Overcome the barriers – the Q2 2014 FDE round-table


26 November 2014


Today, companies are more global than ever. However, those that are headquartered in the DACH region and want to move their back office near or offshore (be it captive, outsourced or hybrid), may have to undergo a few challenges before target outcomes can be achieved. Steve Dunkerley investigated the potential hurdles at the Q2 2014 FDE round-table event in Frankfurt.


How easy is it for today's DACH-headquartered companies to centralise, globalise or outsource back office processes? What are the barriers? How do you navigate data protection regulation and get middle management buy-in for change? Where is the business process outsourcing and shared services market heading, and what developments are taking place?

These questions and more were addressed at a recent discussion in Frankfurt, moderated by Professor Dr Sören Dressler, a management consultant from Horváth & Partners. Finance and shared services leaders, together with partner Genpact (a provider of business-process management, consulting and technology services) debated at length the barriers and solutions to moving to a more global operating model.

The high cost of labour, an aging workforce, the scarcity of talent and economic pressure has caused companies in the DACH region (Germany, Austria and Switzerland) to re-evaluate business models and consider captive shared services or engaging with BPO providers. The fourth-largest Austrian Bank, BAWAG PSK has already made the leap to BPO.

"To start this project wasn't easy," explained Wolfgang Hanzl, head of operations and payments at BAWAG PSK, "Yes, it was a challenge, but we just did it. Colleagues from others banks may procrastinate: 'What will the customer say? What will the works council say? What will the union say?'. Of course there was noise, but it was more internal than external. We have a two-year relationship with our outsourcer. We thought about doing it ourselves as a captive in Poland, but it is not our area of expertise."

According to Harald Stuhlmann, SVP finance and controlling in the powertrain division of automotive supplier Continental, centralised shared services, mostly in the form of regional hubs, form a small part of Continental's operating model.

"To me it is not a question of zero or 100% shared services, it is a question of how much," he said. "Changing external accounting from German-based commercial code to US GAAP, and to have management accounting and external consolidations all running off the same basic accounting system and conventions requires strong coordination; therefore, this type of activity is ripe for shared services. For most other activities, I still prefer a highly standardised but decentralised approach."

While SAP runs a captive global business services organisation, ThyssenKrupp is in the midst of an RFP to outsource processes Commerzbank and Zurich Financial Services had more mature hybrid models. Carola Niemann, head of finance operations, Germany, for Zurich Financial Services, explained how parts of the business are being outsourced while other functions are retained in-house.

"With procurement, we are working closely with Genpact and we are transferring the AP from the procurement part to finance operations," she explained. "We are always talking about what parts can go global and what parts should remain with local teams. For example, with data protection being a challenge for us, we set up a captive branch in Poland and the people there are employed by Zurich and are processing our life insurance customer data."

Data protection

The comment on data protection by Zurich's Niemann led to a discussion about the extent to which data protection is a barrier to global business services. With the European Commission planning to unify data protection within the EU, coupled with the fact that major data breach stories such as the Edward Snowden disclosure are still relatively fresh, it meant that privacy and security of personal data were key talking points.

Martin Vajdl, managing director shared services and head of procurement excellence for SAP, also highlighted the data protection challenge in the procuring of consulting services.

"This is the area where we touch the personal data of our third-party consultants," he said. "We are facing additional complexities given by data protection law and seeking new ways to reduce process steps and bring efficiency into this process."

For Nikolaus von Wuthenau, executive group excellence and support for Germany's second-largest bank, Commerzbank, one challenge was trying to streamline processes in a way to process individual private client data outside of the EU.

"We are mainly dealing with the individual data of our clients, he remarked. "It's not procurement or corporate data, so we are therefore extremely restricted in terms of data protection."

Ahmed Mazhari, Genpact's SVP global sales and client relationships, spoke about the techniques that are available to keep data secure.

"We mask or encrypt it at source," he explained. "This renders it useless to anyone outside of the context in which the data is used, and thereby helps mitigate risk and support compliance. I think the point to make is that there are ways to solve data protection challenges."

The issue of data protection within shared services at ThyssenKrupp, according to Lars Hölzer, SVP global shared services, had not been discussed specifically in the context of shared services but generally. Hölzer also argued that the type operating model (for instance, a captive or outsourced model) was also largely irrelevant.

"Of course, you have to protect your data and invest in proper concepts, tools and/or technologies that enable and assure data protection," he explained. "But it has nothing to do with the sourcing model."

Change management

Stuhlmann from Continental moved the discussion on from the legal and technical by bringing up the change and people management agenda.

"Let me make an observation, there are two issues we are talking about at the same time. First, we have the technical execution of consolidating operations and going offshore, which is where data protection issues sit. Second, there is the issue of change management and dealing with the associated workers' council and middle management resistance - how do we convince people that out of sight is not out of control?"

Dressler argued that "passive aggressiveness" was a factor in middle management resistance, whereby the manager may publicly agree with change initiatives tabled by leadership but secretly oppose it.

Genpact's Stephan Göppert, had seen this phenomenon first hand and commented about the need to get middle management buy-in through actively involving them early on in the change programme itself.

"I think that the middle manager needs to be part of the change management team right from the start. By sidelining or blocking them from involvement, the middle manager may not understand the reason for the change, resent not being included and therefore not effectively promote or sell the vision to colleagues. The key is to empower them. This helps drive stability throughout the organisation. An open communication strategy also provides people with reassurance."

Stuhlmann agreed and argued that a collaborative approach is also required when dealing with a workers' council.

"The workers' council's mission is to preserve employment, but we have to admit that, in the past, just like middle management, they have experienced enough management fads that reduce headcount to cut costs but not effort. When you present the workers' council with a very clear project rationale and maintain good communication, it will help them understand your position and this helps greatly," he said.

Von Wuthenau stressed the need for redundancy to be considered as a last resort and for other cost reduction initiatives to be considered; for example, moving to cheaper premises. He also spoke about the impact of a mature back-office demographic.

BPO evolution

While much of the session concerned itself with the barriers associated with BPO and shared services, Barend van Doorn, who was recently appointed to drive sales across Continental Europe for Genpact, provided a snapshot of BPO's evolution. He went from a focus on offshoring for labour arbitrage purposes, through to a focus on continuous improvement and analytics. He believes that the current phase of evolution is based on cooperation between competitors in a specific industry.

"Recently, Genpact signed a joint venture with Markit to provide KYC [know your customer] services in the banking and financial services sector, and has bought together Citi, Morgan Stanley, Deutsche Bank and HSBC to enable them to standardise and centralise the collection and management of data in order to streamline client onboarding. The service will collect, enrich and centrally administer legal entity data and documents that banks require from their clients in order to conduct business and comply with KYC and anti-money-laundering regulations, including Dodd-Frank, Emir, Fatca and Mifid. This type of cooperation among a number of banks reduces the burden of duplicate data requests, and provides increased transparency and efficiency in the onboarding process."

Key takeaways

Dressler summed up proceedings with the following points:

  • Masking and encrypting data can be a useful strategy in helping to meet ever stricter data protection regulations.
  • You need to develop a passion about the change programme, and be aware that shared services and outsourcing is something very emotional.
  • Communication is key. In order to get buy-in for change programmes from middle managers and workers' council representatives, it is a good idea to include them in discussions from day one and invite them to proposed delivery centres.
  • Cooperation is the new focus for BPO and bringing industry competitors together to pool data can provide a win-win situation for all.

BAWAG’s Wolfgang Hanzl.