Exploding Some of the Myths Around Global Business Services

Whether you are ready for it or not, if there is a single acronym that is causing the most excitement for shared Services today, it is "GBS" ( Global Business Services ). As for every evolving strategy, however, the term is full of conflicting implications. To shed some light on what is really going on, we held a closed-door session on the subject at North Americaâs largest Shared Services & Outsourcing gathering, and asked respected consultant and industry veteran Robert Cecil, advisory principal with KPMG LLP, the U.S. audit, tax and advisory firm, to moderate discussions.

The "invitation-only" session meant that only mature operators, for whom GBS is a core priority, were involved. Those that took part spoke freely about their current plans and debated the pros and cons of various assumptions, exposing a few myths along the way. What was notable was that some popularly held assumptions did not, in reality, hold water. Here we share a few conclusions.

First and foremost the question: why is GBS causing so much excitement, when the traditional Shared Services model is already delivering on its promise? The answer lies in the opportunities to integrate and drive cross-functional, end-to-end efficiencies and improvements, beyond the cost arbitrage of plain vanilla Shared Services.

"Global business services is getting more and more attention from clients, and itâs acting as a catalyst for change, even in the case of highly decentralized operations," confirms Cecil. "The main driver for all this interest is the integrated capability of a global services organization as opposed to just a cost play," he says.

Three main trends emerged from the GBS session at SS&O Week in Orlando. The most significant of these, perhaps, relates to the complexity of governing a GBS model, which goes to the heart of its capability and scope. The other two concern the misapprehension of dealing with multiple ERP systems, and the challenges of communicating the value-add capability of GBS to the business (what is generally referred to as "branding", though perhaps not as we think of it).

So, what you need to know about Global Business Services governance? You donât have to start with a perfect model, is the key lesson here. While the definition of GBS is generally assumed to be one version, there are, in fact, three stages, each requiring a different organizational set up and corresponding governance framework. This means the model offers some flexibility to those who feel unable to commit to its final incarnation.

Historically, the evolution from in-country or regionally focused functional Shared Services Center to GBS starts with a scenario whereby the GBS acts as a host to disparate services; then shifts to where the functions drive services, but through the delivery auspices of GBS; before finally evolving to GBS as an independent operating unit, with full ownership and control, delivering services to clients around the world.

This shift in how the center is set up and run â i.e. governed â parallels the evolving maturity of Global Business Services in-house. In the hosted instance, GBS effectively acts as a "landlord" or a holding company for different services. It offers some cohesiveness but does not have the ownership implied by later evolutions. The main benefit derives from labor arbitrage, through leveraging a global footprint.

In the second instance, functional heads drive services, with process ownership still residing within the functions. Although delivery is "global," crucially, a siloed mentality remains with little allowance for cross-functional integration. The main benefit in this instance derives from process standardization within a function.

Finally, in the third, mature instance, GBS serves as an independent operating unit akin to an internal outsourcer, with global process ownership and, crucially, the ability to integrate functional reporting and ownership in one place. The benefit here derives from the ability leverage cross-functional value and efficiencies.

Most organizations start with the hosted model and move forward slowly from there. The biggest problem that fledgling GBS operations run into is the fact that the functions don't want to give up control or ownership of their processes. And while in the early days the GBS itself may lack the experience or maturity to take control, the added value derived by the business will be limited, and it is worth investing in GBS talent to move to the next level.

The more complex shift is that from function-directed service to independent unit. The transition to this third stage GBS generally takes upwards of eight years, as the complexity involved touches on not just the workflow and process, but also fiscal activity and staffing. The big decision to make is around service delivery level versus fiscal responsibility. While mature GBS operations have gone all the way, the less mature ones (nearly three-quarters of those in the Orlando session) are still hovering on the threshold. Reaping the full benefits of GBS, however, hinges on ownership shifting into the center, so for many organizations capturing the real value of GBS remains out of reach until such organizational decisions have been made.

In a mature GBS, the global process owner is given primary responsibility for decisions, and thereby facilitates and enables the integration of cross-functional efficiencies, drives end-to-end process improvements, and shifts away from the siloed and functionally oriented thinking that perseveres in multifunctional Shared Services. Itâs the lack of accountability in the latter that prevents a more cross-functionally integrated mindset from taking hold.

Are multiple ERP systems a barrier to GBS? Conventional thinking would have it that you need to consolidate your ERP systems to one platform in order to unleash the power of GBS. Conventional wisdom, as it turns out, is not always right. The reality, as reflected by practitioners in the room, was quite different.

This was one of the myths most forcibly destroyed in the afternoon's debate. A couple of companies present (including some industry leaders) had been highly successful in getting to the third stage "operating unit" GBS model with multiple disparate systems (what came up time and again was the fact that GBS success was more about expectations setting than systems consolidation). Other companies are using SAP as an integration channel to get to GBS, with one instance of SAP (or other ERPs) acting as the common shared services interface to other multiple ERP instances. And increasingly, companies are using Cloud as a means to achieve faster process standardization, particularly in HR where the adoption rates seems to be higher.

The discussion exposed the naÃ°vetÃª of assuming a single ERP is a prerequisite for GBS. The general agreement, once the dust had settled, was that 10 or fewer ERP platforms could certainly support a Global Business Services model, but to leverage the full benefits, and here itâs really about driving improvements through the end-to-end processes, three ERP systems are probably the maximum for most organizations. However, in each and every case a company would need to set the systems investment thus requires against the potential benefit of GBS â the numbers may not work out in GBSâs favor.

What is the impact of branding? The final emerging theme concerned branding. And by branding we are talking less about logos than we are about communicating the potential value of GBS to its clients and stakeholders. What is clear is that more and more companies offering GBS are providing services beyond the transactional, and that there is a real focus on getting beyond the pilot stage. The main deliverable for GBS today is to support business outcomes, and this is where most companies with existing GBS models are aiming to differentiate their service.

Of the participants in the room more than half confirmed they were investing efforts into branding themselves beyond "transactional experts". One effective trend that emerged was hiring in brand managers from corporate marketing departments, and thereby incorporating their skills in promoting GBS to the business.

Branding offers far more potential than a logo or tagline imply. At its heart, GBS branding is about communicating the message and the potential of a global approach to multifunctional service delivery to the business â not in terms of cost anymore, but in terms of process improvement gains, a holistic evaluation of the end-to-end process, and driving valuable business insights through access to data analysis. Forming relationships with stakeholders and customers, and partnering with these stakeholders to align services to business targets, will remain one of the most effective strategies for successful Global Business Service.

In summary GBS remains the top of the iceberg in terms of Shared Services ambitions, but it is most definitely not the right solution for everyone, and even within GBS there are stages that allow companies to ratchet up the maturity curve, according to their readiness. For those chasing labor arbitrage, the hosted model offers value; those pursuing process standardization are served best by function-driven GBS; and for those who have the consolidations in place and are looking to integrate and drive improvements cross-functionally, the standalone operating model meets their requirements. The numbers of companies operating in this third stage are still few (roughly 20% of participants in this session). Whatâs interesting to note, however, is that they are characterized by C-level sponsors and a partnering approach that supports setting and defining expectations.

The true sign of GBS maturity is where a GBS ecosystem prevails: C-level sponsors drive the model with skin in the game, and take an active interest and part in promoting GBSâs capability. This senior-level sponsorship is crucial in driving GBS towards maturity (one of the companies in the GBS track mentioned the Corporate Controller was their sponsor) as it extends the influence of "global services" thinking across the enterprise, beyond even "global process ownership".