Shared Services Centers and Global In-House Centers (GIC) have risen in importance and relevance over the last decade and have become widespread among large global corporations. Establishing an SSC-GIC is usually an effort to consolidate multiple processes, centralize activities within a group to reduce redundancies. The Shared Services approach was first introduced as part of a strategy to reduce operating costs and bring in service improvements.                                                                                                                                                                                                                                                                                                                                     Today majority of Fortune 500 companies are running SSCs as a measure to consolidate back-office work for different markets and improve the efficiency of operations. It delivers services to internal customers and is a separate operating unit within the parent entity. And, SSCs get evaluated frequently against outsourcing parameters.                                                                                                                                                                                                       Offering centralized control over processes and utilizing the benefits of economies of scale are prime objectives while setting up an SSC. It also helps organizations to minimize the dependence on Outsourcing vendors for key business functions and providing higher quality services at the same time. The technical expertise and key domain knowledge about the business remain in-house with no risks.

The SSC often serves multiple customers in different geographies and individual business units are required to use its services, sometimes with an option to choose between the service providers & the company’s own SSC.                                                                                                                                                                                                           Going for the SSC route is a major decision for stakeholders as it needs to have a long term vision and strategic approach over continuing with existing Outsourcing methods. It certainly involves more overhead than typically managing outsourcing service providers, whereas the payback period on the investments made is between 3-4 years and depends on various factors like location, operating models & sourcing strategies.

Shared Services Landscape in India

The decision to spread shared services operations to offshore locations is mostly driven by factors such as low labor costs, availability of skilled talent, language proficiency, and availability of seamless connectivity infrastructure. Throughout the last decade, few hotspots like India, Eastern Europe & APAC have emerged as unique destinations for SSCs, given access to a growing ecosystem of matured SSCs.                                                                                                                                                                                                         Particularly in India, the abundant availability of skilled talent and cost advantages has resulted in the setup of hundreds of global business captives. These kinds of R&D & Support centers were first built in the 1990s with a trend started by Texas Instruments & GE; earlier referred to as captives, then as GICs (Global In-House Centers) and now as GCCs (Global Capability Centers). These centers were not much prominent at that time and most of the IT buzz/exposure was directed towards major IT Services giants such as TCS, Accenture, IBM & Infosys, etc. There were few operational challenges for SSCs then despite the initial success and we had seen few captives being shut and local units were sold to IT vendors. The notable ones were Citibank’s technology unit & UBS which were acquired by Wipro and CTS.

With the slowing down of the IT outsourcing market, SSCs have again gained importance and enterprises are trying to establish CoEs, R&D Centers & captives for BPM & IT services. The initial success of SSCs has positively helped companies to expand the scope of shared services initiatives, bringing in knowledge-based processes apart from transactional processes and adding more service lines into SSCs. Along with the technology sector, BFSI companies started setting up captives in India. With the creation of this ecosystem – manufacturing, engineering, industrial services, healthcare, and telecom industries followed the trend and opened multiple SSCs in India.                                                                                                                                                                                                                                                                                                                                                            India is today the world’s most prominent location for setting up SSCs and the majority of Fortune 500 companies have set up their own captives in India.

From Cost to Value

The numbers of technology centers are growing each year and India already has more than 60% of the global SSC workforce.                                                                                                                                                                                                             In terms of achieving growth & scale, cost arbitrage continues to be an important driver for SSCs. Indian SSCs are now looking to move past the cost arbitrage stage with a focus on value addition by building sustainable business functions. With the emergence of paradigm changes in the IT industry & related ecosystem, SSCs in India need to maintain the cost competitive advantage that they have enjoyed for a while. Although the focus is now shifting towards value addition and developing innovation capabilities so as to contribute to the business outcomes of the parent organization.

Maturity Model for GIC's

The evolution of SSCs over the years has seen many phases. The advisory and research teams of the Big 4 consulting firms have defined maturity levels for SSCs based on the age, scale, and value delivered by the SSC. The progress and growth are tracked per capability maturity levels.                                                                                                                                                                                                                                                                                  In the first phase, the direct transition of business processes to new in-house support centers is realized; minimizing the outsourcing burden.                                                                                                                                                                                                                                                                                                                                                      In the second phase, consolidation of key processes and deliverable are achieved and the focus remains on economies of scale.                                                                                                                                                                                                                                                                                                                                                                                      While the third phase includes implementation of defined Global Process Ownership and standardization around people, process & technology pillars.                                                                                                                                                                                                                                                                                                                                     The fourth maturity phase involves an end-to-end solutions delivery operating as a GBS model and implementing an outcome-based governance model with a strategic objective of adding positive bottom lines to the parent company’s business.                                                                  

Transformation to GBS Models

There is a recent observation for global organizations with SSC; that almost 1/3rd of the global FTEs are part of their Shared Services units and it is remarkable considering the median age of the SSCs somewhere between 7-8 years.                                                                                                                                                                                                                                                                                                                                                                                       As shared services centers operate mostly as cost centers, there remains a strong focus on FTE count, operational costs, and location benefits. With a range of services portfolio and new-age capabilities, SSCs have become key business enablers for parent companies. As we know, the SSC industry started on the basis of cost arbitrage and as a provider of back-office functions but it is imperative now to revisit the original objectives of setting up the SSC and its relevance in the changing business environment. With ever-increasing pressure to reduce costs, SSCs are trying to find ways to create sustainable business models. Few of the companies have tried to turn their SSC into a Profit center delivering services to external customers. The approach hasn’t yet delivered much success and a majority of the SSCs still operate as a Cost center entity.

What’s Next?

Global enterprises are now using their SSCs to explore new technologies such as SMAC, Artificial Intelligence (AI), IoT (Internet of Things), and Big Data. The rise of SSCs' role in supporting digital transformation initiatives of the enterprises has been significant in the past few years. Today, over more than 60% of the SSCs are focusing on building digital capabilities as one of the service differentiation factors. SSCs are now undergoing a transition wherein it’s no more a cost center but turning into a Center of Excellence (CoE) for digital capabilities, innovation, and disruptive technologies and provides a competitive edge to the parent global organization. As the scale at which SSCs operate has grown, a multi-function, multi-location GBS Operating unit with a strong focus on Innovation & Profitability is the way forward for matured SSCs.

‘Moving beyond cost arbitrage and delivering value adds’ has often been used as a preface in every kind of discussion about GICs/shared services industry, but surely there exists a certain ambiguity around the term, Value.                                                                                                                                                                                                                                                                                                                                                                                                          More often than not, it’s construed as an indication of cost optimization efforts and rarely does correspond to actual positive impact in productivity or superior customer service.                                                                                                                                                                                                                                                                                     The performance dashboards presented at board meetings depict presumed value-adds which the GIC organizations interpret as a sign of satisfactory and agreeable service. However, it may not be necessarily relevant to what the executive board cares about.                                                                                                                                                                                                                                                                                                                        Nevertheless, there seems a marked difference between the perception of Home-Office teams (HQ/customers) and of GIC teams on various aspects of Value.

Key Performance Metrics (KPIs):

For years, GICs have been using traditional metrics like SLAs, OLAs & other organization-specific KPIs to showcase its performance.                                                                                                                                                                                                        Mid-level management teams are required to spend a significant amount of time and effort in defining the metrics, tracking the performance against set expectations, and projecting it to appropriate stakeholder groups.                                                                                                                                                                                                         Even though it symbolizes a well-intended approach and honest efforts, the meticulously articulated metrics may not be at all applicable to the business priorities. Inadvertently, the 80-20 rule seems to apply here as well, wherein the delivery teams think they have met 80% of the success criteria while the customers or stakeholders may only see 20% of the benefits case realized in their larger scheme of things. Perhaps, this could be one of the reasons for Offshore GICs to receive low NPS ratings.                                                                                                                                                                                                        Most of the metrics should ideally be linked to executive goals or overall enterprise priorities. However, not every level of staff has an equal understanding of how it translates into creating value, resulting in a lack of motivation to refine an existing set of metrics.

The roots for this approach sometimes lie in the past experiences of the managers, maybe someplace in the outsourcing industry where the billing for services is directly proportional to the time spent by an FTE on a particular activity.                                                                                                                                                                                                                                                                                                                                                                                   That’s where the need arises to spread GIC education amongst all staff, particularly about its operating models. When a team member is asked to pull out a specific report, he/she needs to recognize how those reporting figures and data could impact multiple organization layers and how it helps other related teams to achieve wider organizational goals.

Opportunity for Service Differentiation

GICs frequently get feedback to align its operations in a way to generate more scope and maximize customer trust. Here, GICs have an opportunity to distinguish themselves against third-party service providers firms by being clear as crystal and transparent about disclosing its FTE time/effort’s calculation.

What needs to be changed?

The conventional metrics that are being used at GICs today, don’t always show any corresponding business outcome. Moreover, with an increased level of expectations from parent firms – Going forward, inadequate depiction via old-school reports and balanced scorecards won’t be enough to preserve GICs unique value for the parent enterprise. Instead, identifying and projecting direct business impact would enable GICs to find a place of mention in the enterprise’s balance sheet; as a step to move forward.

Showcase real impact with innovative approach towards metrics

Portraying performance in a meaningful way could offer a remarkable prospect for GICs to demonstrate its worth and continue safeguarding its value proposition for the parent enterprise.