A boom in internal shared service centres (SSCs) over the past 20 years has helped many organisations lower costs and drive efficiencies. But should you go a step further and outsource altogether? Interim finance manager Ben Chapman, who’s helped many companies set up and / or outsource their SSCs, explains the benefits of doing so, and why now’s a good time.
Perhaps the most obvious reason to outsource your SSC to a BPO (business process outsourcing)
organisation is the cost certainty and potential cashflow benefits it gives you over the length of the contract, allowing you to plan investment in other areas of the business.
There are many other benefits too, including increased efficiencies and the overall difference it makes to your bottom line. “What I’ve seen recently is a lot of BPOs happily committing to cutting labour charges and also reducing the transferred operating headcount by around 30% over a five-year period,” says Ben.
“That’s because they’re completely dedicated to what they do and they also have the tools, technology and automated processes that you don’t have or have to constantly invest in. Even with the best will in the world, you’re unlikely to get such levels of cost and labour efficiency with your own-run SSC.
“Outsourcing your captive SSC frees your senior managers from having to manage your SSC, although you will still need to manage the BPO contract. You might also want to expand your business into new markets, which a BPO makes it easier to do. Even if you have a good SSC in Europe and you want to move into Asia, where you don’t have the credibility, language or operating skills, it’s hard to do on your own.
“BPOs also give you the flexibility to scale up or down your back-office support, which is harder to do with your SSC because of physical space and employee contracts.”
reducing the transferred operating headcount by around 30% over a five-year period
The perfect moment?
So why is now a favourable time to consider outsourcing? Ben says a highly competitive market has recently driven more competition between providers. “Margins are very thin for providers and with some private
equity backed companies facing aggressive targets, we’re seeing a lot of very good contracts put in place to tempt organisations to transfer. There’s no guarantee this environment will continue, so now’s the time to think about it.”
Obviously, outsourcing isn’t a one-size-fits-all approach. There are a few reasons why you might want to run your own SSC. You may be a brand that attracts and retains the very best staff and you don’t want to lose them. You may be reluctant to lose a particular culture you’ve built up, or you may operate in a sector – such as defence or critical healthcare provision – where you feel outsourcing is too complex, sensitive or risky.
How to do it right
Putting niche concerns aside, if you believe outsourcing is a real possibility, what’s the right way to go about it? “As a board, you can handle much of it yourselves,” says Ben, “but there are specific consultancies out there who can help you work out which BPOs are interested and which are the right fit, making sure you’re getting the best deal.
“You need to ensure you’ve got all your tender information, so details about your current SSC, location, cost, roles, performance level etc. You also need to think about how you handle this internally with the rest of the business. You have to communicate with people clearly to explain what’s happening, and why and how things might change going forward.
“I think the benefits are clear and the time is right; it’s all down to individual organisations to see if it’s the right time for them.”
- Benefits to outsourcing your SSC may include a cash injection, lower costs, cost certainty, greater efficiencies, better services, scalability and an increased focus on core services.
- Now’s a good time to consider outsourcing due to a competitive market – but it might not last.
- If you’re going to outsource, do your homework, get the best deal and make sure you communicate it properly internally.
Ben Chapman is a chartered accountant and interim finance manager with global experience of delivering finance transformation projects for multinational organisations. He’s held senior interim positions with the likes of Tate & Lyle, SSP Group and Panasonic, and has particular expertise in shared services, cost reduction, BPOs and offshoring.
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