Central & Eastern Europe: 5 Reasons to Shift from Back Office Processing to Knowledgeable Business Partner

Why Central and Eastern Europe is Reclaiming is Place in Global Services Delivery Anyone leading a service delivery team with global aspirations will, at present, probably still have their eyes focused firmly on the Eastern horizon â the Far East, that is. And while it's true that the cost benefits, wage arbitrage, and willingness to learn is impressive in that region, whatâs equally undeniable are the signs of a backlash, or retrenching, as a result of the hidden costs of doing business 5000 miles away. Itâs worthwhile, therefore, refocusing a little closer to home. Central and Eastern Europe (CEE), which experienced a burst of newfound popularity when it joined the EU 10 years ago, has since then been outshone by the bright and beaconing lights of India, the Philippines, and China. Well, no more. CEE has been making a stealthy comeback and those in the know say that it is starting to outrank Asia. The global trend towards acknowledging the value of "business intelligence" or "knowledge services" plays right into the skill set of the Central and East European workforce. Here are five strategies that define the shift in the Central and Eastern European market â from processing centre of the past, to intelligent business partner of tomorrow. Wherever you are on your journey, they map out the capability of the CEE market to take on a key role in your global business success â offering smart solutions to your delivery strategy. 1. With the more established CEE Shared Services now approaching 15 yearsâ experience, itâs time to reassess the contribution While it may have been cost considerations that led companies to set up their Shared Services in CEE over the past decade, the initial cost and labour arbitrage extends to just a couple of years. After that, youâd better have a business improvement case ready, or a plan to shift gears. And shifting gears is what CEE-based Shared Services like Siemensâ in Prague are doing. With Siemensâ CEE centre now in its 9th year of providing F&A services (HR and Supply chain came into the fold later), itâs the trend of "happy customers" leveraging their goodwill to shift increasingly business-oriented closing and reporting activity to the centre that is driving something of a revolution, as Naveen Menon, Assistant General Manager and Head of Global Shared Services, CEE, describes it. The shifting of high-level closing and reporting activity to Prague has been so persistent, in fact "that weâve actually created a product called Reporting and Data Consolidation," Menon explains. While customersâ increased confidence in the capabilities of remote Shared Services may account for part of this transformation, itâs also due to a robust improvement initiative the Prague centre has adopted, to drive inefficiencies out of transactional processes. "Once youâve exhausted the labour arbitrage, you better have a plan in hand to keep the improvements going," explains Menon. "Our centre drove some pretty significant projects through AP and AR, and our proven competency in driving improvements back to customers is now paying off." GEâs Shared Services centre in Hungary has gone through a similar evolution. "The Goal for GEâs Shared Services centre in Hungary is more focused on sustaining the businesses over the next 10-20 years than on pure cost-cutting," explains Sriram Nagarajan, General Manager of Global Operations Finance, Germany & CEE. "What was important for us was to create the right control environment, and it's far easier to do this through one or a handful of centres, and benefit from the multiplier effect, than it is to drive control through hundreds of different GE locations world wide." Where GE and companies like it see an advantage for CEE centres is that they can drive upstream service delivery while staying close to their customers in growth markets. "Poland and the Czech Republic offer definite possibilities for upstream mobility into the supply chain," explains Nagarajan. "However, these markets are also somewhat more costly to operate in than Hungary or Romania." Itâs the quality of the workforce in these countries, though, that has allowed companies like Dell [Bratislava, Poland] and Diageo [Budapest, Hungary] to develop their services to incorporate value adding upstream activities. And this, says Nagarajan,is where the big wins can be leveraged. The spectacular growth that CEE centres have experienced was witnessed first hand by Przemyslaw Siuda, Director of Amwayâs Business Services Center, based in Poland. Ten years ago, when he was brought in to head up a new centre at his previous company, he presided over a staff of 60, he explained. By the time he left the organization five years later, the SSC had climbed up to 1300 staff. "Everything that has happened here has happened in a very short time scale," Przemyslaw explains. 2. Now that youâre process (and data) experts, letâs apply some of that intelligence: driving better business decisions through Shared Services knowhow Most established Shared Services have, at this stage, recognized that the next value lever is data. Given the experience that CEE centres have amassed over the past decade or so, they are now just at the stage of recognising enterprise data as their next challenge. The strong supply of educated talent means that tackling data mining and analysis is a logical step for CEE operations, particularly if they are taking on an increasingly regional or even global role. Many of the Shared Services leaders are finding that,while the master data initiative may not necessarily evolve out of the SSC, the Shared Services framework makes master data workable because its governance and structural framework mean that you can easily find and contact relevant counterparts. So, where in the past it was necessary to call offices all over the region to identify opportunities or trouble-shoot, today, itâs a simple matter of contacting the SSC to gain an immediate overview. With data now recognised as a competitive asset for companies that see the power of analytics, its analysis has become a key factor for business. However, the challenge was always to take a standardised, common approach to analysis and interpretation. Shared Services offers you that capability because of the harmonization that is implicit to the model. The introduction of common reporting systems within Shared Services also justifies the effort spent on data harmonization. "If youâre going to use the same system, then you need to get the data harmonized and cleaned first, to make it work" says a Shared Services leader from the region. "With Shared Services, you can do that faster." [eventpdf] 3. Not a lone outpost anymore, but a part of the GBS model In line with the shift to higher-level processes outlined above, many of the CEE-based shared services are reframing their position within a global delivery model. With many centres having built up a talented workforce, whose customer-proximity has increased their knowledge base (and market value) considerably, CEE-based SSCs are starting to be recast as GBS centres, thereby leveraging their often formidable skill-sets to take on end-to-end process ownership and global delivery. In fact, thereâs a further development. Within CEE we are witnessing an additional fragmentation of the delivery model. Companies like Siemens are taking advantage of the differing cost arbitrage, even in country, to shift transactional work to lower cost areas, and at the same time solidify the added-value element of its mature centres. Thus Ostrava, near the Polish border, has emerged as a CEE transaction hub for Siemens, explains Menon, offering lower cost levels than Prague. While the workforce split between Prague and Ostrava is currently around 40:60, Menon concedes that further commoditization â even of higher skilled activities â may lead to this ratio shifting even further in favour of Ostrava over the long term. "Optimizing delivery within the region allows us to maintain language skills and customer proximity â both of which are so important to high-level service delivery â and yet still drive a cost advantage for our customers, without shifting processes to Asia" explains Menon. This trend towards differentiating and optimizing across the region is widely understood. Amwayâs Siudadescribes gathering his young staff together in the Krakow office, 10 years ago, and pointing out that, if their capabilities did not evolve, theyâd eventually be losing business to other emerging markets, such as Romania, the Ukraine, or Moldova. "In fact, though the premise holds true, things did not evolve as quickly as I had thought they would," he concedes. "But it is definitely in the cards." Companies like Shell have embraced the opportunity, and have leveraged the Krakow centreâs capability to become one of the companyâs global delivery centres, managing some of the global processes from there. This speaks volumes about the workforceâs ability, the sophistication of the model, and the foresight of the corporate executive board. Even if centres are not yet branded or organised into GBS, however, you still find many of the CEE operations serving clients across all parts of the world. "And I am sure we will see a lot more development in this direction," says Siuda. However, a note of caution: "The market, at least here in Budapest, is certainly not cheap anymore," warns Kitti Dobi, HR Director at BPâs Budapest-based SSC. "So organizations must be very clear on what they want to achieve with their centres. Depending on the answer to that question, it will help you decide where to position your centre or centres. If youâre looking for process improvement, automation, and customer service skills, then CEE is the right place. However, for more aggressive cost savings, Asia might be more appropriate." 4. Gateway to the growth markets of Central and Eastern Europe Central and Eastern Europe is undeniably one of the bright spots among an otherwise dull European economy. The region represents the only real growth opportunities in the foreseeable future, explains GEâs Nagarajan. "In terms of plain-vanilla growth, we expect Germany, Poland, Romania, and Hungry to be the only countries within the European region to offer growth opportunities", says Nagarajan. "As a result, it's strategically speaking very important to be able to service and support these markets. Our shared services hub in Hungary is primed to provide just that support." For GE and others that have already established a footprint in Central and Eastern Europe, the benefits of deploying the acquired business intelligence and customer proximity through Shared Services, in support of further growth, are very compelling. 5. Customer proximity: why being close still makes a difference While the transactional services of the early years were delivered more or less to one standard, the increasingly tailored requirements of businesses across the region mean that "the one big dependency everyone mentions, namely, customer proximity, becomes a significant lever" says Amwayâs Siuda. "If we were making delivery decisions based on price alone, all Shared Services centres would be set up in Central Africa. But there are good reasons why they are not there." As business units are adjusting their sales strategies across the lucrative CEE markets, they rely on native language services, familiarity with the business, and locally tailored services, to maintain their leads. The need to be compliant with European regulations further restricts companies from sending support services too far from the homeland, as the risk, or cost, of offshoring beyond Europe would not make sense. "Many of our services have a portfolio element to them, which requires a degree of customization, and native language capability," explains Siemensâ Menon. "And though you can find similar language capabilities across France, Scotland, and Ireland â these countries are all more expensive than the CEE region." Even Indian BPOs, says Siuda, are recognizing the need to be closer to customers and have been setting up centres in some European countries. "Itâs the foreign languages that are driving this trend," he says. "The BPOs know whatâs going on. Theyâve read the writing on the wall." Note: SSON is currently hosting the 2014 Business Services Delivery Summit for Central & Eastern Europe.

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