Let’s face it. The G&A functions that support the enterprise have never been the most glamorous parts of the business. After all, when Atlas was tasked with supporting all the heavens, it was a punishment, not a promotion.
Unfortunately for Atlas, the trend toward consolidating and outsourcing support services took a couple thousand years or so to develop.
The goal in front of this trend is clear: focus resources on the core competencies of the business that generate revenue. And the key driver behind it has been to reduce costs.
But even as organizations have embraced the practice, two things are often overlooked:
- First, these functions don’t just support the business; they can advance it, too.
- And second, the ability of an organization to plan, implement and improve its support infrastructure is as much a core competency as any other.
So ask yourself this: Do you see your services as a cost center or a competitive advantage?
Are your services slow to react to change or are they optimized to take advantage of it?
In the 80s and 90s as companies took their first steps toward shared services and outsourcing, the approach was purely tactical. Opportunities were evaluated and implemented on a case-by-case basis, and almost always motivated by cost savings alone.
There wasn’t much governance beyond the basics. Individual business units would establish a vendor relationship and put a few checkpoints along the way, but in essence, they’d let the contract manage itself.
Today, the emphasis has shifted. And the approach is much more strategic. Organizations are now demanding more from their services. They’re seeking to break down functional SG&A silos and capture synergies across multiple functional areas. They’re seeking a framework that lets them leverage the most appropriate capabilities in the world. And the goal is not only to reduce costs, but also to increase agility and build business value.
We call this framework the Extended Global Enterprise. The EGE is a paradigm shift for services delivery in the same way that Just-In-Time revolutionized manufacturing or that cloud computing is transforming IT.
In fact, the EGE shares the business principle underlying both JIT and cloud computing: that in order to build value and drive sustainable quality improvements and cost reductions, you must reach beyond the four walls of the enterprise to access a global network of capabilities and a pool of configurable resources that can be rapidly provisioned and released on demand to meet ever-changing market conditions and evolving business objectives.
There are 4 key differences between the EGE framework and the traditional approach to outsourcing and shared services delivery: First, in the EGE, services are driven by customer need rather than dictated by organizational structure.
The EGE depends on the ability to dynamically assemble a variety of capabilities – regardless of where those capabilities reside – into a seamless end-to-end process that’s focused on a specific business outcome. As a result, organizational and geographical boundaries lose their relevance while collaboration becomes essential.
Second, in the EGE, one-size-fits-all service offerings have been replaced with a balanced portfolio of retained, outsourced and centralized service offerings with tiered, tailored and bundled services across functions.
Third, in the EGE, the “set and forget” approach to vendor management has been replaced by a more sophisticated Services Portfolio Management organization. This organization provides world class governance, facilitates collaboration, and fosters competition among internal and external service providers. At the same time, it seeks to minimize risk while maximizing value by continually aligning the services portfolio with larger business objectives.
In many respects, Services Portfolio Management is similar to Financial Portfolio Management. Consider the parallels: Your investment portfolio needs constant management to adjust individual holdings as market conditions change. There’s a clear set of goals that differ for each individual. These goals are constantly re-evaluated, too, and adjustments to the portfolio made to ensure that it stays aligned with those goals. And of course, risk management is a primary consideration in every decision.
Finally, the goal of the EGE is more about increasing agility and competitive advantage than decreasing costs alone. But saving money hasn’t taken a back seat. By moving to the EGE framework, organizations can typically realize additional costs savings of 15 to 20 percent.
For over 100 years, organizations around the world have relied on KPMG for accuracy in financial reporting and trust in our business advice. We offer a broad range of services that can help you design, enable and manage your Extended Global Enterprise.
We’ve consistently been named one of the World’s Best Outsourcing Advisors by the IAOP.
We help Global 1000 companies achieve real, measurable success – it’s the KPMG EGE Advantage.
Contact us, and we’ll show you how the KPMG EGE Advantage can help you realize the potential of your Extended Global Enterprise. www.kpmg.com