SSON & Accenture pulse report
"The state of managed services: Delivering value today, preparing for tomorrow"
What follows is a brief report on the findings from an audience survey at the 15th annual North American Shared Services and Outsourcing Week conference in Orlando, 1-3 March 2011. Accenture and SSON collaborated in the design and conduct of the survey,using audience polling technology.
The outlook of more than 600 respondents at SSO Week conference might accurately be described as "synergistically split." In their responses to a series of on-line questions over 2 days, roughly half the delegates indicated that they were focused on delivering greater value today through continuous improvements in operating efficiency and customer service. A like number, however, said they were actively preparing for the next stage in the evolution of managed services, creating new value through delivery partnerships in a global business services model.
Through their responses, both groups demonstrated clearly that they had internalized the lessons of the economic crisis in their drive to improve performance, and that they shared an enduring belief in managed services – whether internally or externally delivered – as a path to competitive advantage for their organizations.
The accompanying slides contain detailed response data for 25 questions; what this brief report attempts to do is provide "topline" perspective on a service model in transition, and a frame for understanding the sometimes divergent views expressed in the answers.
Service delivery models in transition
Organizations represented at the conference used a mix of delivery models, with nearly 60% running fully captive services and over 40% using a hybrid or fully outsourced model. Nearly 80% of respondents reported that they worked in a multi-function delivery center, with multiple co-located support functions. About half said they operated country-based shared services, while the other half were planning or had already implemented a global business services model. Clearly this is an industry in transition with no single dominant model.
When asked how confident they were that their current service model would meet the needs of their organization for the next 3-5 years, slightly more than half were extremely confident or comfortable, while the remainder were mildly or seriously concerned about the viability of their current delivery model. Interestingly, only 13% said their services organizations had reached top quartile in terms of operating performance and future strategy, and over half said they had "a long way to go" to meet that objective.
Not surprisingly, these concerns were reflected in the number of organizations actively engaged in some level of strategic planning. While 28% of respondents said their organizations were focused on "delivering good service today and holding costs down," another 22% were considering adding new functions and surveying their customers to determine needs. And a full 50% reported that they had developed a strategic plan and were actively recruiting new talent and selecting service providers to execute it.
The main pressures facing all shared services and outsourcing engagements in the next few years, delegates said, were, in order: transformation/change management, cost reduction, and service growth. The emphasis on transformation – ahead of cost reduction – reinforces the fact that all service delivery models – captive, outsourced or hybrid – are in the midst of another wave of change, fuelled by technology, globalization, and the relentless imperative for high performance.
This transformation focus is illustrated as well in the three top capabilities delegates said they needed in order to source more effectively across their enterprises: broader business acumen, a stronger sense of customer service, and greater process mastery, in that order. These priorities suggest a healthy and growing commercial discipline and focus within the managed services model.
Among the biggest challenges in moving forward, delegates said, were resistance to change from employees, along with poor support and alignment from middle management. In addition to concerns about lack of executive sponsorship for managed services, they also cited insufficient change management resources as an impediment to moving ahead. Senior management must lead the journey, they say, by walking the talk.
A key indicator of the shift to a more globalized service delivery model was revealed when delegates were asked how important it was to diversify service delivery to multiple countries. Some 57% said it was "very" or "somewhat" important, with only 29% indicating it was "not at all important." Over half of respondents said their organization used multiple service delivery locations, with about a third using four or more locations.
While it was not feasible (or desirable) within the polling technology to identify individual respondents, one possible interpretation could be that those who didn’t feel it was important to have a multi-location strategy might operate in industries or sectors that are focused exclusively on a domestic market, such as government.
When asked which country or region will be the primary choice for shared services and outsourcing in 2011/2012, delegates said the number one choice was the Philippines, followed by Latin America and the USA. The Philippines has a thriving services industry as well as excellent English language skills, and leads the market in several service categories. The Philippines has been popular choice for timezone reasons as well, being more temporally proximate to North America than India, which also has strong English language capabilities. Latin America, of course, offers strong Spanish-speaking skills, and is more accessible for North American buyers. Finally, it is interesting to note that the US itself is being seen as an increasingly important service delivery location.
This view of the US as a desirable delivery location was reinforced when delegates were asked which locations would be their secondary choice – here the US ranked number one, followed by Latin America, with the Philippines, Eastern Europe, and India each commanding a 17% share of the vote. It was noteworthy that China has not yet gained mindshare as a delivery destination, pulling only single-digit responses from delegates on both primary and secondary polls.
Use of outsourcing as a delivery model is on the rise, according to delegates, who by a two-to-one margin said outsourcing makes more sense in today’s economic environment for their organizations. The overwhelming reason for pursuing an outsourcing strategy was cost reduction – by a three-to-one margin over access to resources or reduced risk. This suggests that outsourcing still carries a cost advantage and access to the global skill market over internal shared services models in the minds of practitioners and executives.
Over 60% of delegates in an outsourced partnership said they were "fully" or "mostly" happy with the results achieved (70% or higher achievement of targets), while only 13% said they were not happy. These results are consistent with other industry surveys, and reflect the growing maturity of the outsourcing model. About half of respondents said their company planned to increase its use of BPO, while an additional 21% indicated they would continue with their current level of BPO engagements. Only 5% were considering decreasing their BPO contracts. Delegates also said that BPO made the most sense for their organizations in the Finance & Accounting function – by an overwhelming three-to-one margin over HR or Customer Service.
Interestingly, delegates said that regardless of whether they use a captive or outsourced delivery model, discussions between provider and customer are still too focused on basic SLAs instead of business outcomes: 67% said SLAs dominate their conversations "too much" or "a lot" of the time. Again, this may underlie the self-assessment that they have "a long way to go" in reaching top quartile in terms of performance, but it also reflects a healthy desire to have more meaningful and business-oriented dialogue about commercial outcomes.
Technology is more often than not a critical driver or enabler of transformational change, as reflected by the finding that nearly two-thirds of delegates’ organizations either led their transformation with technology or migrated the technology in parallel with business process evolution. Fewer than 10% said they did not upgrade their underlying technology.
This pattern may well be the reason behind delegates’ view that their organizations are not making the most use of Cloud Services as a delivery model. An astonishing 88% said no, their companies were not doing enough with Cloud, with only 12% saying yes. In their drive for higher performance, both those focused on improving current operations and those more focused on evolving their delivery model clearly see technology as a critical lever on the path to service excellence.
Analytics per se is more of a capability and a discipline than a technology, but it depends heavily on the use of macro computing capabilities. Some 54% of delegates report that their shared services and outsourcing engagements are currently using analytics in managing and optimizing their processes. And over 40% are using videoconferencing technologies to support an increasingly virtualized global delivery model.
The conference gave evidence – in the high level of attendance, the quality of the content, and the responses of the delegates – that the managed services model remains a vital tool for competitive advantage for all organizations. Demand is healthy, and supply is improving constantly. However, it is a model in transition, driven by technological change, increasingly intense competition – often from new sources – and globalization.
It is perhaps not surprising, then, that there is a dual focus on delivering service today and planning for the future. That reality should be seen as the sign of a healthy industry, according to the philosophy of Accenture Chairman Bill Green, who urges his employees and clients alike to "keep one foot in today and one foot in tomorrow."