Top Ten Tips for Preparing for Recovery
Last week’s news that the US economy grew during the third quarter of 2009 is further evidence that the global economic torpor of the last year and more may well be drawing to a close. Although serious problems remain - and some economies have yet to demonstrate the same degree of recovery - the outlook for world business is, at least, less depressing than it has been for some time, and while it would be a foolhardy organization indeed that, overnight, ramped activity back up to 2007 levels, it certainly seems that the worst of the storm has passed and that now could well be the time to kick off organizational recovery strategies to enable firms to enter the next economic phase full of optimism (and having learnt the crucial lessons of the last year).
To give network members some pointers on what those recovery strategies might entail, SSON reached out to some of the shared services and outsourcing space’s best-known commentators asking for their advice on what firms should be doing to ensure success over the next months and years. The result is here: SSON’s Top Ten Tips for Preparing for Recovery. (Indeed, we received so many good responses we’ll be publishing more tips shortly: watch this space.) See what you think - and don’t forget, if you want to share more tips you can send your own ideas to the editor or post your thoughts on the website. Enjoy!
1. Make all necessary preparations to meet increased demand
When the good times return - whenever that may be for your particular organization - companies the world over will be looking to make hay while the sun shines. Whatever form this hay-making takes, however, it’s likely to require significantly more (in gross terms) of a company’s shared services organization than has been the case during the recession. If your firm’s been able to get through the downturn without too many cutbacks in the back office, this might not prove too tricky a task. However, for those organizations which have reduced headcount or closed down sites altogether, it’s an altogether more taxing proposition…
"Truly manage the supply-demand tension," advises Peter Allen, President, Strategy & Business Development, Managed Services Sector, CSC. "As the economy turns, businesses will be eager to step on the pedal of growth and will expect that the enabling capabilities of their back-office functions will be able to lay the rails ahead of the train. Most shared services and outsourcing teams have spent the past two years drawing capacity down and it will be essential to manage the tension that is ahead. Socialize a prioritization and decision-making process well in advance."
2. Become more nimble
The need for increased agility and flexibility within shared services and within business in general was prominent even before the financial crisis. After a year-long slump it’s more pressing than ever. Organizations need to be able to adjust - and quickly - to the changes in their markets of interest and in the wider business landscape which will result from both the recession and the recovery. The time when sluggishly trundling forwards could get a firm through a sticky patch is gone for good: far-sightedness and the ability to react faster than your competitors will prove invaluable assets during the next few months and years.
"Businesses coming out of a crisis caused by an economic downturn are NEVER the same as the businesses that entered the crisis," says Rick Bertheaud, EquaTerra’s Managing Director, Procurement. "There are always structural changes in the markets they serve . . . evolving customer demands, changes to competitive landscape, etc. These are permanent changes. The dinosaurs of industry are the companies that don’t recognize, or worse, reject those structural changes. What’s changing about your industry and markets and what will your company need to change to better compete? Answers to those questions will help to shape strategy for your SSC group – and allow it to more nimbly address the company’s needs."
3. Conduct a clean sheet review
It would be going a bit far to say that the events of the last couple of years have completely overturned the global economic order; however, while not exactly representing a "Year Zero", the recession and forthcoming (we hope!) recovery do offer a once-in-a-lifetime opportunity to reassess organizations’ roles, aims and strategies. Taking a holistic view of your firm and going "back to the drawing board" - on a theoretical basis, of course, at least initially - in terms of what your various corporate functions might be able to achieve within different operational parameters could well open up new horizons for efficiency and effectiveness gains. Now might be the time not just for thinking outside the box, but for rethinking the box itself…
"No one has been unaffected by the downturn, and many organizations have seen changes to their business volume, service provider landscape and overall nature of their work. Now is a good time to assess corporate functions and undertake a ‘clean sheet’ review of the extended global enterprise, to re-align the delivery organizations with the new needs of the business. Considerations may include outsourcing, insourcing or standardizing functions and migrating to a shared services or offshore environment," says Cliff Justice, National Leader of KPMG's Shared Services and Outsourcing group.
4. Reformulate your recruitment strategy
Whether or not your organization was forced to downsize during the downturn, bringing in new talent remains a constant necessity for companies of any significant size. As mentioned above, it’s going to be crucial to get an early grasp of the likely demand your back-office functions will have to cater for during the recovery and beyond. However, it’s also critical that the new entrants to your workforce are taken on for their ability to cope with the challenges of tomorrow, not those of yesterday. Use this opportunity to take a very granular look at your recruitment strategy and processes to ensure they’re properly tailored to the future needs of your organization.
"Recruitment may be far more selective (very large, experienced pool to draw from) and the profile of candidates may change – less of a focus on what you used to do (old, out of date and inefficient process knowledge) and more on how you can help bring about future change (mindset, behaviours, innovation) and this may go right through the resourcing model - not just at senior positions where it traditionally resides," advises John Sheridan, Senior Manager at Alsbridge.
5. Take advantage, if required, of more affordable real estate
The financial crisis had at least some of its roots in an over-inflated real estate market in the US and elsewhere; property prices in many corners of the world have fallen in real terms - often by very significant margins. For companies looking to set up, or expand, captive operations, this market readjustment could prove very rewarding: greenfield locations which - although attractive on many other levels - might previously have been considered too expensive may well now have fallen into the "affordable" category. Companies looking to rent, rather than buy, office space can also take advantage of lower rental rates and the need for cash-strapped landlords to work harder to encourage business from new tenants.
"According to recent testimony before a [US] congressional committee, commercial property values have fallen by up to 45 per cent since 2007," points out property expert Pik Gruene. "In many other locations worldwide similar doldrums prevail. Much high-quality office space is standing empty and many landlords will now take significantly less than what they were demanding only a couple of years ago - or will consider selling outright where previously this was simply unthinkable. Furthermore, more attractive costs are rendered even more so by the newly resurgent banks’ need for borrowers and lower interest rates… Move quickly, though: in some key markets the green shoots of real estate recovery are already sprouting."
6. Consider unloading the captives
The old "make vs. buy" dilemma hasn’t been removed by the downturn: far from it. Shifting market environments and changed priorities for individual organizations make the choice between in-house and outsourced service delivery just as crucial as ever. Meanwhile, those companies who found in favor of the captive model before the downturn might want to take another look at their operations to see if the in-house option remains the best one: the possibility of selling off captive infrastructure and reinvesting that significant income elsewhere in the business, at a time when a little capital goes a long way, may well be too attractive to resist for long…
"A number of companies built nearshore and offshore captive centers when the economy was strong. However, they found that as they needed to scale back in the more difficult economic conditions, these centers often became stranded assets with not enough scale to be sustainable. While the market valuations for captives have come down, this has prompted a number of private equity and service providers to become much more interested in buying captives. Companies should carefully evaluate whether they should stay in the offshore or nearshore captive game," recommends Bob Cecil, Executive Director, Business & Financial Processes, EquaTerra.
7. Align services with strategy
This really should have been on the agenda long before the downturn: now there’s absolutely no excuse for keeping it off the table. It’s no longer good enough simply to provide a service, no matter how high-quality that service may be: if the service isn’t fully aligned with a coherent corporate strategy - possibly newly formulated in line with the clean sheet review posited earlier in this article - the organization won’t be getting the best out of its component parts.
"As companies rethink their service delivery models, they are now looking for their advisors to take less of a staff-augmentation/extra-pair-of-hands role and more of a strategic role," says KPMG’s Cliff Justice. "However, many of the purchasers of these services, such as in-house procurement departments, as well as outsourcing advisors, do not have the experience or skills to think beyond the initial need and the areas that can be outsourced. Outsourcing and shared services professionals need to shift their focus from deal analysis/economics to helping companies build and implement services capabilities across multiple delivery models."
8. Get into the cloud
The rise of cloud computing is taking place alongside, rather than as a result of, developments in the global economic environment. There’s no doubt, though, that the potentially game-changing nature of cloud technology will play an important role in determining how companies move out of the downturn, through the recovery and into the next business epoch. Firms without a cloud strategy now will be shooting themselves in the foot just before a long and arduous race to future market primacy.
Alsbridge’s John Sheridan recommends "understanding how to access and exploit the benefits of cloud technologies and more flexible business models to bring further improvement (commercial and operational flexibility) to existing shared service/back-office operations and process delivery (developing private clouds) and looking at how to overcome the various data protection, security, and compliance challenges that are obstacles to fully utilizing this hugely powerful model".
9. Give credit where credit’s due: reward your loyalists
Having negotiated its way through seriously tumultuous economic times, and having come out the other side stable, solvent and potentially in a prime position to expand where its competitors might not have been so successful, an organization should of course be busy looking to the future. However, one essential element to this involves looking backwards - at those employees (and partners, customers and providers) who stuck with the firm and helped to bring it out into the sunshine. Recognizing the indispensable efforts of those workers and isn’t just good manners: it’s good business, as when competition for talent heats up once again when the good times return, your staff are more likely to stick with you - and similarly, if times get tough again further down the line, they’ll be more likely to tough it out on your behalf a second time around.
"In every organization there will be people who weathered the storm and endured the pain of contraction. These folks need to see some sunshine, and having those colleagues serve in key roles during the up-turn in demand is essential to creating a healthy culture," advises CSC’s Peter Allen.
10. Don’t forget the basics
The aforementioned sunshine might well prove pretty dazzling after so many quarters in the gloom… However, allowing your organization to be so dazzled, and taking your eye off today’s ball while planning for a glorious future, could be just as catastrophic as not preparing properly in the first place…
"In your rush to do the other nine tips, don’t forget about why you are there and what you are charged with delivering," reminds Claudio Altini, EquaTerra Managing Director, Shared Services. "Nothing you do will drive as much success as delivering to your remit and keeping the customer happy!"