to come in and contribute to the way that we develop our future generations. So I think it is a valid question, and it will give us more trouble in about five years from now, unless we start thinking about these things right now.

Participant: From the perspective of promoting Shared Services in a location, and how we see companies come to us to develop their operations, one of the things that we realized was that amongst the employees, with or without anything we do the social networking will go on through things like Facebook and Linkedin, so they are talking to each other. So one of the things that we have done, is that we have facilitated these social networking from the employers point of view, so trying to put together all the HR managers, who today we have portals, we have events, something on Facebook where HR managers are able to network in terms of the database of the salaries being provided for certain skill sets or certain experience, or even benefits or retention programmes are being shared. So more and more we see a trend for shared service operations, the employers are trying to break away from trying to protect their own strategies and are seeing where do we share and understand what is being provided. From our perspective we do that as a responsibility to protect development, but we say that it is still up to you guys as a company as to what you want to do for your employees.

Chairman: Ok, thank you very much, let’s move onto another question.

Attendee: I would be interested in the panel’s views, experiences, opinions on how the current weakness of the pound versus the say the US Dollar and Euro is affecting business cases for outsourcing offshore?

Niek: I think I was expecting that to be one of the first questions to be honest. What you are seeing at the moment, I was reading an article just not on the UK market at the moment, the comparison between the US worker and the Chinese worker between 2000-2003 was extremely competitive for China. A Chinese factory worker made about one third of a US factory worker, today that has changed, today in 2008 that is 1.17, so the American is only1.17 more expensive than the Chinese worker.

Secondly, what we are seeing in Western Europe is that our GDP has come to a halt, if not a negative, if it becomes negative you see that there are a lot of threshold salaries. So your salaries will not increase, or they will increase by one or two percent to cover inflation. What we are still seeing in Eastern Europe is that inflation goes on there, the growth of the GDP goes on, China confirmed last week that it will be 8%, Eastern Europe still confirms to 5% / 6%. If that trend continues, suppose our salaries in the UK or Western Europe come to a halt at 0%, and the inflation of Eastern Europe is 5%, so that is one part of my comment. The second part of my comment is, and I am not sure if you have seen the news last night, the French President signed an agreement with the automotive manufacturers, the agreement was that they would keep as many jobs in France as possible. This has not only happened for France it has happened for Germany and will happen for the UK. So I think that the local business case to keep Shared Services, whatever nature, in certain countries in Western Europe is getting stronger, and will become much, much stronger. There will be trade laws coming out, if you see what is happening in the US, there will be trade barrier importation laws that will push back the labour into the country. And secondly the growth of Europe as I have said has come to a halt, and other areas are increasing, it makes the business case for Western Europe much stronger.

Chairman: Thank you Niek, a good comprehensive answer, any other views?

Sanjiv: Clearly what we are seeing the business case weaken somewhat however we still see savings in spite of the pound depreciation. There are three components that are making the business case weaker: First one is Pound depreciation. Second is Premises costs, as we know particularly in the case of financial services where we are in the City of London, premises are a significant cost. Currently if you do a realistic business case, you can’t presume that you can let go of premises immediately or even in the near short term. So continuing to carry that cost for the next two to three years does have an impact on the business case. And then the third component is that when we were growing, in any such business case, you would manage to re-deploy people. Whereas in the current environment again, you have to be more conservative on assumptions around that component, and of you add the last two together as one time cost, the business case is looking less attractive than it was before.

Chairperson: Ok, thank you Sanjiv. I will add a personal comment to this one. And I think that that it we have to be very careful about basing long term decisions on currency movements. Currencies go up, and currencies go down, you look at those trends over the years. Right now we are in a period of volatile markets for just about everything, and currencies are not particularly different. I don’t expect the exchange rates that we see today amongst currencies to be the same in one, three five or ten years, and I do think that we have to take these decisions based on much longer term views because they are not easy to reverse. It is not the flick of a switch to turn off an offshore contract for example. Ok, let’s take another question.

Attendee: It’s a bit of a build from the last one really, it’s given that the we may be moving into a period of two or three years of consolidation of big global companies, we have already seen it in the banking sector, do you think that the case for outsourcing is going to move to big companies saying we can do it ourselves, we have got size and scale, let’s just do it. And maybe move the software providers and consultancy support to help us do it internally or shifting everything offshore?