An evolution in service delivery strategy helps top-performing companies stay ahead of the competition.
By Peggy Cope
What are world-class companies doing that other organizations are not? Why are so many companies struggling to close the gap between their levels of performance and those of their world-class competitors, and what do top performers do uniquely and across the board? The Hackett Group conducted a series of research studies to see what prevents people from getting to world-class standing and to examine the factors that differentiate performance.
The research findings showed that the top performers consciously align the G&A (General and Administrative, including HR, Finance, Procurement, and IT) service delivery strategy to the enterprise strategy, while making prudent execution capability investments. On the other hand, what Hackett refers to as “distracted” companies have too many overarching business issues to be able to focus on G&A improvement.
Hackett identifies four categories of companies for its comparison: Top Performers, Overwhelmed, Distracted, and Incrementalists. Companies that are characterized as “overwhelmed” have too many G&A initiatives going on and lack prioritization, which means they are probably falling down on the execution side. The strategic advisory firm defines another group as “incrementalists,” which probably make up the bulk of companies that turn to the organization for benchmarking. These companies have made some minor to moderate progress in discreet areas of scope and have been able to execute inside functions, but they have developed no holistic delivery strategy.
In contrast, the firms that Hackett identifies as “top performers” have achieved integrated, prioritized step change improvements that are in line within their business strategy.
Create and Use A Plan for Service Delivery
One major element that sets top performing companies apart is the existence of a G&A service delivery strategy, according to Christopher Brennan, the president of Hackett Benchmarking and Business Transformation Services. The precise strategy might differ from company to company, but it’s there. He defines this as a company’s plan and delivery model for determining the where, what, why, and how that apply to the execution of all G&A processes in support of the enterprise’s goals and objectives.
These companies do not limit themselves to shared services, outsourcing, or any other single model alone. Rather, their approaches are holistic, incorporating six or seven key components. The strategy also links directly to the organization’s enterprise strategy, as well as enabling business strategy. The components include the following:
1. Service placement: Where to do the work. Should the company use shared services, centers of excellence, or a third-party provider? They might not execute all at once, but they will develop a strategy first.
2. Organizational model: What role does each area play?
3. Process sourcing model: Multi-shore or single shore?
4. Functional process design: Will your company’s approach be end-to end, and how do you define it? How do you get all the functions into your strategy?
5. Enabling technology: What must you invest in to enable the whole model? You should also ask where you have invested in the past that didn’t provide the desired return.
6. Skills and talent requirements: This is core to top performers today.
7. G&A governance model: Top performers understand that this is an enabler, as well as a business differentiator.
Top performing organizations tend to be aligned in terms of organization and governance. They also usually take a multi-shore approach in terms of process sourcing and placement, have a standardized, enabling technology architecture, and ensure alignment of talent and skills throughout the business. Finally, they tend to practice end-to-end execution in terms of functional process design.
In addition, top performers invest in major change in an integrated fashion while developing their people and process capabilities.
“Everyone focuses on technology, but not everyone puts a significant investment into people and process improvements,” says Brennan. “Top performers put twice as much into sourcing as the peer group.”
Top performers are also more likely to report extremely effective budget levels and investment decisions than incrementalists or their overwhelmed counterparts. The same is true of extremely effective functional steering committees (which consist of corporate and business unit functional executives).
The process placement varies by the type of G&A process. Hackett anticipates that the percentage of transactional work performed in shared service centers will reach close to full adoption (83 percent) over the next three years for top performers. In addition, companies are increasingly moving their planning and strategy work and specialist processes to centers of excellence.
Global Business Services: More than Just a Name
In the course of their studies, Hackett researchers came to recognize that an evolution of shared services was under way. “Global Business Services (GBS) is the wave of future,” says Brennan. “The difference in the name is interesting, but how they operate is what drives the evolution.”
Traditional shared services offer economies of scale, and are transactional in nature. GBS, in contrast, is focused on strategy. In addition, while shared services are often handled through local or regional execution, GBS is a champion for offshoring, optimized for efficiency and effectiveness. GBS also sets enterprise-wide standards.
While shared services have been silo-driven and process-bound, GBS is multifunctional, with an end-to-end viewpoint and service orientation. Similarly, shared services are driven by overhead and service level agreements and offer limited career progression for their workers. GBS, on the other hand, provides a commercial profile of service delivery and takes the development of future business leaders into consideration.
“Talent and skills are no longer just buzzwords. They are now recognized as critical across all functions,” says Brennan. “Companies are overwhelmingly moving away from business unit level standards and toward enterprise-wide standards.”
Given all this information, how can the average company close the loop to achieve world-class performance? First, says Brennan, the organization must optimize its G&A cost structure, lowering cost at the right service level. Second, it needs agility and scalability, pursuing slow, easy, acquisition integration and divestiture carve-out. Next, sustainable top- and bottom-line growth are key, with integrated end-to-end improvement. In addition, risk management has to be improved to provide a strong control environment.
“The transformation of the G&A service delivery model is critical to realize every single one of these enterprise performance drivers,” Brennan notes.
Former Hackett President Wayne Mincey notes that one mistake the advisory firm sees often is that companies fail to take the enterprise view. “When you build a home, you have to have a design. You might not want a basement now, but you need to incorporate it in the design from the beginning if you might want it down the road, otherwise you might close off some doors,” he says. “Begin with the end in mind, because that’s essential to get everything done right.”
Brennan adds that companies should move from shared services, with their overhead mentality, to GBS and more of a service orientation. The mindset shift entailed includes customer service aspects and a multifunction approach. “You don’t have to operate a series of single-function shared services centers. Top performers are pulling multiple functions under a single GBS. The world is going to go hard in this direction.”