How GBS Organizations Can Help CEOs with Cost Optimization
In today’s rapidly changing business landscape, CEOs face unprecedented organizational pressure to cut spending across technology, operations, and talent. To achieve these goals,CEOs are turning to GBS organizations for support.
GBS is a next-generation operational and organisational model for enterprises to deliver business processes such as HR, finance, IT and customer care to internal and external customers. It is often applied on a global scale using multiple service delivery models, including outsourcing, shared services and, increasingly, cloud solutions. Organizations across the globe are considering significant investment in GBS.According to a recent global survey, following factors are deemed important or critical to success of any GBS program:
- reduced cost structure in operations
- improve quality of operational data to drive management decisions.
- better use of automation to reduce reliance on manual labour.
- greater scalability of operations
Cost Optimization via GBS
Efficiency is the primary driver for global business services and GBS organizations can help reduce back-office costs by 25 to 50 percent across processes such as General Accounting. Payables, Payroll, PP&E Capital Budgeting and Receivables and Credit.
Economies of Scale/Skill
Two primary sources of cost savings are reductions in clerical headcount and number of management levels. Consolidated functions and processes eliminate redundancies and minimize the cost of transaction processing.These savings can be increased if the shared services organization is created as a new organizational entity.This new entity may not only have access to reduced wage rates, but may also encourage innovative organizational structures and reward programs that can greatly enhance performance and productivity. Companies can gain additional savings across the organization by leveraging specialty skills such as legal services, tax services, and environmental health and safety auditing. Moreover, the incremental benefits from creating a high-performance organization can increase the payoff over time by fostering a culture of continuous improvement.
Reducing Infrastructure Costs
In addition to labor savings, GBS initiatives contribute to reductions in infrastructure costs such as technology, facilities and services, and miscellaneous administrative overhead items (e.g., paper and handling). Savings opportunities can also be found in occupancy costs for a GBS in a new location.One of thebiggest components of most information technology budgets is ongoing maintenance, which can be reduced substantially through standardization and consolidation. The shared services model can also accelerate the adoption of new technologies such as imaging, workflow, and e-enabled applications. Newer versions of ERP systems increasingly integrate these technologies, allowing companies to move closer to their ideal process visions.The use of e-enabled tools has expanded the potential for self-service capabilities.
Process improvement
Shared services unify and standardise the way business is done. Standardising and streamlining processes support compliance and control, and drives improvement initiatives across the organisation. For example optimising processes such as invoicing and collection can have a big impact on cash flows and working capital management. Additionally, SSCs reduce process duplications and integrate service functions into a single unit. For example, different branches, or business units, at an organisation can have their own IT teams, leading to discrepancies in policies and wasted efforts. SSCs prevent these silos and ensure that knowledge generated centrally can benefit the entire organisation.
Technology Standardisation
Shared services provide an opportunity to eliminate ineffective technologies. Ongoing maintenance is one of the biggest components of most IT budgets, which can be greatly reduced through consolidation. Furthermore, by grouping services together, SSCs can accelerate the adoption of technologies such as Enterprise Resource Planning (ERP) systems and enable the introduction of automated processes such as RPA and artificial intelligence (AI). These applications aid in the elimination of non-core transactional work and provide reliable business insights through centres of excellence, cutting errors and recovery costs and freeing local teams to focus on value-adding tasks.
Supporting Growth Strategies
Changes in organizational structure are often necessitated by joint ventures, alliances, mergers and acquisitions, penetration of new markets, and support for global product lines. The cost of continuously adjusting and integrating new support organizations detracts from the value realized by shareholders and can impede a company’s ability to execute its strategies effectively. Shared services can provide new options to assimilate growth rapidly. By defining common business processes, data structures, and technologies, shared services can help companies provide necessary support services for new organizations without starting from scratch.
Focusing on Core Competencies
The need to focus on core competencies requires many companies to identify the key processes they need to succeed. Shared services can relieve business units from the burden of managing noncore activities. At the right time, the shared services organization can also manage any outsourcing opportunities for individual services. Better Information An expected outcome of shared services is improved accuracy and timeliness of source data. Benefits are realized as shared services begin to consolidate information across business units and geographic boundaries. As the focus changes from function to business process, the opportunity to achieve these potential benefits increases dramatically.
Let us look at some key technologies at the forefront of such change within GBS processes:
Source to Pay (S2P)
S2P leaders are increasingly looking to enhance stakeholder experience and create a wealth of opportunities for top line growth and bottom line efficiency. With access to real-time market trends and deep insights into processes, they’re rethinking the operating models that could enable them to support quick decision making. Strategic sourcing is becoming more predictive. Machine learning could support to categorize and manage spends in real time. These technologies would help categorize unstructured spends and costs and provide alerts on exceptions as well as deliver insights. AI could be used to predict future sources of supply and predict demand for inventories. OCR technologies read unstructured documents such as contracts, invoices, etc. to undertake business processes. Technologies such as AI, ML, Invoice Automation solutions, AI Chatbot, Supplier Portal work in confluence to make the source to pay process more effective.
Order to Cash (O2C)
The order to cash process is extremely critical for any enterprise. Cash is the lifeblood of any company; managing the O2C process efficiently is therefore imperative. There are possibilities of numerous discrepancies in the invoicing, settlement and reconciliation processes that present room for improvement with emerging technologies. With solutions like smart contracts, visibility to all transactions could be fully recorded and validated in real time, thereby ensuring 100% accuracy and compliance.
Record to Report (R2R)
The ultimate objective of any R2R process is to provide the correct representation of the company’s performance with the highest levels of accuracy and within the targeted timelines. The insights received by automating the R2R process enables accuracy, quick decision making and fuels further growth for any enterprise. By bringing down cycle time to financial reporting and providing powerful analytics, solutions such as Blockchain and RPA have enabled enterprises to significantly accelerate and provide transparency in the process. RPA could automate routine tasks such as reconciliations, posting journals, managing tasks and sending alerts based on variances. This could be done throughout the month rather than waiting for the month end peak period, leading to more accurate and real-time balances. The same applies also to inter-company reconciliations with the real-time matching of transactions and resolving discrepancies. With blockchain distributed ledgers, the cycle time and accuracy to reporting would be significantly improved together with ensuring better collaboration between various parties. Automated workflows are especially useful to automate routine processes, providing visibility to closing processes and reducing the cycle time to close. Complete audit trails and audit evidence could be maintained for all periodical closing activities.
A significant push is underway by enterprises to insource and outsource more work across core operations, IT, and corporate functions. The GBS model is proving to be an effective choice to improve operations and remove unnecessary costs. By enabling enterprises to reach their budget requirements without losing competitive advantage, GBS leaders are strengthening their foothold as trusted and vital partners.