Shared services and outsourcing: Aren’t we just moving the deck chairs around?

By February 10, 2013April 12th, 2021Archive


If you think about our efforts to transform business functions through shared services and outsourcing, are we just trying to make them more efficient and cost-effective? Are we really tackling enough change to make them more relevant to today’s business needs? In effect, aren’t business functions as we know them obsolete, and changing them in situ just fodder for conference agendas, full employment for consultants, and topics for bloggers (such as yours truly)?

If you think about it, nothing much has changed in horizontal functions such as finance, IT, HR, marketing and legal for years. Sure, we tweak reporting lines—corporate versus business lines versus geographies, implement technologies to standardize, invest in “transformation” to gain incremental improvement, and change the delivery model through outsourcing and shared services, nearshoring and offshoring. But when it comes down to it, we haven’t really changed the relationship of these functions to the business. We merely focus on cost and efficiency of the same old delivery.

Contrast the dynamism of in the so-called front of the house. Business lines constantly merge, spin off, or break apart in response to the market. Companies merge or divest in order to become more competitive. Yet we hold on religiously to the concept of standardizing and consolidating business support platforms, thinking by managing cost, we’ll add a lot of value to the business. By setting up shared services and outsourcing, aren’t we just moving the deck chairs to one side of the ship?

That’s not to say that cost-effectiveness and harmonization are not corporate virtues, and do not create value. But when we focus on building generic platforms, maybe we’re missing a bigger bet. Perhaps it’s time to look at what component of business support functions should be close to or actually within the business. Perhaps, in the thirst for business model innovation, it’s time to admit that it’s conceivable that one size does not fit all. Mono-functional teams may not be our best bet.

If you are an avid follower of the daily HBR blog, you may have read Paul Leinwand and Cesare Mainardi’s February 8th post, “Rethinking the Function of Business Functions.” In it, the authors submit that “Wal-Mart doesn’t succeed just because of a strong operations group. It has built impressive capabilities that include logistics, inventory processes, buying standards, real estate practices and labor models — most of which it created for itself.” And the post goes on to cite Amazon’s ability to mix it up in new and different ways. In effect, the authors believe that we consider these companies great in part because they incorporated business functions into the business cross-functionally to create value.

The blog goes on to say that mono-functional teams are only oriented to the short-term, conflicting needs of all of their constituents. And, by implication, the value they create sinks to the lowest common denominator. There’s almost no ability to break out, or combine business support functions with the business in new and different ways.

Isn’t this true of shared services and outsourcing? The success of these models is predicated on consistency in structure, performance, service levels, and, most importantly, a customer relationship as opposed to a collaborative relationship. As a result, the perceived value is cost and predictability rather than problem solving and innovation.

Perhaps, after we go through a shared services and outsourcing phase which results in eliminating  excess, it will make sense to tear it apart, moving processes closer to the business to create value. One day, sourcing just could be obsolete.



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