Many of the major players in the consulting industry (Accenture, KPMG, PwC, E&Y, and Deloitte) have introduced the Global Business Services (GBS) framework as part of their consulting pipeline, but what does the term mean and what do these projects involve?
Today’s article is about what Global Business Services are, the advantages they provide, the stages of GBS implementation and challenges involved in implementation.
What are Global Business Services (GBS)?
The purpose of the Global Business Service Framework is to create an organizational structure that allows customer facing parts of the company to be free to concentrate on quality and value.
This would involve creating a single, unified global business services unit that can manage (and try to automate) all end to end processes that are not differentiators for the company (things like processing sales transactions, generating financial reports, the procurement process, etc. which would involve integrating finance / accounting, HR, IT, legal, and other functional areas of the company.)
What are the Benefits?
1. Cost Savings – GBS involved aggregation of disparate functions of a business, eliminating duplication of effort / function / facilities and often takes advantage of cheaper labor costs overseas.
2. Economies of Scale – The evolution of GBS is really interesting. First, companies outsourced certain departments to outside vendors. Next, they integrated specific functions of different divisions into shared services centers (i.e. a SSC for legal or accounting). However, many of these SSC are in different locations and so you don’t get all of the EoS benefits from them being apart. If you can consolidate the SSCs even further or have them all outsourced to a common vendor you can decrease costs and increase coordination even more.
3. Process Efficiencies / Standardization – Prior to the development of the GBS framework, a company might have separate SSCs for each function (such as finance, HR, etc.). However, there are efficiencies to be had by putting different functions under the same roof, allowing them to collaborate and improve processes together.
4. Career Opportunities for Employees – One of the great benefits of GBS is that it allows for large centers in which employees can learn about many different functions of their business. People can more easily rotate through different functions and work on cross functional projects. Also, many of the repetitive / time consuming parts of their job are now automated, so they can focus on the higher level functions of their jobs.
5. R&D / Innovation – Companies can build innovation capabilities into their SSCs through agreements with their GBS unit or create specific innovation teams within the GBS unit.
6. Operational Flexibility – Nowadays companies expand and contract extremely rapidly through acquisitions, divestments, and organic growth. If you manage your organization through the GBS framework it’s much easier to scale up and scale down different parts of the company based on market conditions.
7. Automation – One of the greatest benefits of GBS is that it incentivizes companies to automate as many different processes as possible. Here are some examples of how automation could works in practice:
Procure-to-Pay: All stages of the supply chain from ordering to payment can be automated.
Order-To-Cash: Receiving / processing customer sales can be automated.
Record-To-Report: Basically automating much of the accounting and financial reporting process.
Stages of GBS Implementation
Stage 1 – Stand Alone Functional SSCs:
In Stage 1, the company has separate SSCs for different functions, resulting in cost savings but no productivity benefits from integrating cross-functional projects.
Stage 2 – Multifunctional Regional SSCs:
In Stage 2, companies have integrated SSCs in different parts of the world. They are probably realizing some benefits of cross functional collaboration by leveraging common technology and infrastructure. However, this arrangement is not fully capturing the value of integrated SSCs because individual functions are likely still operating independently for the most part.
Stage 3 – Global Business Services
In Stage 3, the company has organized different functions into common SSCs and operates under a single leader. There is probably a central GBS center and several regional centers for different divisions of the company.
Stage 4 – End to End Global Business Services
In Stage 4, the company has a GBS unit like stage 3 but it is organized by service as opposed to function. As a result, the company is able to take full advantage of automation and cross functional initiatives.
1. Change Management – The problem that GBS often faces is that it usually involves taking away independence / authority from company executives all around the world. Combined with the fact that GBS may result in company restructuring and that not everybody may believe there’s a business case, what ends up happening is that there may be a fair bit of internal resistance.
For a GBS initiative to succeed, there must be support from the top down and the entire firm must be on board. Additionally, if restructuring takes place it must be done in a legal, professional, and honorable way.
2. Managing Expectations – When making a GBS transition expectations need to be kept at proper levels. Gains in productivity may not occur immediately, and integrating new processes and new systems may be a slow, difficult process.
3. Corporate Governance – Accountability and systems to measure efficacy of the GBS must be set up and rigorously maintained to make sure the initiative meets its initial goals. If governance is not properly planned and implemented, the total potential value of the business case (planned savings) may not be reached:
As we can see, without proper accountability and metrics full productivity benefits may not be achieved because of a lack of standardization, automation, low adoption rates, and lack of innovation.
The Global Business Services framework is all about redesigning an organization to allow it to focus more on satisfying customer’s needs. This usually involves making decisions about what portions of the company to outsource, what parts of the company should be organized into shared service centers, and what can be automated.
Ultimately, the purpose of GBS is to create cost savings, allow for process improvements, automation, increased operational flexibility, career opportunities for employees, and improved R&D / innovation. Most organizations are already at stage 1 on the process to implementing a GBS unit if they are outsourcing or using SSCs to streamline costs. However, to get to stage 4 a global business unit must be created and organized by end to end business processes such as processing sales transactions or generating financial reports.
Challenges involved with setting up GBS units include proper change management, managing expectations, and, critically, employer proper corporate governance for the transition and operation of the GBS.
Future articles will discuss more about outsourcing, shared services, and the relative merits of each when compared with the GBS framework.
Bibliography / Further Reading