The Year Ahead: 2009 in Shared Services and Outsourcing
As one of the most remarkable years in modern economic history comes to an end, what will the next twelve months bring? We asked Shared Services & Outsourcing Network members to give their crystal balls a polish and take a look at the major events, trends, movers and shakers that they believe will make headlines and impact upon practices in 2009. Of course, predicting the future is never easy at the best of times - let alone at a time of such global economic uncertainty. Nevertheless, SSON's finest have seized their opportunity with aplomb, giving some fascinating insights into how they believe the year ahead will unfold.
Here we present two dozen of the best forecasts from right across the space. How accurate are they? Only time will tell: we'll take a look in December 2009!Peter Allen
MD and Partner, TPI
I expect to see a negative impact on pure labor-arbitrage contracting in 2009, and a slowdown in the establishment of new offshore service relationships. Existing captive offshore operations may be divested as part of broader industry consolidation to create large service bureau capabilities. Conversely, I expect the initiatives of the incoming U.S. presidential administration, coupled with the possible emergence of tax-favorable policies to encourage neutralization of the wage imbalance for certain functions, to fuel increased use of domestic outsourcing. The same sort of market-stimulus actions may be seen in other countries, notably China and Brazil. These market changes will fuel tri-lateral consolidation among India-based service providers, US-based infrastructure providers, and the divested operations of cornerstone client corporations.
Coming out of the recessionary markets in late 2009, we will find a strong global outsourcing industry with four to six large, dominant providers that will provide resiliency to the eco-system that services the needs of major corporations. Ultimately, that eco-system will service the needs of middle-market buyers as well.
Fang Lee Cooke
Professor of HRM and Chinese Studies, Manchester Business School
Outsourcing activities will continue to increase in China, particularly in IT and HR outsourcing. IT outsourcing is fueled by the government's strategic move to enhance its IT outsourcing capacity at gloabl level. By contrast, growth in HR outsourcing is in part due to the sharp increase in the number of labour disputes as a result of the enactment of the controversal Labour Contract Law on 1st January 2008. More and more firms will be relying on external experts to handle their labour disputes and employee benefits and to design their staffing policy to bypass the constraints of labour laws.
SSC Director, Kellogg’s
Undoubtedly in my mind the main topic for conversation next year will remain the global financial crisis. I expect this to get worse before it gets better. This will drive those companies, previously reluctant to outsource and offshore, to revisit their strategies. I also expect SSOs to be called upon to play a greater role in managing cash and operational risk; we have a key part to play as an early warning system to highlight suppliers and customers struggling to survive in this harsh climate.
Founding Director, sustainableIT
2009 sees the world focus its attention to Copenhagen in December where the world’s nations will thrash out a new deal to combat climate change. This will include aggressive emissions reductions on both developed and developing nations to level off emissions by 2050. 2009 will see the emergence of outsourcing agreements that have an energy or emissions component built into the agreement. This will entail energy or emissions targets which are measured and managed through SLA’s. The challenge for outsourcers will be to provide the metrics and reporting capabilities to maintain competitive advantage in this new emerging low carbon economy.
Beyond 2009 will see a new wave of outsourcing as the emergence of carbon taxation will encourage the process of outsourcing with lower carbon taxes being associated with services procured from a third party, known as scope 3 emissions under the greenhouse gas protocols.
Advisory Liaison, ACS
The worldwide recession will continue well into 2009. Look for government programs to ramp up in a slowing economy as the public sector attempts to fill in the private sector void, which will present an opportunity for outsourcing suppliers serving the federal market. Outsourcing opportunities in healthcare, customer care and transportation will also increase as pressure intensives not only to better manage costs, but to fundamentally restructure. For all types of organizations, developing countries will be good markets for future growth as an alternative to a comparatively moribund US economy.
General Manager - Fulfilment & Bangalore Operations, ANZ
The larger or macro trends:
- Captives Cash-Out: some captives shared service companies will be sold out to raise cash for the mother ship. While this will be the objective, how many will actually happen will depend on availability of funding/liquidity in the system and expectation of pricing. Buyers will wait and watch to see if lower prices can get got.
- BPO service providers funding customers: companies will look at outsourcing work to BPO service providers who can provide them up front cash of future benefits and also fund their costs of outsourcing such as Redundancy Payments, Training, Documentation and Transitions that hit their quarterly results – this, they would like to get billed over the next 3 years – meaning that their costs will be spread over three or more years – so, companies can outsource without their quarterly results being impacted significantly by these increased costs.
- Consolidation: there will be consolidation in the industry with larger players trying to buy out existing smaller players with good revenue streams. This will provide for growth.
The smaller or micro trends:
- Productivity but no investment in technology: companies will look towards 20% to 25% productivity increases but with absolutely no investment in technology. This will be through headcount savings and workspace rationalization. Eg. some companies have started 45 hour work week against 40 hours earlier…this is a 12.5% increase in productivity;
- Risk Management: increasing risks of bankruptcies will push BPO Companies to diversify their portfolio. Eg. one company in India has been hit by a large exposure to the travel industry and BFSI segment. They are now looking at other industry verticals to reduce impact on revenues.
- VCs (Venture Capital Funds) and Private Equity Funds will force additional outsourcing: VCs/PEs with substantial holdings in companies will force companies where they have stakes to reduce costs through outsourcing.
Managing Director, Skyweb Technologies Ltd
The year 2009 is starting off with great uncertainty for many companies in US and Europe.
As the economies in these regions slump even worse, more pressure will mount to cut down operational costs, in order for most companies to remain afloat.
The insecurities created by the unfortunate terrorist attacks in India will force several companies to look for alternative destinations, as backups for their operations.
For a long time, Africa has not been seen to offer this alternative but for some interesting reasons, the year 2009 is opening up for some African countries, specifically South Africa and Kenya.
Several visits will be made by American companies to Kenya to do their due diligence and by Q4 2009, a number of American companies will set up alternative sourcing operations in Kenya. This will send a positive message out for many more who will then realise that, indeed, there are some opportunities to tap into in Africa.
India will of course continue offering high-end services though will be hard hit on volume of work while China will be very hard hit due to the reduced amount of production for their exports to the developed countries. China will intensify their market creation in Africa as a result. Many Indian companies will also diversify and spread their risk by opening up operations in Kenya.
With the global recession, the world will become even flatter in 2009 as more people leave their homes to explore new opportunities in the untapped world out in Africa, especially in Kenya and South Africa, the promising countries in Africa. Many will realise that the news they have been watching or reading in the press about these countries has not accurately presented the great opportunities on the ground and they will all come running to invest in these countries. I see many joint ventures taking place too.
Riette le Roux
Manager: Relationship Optimisation, PeopleServe (HR Shared Service Centre), Standard Bank
Economists famously tongue-in-the-cheek predict that interest rates will rise and interest rates will fall in 2009. They just can’t say which one will happen when and by how much.
I think SSCs will be the jewel in the crown of delivering ROI in the tough economic situation that is being experienced world-wide. I think this will increase the discomfort in models where there are components of service lines translatable into a SSC environment, still within business. This can potentially strain partner relationships exponentially and even lead to the eventual adaptation of delivery models to rather favour the SSC model.
The ongoing financial crises affecting the US and UK will have a devastating impact on major law firms' revenues in 2009, as their corporate clients look to slash legal department spending. More firms will follow former AmLaw 200 Heller Ehrman and Thelen Reid into dissolution. In order to survive, managing partners will be increasingly forced to critically examine their firms' archaic and hierarchical, pyramid based, operating structures, and to scrutinize the methodology in which both legal and back office support tasks are resourced, and the specific locations where these tasks are performed. 2009 will witness a major surge in both the centralization of back office support functions within firms' shared services centers, and the uptake of third party offshore legal outsourcing for an increasing array of routine legal tasks.
Head of Technology Sourcing and Commercial Group, DLA Piper
Far from being a "downer" for outsourcing, the economic crisis in 2009 will be a watershed for it, as the paramount requirement to cut costs will remove any vestiges of lingering reluctance of many companies to outsource aspects of their operations, including in particular in relation to various BPO functions such as F&A and HR. At the same time, we'll continue to see a rise in the use of multi sourcing, whereby services previously assigned to a single supplier will instead be shared about between two, three or more of them, with the customer looking to both maintain a continuous degree of competitive pressure between them, whilst at the same time pressing them to accept new and more extensive governance processes (including service level and credit regimes where all of the service providers share "collective" risk, rather than service levels based solely on their own performance).
Principal, Deloitte Consulting LLP
In 2009, the world of shared services will split into two camps: those who take shared services to the next level, and those who maintain the status quo, shrink it, or sell it. While many companies recognize shared services’ potential to be a business asset, just as many don’t. Companies that think of their Shared Services Centers (SSCs) simply as an expense item will attempt to cut costs, reduce investments, and even terminate leadership if they believe the heavy lifting is over and that they don’t need expensive talent to run a back-office function. In contrast, companies that view SSCs as a potential business asset will turn their SSC diamond in the rough into a corporate jewel through actions such as expanding its advisory role and using it to drive enterprise cost reduction, improve customer service, and enhance customer retention.
So in 2009, companies with SSCs will show their hand or fold. Indecision will no longer be an option in the face of current economic pressures.
Principal, Deloitte MCS Ltd
2009 is likely to be the year of the SSC captive spin-off. A number of companies that have built in-house SSCs will sell them to BPO providers as part of multi-year outsourcing contracts. Several of these deals have already happened, and we expect this trend to accelerate in 2009 for a number of reasons:
- BPO providers are becoming increasingly capable as well as typically more productive and cost-effective than captive SSCs.
- BPO providers that still lack global delivery capabilities and/or blue-chip credentials will be receptive to buying near- or off-shore captive centers.
- Selling a captive SSO can be a way for a company to realize cash in the current credit-restricted environment.
Executive Managing Director, ACS Learning Services
Despite the current challenges in the economy and the short- and long-term implications, companies will still be addressing many business demands such as globalization, M&A, divestitures, etc. In addition, companies in the financial services and other industries will be facing new realities brought on by increased regulation and oversight. As companies plan for 2009, how can they best maximize key investments in learning and human capital while reducing cost of human capital management operations? Outsourcing learning services enables retention of a competitive workforce at lower cost of operation – which may be the difference between success and failure. Critical to this model is selecting an outsourcing partner that understands your industry, and how to centralize, reorganize and rationalize training initiatives and infrastructure. As a result, organizations can reach further, make more effective acquisitions, remain compliant, and ensure that all employees understand and practice core company values.
Vice President, Multinational Sales, ADP
Getting ready for the next phase: generally, this [challenging economic] phase is expected to last 12 to 18 months. After that we hope to see a new phase of growth and investments. During the upcoming period, organizations need to survive and to prepare and streamline themselves so that they are ready for growth and investment decisions once the market is bullish again.
Flexible benefits: As one can expect that gross salaries will only slightly increase, if not decrease, the need increases to provide tax-friendly compensation or benefits that cost less for the employer but mean more to the employee. Providing such benefits is a major opportunity to present yourself as an employer of choice, while saving money or without increasing costs.
Fixed costs become variable: It is generally expected that there will be more fluctuations in the workforce related to winning, losing or shrinking business; major lay-offs, growth in low-cost areas, and decreases in high-cost countries. Thus, the support organization should be flexible and costs should be variable…the organization should not be stuck with high fixed costs. The cost factor is, and will continue to be, a major driver for outsourcing deals.
Engineering costs: The need for projects to reduce costs is high. However, there is no budget for a typical "first the costs, than the benefits" project. BPO vendors will be expected to engineer implementation fees to balance them with projected savings.
HR Transformation and Learning Outsourcing Consultant
I believe there are some really exciting times on the way in 2009:
- technology advances and SaaS will make a true best-of-breed outsourcing strategy feasible
- learning outsourcing (true LBPO) will be on the upswing. Reluctant industries, especially financial services, are finally getting it that there are excellent full-service learning providers out there.
Executive Vice President, HR Business Consulting, NorthgateArinso
Comprehensive view of the workforce: in a time of downsizing, it's not just about reducing headcount. Today more than ever, companies must balance headcount reduction with a strategy for nurturing talent and retaining high-quality, skilled staff who’ll be critical when recovery starts again. HR should assist, more than ever, in providing analytics and workforce data to support the business in making the right decisions around talent.
The HR service delivery puzzle: economic conditions encourage the search for new, flexible HR service delivery models. We expect companies to be increasingly looking at piecemeal outsourcing. Rather than selecting a single service delivery model across all HR processes, companies will be combining different delivery options. For example, a company might combine comprehensive outsourcing (BPO) for HR administration, managed service for payroll, OnDemand delivery for talent management, and bespoke RPO assignments to deal with sudden local hiring needs. We expect the rise of OnDemand models in 2009, as they will bridge the gap between BPO and on-premise (in-house) software solutions, balancing control over process with cost control (Opex instead of Capex).
Getting the basics right before moving into talent management: Companies are increasingly investing in stand-alone talent management systems, without getting the basics of HR data right. Rather than striving for islands of talent management functionality in a sea of disconnected, incorrect and dated data, companies should instead invest in getting their act together on HR data, in order to be able to drive higher ROI when they invest in talent management. Good HR data will leverage the investment in any of the talent management processes.
The importance of the user interface for driving adoption of e-HR: e-HR/ESS/MSS is a great way to drive down cost in HR service delivery, and employees are increasingly ready to perform a maximum of transactions via the web. Great adoption, however, requires a great user interface and minimal hurdles/clicks to do a transaction. Getting a spotless user interface into place is a key requirement, especially with users who are getting used to RIA (rich internet applications), Google-simplicity, and iPhone-like interfaces.
Director of Learning Operations, Raytheon Professional Services
The impact of the global economic situations in all markets has caused a consolidation within numerous industries, forcing some out of the market altogether. Those that remain will look for ways to reduce all costs, including training. They will look at vendors who not only offer training at a reduced cost from what they can do internally, but also have a proven solution that align learning with their goals and will positively impact their bottom line.
Providers need to work on building their global footprint to support companies in outsourcing arrangements, especially in emerging or opportunity markets such as South America, Eastern Europe, Russia, China, South Africa, and the Middle East.
2009 could hold several different scenarios based on an organization’s situation:
- Companies shedding more costs (opportunities for more deals from current clients)
- Bigger deals (as companies look to hand everything over)
- Re-negotiations to drive costs out of current contracts
Non-traditional training methods (e.g. new technologies, innovation, etc.) will continue to drive costs out of outsourcing agreements
Finance BPO Lead, Akzo Nobel
Until the full impact of the current economic uncertainty is fully understood, most businesses will adopt more cautious, pragmatic strategies in 2009. There is likely to be continued pressure on margins across all areas of the business. Despite some easing of input prices, for many businesses this will inevitably keep pressure on, among other things, labor costs. Shared services will continue to offer opportunities in this area, but also in consolidation and longer-term transformation benefits, especially if linked to ERP initiatives. This strategic rationale should not be changed by the current economic conditions, although some companies will inevitably look to delay capital expenditure and non-customer facing projects. Overall, the trading outlook for 2009 looks challenging, but the best companies will continue to make the right strategic decisions with a view to the medium- to long-term.
Director, Triagen Ltd (formerly European Finance Director, Avid Technology Europe Ltd)
I have to hope that in 2009, the short-termism will eventually reduce and at least the braver companies will take the opportunity to strengthen their position in one of several ways, including: 1) restructure or transform against the backdrop of either having to or facing less opposition than before; and 2) upgrade the managers/staff they have as more good candidates become available though no fault of their own. For example, a partner at a well-known audit firm tells me they expect to recruit top-of-the-class graduates who might normally have bypassed the professional firms and have gone straight for investment banking positions (for example), which will simply not be there in 2009.
Once the market appears to have bottomed out, there should be a wave of activity as investors try to grab the best bargains. There is currently some work going on by investors evaluating targets they might acquire, but they won't commit to invest until the market does bottom out.
In all of this, there is potentially great benefit to be had from using truly value-adding professionals, be they interim or consulting, as businesses kick-start back into action.
Vice President, HMSHost
Employing technology to further streamline processes and improve controls. Our plans: implement OCR capture to automate line item coding and invoice entry in accounts payable; implement p-card statement workflow and approval process; and implement an exception-based process for sales audit and reconciliation.
Profitably growing the role of shared services within the organization. Our plans: insource additional business functions, and apply a structured approach for process improvement and streamlining.
Preparing associates for planned job reductions. Our plans: tailor an associate development program to job finding, interview preparation, resume writing and enhancing technical skills.
ERP Solution Management for Shared Services, SAP America
In 2009, managing the financial supply chain will continue to be more difficult and there is inevitably much greater risk associated with the evaluation and disbursement of credit, longer collection cycles and disbursement of cash as customers and vendors struggle through this economy. Shared services centers must react accordingly. Now more than ever, SSCs will need to further improve the quality of business processes while decreasing the cost of delivery. Financial shared services centers are receiving more attention than ever before, and this economic downtown is a huge opportunity to make the SSC even more valuable. Because of this, shared services leadership must fully examine how they can continue to streamline the order-to-cash and procure-to-pay processes, work to introduce new technologies and further automate their shared services centers' financial processes to save money, make processes transparent and simplify standardization through the automation of business processes.
Director of Shared Services, Speedy Hire
If I look at Speedy Hire and some of the other new SSCs I know are being established (all +100 FTEs), my view is that 2009 is going to be about three key things: cost, cost and cost. We can put in all the nice words about better customer service, increased control and value-add, but for the majority of 2009, for start-ups it will be a cost cutting game. Can you deliver a SSC with minimal cost/optimal benefits having little or no P&L impact in Year 1 and positive in Year 2?
Brian D. Smith
Partner and Managing Director, Financial Services, TPI
In 2009, companies will look to achieve a nimble service delivery structure that can deliver short-term savings to the buy-side without totally disrupting sell-side economics. Others will look to go beyond labor arbitrage savings by moving offshore services to outcome-based pricing. In addition, the changing risk profile of many offshore destinations may present business continuity challenges. This will offer the opportunity to leverage a country’s local resources instead of extensive travel, which will ultimately reduce costs and mitigate travel risk. Finally, as domestic costs may fall due to the current economic climate in the United States, opportunities or incentives may emerge to leverage low-cost domestic locations.
Author of Next Generation HR Shared Services: how to take customer service, efficiency and savings to a new level (Business Intelligence 2008)
Organizations looking to launch, or expand, shared services in 2009 face an interesting conflict that will be a challenge to resolve. We know that shared services, especially when offshored, present compelling financial cost saving opportunities, and this will sit well with under-pressure C-suite executives. However, as the recession bites and unemployment grows, there will be increasing hostility to offshoring as it takes away precious jobs. C-suite executives will not like the negative publicity that might come with their moving work overseas, and will need to develop strategies to overcome this.