Many of the world’s leading companies are radically reorganizing their operating structures in response to the global financial crisis and subsequent economic downturn, a new study from Ernst & Young reveals.
The report, Delivering tomorrow’s companies today, highlights the rise of the global business services organization, a new ‘company within the company’ that combines as many non customer-facing activities as possible within a single unit to serve the rest of the business.
A step twoards change
The move to global business services organizations represents a step-change from the shared services centers and outsourcing arrangements that have now been in place at some leading multi-nationals for two decades or more.
The shared services concept was lead by IT and finance but has since been embraced by functions ranging from HR to procurement. Sometimes work has been outsourced to a specialist third-party provider, while in other cases companies have chosen to operate through captive centers. Either way, the objective was to move routine, transactional work to specialists in the hope they would process it more efficiently and cheaply.
Many companies have enjoyed great success with such arrangements, but in more recent years have begun to see diminishing returns from this narrow, functional approach to shared services. The economic gloom in markets around the world since the financial crisis has brought matters to a head, forcing these multi-nationals to seek out new ways of operating.
In a global business services organization, employees no longer work in narrow functional roles, but serve the company across a range of disciplines. The concept recognizes the fact that many processes are repeated time and again in different business functions, or require input from different parts of the company.
By moving employees into a single organization, staff are able to share expertise, leverage knowledge and provide a seamless service to their colleagues in the retained business. They offer end-to-end processing across the functions, making for a speedier and higher-quality service.
Global business services organizations are also able to move beyond the transactional work that has traditionally been the preserve of shared services centers and outsourcing arrangements, taking on tasks such as research and development, financial reporting and data analytics. As a result, they are capable of adding value as well as reducing cost.
The growth of these organizations reflects some of the key drivers for high performance in a challenging economic environment identified by Ernst & Young’s recent study, Growing Beyond. It warned that while the pressures on the bottom line are ongoing for most organizations, only those companies that remain outward looking and customer focused will be successful. The move towards global business services, in which all non-customer-focused activities are performed by a single team of experts, enables the retained business to concentrate on its clients.
Similarly, successful companies must be operationally agile in a business environment of unprecedented volatility. Global business services organizations are delivering great scalability, whether for organic growth or contraction, or for activity such as mergers, acquisitions and divestments.
At the same time, global business services organizations are delivering new levels of cost competitiveness, often through significant improvements in productivity. Employees working together across business functions have a clearer view of what drives both cost and value.
Evolving shared services
Global business services organizations are also adding value by boosting the confidence of stakeholders such as employees, who are being asked to take on more demanding roles with greater responsibility than in the traditional shared services model, and customers, who are being serviced more efficiently and quickly.
One of the key drivers for global business services organizations, Ernst & Young’s report reveals, is a desire to exploit new technology – particularly cloud computing, which is enabling multinationals to grasp a wider range of business transformation opportunities than ever before.
“Cloud computing is not just a new, flexible and dynamic approach with huge potential resources for IT systems, instead it basically facilitates organizational development initiatives and can be used for the financial area, the supply chain and also to almost every other business function. Moreover, it allows a more integrated and innovative view on processes and services, allowing companies to more effectively respond to the constantly changing and transforming market needs.”, says Carmen Adamescu, Advisory Leader for the IT Function at Ernst & Young. “In the past, a linear value chain of IT systems and processes was common. Nowadays, processes and services are increasingly complex. IT systems do not only provide services to users, but also to other systems with a high degree of specialization of each node. The opportunities are endless for all functional areas.”
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