2008’s Challenges, 2009’s Opportunities

What a year! 2008 started with the global economy steadily growing and concerns with inflationary pressures, followed by fast rising oil and commodity prices, but with no hint of what was to follow. Then came the dramatic collapse in the financial sector, continuing falls in house prices, the recent sharp decline in the price of oil and now talks of deflation and even a possible return to the Great Depression. Wow! So how has all this affected shared services and BPO? What major challenges have shared services and BPO practitioners faced in 2008 and what will 2009 look like?

A look back at 2008

1. Globalisation

   Globalisation has manifested itself in many ways, including significant advancements in communications and technology, the rapid growth of new markets such as China and India, and the movement of workload, people, data and currency across the globe. Offshoring of work to other countries (either internally through captives or externally through BPO providers) has allowed companies to tap a much lower labour cost pool. Indeed, earlier in the year, the question was whether some of the new lower cost locations were overheating, which saw an expansion into even newer locations such as Vietnam and parts of Africa.

   BPO continued to expand rapidly in 2008, although mainly through the signing of more selective outsourcing contracts (e.g., within specific functions such as finance and HR and then for specific activities within those functions), and less in multi-tower cross-functional outsourcing deals.

2. Talent management

   There were concerns in 2008 over the cost, availability and quality of resources (especially people) available to shared services and outsourcers. While this is still the case in terms of quality, the recession has definitely lessened the cost and availability concerns. Nevertheless, effective talent management is critical to successful shared services and outsourcing, and more organisations have grown to recognise this in 2008.

3. Shared services value proposition

   While many in shared services understand completely the value of implementing and operating effective shared services operations, many outside of the shared services community don’t fully "get" shared services or its value proposition. I quote here from my recent interview with Michael Cox, chief economist at the Federal Reserve Bank of Dallas:

   "Shared services is not well understood at all. The aims and methods that shared services use to deliver effective and efficient support services to businesses may be well understood but the term "shared services" is not. Say "shared services" and my mind conjures up no instantly clear image of anything."

4. The global economy
   "There is still a huge opportunity to leverage the skills, cost bases and expertise of locations around the globe."

   This is, of course, the big one from 2008. The dramatic change in the economic environment has impacted everyone. Recession is with us in the West, and growth forecasts for the booming economies of China and India have been recently cut by the IMF into much lower single digits. Just in the last few weeks we have seen significant layoffs across all industries, including in shared services and outsourcing operations. Another impact of the down economy is that the previously booming expat employment experienced in developing countries has been curtailed. Furthermore, budgets have been cut or suddenly frozen, causing at least a short-term shelving of many "investment" projects which might involve some optimisation around technology, shared services or business transformation.

A look forward to 2009

What challenges and opportunities do we face in 2009? Actually, many of the challenges become the opportunities!

1. Globalisation

   Globalisation will continue, but with a very different global economic backdrop. There is a danger that a level of protectionism will start to take hold as "preserving jobs at home" becomes a more popular political message, and not just in the US. The same calls are being heard the world over, even in the tiger economies!

   However, there is still a huge opportunity here to leverage the skills, cost bases and expertise of locations around the globe. Many companies may well look to their own internal lower cost locations and outsourcers to help them cut their run rate operating costs as quickly as possible. The danger here is that companies may go for the "quick fix" and rush this without taking a planned and robust approach, and without following the best practice principles of shared services, process optimisation, technology automation and change management.

   Quick fixes – whether they be in moving to lower cost locations, outsourcing, downsizing or similar actions – might drop short-term costs by 10% or 20%, but if things fall apart soon after or workload cannot be handled, this short-term gain very soon becomes serious medium-term pain and can actually make things much worse. Service levels could collapse, the control environment might be compromised and costs could rise rapidly again. So, make sure you carefully consider how to focus and invest your time, energy, resources and cash in what should be significant value-adding shared services and outsourcing initiatives. They should not only deliver speedy payback but must also bring sustainable solutions that fundamentally strengthen and improve the prospects of your organisation.

2. Talent management

   Talent management will be more critical than ever! While availability of people will increase with recession and increasing levels of unemployment, the skills and expertise required to deliver on shared services and outsourcing opportunities will be fundamental to success. Also, don’t forget the time-honoured concern in a downsizing environment that it is often your best people who leave first in times of uncertainty, unless they, and any change programmes, are effectively managed.

   Indeed, there is a real opportunity for you to "clean house" a little and refocus your team mix and content. Take the opportunity to allow your talent to shine and show what shared services can do for the wider organisation. Make sure you continue to protect and leverage your talent, and don’t cut training and development to zero. Training for world-class organisations is not a discretionary expense!

3. Shared services value proposition

   Now is the time for shared services practitioners to really stand up and be counted! This will involve more effective "selling" of the shared services value proposition to those outside shared services. This is not some sort of theoretical industry within an industry. Shared services and outsourcing are a delivery mechanism to achieve a set of goals, not a goal in and of themselves. This is all about reducing costs, improving service levels and tightening the control environment across your business support services – all of which are even more critical than ever in recessionary cash-strapped times. Explain this clearly to your management and business units. Highlight how you can add significant value to your company and its bottom line.

4. The global economy
   "It is often your best people who leave first in times of uncertainty, unless they, and any change programmes, are effectively managed."

   Linking strongly to all points made here, the current global economic malaise and predictions of a protracted and deep recession well into 2010 is actually a huge opportunity for us to really prove our value. It is true that in a time of budget cutting and immediate cash preservation there is a danger that any type of "investment" project will be canned, and this might well include shared services and business transformation projects. This is both the challenge and the opportunity. Don’t compromise on the need to do this right, but be passionate and accountable about what can be achieved. Quick payback will be critical, but in times of "burning platforms" often much more can be achieved in quicker time. Effective shared services has proved itself as a value enhancer for many years, assuming appropriate focus and approach, and yet the understanding of it and its scope has been limited well below its true potential. There is no better time than now to change this to help your organisation survive, and indeed thrive, through and beyond this current recession.

   Good luck to you all and very best wishes for the upcoming holiday season. Take a break with your families, and then come back renewed and reinvigorated to meet the challenges and grasp the opportunities available to us all in 2009.