SSON 2011 Australasian Pulse report


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The 2011 Australasian Shared Services & Outsourcing Week event in Melbourne, on 11-14 April 2011, was the biggest Australasian SSON event to date with over 470 delegates attending. The audience represented all industries, from large ASX 50 organisations to SMEs. Government was extensively represented at local, state and federal level as well as a sizeable contingent from the not for profit sector.
During the course of the three days, delegates were asked a series of questions on various topics; what follows is a brief report on some of the more interesting findings from these questions.

The shared services delivery model is expanding

Shared services is often considered to be a concept which applies more to large organisations and 25% of delegates were from shared services organisations with over 500 people. However, responses also indicated that shared services is finding increasing relevance in SME organisations with 42% responding that their shared services organisation has less than 100 people. This conclusion supports broader global trends as identified in the Deloitte 2011 Global Shared Services Survey, which found that shared services organisations with less than $1bn in organisational revenue grew by 19% since 2009. This growth is being driven by the same needs as larger companies in improving service delivery and reducing costs.

The size and scope of shared services organisations is likely to continue to grow, with 32% reporting expansion of business support activities of more than 10% within the last year and a further 36% indicating a growth in activity of up to 10%. This expansion of shared services is forecast to continue strongly with 64% indicating that they expect to integrate new processes or businesses within the next twelve months. Half of delegates said that their shared services model is already supporting regional or global activities.
Providing value to the end customer is the life-blood of shared services and more than half of delegates felt that they were providing more value than they did a year ago. However, the responses from delegates indicated that continuing to add value has its challenges. For example, most shared services seem to have little, if any, re-investment resource in their annual budget (38%: nil re-investment budget; 31%: reinvestment budget of less than 3% of annual budget). This indicates a constraint on the ability of shared services to invest in ad-hoc or small continuous improvement and optimisation initiatives although anecdotally, many indicate that they are unable to submit formal investment cases, which compete with other organisational priorities. Other challenges noted by delegates were poor support or alignment by middle management (27%) and a lack of change management resources (19%).

An interesting challenge for any manager is effectively managing staff turnover. The response of the delegates indicated that staff turnover in Australasian shared services may, if anything, be too low to ensure ongoing continuous improvement and innovation with almost 30% reporting staff turnover of less than 30%.

Technology

A couple of interesting questions were posed around the Cloud and Social Media. Only 9% of participants are currently using cloud computing capabilities and only 24% expect this to change over the next two years (Ed’s note: this echoes what we heard in the US as well as Europe, earlier in the year). Whilst the Cloud may yet prove to be a sustainable rather than a transformational technology, by primarily delivering cost reduction, the responses show a healthy scepticism with almost a third indicating that they think the Cloud is just a fad. Clearly, vendors have much work to do to persuade shared services buyers of the benefits of cloud computing.

Social media applications were identified by 25% as being currently used in shared services, which indicates that Australasians, seen often as early adopters of new technologies, are ahead of the global shared services curve. However, this is an area that would still seem to offer further opportunity to shared services managers as a communication and customer relationship tool.

Over a third of delegates used data analytics in their shared services, which compares quite favourably to global trends. However, based on market experience, I often see organisations’ use in this area as being quite simplistic and foundational; in our view, there is still substantial scope for many Australasian shared services to lift their capability and innovation in applying advanced data analytics to a range of business issues including employee trends, OH&S, procurement and supply chain problems, as well as customer and market analysis.

Looking at technology from a different perspective, 25% of delegates identified technology platform integration as the biggest barrier to further integration of new business processes; this reflects Deloitte’s global findings which uncover that almost 40% of shared services organisations fall short of their objectives in terms of technology standardisation and integration.

Outsourcing
As expected, the use of outsourcing whilst growing in the Australasian market, is still very much an area of opportunity, with only 23% responding that they currently use outsourcing. However, of those who did, approximately 75% indicated a collaborative or partnering relationship with their provider. This supports wider market assessments that indicate a growing maturity in the outsourcing market and a desire of both the buy and sell side to discuss broader ways to innovate and create value beyond simple cost reduction.

Conference delegates were not asked the likelihood of their future use of outsourcing but discussions indicated increased interest in outsourcing arrangements and access to offshoring capability; this would support Deloitte’s 2011 global survey findings which indicated 40% of organisations plan to increase the use of outsourcing in their shared services strategies.

However, there still seems to be conservatism in Australasian organisations using offshore service delivery models. One question gave a clue as to why this may be: when asked which considerations were the most important in choosing an outsourcing partner, participants were evenly spread: cost was identified by only 14% of participants, with functional expertise (18%) and industry knowledge (14%) as the other highest criteria in outsourcing. At face value, this indicates that cost, whilst important, would need to be balanced by the ability to deliver quality and value; and that the cost saving would need to be substantial to be worth the effort and risks in outsourcing. This hypothesis would seem to be supported by the fact that, when the audience was asked how much of a cost saving would need to be delivered for them to support the offshoring of Accounts Payable, over 80% indicated that the saving would need to be over $2,000 per month. At current Sydney AP staff salary rates, this would indicate the FTE saving would need to be in the range of 30% to 40% – ie a substantial risk premium.

Conclusion
Overall, the conference supported the conclusion that shared services and outsourcing is coming of age in Australasia; whilst in some ways, the industry still slightly lags in the use of outsourcing , overall the local market broadly reflect global trends in terms of service delivery models, scope and technology adoption.


Donal Graham
Partner
Consulting
Deloitte Touche Tohmatsu
dgraham@deloitte.com.au