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May 7-9, 2017 Disney’s Yacht & Beach Club Resorts ® , Florida Outsourcing or Captive – What to Know Before Deciding Penny Weller, PhD, CMA The Hackett Group
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
Outsourcing or Captive –What to Know Before Deciding
Penny Weller, PhD, CMA
The Hackett Group
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
Outsource or Captive:What to Know Before Deciding
This presentation will discuss sourcing decisions and best practices along with key conversations to help determine the sourcing model to deliver the most benefits for your organization.
This will include a comparison of captive and outsourced models based on an analysis of strategy, financial, and their individual benefits and challenges.
This analysis will compare best practice usage of Top Performers vs. Peer on questions including which sourcing model delivers more benefits and how satisfied functions are with the levels of transformation delivered?
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May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
• The Hackett Group – Advisory services and research Global Business
Services and Shared Services
• Finance Shared Services executive with Pfizer, Inc. (formerly Pharmacia)
• Director of Performance Management
• Motorola-certified Black Belt
Penny Weller, PhD, CMAGlobal Business Services Advisory,
North America Operations Leader
Phone: 269.345.7240
www.thehackettgroup.com
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About Your Speaker
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
About The Hackett Group
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
87%of the
Fortune 100
87%of the
DAX 30
58%of the
FTSE 100
93%of the
Dow Jones Industrials
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May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
• Library of 2,500+ Best Practice Research Perspectives, Books of Numbers, and Hackett Certified Best Practices through the Best Practice Intelligence Center
• Unlimited inquiry access for members to Hackett experts for transformation steering
• Peer-to-Leader 1-2-1 Best Practices sharing and Best Practices networking events
• Enterprise, functional and process-based performance studies & value accelerators
• “Gold Standard” Benchmark – over 13,300 conducted, the empirical backbone for your transformation at the SG&A Enterprise, Functional, and Process level.
• World-Class, Peer, and Custom Peer comparative metrics and best practices
• Ability to provide multiyear World-Class Program view of performance over time
• Hackett Performance Exchange (automatic accumulation of performance data from Oracle or SAP)
• Finance
• Human Resources
• Information Technology
• Procurement
• Supply Chain and Operations
Membership
Advisory &
Research (Provides insights into
World-Class
Performance)
Benchmarking(Defines World-Class
Performance)Hackett Perspective on World-Class Finance – Accelerating GBS | 9
Peer Group World Class
The World-Class Advantage – FinanceWorld-Class organizations always find a way to get there
IT Cost (per end user Equivalent)
Procurement Cost (% of spend)
Peer Group World Class
23%
$1.7K$2.2K
HR Cost (per employee)
Peer Group World Class
19%
0.59%0.73%$6.0K
22%
2014 Cost of Finance by Process Category (as a % of revenue)
Finance Cost (% of revenue)
Peer Group World Class
1.12% 46%
-59%-46%
-23%
0.60%$7.7K
0.39%
0.21% 0.23%
0.16%0.11%
0.17%
Transacting Control & Risk Planning & Strategy
Practice or
Outcome
Process
Taxonomy
Vision
Dimension
SDM
Component
Capability /
Enabler 1 - Lagging 2 - Achieving 3 - Exceeding 4 - Leading
Current
State
Assessment
PriorityFuture State
TargetAverage Gap
Practice
Sourcing and
Supply Base
Strategy
Supply
Assurance
Process
Design
Degree to which a
sourcing strategy
exists
Sourcing strategy is ad hoc or
nonexistent.
Sourcing strategies reflect and are
aligned with overall business
strategy and objectives, including
high level risk requirements.
Historical spend analyses are
regularly and routinely conducted
by market and across markets -
i.e. by specific commodity, service,
location and business.
Commodity management and
sourcing strategies define
appropriate purchasing and
payment processes and tools.
Contract terms, lengths, and
conditions are defined to drive
optimal benefits to the enterprise;
in terms of total life-cycle cost,
service, and quality.
Sourcing strategy is reviewed and
updated annually (or more
frequently) to reflect direct linkage
to the company's strategic growth
plans, market changes and
product innovations, production
plans and business
M&A/ventures.
2 - Achieving 2 - Medium 3 - Exceeding 1.00
Practice
Sourcing and
Supply Base
Strategy
Supply
Assurance
Process
Design
Breadth of supplier
universe
Supplier selection is based on
historical or personal
relationships; suppliers often
selected prior to Procurement’s
involvement in a project.
Projects are initiated to limit the
total number of suppliers and
bundle the spend volume.
Procurement is involved in the
supplier selection process.
Suppliers are often considered on
a regional or compartmentalized
basis.
Supplier universe is considered
by major commodity or service
area rather than in aggregate.
Suppliers are considered for
bundled and/or extended services
that may extend to multiple areas
of competency.
Supply universe is global and not
limited to traditional commodity
suppliers.
1 - Lagging 2 - Medium 2 - Achieving 1.00
Practice
Sourcing and
Supply Base
Strategy
Supply
Assurance
Process
Design
Degree to which
supplier risk is
measured and
managed within the
sourcing process
Risk not considered as part of
sourcing decisions or supplier
management.
Supply risk is considered as part
of category-specific sourcing
efforts and supplier performance
management processes.
Supply base risk is explicitly
factored into broader business
continuity objectives. Supplier
risk is considered beyond the
specific good or service being
sourced.
Procurement works with other risk
management staff, ensuring
alignment between internal
risk/return preferences, business
objectives, and both general and
specific supply market risks.
3 - Exceeding 3 - High 4 - Leading 0.90
Practice
Sourcing and
Supply Base
Strategy
Supply
Assurance
Process
Design
Degree of
contingency
planning performed
to assure supply
No supply contingency planning
exists.
Contingency plan exists in case of
supply shortage; alternate
suppliers and alternate locations
identified.
Alternative supply sources are
developed in conjunction with
current suppliers for key
purchases.
Back-up suppliers are required for
critical or strategic categories and
items, including formalized
contingency plans to ensure
seamless supplier transition and
application of penalties and
liabilities with supplier(s) at fault.
3 - Exceeding 2 - Medium 3 - Exceeding -0.55
Practice
Sourcing and
Supply Base
Strategy
Supply
Assurance
Process
Design
Degree of supplier
qualification in
place
No formal supplier qualification
process.
Simple processes in place to
register suppliers and inspect
supplier qualifications at time of
registration or category review.
Established supplier training
program on enablement
strategies and buyer’s
technologies. Formal program
exists to identify key qualification
metrics with stratification based
on category criticality and supply
alternatives.
Annual review of at risk suppliers
and suppliers of key categories.2 - Achieving 2 - Medium 2 - Achieving 0.37
Practice
Sourcing and
Supply Base
Strategy
Supply
Assurance
Process
Design
Degree of
effectiveness and
efficiency of price
refresh process
Quoting and price refresh process
is undefined and performed
manually and on an ad hoc basis.
Quoting and price refresh process
is defined and audited manually.
Quoting and price refresh
processes are structured to
minimize enterprise financial
impact to all parties.
Quoting and price refresh
processes are automated, nearly
error-proof,, with appropriate
controls in place..
2 - Achieving 2 - Medium 2 - Achieving 0.46
Practice
Sourcing and
Supply Base
Strategy
Purchased
Cost
Reduction
Process
Design
Level of
rationalization of
supply base size
Large number of suppliers due to
short-term, “one-off” relationships.
Organization has identified the
need to rationalize the number of
suppliers in order to create
leverage.
Supply base rationalization is
complete. Few new suppliers are
needed and an added supplier
typically results in a removed
supplier (equilibrium). Strong
relationships developed with
current suppliers focusing on JPI
in critical or large dollar spend
areas.
Structured process is in place that
benchmarks the marketplace and
ensures continual supply base
assessment.
2 - Achieving 2 - Medium 2 - Achieving 0.50
Practice
Sourcing and
Supply Base
Strategy
Purchased
Cost
Reduction
Process
Design
Maturity of use of
supply market
intelligence
Supply market knowledge is ad
hoc and incomplete.
Process, tools, and sources
established to gather and
organize data on most categories.
Supply market intelligence /
knowledge captured to identify
when a supply strategy needs to
be re-visited.
Supply market intelligence /
knowledge captured, modeled,
and utilized for pro-forma
simulations done during strategic
planning, design, sales, etc.
2 - Achieving 2 - Medium 2 - Achieving 0.66
Strategy &
Business
Transformation(Transforms
Performance into World-
Class)
Service
Delivery
Components
Information
Service
Placement /
Scope
Process
Sourcing /
Location
Strategy
Process
Design
Enabling
Technology
Skills &
Talent
Governance
&Organization
• Enterprise Performance Management
• Shared Services, Global Business Services & Outsourcing
• Merger Integration
• Working Capital Management
• Oracle EPM (Platinum Partner)
• SAP ERP (Gold Partner)
• Hyperion
• Kronos
• Workforce Management
• Application Managed Services
– Functional Application Support
– Technical Application Support
– Cloud and Hosting
– Remote Development
Best Practice
Technology
Enablement(Implements Technology
to enable World-Class)
In
-h
ou
se
Co
mp
le
te
O
utso
urc
in
g
Colo
catio
n
CustomerResponsibility
ProviderResponsibility
Sa
aS
A
pp
lic
atio
ns
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May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
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Helping companies establish and implement business performance improvements
The Hackett Value GridTM
World-class –
median top 25%
in both efficiency
and effectiveness
Peer – median
of non-World-
class
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
CaptiveOutsource
Definitions
Business processes contracted out to an external provider, i.e., a 3rd party
Internal organizational entity that delivers a portfolio of services to a company
Outsource Only
Captive then Outsource
Hybrid
May 7-9, 2017
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Finding the Right Mix
Captive Offshore
Captive Onshore
Outsource
Hybrid
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
6.8X Factor more important than
Investment
Ability to Transform
Cost
World-class
Quality & Productivity
Continuous Improvement
Customer Satisfaction
Service Design
Things to Consider
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Disney’s Yacht & Beach Club Resorts®, Florida
Bigger Things to Consider…
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Disney’s Yacht & Beach Club Resorts®, Florida
Transactions & Knowledge-Centric Work to Consider
High volume Efficiency focused Repetitive activity High automation Easily measured performance Consistent Business Unit
requirements Cross enterprise integration Common technology platform Leveraged skills Project/issue-driven High-cost skill High-demand skill Common analytics
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
What Can a Captive or
Outsource Provider Bring
to the Table?
Process discipline Emerging technologiesContinuous improvement Time to value Enterprise standards ScalabilityGlobal footprintCompliance discipline Improvements & savings Enhanced customer
experienceNet-Net – You should gain
more than business units can
gain individually…
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What will be most challenging? Showing business caseProving business caseBuy-in at all levelsPerceived and real losses
Best suffer most Transitions Staffing issues Sense of lost control Relationship effort Clearly understanding what
you want – in BPO Manage the contract Watermelon metrics Benchmark clause
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Before you take the leap…
understand your current state
Expect pushback… You will need proofBenchmark or baseline:
Quality Cost Delivery Cycle times
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Robotic Process Automation/AI
Big Data
Labor Arbitrage
Service Design
Other things to consider…
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Disney’s Yacht & Beach Club Resorts®, Florida
Top quartile – First quartile (.75) of the population, does not imply World-class but merely that a company group is most advanced based on a specific set of criteria.
Source: The Hackett Group’s Global Business Services performance study, 2016
2016 Finance Transactional Activities
Three Lens View – each is a separate view
GBS/Shared Services Captive
Offshored
Outsourced
• 77% Top performer
• 61% Peer
• 80% Top performer
• 42% Peer
• 13% Top performer
• 10% Peer
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
Source: The Hackett Group’s Effective Sourcing performance study, 2013
2013 Performance Study…
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
Source: The Hackett Group’s Effective Sourcing performance study, 2013
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
Over time, the payback period has become a moot point, captive organizations have gained experience in globalizing and optimizing work and effectively closed the gap.
Source: The Hackett Group’s Effective Sourcing performance study, 2013
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
Source: The Hackett Group’s Effective Sourcing performance study, 2013
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
Performance metrics which indicate outperformance…
…have been analyzed…
To determine what separates peer from World-class
performance
1 2 3
Outsourcing efficiency improvement
Outsourcing actual versus planned performance improvement
Outsourcing contracts objectives realization over last five years
Partnering / outsourcing value realization
Scoring & Weighting
TOP PERFORMER
Value drivers
Sourcing model
Best practice adoption
PEER
Value drivers
Sourcing model
Best practice adoption
Source: The Hackett Group’s BPO/ITO performance study, 2016
2016 Performance Study…
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
OUTSOURCING INITIAL COST REDUCTION PEER
9%
TOP PERFORMER
15%
INITIAL PRODUCTIVITY IMPROVEMENT
RECURRING CUSTOMER SATISFACTION
IMPROVEMENT
PEER
1%
TOP PERFORMER
14%
PEER
1%
TOP PERFORMER
20%
%
%
%
Source: The Hackett Group’s BPO/ITO performance study, 2016
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
STRENGTHS OF HYBRID MODEL – CUSTOMER CENTRICITY
PLAN TO INCREASE OUTSOURICNG LEVEL
PEER
46%
TOP PERFORMER
67%
PEER
54%
TOP PERFORMER
33%
%
FAVORED
MODEL USE
%
PLANNED
INCREASE
Source: The Hackett Group’s BPO/ITO performance study, 2016
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
17%
80%
67%
100%
100%
80%
20%
17%
20%
21%
20%
27%
32%
32%
79%
73%
66%
61%
59%
7%
7%
7%
10%
Access to low-cost labor pool
Access to labor withspecialized skills
Accelerate time-to-value oftransfer of work to GBS
Rationalize business processes
Establish customer-centric,outcome-oriented culture
below expectations met expectations exceeded expectations
Peers Top Performers
Source: The Hackett Group’s BPO/ITO performance study, 2016
Realization of Outsourcing Value
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Disney’s Yacht & Beach Club Resorts®, Florida
0%
20%
40%
60%
80%
100%
Top performer Peer
Ability to promote/ demote critical service levels
Bonus payments and/ or penalty deductions
Allow mid-contract pricing validation through benchmarking
Incentive payments for transition milestone achievement
Use of financial incentives (including gain sharing)
PRACTICES
USED –
ALWAYS OR
FREQUENTLY
Establish performance baseline
Establish effective SLAs
Use of retained global process owners
Periodical client-provider strategic planning sessions
Establish service management framework
Use of transition period to baseline performance
Source: The Hackett Group’s BPO/ITO performance study, 2016
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Disney’s Yacht & Beach Club Resorts®, Florida
22%
15%
20%
14% 14% 13% 13% 13% 12% 13%15% 13%
Initial Averageannual
recurring
Initial Averageannual
recurring
Initial Averageannual
recurring
Initial Averageannual
recurring
Initial Averageannual
recurring
Initial Averageannual
recurring
Cost Productivity Cycle time Quality of service Customer satisfaction Compliance(regulatory and
internal)
Finance Outsourcing
Performance Improvements
Source: The Hackett Group’s BPO/ITO performance study, 2016
May 7-9, 2017
Disney’s Yacht & Beach Club Resorts®, Florida
EXPECTATIONS
Most organizations are
overly optimistic
about performance
improvement that will
be achieved though
outsourcing.
Consider adopting
more conservative
assumptions in
business cases
RELATIONSHIP
Never lose sight of the
fact that success
ultimately revolves around
talent, relationships and
leadership.
Partner selection should
never lose sight of cultural
fit and people capabilities
to meet needs
CAPABILTIES
Assess providers’
ability to support
digital transformation,
adopt new
technologies, and
improve analytics and
information
management
capabilities
VALUE DRIVERS
In the past,
outsourcing
performance has been
highly correlated with
a tactical focus on cost
and labor arbitrate,
In the future, reassess
the providers’ ability to
support digital
transformation
SOURCING MODEL
Consider adopting a
hybrid sourcing model
with selective
outsourcing, based on an
assessment of internal
relative to outsourcing
providers’ capabilities to
combine the best of both
Putting Findings into Practice
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Hackett Performance Studies define and capture how World-class performing organizations are organized, governed, and their savings potential compared to their Peers. The study covers key concepts including service management, governance, performance achievements, technology, and KPIs to assess your performance objectives.
Participants in these studies will:• Learn how you compare with World-class / Top Performers• Receive presentation with key research findings and assessment of
your performance
• Participate by joining the Hackett Research Community
• http://www.thehackettgroup.com/research/studies/
• www.thehackettgroup.com or contact [email protected]
Free
Studies
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Statement of Confidentiality and Usage Restrictions
This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly prohibited without the prior
written consent of The Hackett Group.
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