Companies impose budget and return rigor when managing a range of corporate assets. Yet when it comes to managing portfolios of business services, all discipline seems to be absent.
Companies manage a range of assets comprehensively as a portfolio — capital, cash flow, human resources, fixed assets…but forget about the management of what is becoming the single largest all- encompassing category of spend — services delivery of all stripes and sizes — insourced, outsourced, co-sourced, whatever. With organizations aggressively offshoring and outsourcing more and more functions without defined requirements and business criteria, and tracking and governing at the corporate or portfolio level, risk quietly increases, while the inability to leverage processes, tools and resources across the corporation creates substantial hidden costs. Hence, the crime of the century.
Corporate assets such as capital, are generally monitored very closely, governed by policies and procedures and allocated via stated investment criteria. Budgets are tracked by capital committees and managed by accountants and systems, which closely track performance and assess a stream of benefits. Decisions are underwritten and the consequences of noncompliance with policy are well-known.
Yet the same corporate discipline is absent as corporations change their delivery strategies through outsourcing and offshoring. Few look upon business- process optimization at a global portfolio level, by default encouraging business lines or infrastructures to approach outsourcing/offshoring as one-offs.
The majority do not have a clue when it comes to the management of rapidly growing service-delivery portfolios. Decisions related to providers, return on investment and cost, consultants and so forth are often made singly at the functional level without regard to aggregate exposure at the corporate level — regulatory risk, provider saturation, locational risk, inconsistent governance. Managing the cost to implement, the return on capital invested, the status of delivery — all these are nice-to-haves when getting to square one — just figuring which business unit has sent jobs offshore or outsourced — is a gargantuan task in and of itself. It is not uncommon for a multinational organization to find that it has over several hundred provider relationships, and a multiplicity of that number in contracts, renewals, amendments in direct outsourcing arrangements and subcontracts. Few of these are tracked and managed in a database as a very first step to establishing a services-portfolio function.
By a recent informal survey, only two percent of major corporations have a full-fledged portfolio-management function that manages offshoring and outsourcing as a distinct category of spend. Yet, this is up from just the year before when portfolio strategy and outsourcing were not mentioned in the same conversation.
What is the remit of a global services-portfolio function?
Simply put, as global services-delivery initiatives proliferate, a framework to leverage the scale and risk of the initiatives in aggregate is critical. A consistent process to implement and a framework to manage across the organization is vital to obtaining and sustaining benefits.
Global services-portfolio management starts before and extends beyond the sourcing of providers or the structuring of a captive services function. At every stage, the function should be ready with tested tools, templates, resources and expertise to leverage investment, expedite the process and ensure compliance with policy in a transparent fashion. While the function’s remit will vary by corporation, some of the responsibilities by stage should encompass:
Strategy. Supports development of the program plan; identifies or coordinates internal and external resources; assists with concept development and identifies opportunities to leverage other initiatives; insures the correct completion of financial analyses; insures adherence to policy.
Structure. Leads or supports market analyses for outsourcing; stress tests financial and operating assumptions; leads or supports sourcing processes; assures compliance to business terms and policies.
Implementation. Supports/monitors or manages program implementation; sets up governance, performance management and reporting functions; monitors progress.
Management. Tracks portfolio performance; monitors portfolio risk and contract compliance; monitors provider saturation and performance.
Who should manage a global services portfolio function?
Good question. One of the largest challenges in the industry is that most procurement functions have historically employed buyers rather than sophisticated business problem solvers; administrators rather than services managers. The challenges inherent in quickly changing the capabilities of procurement departments to those required for business-process services leads multinationals to set up a separate services function, discrete from traditional purchasing, often reporting directly to the C-suite.
The right leader for the function is rare bird. As the implementation of global services delivery represents radical change, he must understand the art of the possible within the organization, yet bring a level of creativity and problem solving acumen that is not hidebound by “the way things have always been done.” This individual is capable of managing the six aspects of transformation — change, people, sourcing, performance management, risk and governance, and can develop and lead a high visibility, high performing team.
Once the imperative is understood, how should companies start down the path?
Believe it or not, the simple act of defining scope — what constitutes a service under portfolio management — should be a first step. In some corporations, security, catering or reproduction may be deemed commodities to purchase rather than services to implement; in others, they are part of a services portfolio. And developing a lexicon of risk and complexity is also critical to successful portfolio management. Some services such as multi-process outsourcing have inherent complexities and risks that a point service deal — such as learning services — does not have.
Developing principles and a consistent approach is vital. Guidance on the definition of what is a core/noncore process, the range of risk factors and the scope of regulatory restriction form the basis of policy. Directives on leveraging scale in a contract or a captive center and on combining like processes should be inherent in services principles. Exceptions to the rule will always occur; guidance should be given on acceptable tradeoffs. And minimum performance criteria — returns, time horizons, and key performance indicators — should be established.
Establishing rules, and institutionalizing control points to support application of principles should follow. Getting executive leadership to approve comprehensive policies for the entire lifecycle of service is often not easy but a prerequisite for effective management.
Without the clout of policy and procedures that solve for risk, reporting and good governance, global services functions become optional internal consultancies. A comprehensive policy for both outsourcing and captive development, clearly articulated as to the approval process at all stages of global services delivery, is essential.
Ring fencing the universe of initiatives both in place and underway is not only an arduous task but also a critical component for both effective portfolio management and regulatory reporting in certain global jurisdictions. Standardizing information to be captured and maintained in one place rather than across the organization, setting up systems and developing reporting routines, are early tasks.
And what if business lines won’t initially play?
Any change in control from the center represents radical change, especially in an organization where power has devolved to business lines. Establishing a new organization, which exerts corporate control by managing compliance with policy and gathers and maintains data, may be a big step for some organizations.
Concurrent with implementing policy, forming an “optional” center of excellence with the requisite talent, tools, templates, workflows and project/industry data may be a good first step on the road to global services-portfolio evolution. An internal consultancy capability may present less of a threat than a centrally mandated point of control.
The effort involved in changing a delivery structure through outsourcing or offshoring is drastically underestimated by any business line or function unfamiliar with the complexity of the transformation. Being able to get assistance internally from a function whose aim is to leverage existing knowledge and expedite the process reduces time and cost for the sponsoring organization. Over time, the successful center of excellence becomes institutionalized, and its use can be more easily mandated.
Whether the function controls and implements all services delivery change from inception or whether it serves as a center of excellence for all business units will depend on the culture, organizational structure (center-led as opposed to business-line led), and executive-level appetite for change.
Will the crime of the century be solved?
All signs point to the positive, particularly in the financial services and consumer products industry. There is a growing recognition of the scale of investment, time required and inherent risk in transforming services delivery across the corporation. And, as boards of directors ask more questions about changes in business architecture, corporate management must have the answers to hand. This means developing databases, policies, procedures and standards, and investing in the right team.
The business case to manage services as a portfolio — controlling risk, managing implementation cost, achieving scale, leveraging expertise — cannot help but be compelling as corporations shift their focus from doing deals back to obtaining benefit from radical changes in process delivery.
Best Practices in Global Portfolio Services Management
- Lead from the center through policies, procedures, and performance criteria
- Invest in a robust database suitable for tracking and regulatory reporting
- Appoint a team with the right capabilities
- Evolve the team from center of excellence to central leadership
- Focus on managing changes in corporate services delivery rather than individual deals