Applying the right thinking to service delivery models | KPMG | CA

Applying the right thinking to a third-party service delivery

Applying the right thinking to service delivery models

Outsourcing and shared services are well-entrenched service delivery models- leveraged by many corporations.

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Applying the right thinking to a third-party service delivery

Outsourcing and shared services are well-entrenched service delivery models- leveraged by many corporations – both large and small – to improve efficiencies, reduce costs and improve customer service. These delivery models can take on many forms for companies. But the underlying premise when considering these services is the same: finding an improved way of delivering quality services from the back office to the front office.

Whether it’s a shared procurement model to optimize buying power for like-minded organizations, or leveraging a cloud service provider to alleviate the burden of complex technology functions such as big data analytics, the benefits of a well-thought-out, multi-faceted delivery model can be many.

For a pre-IPO company, outsourcing is often done on a functional basis. Typically, transactional services are the first to be considered for outsourcing – such as payroll, HR services or accounting – are outsourced to a cloud or other service provider specializing in those areas.

For an IPO company, however, the role of these types of services can change significantly. The decision to outsource becomes much more strategic, as investors will be scrutinizing your business practices to ensure your choices maximize the bottom line and minimize taxes. An added factor to consider is, as a public company, outsourcing decisions come with more demanding compliance, security and reporting requirements.

Simply put, the drive is to ensure that you deliver services using the best means possible; all while demonstrating value to investors with the proper controls and reporting.

 

Where to start

Outsourcing in an IPO world is a matter of thinking strategically of the needs of your organization and finding the right service delivery model to meet them.

Bear in mind that there are always functions that a business will want to keep “close to home”, such as marketing. But many companies are being increasingly innovative in how they deliver non-core services such as IT, human resources, finance, procurement and facilities management.The first step in determining the right delivery solution is to conduct a maturity assessment that explores the following fundamental questions:

  1. What is the core purpose of your organization? What is the relationship of business functions to that purpose?
  2. What services and/or capabilities do you need to deliver to support the core purpose of your organization?
  3. What are the best means to deliver them – internally or through a shared services or outsourcing model?
  4. Do you have the technology resources to deliver the services in question?
  5. Are there appropriate third parties who can deliver those services?
  6. How strong are third party processes articulated and managed? Can they measure and demonstrate the value of what they are delivering?

 

Driving the value proposition

While the advantages of third-party services can be many, leadership must keep pushing and demonstrate value for its decisions in this regard. In order to evolve as your business grows, you must have a multi-year focus and a strategic view that encompasses service, processes and governance.

A key component in building out a scenario for your model is having a solid business case. You can begin by examining your current state, understand the services required and the costs to provide these. Then define the service performance you need. Once this is baseline is established you then examine alternative models and determine the best path forward.

 

Seven considerations to include in your analysis:

  1. Stay agile – At one point shared services contracts could span up to 10 years. Now deal structures tend to be in the five years or less time frame, to allow for flexibility and agility to take advantage of disruptive innovations.
  2. Retain strategic aspects of a function – There are certain capabilities that should never be removed from an organization, such as strategic policies (e.g., salary and benefits planning) and verifications/approvals. 
  3. Tie your shared services or outsourced services to internal governance and processes. Demand accountability on both sides and have clarity around governance.
  4. Determine the measurements and reports that are important to your business and design a metrics framework that aligns business strategies and objectives to the delivery of third-party services.
  5. Manage your services provider as rigorously as you manage yourself and vice versa. When working with clients for the first time, the first point of discussion is management processes and how performance is to be measured. 
  6. Be clear with your expectations – SLAs (service level agreements) are not perfect. For example, if a system is available 99.999%, what does that really mean over the course of a year? Have strategic conversations with your providers to get a clear understanding around performance assumptions and ensure they are spelled out in the contract.
  7. Review your outsourcing arrangements on a regular basis to ensure they continue to deliver value.

In today’s competitive climate, companies must consider a range of service delivery models in order to keep pace and adapt to changing market demands. Asking the right questions and laying the groundwork for making informed decisions are invaluable in creating a lasting and sustainable strategy.

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