Some companies are struggling to reach the third stage of a scaled service delivery (see page - Five levels of GBS maturity).
Japanese pharmaceutical companies tend to perform all functions in-house and have only recently begun to set up joint ventures with outside service providers in the form of shared service centers.
“It’s a very costly model, because it is a hybrid of in-house and outsourced provision,” says Machida. By consolidating fragmented services into a more unified structure (i.e., advancing to level three of maturity), companies have saved 30 percent to 40 percent of their costs through process simplification, automation, economies of scale and labor arbitrage.
In this process, there is resistance among functional departments to a loss of control, as services are centralized. “The commercial orientation is around ensuring the value proposition makes sense”, he says, “and is crystallized in an internal service level agreement that determines the cost of the services provided and the service levels the organization commits to meeting.”
The multifunctional service organizations are brought into a single, cross-functional organization under GBS.
Bertheaud gives the example of a large pharmaceutical company that has 65 services spanning nine functions. In creating their model, the company wanted to move from functionally siloed services to end-to-end business processes. As an example, from order to cash, they brought together and optimized services across commercial, distribution, credit and accounting — four areas that previously worked independently.
By focusing on end-to-end processes, the client began to track, for the first time, a new KPI they called ‘perfect order’. This measured the accuracy of all activities from taking an order and quoting a price and delivery time, all the way through to fulfillment and invoicing. An analysis was conducted on more than 10 steps managed by various parts of the client organization and by their third-party logistics provider.
As Bertheaud notes, “the company was astounded to learn that it was achieving a ‘perfect order’ score of only 34 percent. It’s an illustration of the value of end-to-end service delivery in which the focus is on business outcomes rather than costs alone,” he says. “In the old model, the problem wasn’t just unsolvable, it was actually undiscoverable.”
The more a company focuses on end-to-end delivery and the more it brings value-added activities into GBS, the greater the ability to make better decisions, because it can leverage its expertise across a wider range of operations.
A focus on business outcomes is often a new experience for companies.
“The challenge is to find the right measurements. Companies tend to measure the wrong things and this drives the wrong behaviors. Their measurements have not evolved much from when outsourcing was first established. We have driven down the number of suppliers, but are we paying them on time? Let’s worry less about the number of invoices processed and focus more on whether they are paid on time,” says Altini.
KPMG member firms have found that pharmaceutical companies that undertake the journey tend to find it particularly difficult managing the transition beyond the scaled stage. This is mainly because, by this point, companies are taking accountability away from the different functions and giving it to GBS. “Companies sometimes find themselves in a trap because they have appointed a person to run GBS as if it was another function,” says Cecil. “The real value of GBS is when it is integrated into the operational fabric of the company to achieve the flexibility and cost-effectiveness that are promised.”
Bertheaud says, “The way this is dealt with is through changes in governance; by creating a more commercial orientation, services are run like a business, driving decision making to middle levels in a governance model that aligns to the function.”
The transition between levels requires a change in thinking.
“Learning to operate as a service function and charging for services are no longer the main challenge of change management. The bigger challenge is getting people to accept the value of GBS operating above the independent functional organization, to think less about function and more about process,” says Altini. “We don’t talk about HR and finance in a GBS world, but about the processes or services they deliver. For example, I will no longer be an HR person, but somebody who provides a service, such as managing performance plans.”
A company may have to make a tactical retreat and move forward later.
One large pharma company was unable to integrate fully its business services and decided to return to level three from level four in order to improve its processes and then try again. “It is now dismantling certain parts of its GBS model. It created it with much enthusiasm, but did not stretch it from end-to-end to ensure its success. It has to be fully built out across the enterprise if it is to work well,” says Altini.
Many struggle to push the transformation to the frontiers of the company.
“You cannot assume all companies are fully capable of end-to-end process management from the first day. A big part of it is to go through a natural progression of this governance. Most companies must move from GBS as a landlord, doing some integration and putting things together, to function directed GBS delivery, to GBS as an independent service entity standing as a peer of the functions and business units,” says Cecil.
“If you push too hard, then GBS will fail. You have to bring companies onboard gradually so they can make progress through this journey.” In the case of one large life sciences company, it took years to reach the point of formally creating and launching a GBS organization because there were entrenched power bases and widely differing views on how to proceed. “It took a lot of selling internally. It established a GBS organization several years ago in one major division and only in January 2015 formally launched it across the entire company,” says Altini.
As always, corporate leaders must set the tone. “Ultimately, it does require the Chief Executive Officer to stand up and support it. But it is typically the Chief Financial Officer who leads the initiative. Functions, such as finance, HR, procurement and IT, have each gone down the shared services and outsourcing route. So there is knowledge about what it can do for the organization. But it’s more about who sees an integrated business services operation that is beyond shared services.”