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The authors Bob Cecil and Jeff Goldstein both have decades of global business services transformation under their belts. In this article, they address one of the most commonly asked questions around choosing the 'right' business services model.
“Which is best: Multi-functional Global Business Services (GBS) or single function shared services such as individually managed Finance or Human Resource shared services?
Key Findings: Trends In Global Business Services
We see a paradox in the marketplace regarding this question. Most of the business services research surveys and various pundits point to the multi-functional GBS model either having the highest growth rate or being an attribute of higher performing business services organizations. Indeed, SSON’s State of the Shared Services and Outsourcing Industry Global Market Report 2021 states that 62% of global respondents already operate as GBS, with another 19% planning to move to GBS within the next five years.
But, putting your ear to the ground among GBS leaders gives you a different feel. Many are clearly questioning whether their company will sustain a multi-functional GBS model and a few high-profile companies have already abandoned multi-functional GBS in favor of individually managed functional shared services.
Business services: A collection of related work activities managed and offered as a service to deliver a business outcome to recipients and/or buyers of the service irrespective of any particular organizational model such as multi-functional global business services or single function shared services.
Gbs: The Evolving Standard For Global Service Delivery
Functional shared services: An organizational model for providing business services bounded by a single function (e.g., Finance shared services, Human Resources shared services).
Global business services (GBS): An organizational model for providing multi-functional business services to the enterprise. Multiple variations of GBS exist along a spectrum of scope, delivery, and governance models.
Functional shared services started as a trend during the late 1980s and picked up momentum over the next 10 to 15 years. The primary early focus was on delivering Finance transaction processes, generally in the U.S., but this progressively moved to other geographies and other general and administrative functions. The value proposition was to leverage the best of both worlds –i.e., centralization’s scale and efficiencyand decentralization’s service and innovation orientations. These ‘functional shared services organizations’ (SSOs) were run like a business via commercial, service, and operations management. Outsourcing and offshoring supercharged the model in the 2000s.
Can You Define Global Business Services (gbs)?
If some is good, then more should be better. Multi-functional GBS became the ‘darling’ model of the last decade. It was defined by 1) enterprise-wide (e.g., global across all business units) and 2) multi-functional or function independent (e.g., business services).
Then we started to see some reversal of the multi-functional GBS model. Certain high-profile companies that had established multi-functional GBS models began to shift back to independently managed functional shared services.
Curiously, many of these multi-functional GBS models that shifted in whole or part back to functional shared services were generally recognized as high-performing GBS organizations.
Shared Services Center
The primary catalyst cited for the reversal was C-Suite executive leadership change –so, either a loss of the key executive sponsor for GBS or the appointment of a new executive. A cynic might assert that the model is chosen based on a power struggle at the top. A more muted response would be that the model is chosen based on difference of opinion and priorities among executives. But there are underlying, highly valid, business reasons for choosing the right model that you should consider, beyond personal motivations and opinions.
Organization models should not be static. Rather, consider them more analogous to organic structures that mold and adapt to different environments and needs. For business services, the primary determining factor for the ‘right’ business model should be how they contribute value to the overall enterprise strategy.
Business services’ value contribution naturally evolves at various stages of the improvement journey, and the organizational model should evolve alongside. Below are some of the more typical stages of evolution. Companies can choose to skip stages, but typically constraints such as developing business services competency and credibility limit how quickly they progress.
The Evolution And Key Dimensions Of Global Business Services Models
Virtually all very large, multinational, multi-business unit companies operate in some form of a matrixed model, with business units, functions and geographies sharing governance, responsibility and execution over back-office activity. The challenge in operationalizing this model traditionally focuses on whether, how, and where to aggregate like activity. To meet this challenge, about90%
Of U.S.-based large companies have chosen to operate some form of shared services. Most start with one or two single function shared services operating independently from one another.
The initial focus of functional shared services is on transactional processes offered ‘as a service’ to business units. The primary value proposition is about achieving cost efficiency while delivering the ‘right’ level of service within control guidelines; all while freeing up the business units to focus on their ‘core.’
Leveraging Shared Services Beyond Just Accounting
Companies should select this model at the early stages of their business services evolution, when they have enough business diversity and scale in transaction processes to benefit from consolidation, standardization, and service management. It is particularly attractive to those who want to follow a ‘test and learn’ strategy for the implementation of shared services.
The most basic form of multi-functional GBS is simply putting a layer of leadership and management practices on top of individual functional shared services with delivery activities co-located in service centers. The primary value proposition of this aggregated GBS model is extending benefits of transactional functional shared services across more functions while lowering duplication of effort and shared infrastructure. Where the adoption of functional shared services requires business units to relinquish day-to-day execution of routine back-office activity, GBS requires a similar willingness for collaboration across C-suite functional leaders.
Companies choose the aggregated GBS model when they are seeking to raise the level of performance of transactional processing across many functions more quickly through collaboration and shared governance. They are seeking more comprehensive benefits while reducing duplication of effort in implementation and ongoing maintenance. The model is particularly attractive when some functions have lagged others in functional shared services adoption and companies are looking to raise the bar of performance uniformly across functions. Functional shared service enables economies of scale within a function, while aggregated GBS additionally delivers economies of scope across many functions.
Lifecycle Maturity For Shared Services/gbs
At this level of evolution, you organize processes on an end-to-end basis, eliminating inconsistencies and inefficiencies associated with functional silos. End-to-end process management often means that you extend your business services model to include non-transactional activities (e.g., Sourcing, for Source-to-Settle; Customer Service, for Order-to-Cash). While not all activities within an end-to-end process are typically delivered out of a single integrated business services organization, this organization takes a lead role in orchestrating the achievement of business outcomes across the process through global process management.
Technology plays a critical role here, with the end goal being ‘lights out’ processing, with minimal levels of labor required for day-to-day processing, while also enhancing user experience. Tools such as process mining and discovery, robotics, and artificial intelligence are critical enablers alongside traditional ERP and common off-the-shelf applications.
The value proposition of organizing business services for end-to-end processes into a common, integrated GBS organization extends beyond additional cost savings and service improvements to include business outcomes such as improved cash flow, customer loyalty, and employee retention. While the value proposition is large, it is also one of the more difficult models to sustain due to investments in cross-functional governance and process management. Therefore, companies select the integrated GBS model when they envision significant improvements in both efficiency and effectiveness from end-to-end process optimization and devote themselves to a culture of continuous process optimization.
Fast Tracking Your Global Business Services Maturity Journey
Once you have dramatically reduced the labor content of end-to-end processes through elimination or automation of work, the value proposition of business services shifts again. Maintaining a large organization for process delivery becomes less relevant. Instead, technology, augmented with specialized expertise, becomes the primary lever to achieving process efficiency and effectiveness.
While human-based operational processing thus becomes less relevant to the organizational model, cross-functional enterprise capabilities become more important – both to sustain and extend the benefits of end-to-end process improvement. Sample capabilities include:
These capabilities are highly interrelated, with benefits accrued from housing them in a common, capability-based business services organization. They can be offered ‘as-a-service’ both to functions and business units across a wide array of processes.
The Future Of Global Business Services Centers
The value proposition of a business services organization dramatically shifts at this stage. It is no longer primarily accountable for efficient service delivery via large pools of labor in service delivery centers. Rather, the value proposition is about providing orchestration and expertise to others to improve and maintain process excellence. Therefore, companies select this model when they are seeking to orchestrate the continuous improvement of processes that are already highly automated and extend transformation related expertise to the broader enterprise.
While, clearly, understanding the value proposition of business services is critical, ultimate success is dictated by how well you enroll stakeholders in the vision and build your capabilities. In truth, the difficulty of building stakeholder commitment for business services and capabilities only increases as you progress through the
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