How to Deploy a Hub and Spoke Model for Matured Shared Services

Low cost yet better operations excellence; delivery center and key business partner; legacy back-office support and driving business outcomes; tiered structure yet seamless execution with the "Hub & Spoke" Model. [Note: click images to enlarge] Organizations that have adopted the Hub and Spoke model are driving better business outcomes through capabilities development, cost advantage, flexibility and scalability in operations, improved time-to-market, lower incremental investments in technology, and operational risk mitigation. But the key challenge remains how to transform existing delivery models and seamlessly adapt to the Hub and Spoke model. This paper recommends a simple but effective approach. What analysts say about the ‘Hub and Spoke’ model… Forrester... "We believe the most sophisticated and efficient way is the Hub and Spoke, which provides centralized resources that can support business units. The business units still have the freedom and flexibility to dialog with the market -- and should be in alignment with what other spokes are doing." KPMG... "To manage changing customer demands, tap emerging opportunities, offer new services, multi-lingual capabilities and business continuity planning, it needs to deliver services from multiple locations across the world. Thus a complete hub and spoke global delivery model encompassing service delivery across multiple continents, which assures clients of flexibility and scalability, is a necessity and a need of the hour." Concept overview Traditional delivery models met business objectives in the past but client expectations have changed (see Figure below). The labor-arbitrage-led ‘lift and shift’ approach drove Global Services Centers until recently, and for good reason. Shared Services Organizations (SSOs) leveraged the ‘on-shore, near-shore, off-shore’ delivery model to provide high speed of execution, cost savings, 24X7 operations support, multi-lingual capabilities, acceptable productivity gains and customer satisfaction. Today, customers expect SSOs and Service Providers to act as partners to drive business results by developing technology and advancing analytics-enabled solutions to business problems, driving the transformation agenda, innovating new products, enabling high growth through scalability, and meeting changing customer requirements through seamless execution every time. Location strategy and delivery models have evolved. Hub and Spoke models are embraced by organizations to be best-in-class and partner with clients in realizing the vision. The Hub and Spoke delivery model is a big enabler to meet customer expectations in the changed environment. It has been adopted successfully by many organizations. How do matured SSOs adopt this model and transform from a 'cheaper' to 'next-Gen' delivery partner while maintaining best-in-class cost structure and ensuring customer delight? Let’s define it first. The HUB acts like a ‘center of command’ to drive delivery across the spokes, execute complex work, house process and domain capability, develop subject matter experts to drive the transformation agenda, and is the primary contact point for the buyers in the domain. The Hub is the brain or the nucleus in the model; spokes are the execution arms and satellites provide the essential support (work that cannot be executed in hub or spokes). SPOKEs are the seamless extensions of the HUB for best-in-class process execution, drive operations excellence with high quality output at low cost, focus on continuous improvement, have the ability to manage high volumes (scalability), and are aligned to the client vision via the hub. SATELLITE locations are the extensions of the HUB or SPOKEs and they provide the essential support on processes that can not be moved to hubs or spokes because of legal/regulatory requirements, contractual obligations, language constraints or any niche capability. They are the integral part of the eco-system to deliver the complete scope of work. Methodology Depending upon the scope, size and complexity, there are different approaches to deploy Hub and Spoke operating models. Let’s illustrate one of the approaches that could easily be adopted for an already established Shared Services Organization. The key steps are to identify the process clusters or sub-clusters, enlist the existing set of delivery locations for each of the process cluster or sub-clusters, rate each of the locations on the chosen criteria, select the hubs, spokes and satellites amongst the set of locations and then, finally, define the operating model for each process cluster or sub-cluster. (A) Process Clustering The first and most important step is clustering similar processes. A matured SSO could be providing multiple point solutions for multiple clients and these most likely exist in silos. It is critical to understand the scope for each one of these and organize them into a few process clusters and sub-clusters. Each process cluster or sub-cluster could serve multiple clients. Process cluster and Sub-clusters: A set of aligned upstream / downstream business activities that need similar domain and process knowledge, have inter-dependencies and touch points are grouped together to form a process cluster / sub-cluster. The best method to identify process clusters and sub-clusters is ‘value chain’ analysis. Examples of process clusters include Sales and Marketing, Core Operations, Finance & Accounting, Human Resources, Supply Chain Management, Master Data Management, etc. Each of these clusters will have a list of sub-clusters. For example, Supply Chain cluster could have Plan, Procure, Produce, Deliver, Logistics & Returns, Product Data Management and Asset Management as sub-clusters. Illustrative process clusters for a matured SSO player Inter-related process activities grouped under a single process cluster or sub-cluster may be delivered from different locations across the delivery network. Each one of these locations could be catering to a particular client, delivering a particular point solution, or executing the specific activities in the sub-cluster. For example, a location in India may be responsible for processing of invoices and payments, while a location in Latin America could be responsible for managing vendor queries for Americas and a location in Eastern Europe could be responsible for vendor data management and vendor queries for Europe. The next key question then is: How do we choose a HUB amongst the set of locations for each of the sub-clusters? Here is a suggested structured approach to answer this: (B) Identify the Hub and Spokes for each of the process clusters / sub-clusters 1. For a given process sub-cluster, we rate each of the delivery locations on a set of objective criteria. Criteria could vary depending upon the industry, scope of work and corporate objectives. You need to objectively identify the criteria and assign weightage to each one of them. In the illustration below, process complexity, process criticality, scalability and cost of delivery are identified as the objective criteria. These criteria are defined in detail and weightages have been applied. Illustrative set of objective criteria and the assigned weightages 2. For a process sub-cluster, rate each of the delivery locations on the selected objective criteria. There are many ways to objectively rate the locations. Two of them are briefly described below. Focus group discussion Invite key stakeholders and subject matter experts for the process sub-cluster Set context by explaining the goals and objectives of focus group discussion Ask them the framed questions which would help to rate the delivery locations on each of the objective criteria Any rating scale could be chosen. Let’s assume that we rate locations on a scale of 1 to 3 (3 being the best rating). Detailed questionnaire rolled out to wide audience Design the questionnaire with each question aimed to rate delivery location on an objective criterion. There can be multiple questions for each of the criterion. Roll out survey questionnaire to all the selected group Each respondent just answers the questions without necessarily knowing linkages to the criteria Responses are collated to rate the delivery locations on the objective criteria Illustration: Let’s assume, the sub-cluster under consideration is ‘Pricing’, part of Lead to Quote process. Assume that delivery locations for ‘Pricing’ cluster are as shown in the world map. If each of these locations is rated for its capabilities in ‘Pricing’ sub-cluster, using the four objective criteria, the ratings (scale of 1-3) and weighted score could like in the table below. 3. The weighted score for each of the delivery locations reflects whether the location could be a Hub or a Spoke. If the score for a particular location is too low, then it should be considered for Exiting and consolidating its scope either in the hub or one of the spokes. A satellite location need not be rated, as it exits to serve a particular purpose only, with no objective to have it as hub or spoke. The guideline score (when using a scale of 1-3) for a hub, spoke or an exit location is below: Illustration: Applying the guideline score to the "Pricing’ sub-cluster example, it would be recommend that the Hub be Budapest. Mexico City and Chennai should be Exit locations. Others could be Spoke locations. 4. Qualitative Analysis: For the final selection of the hub, consider other key qualitative factors like customer proximity, current relationship, etc. Many a times, qualitative analysis could lead to significant insights and final recommendation could change. Benefits of a Hub and Spoke model Driving Delivery Excellence through Hub and Spoke Capabilities development: Increased size of organization results in more specialization and decentralization in decision making, which makes it necessary to add more management layers for better control of resources and inter-organizational interactions. The Hub and Spoke model is a tool that enables considerable centralized control, especially over aspects such as skill development, resource utilization, operational efficiency and enforcement of uniform standards across delivery centers. The model allows the effective use of regional capabilities such as language skills to develop world class quality of services. Cost advantage: A good mix of locations for delivery centers ensures higher quality of service at lower costs. Spokes allow companies to reap benefits of cost arbitrage by leveraging multiple locations (mix of high quality and low cost) to service customers. Flexibility and scalability in operations: Multiple delivery centers organized as Spokes allow companies to juggle with resources as per demand across different geographies. Companies can re-staff resources in various geographies to scale-up or scale-down operations. Improved time-to-market: Hub and Spoke model allows delivery units to source talent from locations where the required capabilities and skills are available and thereby save time, which would otherwise have gone into training and building centers of excellence in one central location. Seamless operations across all Spokes for a given Hub: When organized as a Hub and poke model, companies make a conscious decision to ensure there is a consistent view of customer processes across all locations. This allows technology service providers to leverage spokes simultaneously to service customers. Multiple locations spread risk and increase presence: The Hub and Spoke model helps spread operation risk across various locations. Decentralized operations allow companies to have effective business continuity plans and resiliency in case of disaster. Also, centers in various parts of the world allow companies to have a global presence and wider reach. Companies can target more clients and manage business seasonality and cycles. Lower incremental investments in technology: Hub and Spoke model is best leveraged by setting up a "private cloud" that can be accessed globally. This ensures there is no incremental investment in technology for every new center that is setup. Enforces world wide best practices: Companies can adopt best practices from various parts of the world and extend it to other delivery centers and teams. Summary This paper suggests the Hub and Spoke model is the next generation operating model for the industry and early adoption leads to significant benefits. There are multiple ways to embrace it. Any simple but effective approach could be adopted, but organizations cannot afford to miss it. [eventpdf] [Note: if you liked this article, please use the buttons on the left side of the screen to share it across your LinkedIn groups – and contribute to this discussion by posting your thoughts in the comment section, below. Thank you for being part of SSON's community - Barbara Hodge]

How to Deploy a Hub and Spoke Model for Matured Shared Services

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