Jury Still out on Dominant Service Delivery Model

Businesses not decisively favoring outsourcing vs. shared services, but senior executive buy-in seen as top success factor

Businesses not decisively favoring outsourcing vs. shared services, but senior executive buy-in seen as top success factor

Chicago — November 15, 2004 — As businesses move beyond cost reduction and toward a growth agenda in 2004, a new survey finds that business executives still have not decisively decided between shared services or outsourcing transformation programs as the dominant service delivery model.

But the survey by consulting firm Capgemini finds that senior executive support and buy-in are the most critical success factors in rallying support for, and overcoming resistance to, shared services or outsourcing transformation programs.

According to the survey of the more than 100 finance and technology executives attending the Conference Board Shared Services Conference, there is little consensus on the dominant service delivery model today, with 42 percent of respondents favoring shared services versus 28 percent for portfolio-based combination of outsourcing and "insourcing."

However, survey respondents feel that the success of any model hinges on the leadership of the executive team in overcoming resistance to change. Two-thirds of respondents (67.3 percent) believe executive support is essential to delivering world-class services through a shared services approach.

Service level agreements, contract management and financial management are not enough to ensure success, according to the survey participants. Rather, a slight majority (51.9 percent) of respondents believe that a proper governance model is imperative with either solution.

Surprisingly, one-third (34.8 percent) of respondents said they have already outsourced their human resources (HR) function, compared to four in ten (39.1 percent) who decided to outsource a portion of their information technology (IT).

"The pulse survey confirms that companies are still deciding on their dominant service delivery model between shared services, outsourcing and a portfolio-based approach that combines the best of both worlds," said Terry Jost, vice president and outsourcing leader for North America at Capgemini. "Having a solid business case to drive sustained value through sophisticated sourcing is imperative, but companies must also embrace change management in order to make their sourcing model a value creator, not a stranded asset."

Other survey highlights include:

  • The top three challenges to making a global shared services approach work in the real world from a technology perspective were managing enterprise resource planning (ERP) systems (34.6 percent), knowledge management (28.8 percent) and workflow and imaging tools (28.8 percent).

  • Nearly two in three respondents (64.2 percent) said labor arbitrage was the most important savings lever to use an offshore outsourcing provider, while only 13.5 percent pointed to business process improvements as the prime savings lever.

  • Six in ten (62 percent) respondents said the current U.S. political and regulatory debate over offshore outsourcing has had no impact on their company's long-term interest in offshore outsourcing.

In all, 42.3 percent of the survey respondents were from "product" industries (energy, automotive, retail, manufacturing), 13.5 percent were from "service industries" (telecom, media, facilities), and 11.5 percent hailed from health/life sciences and financial services respectively. Survey responses may not add up to 100 percent due to multiple responses.

More survey results are available at http://www.us.capgemini.com/cfo/learn_CBpulse1111.asp.

The Conference Board Shared Services conference entitled "Getting the Best From Shared Services: Evolution through Outsourcing, Offshoring and Technology" focused on discovering the reality behind the headlines and the hype on offshoring and outsourcing. The Shared Services and Business Process Outsourcing Association (SBPOA) worked with the board on the conference, along with Capgemini and EquaTerra.