It’s a story that’s repeated year after year, by business after business. And it usually begins with some highly paid consultants who waltz in from some very impressive agency. Tasked with finding efficiencies in shared services, they confidently declare: “Off-shoring is your answer.” And yes, it looks wonderful on a balance sheet. On the face of it, it’s a no-brainer. So, the CEO writes the consultants a hefty cheque, and off they go. Which is when the problems start.
Now, before you read any further, you should know this blog won’t be a brutal attack on the concept of off-shoring your Shared Service Centre (SSC). Or the consultants that recommend it. In fact, moving SSCs to lower-cost countries is an excellent idea for lots of organisations. The real purpose of this blog is to caution you against leaping in or out of off-shoring initiatives before you have the full picture. Before you have a multi-dimensional view of the potential savings. Or the ability to connect, monitor and steer the process.
So, how do you get all of that? Above all, you need to harness your data.
Is it too much to ask that off-shore SSCs are at least accountable?
Off-shoring (or outsourcing) is one of the biggest, most complex transitions that a company can ever make. It involves taking a whole working ethos and management hierarchy and replicating it from scratch in a new country. Often it’s somewhere the language and culture are radically different, too. And that’s before you even get to the technical side, where you’ll desperately want a connected platform, but will probably have to make do with more siloed systems.
It’s no exaggeration to say that off-shoring your SSC is fraught with risks. It means gambling with hundreds of years of collective knowledge – shifting it overseas in exchange for millions of dollars of savings in salary arbitrage and overheads. Plenty of companies wrestle with the decision. And some decide against off-shoring, believing they can’t risk even a tiny drop in their customer service. Many others decide to go ahead, however – which involves a monumental shift in how they operate.
Yes, off-shoring your SSC is a dizzyingly complex process. However, does that mean it’s too much to ask for the planned and signed-off cost savings to be tracked and delivered as promised, and then committed to management?
The ‘Doorman Fallacy’ and how to avoid it.
The reason that some off-shoring projects fail is that companies make decisions without a holistic view of the detail. Perhaps the best way to illustrate this mistake is the ‘Doorman Fallacy’ from the behavioural economics book ‘Alchemy’ by Rory Sutherland
In the book, Sutherland suggests that companies will often define business functions too narrowly in the quest for cost-saving and efficiency. For example, an upmarket hotel might define their doorman’s job solely as ‘opening and closing the door’. Once assessed on that single metric, it makes perfect financial sense to fire the doorman and replace him with an automatic door. Cue lots of talk about ‘heightened efficiency’ and ‘an optimised process’.
However, the problem is that opening and closing the door is only the notional role of the doorman. He actually delivers many other less definable, yet complementary sources of value. He boosts the status of the hotel. He hails taxis. He provides extra security and welcomes guests. The doorman may actually increase what the hotel can charge for a night’s stay. But all that value will be lost because the hotel has missed those crucial details.
In the same way, the SSC off-shoring projects which succeed are those where – unlike the hotel – the business harnesses all the vital information through all the available data. That way, it can monitor the process, mitigate the risk and minimise the impact on customers.
Data everywhere, but not an insight in sight.
The challenge with harnessing the data on your SSC is that it keeps changing. Plus, the charging mechanisms are so complex and vast that it’s usually a manual reporting struggle involving lots of people.
In order to justify your off-shore SSC, you’ll need to collect the first few years’ data across many disconnected systems at the transactional level. Which doesn’t seem appropriate for a service that is set up to streamline and simplify underlying processes.
Interestingly, in some cases the initial savings in salary arbitrage have actually produced an increase in service costs for the organization. Only a holistic and detailed tracking of the overall changes can help detect such inverse effects.
CFO Analytics by Teradata can give you the detail you need.
The answer is to have a trusted, auditable and detail-supported financial and non-financial data source. One example of such a platform is Teradata CFO Analytics. It features automated data integration from financial systems (ledger and sub-ledger, transaction level) which gives you the power to quickly deploy reports, dashboards and visualisations – providing you with the necessary insights at event and activity level. That means you can conduct thorough analyses of how well your SSC is performing, as well as how close (or how far) you are from reaching the objectives of the original business case for establishing the SSC. And on top of that, you get both drill-down and drill-up analysis of financial and non-financial data, plus predictive and prescriptive analytics.
Teradata’s connected multi-cloud data platform for enterprise analytics means you can build multi-dimensional profitability views. That gives both management and staff access to the same data set – which has been a game changer for many organisations.
Building your foundation of transactional data is imperative when creating a trusted source for understanding and demonstrating both the advantages and disadvantages of your SSC. Having the detailed analytics that can be viewed in multiple ways means you get the flexibility to measure, record and alter the financial outcomes of your SSC. You can check its current situation alongside the original business case, and even employ AI and machine learning to predict its future performance.
Apply Teradata CFO Analytics to your SSC, and perhaps when expensive consultants come round again to tell you that “On-shoring is the new answer” – you’ll be able to tell them exactly how wrong, or right they are.