Global Demand Rising for Shared Services, Internal Process Improvement

But outsourcing demand remains flat

(KPMG: New York) -- Demand is increasing for shared services models and internal process improvement as organizations look to enhance business performance, according to the KPMG 2Q11 Sourcing Advisory Pulse Surveys. These Pulse surveys provide insights into trends and projections in end-user organizations’ usage of shared services, outsourcing, and third-party business and IT services.

Among the KPMG field advisors, global businesses, and IT service providers surveyed, 59 percent indicated they anticipate greater demand from clients for shared services delivery models, and 51 percent saw more demand for internal process improvement. Meanwhile, outsourcing demand remained flat, including both business process outsourcing and IT outsourcing.

Advisors who primarily support global deals or deals in the Americas were more likely to cite demand growth for shared services (63%), while those who support clients in the EMEA region were most likely to cite increased demand for internal process improvement efforts (61%).

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Estimates, Projections & surveys but no evidence

KPMG have become renowned (notorious) for a peculiar modern management phenomena, the survey.

The survey in fact, is often used to stand in place of evidence.

The Logic goes, if lots of businesses are doing, it must be a good thing.

We know that during the financial crisis, banks and financial institutions were busy handing-out bonuses to bankers beating their targets.

The KPMG logic would be that a survey that showed lots of bankers handing out bonuses and doing targets must be good because businesses are doing them.

Wrong!

All of the evidence for shared services arises from within the shared services industry (IT software & hardware companies, Private BPOs, Consultants etc).

The evidence? Why it is estimates of savings, projections (to make the savings sound big) and surveys (such as the KPMG one).

John Seddon, an expert in service organizations says that there are two arguments for sharing services. The 'less of a common resource' argument and the âefficiency through industrialisation' argument.

The former argument is 'obvious': if you have fewer managers, IT systems, buildings etc; if you use less of some resource, it will reduce costs. But the reductions are often minor and one-off.

The second argument is 'efficiency through industrialisation'. This argument assumes that efficiencies follow from specialisation and standardisation resulting in the creation of 'front' and 'back' offices. The typical method is to simplify, standardise and then centralise, using an IT â'solution' as the means.

The problem with the industrial design is simple - it doesn't absorb variety in demand. Because of this, costs soar as the IT system has to be modified and customers ring back again and again because they can't get what they want.

The evidence of this flawed theory can be found everywhere. In HMRC or South West One shared services which predicted savings of £176 million over 7 years and actually recorded a pre-tax loss over its three financial years. Duplicate payments sitting at £772,000 and a struggle to manage £12.9m in outstanding debts.

In the DfT Shared services which bust its estimated budget by almost doubling the cost (from £500 million to £750 million).

In Australia, the failures in shared services have been spectacular. First Queensland's which cost in the region of $150 million and was projected to save $100 million a year actually only saved $13 million after 5 years. This didn't take into account the set-up costs.

Finally West Australia last month ended their shared services after a total cost of $444 million is being decommissioned. It is expected the decommissioning will cost anything up to $2 BILLION dollars.

Survey anyone?