Top Tier CSPs evolving their sourcing strategy with a new appetite
The changing scene in Outsourcing Business Models (Part 1)
As Multinational CSPs mature in their experience of sharing their network infrastructure assets, there is an intensified effort to improve efficiencies in cost and service management with a bold and burgeoning move towards concept of sharing services from a single point of contact within their multi-site/multi-Opco countries.
The dichotomy to this increasing trend is the hybridization of the sharing of services and outsourcing to create a new cadence of opportunity and benefits whilst reducing the risks of sharing services and as well outsourcing.
The benefits of sharing Telecom network infrastructure brought significant savings to CSPs and help broker new means to entrench Network management focus as well as enhance operators focus on cost and efficiency of network infrastructure. Now the concept of sharing Network infrastructure by CSPs has transcended the area of just Network infrastructure into adjoining business support functions such as Customer care and IT Services.
Sharing of services intra- and inter-organization is well known in the business world as Shared Services (SS). Shared services is the provisioning of a service by one part of an organization (Say A group organization, e.g. Vodafone, MTN, Etiselat, Telefornica, China Telecom etc) or group companies where that service had previously been found in more than one of the organization or group (Abstracted source: Wiki).
Shared Services is a means of extracting similar services being offered across multiple organizations into one or fewer delivery pools in order to centralize the service delivery life-cycle: service strategy, service planning, service transition, service operations, continuous improvement and service governance. You will take note of the inclusion of Service governance as a plus one to the usual ITIL service management key components as a stressed add-on.
What are the drivers for Shared Services?
The drivers propelling Shared Services into main stream are a combination of forces that span; (1) growing consolidation of CSPs in the Tier1, Tier 2 and as well some Tier 3 entrants to improve and leverage competencies, skills and standards across various operating companies into a central pool in order to plan, build and manage services at an even higher level of efficiency and experience focus; and (2) to harness resource sharing with greater over-arching business-alignment strategy that includes cross-sharing of opportunities at lower cost of ownership and reduction of management overheads.
Other key drivers of Shared Services include:
- Increasing confidence in “As-a-Service” solutions;
- Increased move to optimize averaging of resource utilization.
Especially product licenses which account for upto 20% of product operating costs where utilization is almost at par with capacity, and higher where growth alignment to license capacity availed may substantially be out of proportion), rationalize products (features, versions, capabilities, standards), harmonize services or ease harmonization of services, consolidate and reduce redundancy and establish a better risk-sharing partnership by leveraging global assets of capable Vendors which ultimately leads to increased productivity.
Example: At one global organization with three fairly mature single function SSOs, for instance, it was only by chance that leaders discovered that two of them had simultaneously issued a Request for Proposal (RFP) to replace their contact center technologies – and that each was gravitating to a different vendor. By subsequently combining efforts, the two single-function SSOs were able to obtain greater functionality in their jointly selected solution, and get it more quickly and at lower cost. Moreover, they were able to do it in a way that supported the strategic plan of the third function’s SSO, which was looking to build out its contact center in two years. As a result of this experience, the company quickly established a cross-SSO investment and leading practices “council” to share and leverage investments and ideas.
- Internally optimize to increase cost efficiency by easily absorbing opco life-cycle costs into a shared services model where cost apportionment become fractional, , while radically improving cost of ownership practicality and basis.
- Provide similar opportunities of new models, standards and platform opportunities seamlessly across the group.
- Gather and retain top notch skills across Opcos and leverage capability across multi-site for service delivery management to service governance and improvement.
- According to a recent survey conducted by Deloitte Consulting LLP, companies with a shared service models in place are relying heavily on SSC to drive consistency across the business, particularly when it comes to processes – 84 percent of survey respondents say they’re using shared services to keep processes consistent.
- Fear of Outsourcing completely. CSPs recognize the benefits of outsourcing; however, they experience a fear of losing control, strategy execution agility, process visibility and ability to be nimble in innovation as reasons to their cold feet towards outsourcing.
- Meta-Complexity in attaining maturity – Handling varying SLA’s as a means to manage costs per cost center. Similar to off-shoring, the ability to centralize service delivery, and yet offer differentiated SLAs becomes an increasingly complex overhead for an SSC without a high maturity level around; Process; Policy; Technology; Metrics management; Governance; Well developed cost sharing structure; and Organization.
Key Comparison and Analysis – Shared Services and Off-shoring:
Exhibit 1 – Key Areas fostering Shared Services maturity
- Cost Management – The primary motivation for using the offshore outsourcing business model has been cutting costs. However, many companies are starting to re-think this strategy for a variety of reasons. The main reason is that the savings they expected to realize weren’t as big as expected, due to hidden overheads such as time spent on managing quality control and tax issues of overseas business. With Off-shoring, strategic shift, companies lose expertise when contracting with foreign vendors, in addition to the fact that the vendors don’t have as much incentive to work towards efficiency.
Exhibit 2 – Comparing Key Cost-traps
- Shared Services Program advantage with Outsourcing
Combining Shared Services with Managed Services can be likened to a an Offshore solution with a specialized intent of providing multi-site readiness. Outsourcing application of a Shared Service Concept – the Off-shore Model
- Right-Shore, Near Shore, Far Shore, Best Shore…
- Maturity Management of Shores to guarantee Services through Certification of:
- Business Process management capability
- IT Management Capability
- Service Quality Assurance
- Problem Resolution efficacy
Exhibit 3 – Advantages of Shared Services Program
Shared Services Trends – 2013
A. Global Adoption and Growth
Organizations are increasingly adopting shared services centers in multiple locations around the globe. Latin American centers continue to rise as more US businesses and multinationals establish operations in the region. The lower operational costs of central and eastern Europe have also lead a steady rise in shared service center (SSC) activity there. Furthermore, individual SSC’s are serving wider and more diverse geographies.
According to a recent global shared services survey conducted by Deloitte, the United States and India have the greatest percentage of shared service centers serving four or more continents, followed by the United Kingdom and China.
The majority (60%) of companies surveyed by Deloitte have more than one SSC. This global growth and adoption is driven by the benefits shared services have consistently demonstrated. The most cited positive impacts among respondents of the survey are:
i. Process efficiency ii. Cost reduction iii. Process quality iv. Data visibility v. Improved service levels
It is clear that the shared services industry is maturing, and that the shared services business model is growing in popularity and adoption. B. Uptake by Tier 1 – 3’s
i. Vodafone – Amdocs Aug 2013 – Amdocs and Vodafone have signed a five-year global managed services agreement for Vodafone’s customer care and billing domain based on Amdocs software applications.
Key: Amdocs will establish a dedicated shared service and development center for Vodafone, which will start by servicing Vodafone’s local markets in Germany, the UK, and the Netherlands.
Value Add: It also enables Vodafone to pre-define desired performance levels, and improve on them for maximum control.
ii. Telenor – Accenture, July 2013 – Telenor has selected Accenture to accelerate the implementation of a global shared services vision across companies within the Telenor Group.
Key: Accenture will provide relevant shared services in finance and accounting, HR, IT, and transactional procurement/purchases.
Value Add: It will also augment the development and implementation of Telenor’s service strategies and work to eliminate complexity
Shared Service Centers
Traditionally deployed by support functions, the following business functions are known as the traditional areas where there has been a top need to entrench standards, central control, greater visibility and harmonization of processes and outcome (table 1). Table 1: Traditional functions deploying Shared Services across industries
|Business function||Relevancy from IT/Tech Perspective|
|Finance||Our key focus is driven by TCO|
|Human Resources||Growing scarcity of consistency in top level skills across markets/operating companies etc|
|Legal||Regulatory restrictions may apply|
|Procurement/Purchasing||Economies of scale (Group buy to obtain best pricing), Standardized products, best value for money in feature, reduced cost of ownership etc.|
While not as prevalent historically as typical outsourcing, the numbers and breadth of customer shared service centers is on the rise. The benefits of the shared services model lends itself nicely to pressures on customer support organizations to improve service levels under tighter budgets.
The increasing importance of customer service as a differentiation is not only limited to the Customer Care function, but all customer support functions, including traditional IT, and has also resulted in global organizations putting more attention into business outcome.
Example, ‘Increase customer satisfaction’ was the third most cited priority for driving incremental Shared Service Center (SSC) value in the global shared services survey conducted by Deloitte in 2009 titled “Shared services shines in challenging times.” 43% of respondents cited customer satisfaction as a top priority, right after reducing costs and improving processes. As demand for better and more efficient customer service grows, Deloitte indicates an expected significant rise in this number of SSC’s in the near and long term across all industries.
So Why SSC’s when CSP outsourcing is on the rise?
- Off-shoring Trends for high-tech and Telecom Company’s
- CSPs wish to leverage engagement opportunities across their multinational or regional foot print with as little as possible of per-site trials. Now from a strategy perspective, SSC will only be plausible where a CSP holds a large multinational footprint and has clout in; (1) instilling a cross-cultural/cross-border harmonization and standardization; (2) Long term view into standardization across Vendor/Partners; (3) massive strategy to expand and integrate OPCOs extensively into a singular governance head-unit.
- The need by CSPs to effectively manage Standardization of services delivery management and facilitate replication of benefits to OPCOs without the overheads (time, cost, quality and outcome) of per site service delivery management life-cycles.
- One Governance body, reduce cost of change management, human resource management, account management, product management and partitioning risk management into what can be prudently managed locally and on a global perspective.
- Real Sharing – Service Sharing: Allow successful services to be easily deployed in new markets without repeating technical implementation; Skills Sharing – Consolidate top skills into one-factory and leverage them across multi-site needs to overcome local skills shortage for specific competencies; Effective Cost sharing, where a smaller Opco will not have to seed fixed costs of enabling new services but can be billed for what it needs etc.
What about a Hybrid Outsourcing & Shared Services?
While in traditional sense, SSC’s have been primarily developed and operated under the Organization, Outsourcing brings a new dimension to SSC by shifting the risks to a commensurate globally stable organization in order to guarantee (i) technology evolution; (ii) easy localization; (iii) bolster organization competencies with Vendor/Provider’s Global Competency (iv) introduction of technology and operations standards to factory-wise operations (v) is key the product service governance for future proof and alignment as well as
- The outsourcing model is always viewed with suspicion with the majority of staff, as it implies a loss of knowledge to an indifferent external party;
- Shared services’ ability to provide a “delivery function” with the appropriate level of technical expertise is critical to its value proposition.
- In shared services (or in-sourcing), the assets are usually owned by the organization and the focus maybe on process simplification and organizational alignment to reduce costs in a sustainable manner.
- Centralization of functions and/or tasks across multiple sites or customers.
- Both Shared Services and Outsourcing share very similar goals – reduce costs, leverage global resources (human, capital, technology, experience, economies of scale), increase efficiency
- Shared Services also looks at increasing the performance of the function in terms of quality, effectiveness and overall responsiveness to the organizations needs.
CSPs recognize that Transformation is become a critical piece of the puzzle to their “emancipation” from traditional communications services to “Digital” services. This recognition implies that the option of Transformation failure is not on the table, thus starting Transformation with a “big bang” plan to perform and E2E overhaul of business process and technology architecture or operations can no longer be affordable.
Using Managed Transformation, a planned modular approach to Transformation, the fear and challenges of Traditional transformation are heavily mitigated with amplification of Business outcomes becomes a priority for each aspect of the transformation plan. The plan in itself is not to transform, but to achieve clear business outcomes supported by steps of changes that can be optimized to fulfill the business mandate.
As multinational CSPs look to Outsourcing as a means to improve their earnings, the use of Shared Services models as extensions of their business but fully operated and managed by a Managed Service Provider will continue to rise.