Setting up Offshore SSC Operations: Location and Design
The location of a shared services center (SSC) and its working environment is a fundamental design factor that can potentially offer significant savings and improved services. Typically, organizations set up SSCs to eliminate many disparate units with duplicate back-office functions. But many SSC leaders are now realizing that a "Greenfield" strategy, whereby a new SSC is built from scratch (in a good location and offers good quality of life) as a separate business unit from the corporate entity, best achieves the low-cost, high performance objectives of a SSC model.
Traditionally, most SSCs have operated domestically, but advancements in technology and access to large labor pools and cheaper costs have spurred the growth in the number of regional (supporting operations in multiple countries across a given geographical region) and global (supporting operations in several continents and regions) SSCs during the last few years.
A large number of companies are recognizing the benefits of operating global SSCs because they allow greater synergies than domestic centers. Matthew Shocklee, managing director, PricewaterhouseCoopers, argues that while geographic changes can create low-cost labor advantages, a global approach to SSCs offers companies significant potential for cost savings and improved service.
Shocklee was on hand at IQPC’s 11th Annual Shared Services Summit in Las Vegas to offer advice and guidance to attendees interested in learning how to navigate the process of setting up a global SSC. According to Shocklee, a new site location cultivates an existing, but novel type of operation. In selecting SSC locations, leaders need to be aware of a number of issues, from risks associated with global sourcing, to design, site selection, and service level agreements - amongst other things.
Risks associated with a global sourcing strategy
When companies become obsessed with lowering costs and generating a better bottom-line, they tend to overlook important factors such as the risks associated with a global sourcing strategy, including national stability, service-provider viability, geo-politics, security & privacy, legal & contractual issues, and sourcing governance. Even though the economic or political picture of a country may appear appealing, SSC leaders also need to understand public policy and the regulatory environment of the specific state or municipality in which they plan to set up operations because laws on a local level may be different and can still create roadblocks for new SSC operations. Shocklee advises corporations to track risk and its impact on the business, and manage it.
In addition, firms would also have to deal with the issues of time zone differences, knowledge transfer, cultural differences, and human capital management. Depending on location, language and communication barriers, these may be difficult to overcome, says Shocklee. However, if proper research is done and the right strategy and processes are in effect, workforce optimization, increased productivity, and leveraged system platforms and management structures can all be achieved.
Shocklee warns that although the savings of conducting business in geographic regions may be significant, with rent, labor costs, taxes, socio-economic, infrastructure and living environment costs potentially lower than the national average, SSC leaders should consider locations carefully. Shocklee expects to see an increased focus on risk and sustainability factors around the environment where SS practitioners go, how they operate, and the type of SSC model that they build in future.
The Design Phase
Corporations aim to leverage global shared services centers to fully realize savings and efficiencies. Shocklee proposes that an efficient global SSC model should include:
- a detailed SSC unit with duplicated shared services focus in each region: essentially the focus in each region should mirror the other so there is synergy across regions
- a center of excellence where a process approach is delivered from best-in-class
- a country-specific focus: all businesses are given a geographic region and responsibilities for processing data for each organization or unit. For example, the processing of data for all HR work may take place in, say, the NE region, while all IT work is done in the south of the country
- organizations should have the ability to transition work performance anywhere within an organization or across the globe in a consistent and traceable manner
Shocklee notes that during the design phase of a SSC, corporate decision makers should assess:
- deliverables produced in this stage
- governance model design
- pricing/recharge model
- performance reporting requirements
- Service Level Agreements
- detailed sourcing provider
- detailed location assessments
- knowledge transfer
SSCs can primarily reduce costs by eliminating work and infrastructure redundancies, and by consolidating back-office operations and non-revenue generating functions, notes Shocklee. However, positive results are contingent on a company’s ability to also implement best-practices policies and processes that include simplifying processes, reducing exceptions, prioritizing processing, and automating steps that cannot be eliminated.