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May 14, 2009


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Great dialog from Michael, Tim, JT and Andy. I have a few other thoughts around the logical progression of a shared service, and it principly falls along the risk tolerance line. If a company is just starting along the shared service journey, you can skip the captive step and jump to a commercial relationship, but it is almost a "burn the boats, there's no going back" sort of decision. I am being a little dramatic, but not that much. When you do a big ITO or HRO or FAO deal, unwinding it can be very expensive, and disruptive. The flipside is that if you take a measured pace, by starting with an on shore centralized service, and focus on getting the behaviors right on the client and provider side, and it doesn't work out or there are strategic/economic changes that cause a change of heart, the "un-sharing" of the service is way less damaging.
It is all about the behavior in a shared service. If the first test of good partner behavior is going to be with an external provider that carries a big termination impact, then everyone needs to hold hands and agree to the 3 year journey to get the deal completely installed. I really do think it is three years too - about a year for transition, another year for transformation, and then a third year to get economic efficiencies and hit the first real "run and maintain" runrate of services and costs.
That's a long time in the world of today, and corporate memory is often shorter than that.
One final point I would offer is that the biggest gains in terms of cost come in the fist two steps of a shared service. Moving to a captive (either onshore or off) is usually a 30% savings, and then moving to a commercial provider should net you another 20-30% a couple of years later. If you move straight to commercial solution, you might leave some significant value on the table. It could still be the right thing to do, but it warrants some thought and analysis before jumping in.
One thing I have always said about shared services and BPO is that they are not in and of themselves, a strategy. They are strategic enablers for sure, but should always be used as a means of achieving corporate strategies around cost/scale, capability/quality, and flexibility. I have not seen high levels of satisfaction when SS/BPO is it's own strategy.

Great article and I agree with a lot of what is stated.
I do wonder though about the well sign posted route to outsourcing via a first captive step.
For me there seems to be a view that outsourcing is somehow more complex, more difficult and more sophisticated than a captive, hence go captive first.
I am not sure I agree.
For me if building and running a captive is so easy why are there still organisations struggling to implement and/or deliver and if outsourcing is so difficult why do we have such a large industry in place with a number of successful operations.
As Lee himself states the difference between BPO and a shared service captive are so minimal as to be largely irrelevant.
So why the need to go captive first?
In my experience it is all about the people you put in place and the culture of the organisation you are operating within - fix this and you can take whichever route works best for your organisation, fail to fix and either route will likely be a rocky road.

Phil, it was good to see you in Budapest and to reacquaint myself with your blog. In my opinion, Lee Coulter is spot on in this Part I interview. I agree with all of his points with the exception of a subtlety regarding progression through captive to outsourcing. I agree that it is generally better to make this progression, but factors such as (lack of) investment, pace, management focus and change impetus often intervene to make the best thing to do seem less attractive. I'm not an advocate of transformational outsourcing from a traditional model without careful consideration, but it is possible to do it and make it work well, and for many European organisations (at least) it is the only way that they can see themselves making progress.

Good post...touches on numerous BPO experiences I've had. Two thoughts come to mind:

1) Behavior, is a key player. The MSA is something often toiled over for months, sometimes it's never even truly completed. Eventually it gets stuck on a shelf and simply gathers dust. Once the process has matured (e.g. after 90 days), it's typically looked at very infrequently.

As a result, 'behavior' of the two parties is precisely the governing factor. The client neglects their responsibility in many cases to execute review processes stipulated in the MSA. At the same time, the provider's initial sharp focus on service, dulls. The drive to get new clients and their projects are always front-of-mind, steady-state projects get sidelined, and management focuses more on getting the 'next' client than on improving the ones they already have invested heavily in.

2) 2nd Generation
Another key issue not addressed very often, is the '2nd generation' engagement. This is a customer who has previously outsourced services, such as AP, and is changing providers. This obviously results from a change in the relationship, and a perception of value.

The problem with second generation BPO, is that the client will have outsourced the business process for so long (3-5 years or more), they no longer own the knowledge themselves. And, of course, the outgoing provider's highly motivated to share with you what you need to know;).

Good discussion,


Completely agree with the strategy of going down a shared service path to begin with. The current climate seems to be driving many firms to optimize and centralize processes internally, which in turn puts them in a better position to outsource processes in the future.

Thanks for the great discussion Lee,

Andy Williams

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