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The State of Outsourcing and Operations 2017, Part 2

The Global Business Services Evolution: Centralization and automation up, outsourcing and offshoring down

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As organizations struggle to keep up with the disruptive shifts of digital transformation, service delivery models are evolving fast toward centralization and greater use of automation, according to the HfS/KPMG 2017 State of Outsourcing and Operations.

While there is growth across the board in all types of service delivery models, the study found that there is a drive toward full Global Business Services (GBS) and a spectrum-wide move away from decentralized models. For example, 11% of organizations are already operating under a GBS structure, while 20% are moving in that direction with a global shared services/outsourcing model. Only 16% of organizations are functioning under a fully decentralized structure.

“Companies are clearly re-examining the ways they go to market with their delivery models, because they must,” says KPMG’s Stan Lepeak, Head, Market Research at KPMG Global Management Consulting —disruptive technology is having such a significant impact on the front, middle and back offices. Organizations realize they need to start functioning with a “One Office” operating model, which hones in on the needs and experiences of the customer central to the entire business operation, while old barriers between corporate operations and functions are eroded and the constraints of legacy IT are limited. With “One Office” operating models such as GBS, organizations can begin to integrate not just the processes but also technology and data sets. 

This transformation is seen by nearly all — a whopping 98% — of CEOs, who are beginning to use automation as a complete set of non-sequential levers that all integrate with one another. “That’s the new norm,” says Lepeak. “As things change so quickly, companies can’t afford the time to have fragmented operating models — it’s encouraging to hear that GBS-established organizations are taking a look at expanding their portfolio of services toward digital solutions that are very focused on the customer.”

Employment transformation is a big part of making the shift to GBS or other centralized operating models happen, as the nature of work — not necessarily the number of jobs — changes. “There are training requirements just to replace the shortages that are happening today, let alone new jobs that are being created,” Lepeak adds. “Our GBS-mature clients are focusing on making sure the entire back office is transformed in terms of interacting with external partners such as third-party service providers, and internally with groups across the major function of finance, IT, sourcing and procurement, and human resources..”

Robotics process automation (RPA) will shift the look of GBS operations

GBS is on the cusp of a major leap toward integrated service delivery models, with lower-value services outsourced and an increasing focus on analytical, judgment and expert services. “In over 300 GBS maturity assessments we’ve done for clients, it’s clear that getting really good at GBS is hard — especially if you have complicated, global, diverse underlying IT systems,” says Lepeak. “We see many organizations make some early progress towards greater GBS maturity but then often hit a wall. 

Robotics process automation (RPA), he explains, is a great opportunity for firms to move toward GBS maturity — so they don’t have to have as many locations, for example. “This is going to be key and ultimately change what GBS operations look like,” he says.

This automation disruption and evolution toward integrated GBS has also accelerated, adds Lepeak, so that the journey to a centralized operating model is quicker than it has ever been — which requires a 360-degree view of the entire operating model environment. “Organizations cannot afford to view this in isolation and simply look to apply technological disruptors to the current environment,” he says. “They do need to look holistically at the entire picture because the pace will continue to change, and once they have implemented something, they will have to change again.”

The changing use of outsourcing and offshoring 

Two years ago, the State of Outsourcing and Operations study found that clients were increasing investments in offshore use for outsourcing — Finance & Accounting was poised to rise 22%, for example, while HR was predicted to rise by 13% and IT/network infrastructure support by 23%. Today, however, there is a much flatter outlook in all of those areas. Finance & Accounting, in fact is predicted to decrease by 4% and HR by 3%. There were similar results in offshore use for shared services.

The reason for the decline? According to KPMG’s Dave Brown, Global Lead, Shared Service & Outsourcing Advisory, it is because the hype of RPA and cognitive is dying down — as the reality of it increases. “People who invested over the past two years in a proof of concept are now deploying RPA solutions, mostly on the business process side such as finance, accounting, HR and procurement,” he says.  “Proof of concepts have now started to roll out into production environments and essentially take work out of offshore locations, whether third party or in their captive centers.”

As a result, companies are starting to look at their offshore strategies and decide whether they need to go forward with those efforts. “The confidence level in RPA has increased; it’s not just about hype anymore,” says Brown.

In addition, companies are no longer considering simply a one-off RPA solution. Cognitive solutions are becoming more mature, with more integrations of RPA with machine learning and AI. “There is starting to be more of a full suite of service offerings around that play,” he says. “We’ve joked over the years about hype vs. reality — I think the reality is really starting to dawn on senior executives that another lever is driving those costs out of organizations.”

The bottom line? According to the State of Outsourcing and Operations 2017, there’s no doubt that the shared services and outsourcing industry is on the cusp of massive change as the entire outlook of operations — from the front-office to the back — evolves into a centralized, “One Office” model. But this is not about jobs going away. Instead, it is about a reevaluation of the nature of work. Organizations must begin to embrace the digital and intelligent automation tools available and write off legacy options. The future of the industry demands it.

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