Survey | Shared Services in Financial Services
Shared Services Industry Specifics and Trends in the European FS Market
Survey | Shared Services in Financial Services
Table of Contents 1. Introduction
3
2. Management Summary
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3. Organisational Aspects of Shared Services Size, coverage and scope Managed processes Location aspects
4. Business Benefits and Challenges of Shared Services Significant cost benefits Enhanced service quality Manageable challenges
2
6 6 7 10 13 13 18 20
5. Shared Services and Innovation
22
6. Summary and Outlook
26
7. Background and Methodology
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8. Further Readings
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Shared Services in Financial Services | Survey
1. Introduction The financial services (FS) industry is currently facing drastic changes triggered by external and internal drivers. Banks are experiencing significant restructuring and common business models are being challenged by the current market situation. Further consolidation within the banking industry is expected and the industry is facing regulation in the market. Even though the insurance sector has not been as dramatically affected by the financial market crisis, it will also have to restructure its business due to decreasing customer loyalty and margin erosion. Immense efforts have been taken in all markets of the financial services industry to improve efficiency and operational readiness. One established approach to effectively do this has been the Shared Service Centre (SSC) concept. We can define SSCs as organisational units that provide supporting processes to customers beyond the demand of one single business unit (which can include external organisations) and focus on the shared use of resources (Fischer et al. 2006). By unbundling and centralising activities, the basis premise for a SSC is that services provided by one local department can readily be offered to others. The advanced use of information technology allows for geographical and time-shared separation to facilitate collaboration with core business units. The joint, “shared” use of the resources allows for efficiencies of scale, synergy realisations and improved quality of services. The financial services industry has experienced some very encouraging examples of SSCs. Since this industry currently faces a challenging environment and previous studies have not focussed specifically on the financial sector, BearingPoint initiated this pan-European study to analyse the current status and future trends of SSCs for the financial services industry. The study examines the industry specifics and potential for SSCs, what has been attained and, more interestingly, what has not been achieved but may be accomplished in the near future. The study has been conducted with support of the E-Finance Lab, a network of companies from the financial services industry and academic partners. We hope that this study contributes to the current discussion and development of Shared Service Centres in the financial services industry.
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2. Management Summary For the study we asked banking and insurance companies in European countries to share their experiences about the introduction and operation of Shared Service Centres (SSC). In addition, the study analyses the future trends and the impact of companies’ innovation and SSCs. Our main findings are:
Relevance of shared services for financial services More than 40 % of SSCs have been established for more than 3 years. Shared services seems to be an accepted organisational model within the financial services industry. However, the fact that only 28 % of the centres employ more than 500 people (full time equivalent) shows that the implementation of large scale shared services is lagging compared to other industries.
Attractiveness of financial services core processes and support processes for shared services 70 % of the respondents expect high or at least medium cost savings from financial accounting in shared services. However, financial services core processes with the potential for standardisation such as payment services (over 50 %) are currently or will be soon performed in shared services organisations. Some core processes seem to have a higher acceptance in shared services compared to financial accounting.
Transactional oriented service centres are still dominant Nearly half of all SSC processes (46 %) are or will be transaction based. The study also highlights the emergence (30 %) of a newer form of shared services: “Centres of Expertise”. Which centralises expert know-how and makes it available group-wide.
Attractiveness of locations will change towards Eastern Europe SSCs in the financial services industry are mainly domestic or nearshore entities. Eastern Europe is emerging as a major location for FS companies.
“Soft factors” are the relevant criteria for choosing the optimal location Soft factors such as education and availability of personnel as well as language issues have a high relevance for location selections followed by data and intellectual security and privacy.
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Significant cost benefits by shared services Nearly 80 % of SSCs realised 20+ % cost savings. More than 50 % of these initiatives can realise even more than 30 % cost savings. SSCs therefore provide a significant opportunity for the financial services industry to reduce their cost base and increase profitability, with a high probability for success.
Pay Back period between 3 and 5 years Investments into SSCs are realising mid-long term benefits. Only a few respondents with planned SSCs expected a pay back in less than 3 years, most of them expect a return within 3 to 5 years. However, FS institutions which have already pursued and implemented SSC initiatives were able to achieve a pay back within 3 years and faster.
Size matters, bigger FS firms achieve higher cost savings Large, international FS institutions achieve higher cost savings than smaller institutions. Nearly 80 % of companies with more than 50,000 employees are able to realise cost savings of 20 % or more by setting up SSCs.
SSCs provide clear benefits to the FS industry The highest SSC benefits for FS processes came from processes such as custody, dunning, collections & recovery and claims management. Decision makers who have already implemented one or more SSCs for FS processes rated the benefits higher than respondents of companies that have not implemented SSCs.
Top-down implementation strategy is key for success According to our study, 70 % of our respondents follow this approach. 90 % of FS institutions which have chosen a top-down approach achieved significant cost savings and were more successful than companies where the use of SSCs is optional.
“Soft factors” are the most difficult challenges to overcome implementing shared services The respondents rated the availability of qualified personnel as well as cultural difficulties the most challenging issues to overcome. Human resources are of huge relevance to identify and attract adequate professionals for the operations of SSCs.
Innovative companies have started their SSC initiatives earlier and are more successful than others We have found that companies with a medium or high innovation level started earlier with implementing and operating SSCs. Those companies are even more successful. They adopted the idea of SSCs early and have been able to overcome some of the difficulties and to realise more cost benefits.
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3. Organisational Aspects of Shared Services Size, coverage and scope Shared services – accepted by the FS industry? More than 40 % of the SSCs have been established for more than 3 years, most of them as managerial and independent units. Nearly half of SSCs are operating as groupwide centres. This demonstrates that shared services are an accepted organisational and strategic model within the financial services industry.
Figure 1: Coverage and organisational scope of SSCs Coverage of SSC (in %)
Organisational scope of SSC
46% 32%
Internal Shared Service Centre
17%
Group-wide
22%
For subgroups/ business units
Cooperation with competitor 83%
Also for external third parties
However, the fact that only 28 % of the centres employ more than 500 people (full time equivalent) across all industry specific and administrative processes shows that the implementation of shared services in the financial sector, compared to other industries, is still at the beginning of the journey of reaching a higher degree of efficiency and integration.
Figure 2: Number of Employees operating the SSC Size of SSC (FTEs)
28%
24% Less than 50 FTEs 51–500 FTEs 48%
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Over 500 FTEs
Shared Services in Financial Services | Survey
The majority of banks and insurance companies that do operate Shared Service Centres have implemented this strategic option for one or a few processes. But only in very limited cases have SSCs been implemented for all or most potential processes. Furthermore, SSCs are controlled in a rather traditional way by putting SSCs under the leadership of a C level (38 %) or a functional leader (31 %). This shows that cross business centres or cross functional centres are not very common: A situation that reflects our experience with the existing centres in a relatively low complexity environment compared to the increasing complexity of multi business unit/multi functional shared services. Only 20 % of respondents have their SSC managed by a dedicated SSC leader, designated to focus on the continuous professionalism of the service delivery.
Figure 3: Responsibility for SSC Responsibility of management for SSC C-Level
20% 38%
Functional leader Business unit leader
11%
SSC leader 31%
Managed processes The selection of relevant processes for a shared service depends on a variety of criteria e. g. complexity, relevance for the business, connectivity requirements, opportunity of standardisation. For these reasons it makes sense to separate between core business processes and support processes.
50 % of customer care and payment services are or will be performed in a SSC Those processes with a relatively low complexity and high level of standardisation potential are traditionally the most effective ones for shared services. About 50 % of customer care and payment services are already or will soon be offered in SSCs followed by custody and claims management. Processes with the highest potential for the future are dunning and collections as well as security transactions, named by nearly 20 %. The process with the lowest potential for shared services seems to be credit management. This process is very often seen as highly individual and very language specific. In terms of standardisation of credit policies and a harmonised cross-BU handling these Shared Services in Financial Services | Survey
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processes offer high potential for a multi-lingual SSC even though the complexity of these centres will rise. The high rating of N/A (not applicable) for all processes indicates that the opportunity of using SSC is rather underestimated considering the number of companies that have successfully implemented SSCs for these processes.
Figure 4: FS core processes (realised/planned) Realised versus planned core FS processes (in %) Customer care, call centres Payment services
52%
3%
45%
45%
22%
33%
Custody
30%
Claims management
28%
7%
Asset management
27%
4%
Dunning, collections, recovery
26%
19%
55%
Security transactions
25%
18%
57%
Contract management/contract closing
24%
Middle office risk/scoring and rating
69%
64% 72%
8%
76%
17% 7%
Origination & approval, underwriting Securitisation
65%
12%
20%
Sales & advise
55%
15%
16%
72%
12%
83%
13% 4%
Credit management/loan processing 13% 13% 0%
20% Realised
74% 40%
60%
Planned
80%
100%
N/A
The opportunity to use transactional processes for SSCs is well accepted in the financial services industry as nearly half of the processes (46 %) are or will be transaction based. More innovative forms of shared services, so-called “Centres of Expertise”, with the opportunity to centralise expert know-how and make it group-wide available are continuously growing.
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Figure 5: Planned/realised SSCs by category of core business process Planned/realised SSC by category of core business processes 12% 13%
10% 34%
% Planned
21%
20%
% Realized Transactional
Expertise
Client
More transactional and support processes are commonly shared Transactional support processes are traditionally the driver of shared services, especially in other industries. Surprisingly some core processes at banks and insurance companies (e.g. customer care, payment services, custody and claims management) seem to be much better accepted than e.g. financial accounting, even though financial accounting and financial control offer a high potential for shared services compared to other industries. This should change in the future as indicated by the participants of this study to a rather high degree of shared services for IT and human resources.
Figure 6: Financial and risk processes (realised/planned) Realised versus planned finance/risk processes Financial accounting
29%
Controlling, financial analysis, planning, budgeting
27%
Treasury, asset-liability management
27%
Regulatory reporting
25%
Risk and management reporting
23%
0%
46%
25%
58%
15%
65%
8%
71%
4%
69%
8% 20%
Realised
40% Planned
60%
80%
100%
N/A
Compared to financial accounting there is a higher degree of managing the other support processes with SSCs and still significant potential has not been realised so far. Shared Services in Financial Services | Survey
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Figure 7: Support processes (realised/planned) Realised versus planned support processes Information technology
62%
Human resources
49%
Real estate and facility management
48%
Procurement Marketing 0%
10% 13% 9%
41% 14%
20% Realised
38% 43%
15%
5%
28%
44% 81%
40% Planned
60%
80%
100%
N/A
As a conclusion, we see that companies in the financial services industry have so far concentrated on the “low hanging fruit”, e.g. on support processes (information technology, human resources, real estate), and there are opportunities to extend the focus of SSCs towards more value added services in the areas of finance, risk and core business processes.
Location aspects Eastern Europe’s relevance for SSC in financial services is rising Despite the main trend of centralisation there is a strong country focus (44 %) with rather low complexity driven by different legal, language and cultural requirements. The central bundling of processes seems to stop at national and regional boundaries, with the complexity rising dramatically when crossing frontiers. Only 19 % pursue a global orientation with service provision to all units worldwide. The additional savings by operating SSCs globally need to be evaluated in the context of the impact of the rising complexity.
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Figure 8: Regional scope of SSC deemed feasible Regional scope of SSC (in %) 50% 40%
43% 38%
30% 20%
19%
10% 0% Country orientation
Regional orientation
Global orientation
A key question regarding the operation of SSCs is choosing the appropriate location as this is a strategic decision with a long term time frame and requiring substantial investments. The SSCs in the financial services industry are essentially domestic and nearshore entities. The development of Eastern Europe countries and in some cases offshore can be seen in the FS industry. The future shift from domestic to nearshore locations is following the classic trend. But the offshore market (Asia including India) is growing significantly, up to 30 % in the future. This also depends on individual process requirements. Our expertise from various projects shows that in some cases three operating models have been established successfully: domestic location for processes with high connectivity to the business, nearshore for rather low connectivity requirements and offshore with very high standardisation potential.
Figure 9: Comparison of present and future location of SSC Present location versus future preferred location (in %) 50% 40% 30%
47% 35% 28%
23%
20%
16%
10%
21% 7%
0% Domestic location Present
Eastern Europe
5%
Asia (besides India) Western Europe
5%
9%
India
Future
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Although some risks exist when transferring business processes to other internal units or even to outsourcing partners especially in financial services (Gewald et al. 2009), additional issues might depend on the geographic location where services are provided.
Qualification as decision critical criteria The empirical results corroborate prior findings and theoretical hypotheses from scientific literature: Personnel qualification and language skills are the most important decision criteria for selecting the optimal location. Major criteria for the “nearshore” solution are mainly geographical and infrastructure opportunities and language opportunities but also very often cultural differences with locations outside Europe. These criteria are important drivers of complexity during the set-up as well as the operation of the shared services. The great importance of data and intellectual security and privacy reflects the specific requirements of the financial services industry. Since services rely heavily on the firm’s know-how, data and intellectual security.
Figure 10: Importance of criteria for choosing the optimal location Criteria for choosing the optimal location (in %) Qualification and availability of personnel
92% 79%
Language Data and intellectual security and privacy Predictability of costs
15% 15%
8%
75%
19%
6%
23%
62%
Cultural compatibility Geographical proximity to headquarters
25%
46% 19%
Tax considerations
6%
31% 25%
13%
Time zone
High
13%
56%
17% 20%
8%
23%
66%
0%
6%
77%
69%
(IT) infrastructure
Government support
4% 4%
21% 77%
40% Medium
60%
80%
100%
Low
The (IT) infrastructure aspect is often understood as an aspect relevant for manufacturing offshoring, but not for services offshoring. Managerial practice now shows that infrastructure is indeed highly relevant for the location decision. All in all, the ranking of decision criteria are suggested decisions about location are wellconsidered and are not considered to be trivial. 12
Shared Services in Financial Services | Survey
4. Business Benefits and Challenges of Shared Services Significant cost benefits Substantial transformation with significant cost benefits at high success rate SSC initiatives are initiated when significant cost savings can be realised, since SSC initiatives represent a substantial investment and major impact on the organisation. As a key finding of this study, SSC initiatives live up to these expectations and provide these significant cost savings. Nearly 80 % of SSCs realised 20+ % cost savings. As shown in the figure below, more than 50 % of these initiatives can realise even more than 30 % cost savings. Only 11 % of respondents did not realise any cost savings yet.
Figure 11: Overall cost savings realised Overall cost savings achievement
21% Cost savings < 20% Cost savings 21–30%
53% 26%
Cost savings > 30%
SSCs therefore provide a significant opportunity for the financial services industry to reduce their cost base and increase profitability, with a high probability for success. Most of the FS institutions were able to fulfil or even to exceed their initially defined financial SSC targets as set out in the business case.
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Figure 12: Achievement of financial targets Financial target achievement 60% 55%
50% 40% 30% 28% 20%
17% 10% 0% Not fulfilled
Fulfilled
Exceeded
However, one third of respondents have not yet been able to meet their goals, mainly due to the following reasons:
• Execution problems in transition and migration • Poor quality of personnel and processes • Large retained local organisation, not yet made redundant e.g. due to legal restrictions (labour laws, social plans, workers’ councils, severance payments, expensive ex-pats in SSCs), lack of trust and quality of shared processes, corporate power maps and politics
• Insufficient standardisation and harmonisation of IT and processes Investments into SSCs are realising mid-long term benefits. Only a few respondents that planned SSCs expected a pay back in less than 3 years, most of them within 3 to 5 years. However, FS institutions that have already pursued and implemented SSC initiatives were able to achieve a pay back within 3 years or faster.
Size matters – Bigger FS firms achieve higher cost savings Large, international FS institutions achieve higher cost savings than smaller institutions due to economies of scale and critical mass (e.g. payment services, custody, claims management), a stronger focus on processes and on efficiency in their transactional activities. Larger companies also have a greater organisational and financial ability to invest in technologies in order to automate and streamline processes. Nearly 80 % of companies with more than 50,000 employees are able to realise cost savings of 21 % or more by setting up SSCs.
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SSCs help improve efficiency ratio and reduce cost-income-ratio in core processes and common services When FS institutions implement SSCs in their core banking and insurance processes, they realise the highest financial benefits in the back office processes, e.g. custody, payments, claims management, collections, credit and securities processing. However, even for market and client-facing processes like customer care, SSCs provide a significant potential to reduce cost and improve quality and expertise.
Figure 13: Realised benefits (core FS processes) Realized benefits – core FS processes Custody
75%
Payment services
10%
66%
Claims management
60%
Dunning, collections, recovery
15%
13%
57%
Customer care, call centres
15%
19%
27%
24%
55%
19%
24%
21%
Securitisation
50%
29%
21%
Asset management
50%
28%
22%
32%
21%
38%
19%
Credit management/loan processing
47%
Security transactions
43%
Contract management/contract closing
42%
Middle office risk/scoring and rating
29%
40%
Sales & advise
31%
Origination & approval, underwriting
25% 0%
20% High
29%
44%
16%
38%
31%
42% 40% Medium
33% 60%
80%
100%
Low
SSCs for common or support services at FS institutions, e.g. IT management, procurement, real estate and facility management as well as for HR management, deliver significant benefits and are already widely implemented.
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Figure 14: Realised benefits (support processes) Realised benefits – support processes Information technology
62%
Real estate and facility management
53%
Procurement
52%
Human resources
35% 29%
Marketing
43% 20%
High
11%
48%
19% 0%
18%
37%
33%
40%
3%
19% 38%
60%
Medium
80%
100%
Low
However, we believe that the financial and quality benefits could be further increased through the adoption of smart process excellence and IT optimisation initiatives with quick wins, particularly in procurement and real estate/facility management.
Finance and risk processes – the next wave of SSCs in FS industry? For non-core processes in the finance and risk functions in the FS industry, banks and insurance companies consider financial accounting to be best suited for a SSC approach with 70 % of respondents expecting high or at least medium cost savings.
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Figure 15: Realised benefits (finance and risk function) Realised benefits – finance/risk processes Financial accounting
50%
Risk and management reporting
23%
38%
Treasury, asset-liability management
29%
35%
Regulatory reporting
29%
Controlling, financial analysis, planning, budgeting
33%
30%
35%
29%
23% 0%
27%
42%
50% 20%
High
40% Medium
27% 60%
80%
100%
Low
Even for other processes, e.g. treasury, ALM, controlling/management accounting, financial analytics, planning and budgeting, risk and management reporting and regulatory reporting, we observe and advise leading international FS institutions to evaluate and pursue SSC approaches. Therefore, FS institutions which have implemented SSCs have realised significant cost savings in these functions through:
• Aligning operations to a corporate strategy and a target operating model • Improving service and information quality, accuracy and timeliness • Consolidating similar tasks across lines of business and legal entities for critical mass • Standardising services • Reducing redundant or obsolete tasks • Reducing administration cost, headcount and salaries • Reducing IT and infrastructure cost and simplifying IT systems upgrades and rollouts
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Enhanced service quality Non financial benefits are another key objective of companies when setting-up shared services organisations.
Figure 16: Realised quality benefits Development of quality benefits Standardisation of processes and methods
4%
96%
Time used by staff on higher value activities
87%
9% 4%
Cost per transaction
87%
11% 2%
Application of best practice solution
20%
80%
Quality of data
76%
Time spent on information gathering
73%
20%
Control on operations Ease and rapidity to access the right information Internal customer satisfaction
72%
26%
Cooperation with other functions
22%
20% Better
7% 2%
65%
26%
9%
65%
26%
9%
30%
59% 0%
2%
40% Equal
60%
11%
80%
100%
Worse
Nearly all SSCs have improved standardisation of processes and methods, cost per transaction and time available for higher value activities. Furthermore, our study reveals that all qualitative criteria and aspects of process excellence improved through SSCs are supported by improved IT infrastructure (straight-through-processing) and managed service level agreements. Continuous improvement programmes, integrated ERP/IT platforms and end-to-end process reengineering drive further optimisation of cost and service quality. In only a few cases, some qualitative aspects e.g. cooperation with other functions or internal customer satisfaction decreased which was mainly due to a sub-optimal implementation and migration execution.
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Top-down implementation strategy is key for success There are two distinct implementation approaches for SSCs. In a top-down driven approach, senior management, based on corporate strategy and a target operating model, decides which functions and businesses will be migrated to SSCs. 70 % of respondents followed this approach. 90 % of FS institutions which have chosen a top-down approach achieved significant cost savings and were more successful than companies where the use of SSCs was made optional. Still, 30 % of respondents have followed the second approach of “optional use” of SSCs. In practice, this approach brings less benefits, later pay-backs and causes more instability in the organisation and culture through permanent change.
Figure 17: Implementation approach and realised cost savings Approach of SSC implementation and realised cost savings (in %)
Optional use of SSC
14%
29%
Not yet successful (0% realised)
57%
Medium successful (1–20% realised) Top-down approach 9%
0%
19%
20%
72%
40%
60%
Shared Services in Financial Services | Survey
Highly successful (> 21% realised) 80%
100%
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Manageable challenges It’s about people Qualification of personnel and cultural differences are the main challenges to FS institutions when implementing SSCs.
Figure 18: Most difficult challenges to overcome Difficult challenges to overcome in the future (in %) 40% 35% 30%
38%
35%
25% 20% 15% 12%
10%
8%
5%
7%
So se cia cu l/p rit o y a liti sp cal ec / ts
A in vail fra ab st ili ru ty ct of ur e
s er rri ba ge ua ng La
qu
al Av ifi a ed ila pe bil rs ity on o ne f l Cu ltu ra ld iff er en ce s
0%
The results above show that it is essential for the successful operation of SSCs to carry out change management activities to overcome cultural differences even after the rollout of the SSC. Furthermore, a positive working environment that attracts talented professionals and training are further aspects to be considered to overcome these difficult challenges. Language barrier (12 %) plays only a minor role. In our previous SSC study of 2007, language barriers were a major challenge to overcome for 31 % of the companies from different industries. Reason for the decrease is that over 50 % of the FS respondents of the current study have a European-wide or global focus and therefore, language is no longer a major issue as there is already an international company culture established within the FS industry. Another interesting finding is that challenges with respect to infrastructure as well as social, political stability and security aspects play only a minor part.
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Future organisational models for SSCs The dominating organisational models found in our study are traditional shared services focusing on transactional services (e.g. in financial accounting as “accounting factory”) followed by Centres of Expertise that exceed transactional activities. This is in line with our SSC study from 2007.
Figure 19: Adequate organisational models for planned or operated SSC within the next 5–10 years Organisational model for the next 5–10 years (in %) 40% 35% 30%
33%
32%
25% 20% 15% 10%
11%
5%
8% 3%
ise
/E Ce xc nt el re le o Of nc f fe e rin ex g te se rn rv al ice Ou cli s t ts en o ou ts rc in se g rv to ice ex Bu pr ter ov na yi ng id l er ex SSC te s rn er al vic re es ss fr ou om op rc er D es at ec io en ns tr (b ali ac sa ks tio ho n rin of g) No ch an ge at al l
3%
Ex p
er t
T re rad d it se io rv na ice l s
0%
sh a
10%
Most FS institutions operate their own standardised SSCs for their own processes, either as traditional SSCs or Centres of Excellence. This trend towards centralisation will definitely continue as only 3 % state that decentralisation (backshoring) is an adequate organisational form for the next 5–10 years. Most FS institutions have a strong focus on optimising services for the own business units. Only a few FS institutions have outsourced the existing SSC to an external service provider or offered SSC services to third parties. Only 11 % of the respondents intend to generate revenues by offering services from their own SSC to external third-party clients. However, we expect a push towards these new organisational models in the future due to a stronger fragmentation of the FS value chain, structural changes, focus on core competences and cost-driven target operating models where sourcing will be key. We will see more FS institutions outsourcing their processes to external service providers or buying services from external sources as well as offering services to third parties. We will see all FS institutions migrating more core processes, finance and risk functions and common services into SSCs with a higher degree of automation/straight-throughprocessing and a broader scope.
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5. Shared Services and Innovation Innovation as a driver Scientific literature holds the view, that innovation readiness is a major driver of any sourcing decision in financial services (Martin et al. 2008). In our case, this might help to explain the varying picture of SSC introduction and the differences in location decisions. This study thus examines the relationship between innovation and intention to implement an SSC. We therefore measure three different dimensions of innovation. Innovation is assembled by the constructs
• organisational innovation, • employee innovation and • targeted innovation. These are combined into one measure for innovation. Management that supports innovative approaches in their organisation are more likely to adopt innovative organisational forms like SSCs (organisational innovation). The management additionally has to motivate the organisation’s employees to think and work innovatively. The adoption of a new technology or organisational form will not succeed, if the employees refuse to use the new technology. The mindset of the employees is captured through a measure called employee-related innovation (Wang et al. 2004). Strong targeted innovation may also enable new organisational forms. Targeted innovation is the extent to which organisations are designed to innovate. To succeed, organisations need to engage in innovation, even in the absence of short-term benefits. Innovative organisations would be more likely to possess the necessary attitude, skills, technical expertise, and technologies to realise a SSC (Liu et al. 2008). In the next chapters we will show the results for the three different levels of innovation and its impact on the organisational aspects of SSCs and their success.
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Levels of Innovation When we look at the results of the study it seems that the management supports and rewards beneficial innovations such as SSCs, but they are not the primary source of innovative ideas. Only 21 % of respondents say that senior executives constantly seek new unusual solutions and act as an “idea man”.
Figure 20: Innovation of respondents Statements of innovativeness (in %) Our management supports the adoption of beneficial innovations like SSC Our management rewards the discovery and/or introductory of beneficial innovations like SSC We get a lot of support from managers if we want to try new ways of doing things In our company we tolerate individuals who do things differently We encourage people to think and behave in original and novel ways We are willing to try new ways of doing things and seek unusual, novel solutions Our employees are used to learning and adapting to innovations like SSC When we see new ways of doing things, we adopt them quickly Senior executives constantly seek unusual, novel solutions to problems via the use of “idea men”
21%
Key executives of the firm are willing to take risks to seize and explore “chancy” growth opportunities
21%
0% Often applies
52%
40%
8%
44%
33%
23% 4%
63%
33%
8%
63%
29%
13%
60%
27%
6%
69%
25%
21%
56%
23%
10%
67%
23%
21%
58%
13%
66% 20%
40%
Sometime applies
60%
80%
100%
Seldom/never applies
But senior executives are not the sole source for new ideas. A lot of new solutions to existing problems come from employees, if an enabling company culture supports innovative thinking. Compared to the results of organisational innovation it seems that employee related innovation plays a more important role. We can see that 29 % of companies tolerate when things are done differently and 34 % get a lot of support from managers to try new ways of doing things even if those managers were not the “idea man” to find new solutions. All in all the results show that employees are an important source for creating innovative solutions like SSCs. Furthermore, the support of management is a prerequisite to adopt and realise such innovative initiatives. This result matches perfectly with our experiences with the introduction of SSCs: management attention and support is a very important source for acceptance and adoption of new processes, organisations and methods that are necessary for the successful operation of a SSC. Shared Services in Financial Services | Survey
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Organisational aspects of SSCs and level of innovation A relationship between innovation and the intention to implement a SSC could not be observed. But there seems to be a correlation between the level of innovation and the number of years a SSC is being operated. Companies with a high or medium level of innovation have operated their SSC for a longer time than companies with a low innovation level. This means that innovative companies started earlier with an innovative bundling of their services in SSCs than the other companies.
Figure 21: Innovation level and years of SSC in operation Innovation level and years of SSC operations (in %) Low
33%
Medium
23%
High
23%
25% 0%
10%
17%
50% 54%
25% 20%
30%
40%
50% 50%
60%
70%
1–3 years
Less than 1 year
80%
90% 100%
More than 3 years
Regarding the location decision it can be stated that firms that deem themselves as innovative do not plan to locate their SSC in Eastern Europe or Asia but rather in domestic regions. Especially firms from Switzerland and Austria prefer a domestic location for their SSC. Firms with a medium innovation level prefer Eastern Europe, Asia (including India) and a domestic region for an optimal location in the future.
Figure 22: Innovation level and feasible future location Innovation level and future SSC location (in %) Asia (incl. India) Low
19%
37%
25%
19% Domestic location
Medium
33%
High
25% 0%
24
22%
40%
2% 3%
North and South America
75% 20%
40%
60%
Eastern Europe (e.g. Czech Republic, Romania)
80%
100%
Southern and Western Europe
Shared Services in Financial Services | Survey
Relationship between innovation and SSC success We find a positive correlation between innovation and SSC success. Overall it can be stated that 50 % of companies with a low innovation level have not yet realised any cost savings whereas companies with a high or medium innovation level were able to realise savings. But this result may be biased: as companies with a high or medium innovation level have been operating their SSC longer than companies with a low innovation level the time frame for operating SSC could be another explanation.
Figure 23: Innovation level and success (=realised cost savings) Innovation level and success (in %)
50%
Low
Medium 3%
17%
23%
Not yet successful (0% realised)
33%
Medium successful (1–20% realised)
74%
Highly successful (> 21% realised) 25%
High 0%
10%
75% 20%
30%
40%
50%
60%
70%
80%
90% 100%
We can state that companies with a medium or high innovation level have adopted the idea of SSCs early and have been able to realise more cost benefits.
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6. Summary and Outlook Companies in the financial services industry have already implemented SSCs for their support and transactional processes. However in the first step the industry is focused on the “low hanging fruit”. The next steps will be to improve the existing services, to increase client satisfaction, to include further processes and develop new services that offer added value to the clients.
Increased pressure on quality and risk management over pure cost reduction SSCs provide sustainable cost savings in the long term. As location decisions result in considerable investments it will not be possible to realise ongoing cost savings through repeatedly moving from one location to another. Cost savings based on labour cost arbitrage due to lower salaries in nearshore or offshore locations will be more and more difficult to realise. Limitations will not only be infrastructure, language requirements and availability of skilled resources but also, for example, data and intellectual security and privacy. Therefore, it will be more and more important to realise further optimisation potential in process automation and standardisation. Organisational alternatives, e.g. as Centres of Expertise or outsourcing of transactional activities or combinations of SSC and outsourcing will gain more importance in the future. Additional processes performed by a Shared Service Centre organisation will enlarge the offered services and added value to the internal customer. As one attribute of SSCs is the introduction of market conditions for internal services, the role of the former “colleague” has changed more and more to an internal customer who pays for the service. Therefore, quality, risk management concepts and service level management will gain greater importance to ensure the continuous operation of the SSC. Organisational models such as a shared service have just been accepted in the financial services industry and will be widely adopted in the future as it delivers significant cost savings and enhanced process quality in FS core and support processes.
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7. Background and Methodology In 2007 BearingPoint conducted a panel study across different industries analysing the added value and future trends regarding SSCs for large companies. The study revealed the level of maturity at which Shared Service Centres were operating and the expected future trends. The results of the study warranted further analysis in the financial services industry in more detail – especially we were eager to learn more about SSCs in banking and insurance companies in the entire European region. The result is the current shared services study which we conducted with the support of E-Finance Lab, a network of FS industry partners including their academic partners, the Goethe University of Frankfurt and the Technical University of Darmstadt, Germany. The study’s objective was to investigate the current situation as well as trends for SSCs in the financial services industry – particularly in the present times of a turbulent economic environment. Furthermore, we intended to identify innovators as well as best practices for SSCs and collect lessons learned from early adopters in the FS industry. Finally, we sought to provide the readers of this study with thought leadership and opportunities for further process and cost optimisation and service level improvements through the deployment of SSC, e.g. for additional functions and processes. The main questions we addressed in this study were:
• Organisational aspects of introduction and operation of SSCs • What are the main decision criteria for choosing a location? • What are the main difficulties to overcome? • What types of processes are covered by SSCs now and will be covered in the future? • Which processes provide the highest benefit and are these processes already implemented?
• How should SSCs be introduced to realise cost savings? • What role does innovation play regarding organisation of SSCs and their success?
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Target group for the survey Overall we addressed 743 decision makers of selected companies in the FS industry and invited them to answer our online questionnaire. We focused on banking and insurance companies in the following countries:
• Germany • France & Spain • Switzerland & Austria • United Kingdom • BeNeLux • Nordics • Other The feedback rate was 18.6 %, which is a respectable result indicating the timeliness of the SSC topic for the industry. We have included different types of banks and insurance companies. Even though the allocation into the different bank and insurance types might not be applicable across all European markets, it reflects the majority of FS companies in the industry. Most answers came from decision makers in cooperative and general banks as well as life and property insurances.
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Figure 24: Structure of respondents: Type of business in the banking and insurance industry (multiple answers) Type of bank (in %)
Type of insurance company (in %)
40%
40% 38% 30%
Investment bank
Private bank
0%
Savings bank
0%
General bank
10% Cooperative bank
10%
14%
10%
5%
7% Other
20%
15%
Re-insurance
15%
Annuities
20%
26%
Property & casualties
18%
Health
25%
Life insurance
27%
30%
Nearly one half of the participating FS-companies focus on local and national activities and the other half of the respondents on international activities while one third also operate on a global basis as well.
Figure 25: Regional activity and company size Regional activity (in %)
Number of employees (in %) Below 5 000
7% 32%
23% 22%
23%
Local National Europe Global
20% 21%
5 001–50 000 52%
50 001–100 000 Over 100 000
Regarding the company size by means of number of employees the majority of the companies consist of less than 5,000 employees.
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8. Further Readings Bergeron, B.P., Essentials of shared services. John Wiley & Sons, Hoboken, NJ, 2003, pp. viii, 264 p. Buckley, P.J., and Casson, M., The future of the multinational enterprise. Palgrave Macmillan, Houndmills, Basingstoke, Hampshire New York, 2002, pp. xxiii, 116 p. Bunyaratavej, K., Hahn, E.D., and Doh, J.P., “International offshoring of services: A parity study”, Journal of International Management (13:1) 2007, pp 7–21. Doh, J.P., “Offshore Outsourcing: Implications for International Business and Strategic Management Theory and Practice”, Journal of Management Studies (42:3), May2005 2005, pp 695–704. Fischer, T.M., and Sterzenbach, S., “ZP-Stichwort: Shared Service Centers”, Zeitschrift für Planung & Unternehmenssteuerung (17) 2006, pp 123–128. Gewald, H., and Dibbern, J., “Risks and benefits of business process outsourcing: A study of transaction services in the German banking industry”, Information & Management (46:4) 2009, pp 249–257. Graf, M., and Mudambi, S.M., “The outsourcing of IT-enabled business processes: A conceptual model of the location decision”, Journal of International Management (11:2), June 2005, pp 253–268. Hymer, S., “The international operations of national firms: a study of direct foreign investment”, MIT Press, Cambridge, Mass., 1976, pp. xxii, 253 p. Kotabe, M., and Murray, J.Y., “Global sourcing strategy and sustainable competitive advantage”, Industrial Marketing Management (33:1), January 2004, p 7. Liu, C., Sia, C.-L., and Wei, K.-K., “Adopting organizational virtualization in B2B firms: An empirical study in Singapore”, Information & Management (45:7) 2008, pp 429–437. Martin, S., Beimborn, D., Parikh, M., and Weitzel, T., “Organizational Readiness for Business Process Outsourcing: A Model of Determinants and Impact on Outsourcing Success”, Hawaii International Conference on System Sciences HICSS-41; Big Island, Hawaii, 2008. Meyer, T., and Stobbe, A., “Offshoring – Welche “Standorte” wählen deutsche Unter nehmen?”, Wirtschaftsinformatik 49 (2007) Sonderheft, pp 81–89. Mudambi, R., “The MNE Investment Location Decision: Some Empirical Evidence”, Managerial & Decision Economics (16:3), May/June 1995, pp 249–257. Schmenner, R.W., “Look beyond the obvious in plant location”, Harvard Business Review (57:1), Jan/Feb 1979, pp 126–132. Wang, C.L., and Ahmed, P.K., “The development and validation of the organisational innovativeness construct using confirmatory factor analysis”, European Journal of Innovation Management (7:4) 2004, pp 303–313. Youngdahl, W., Ramaswamy, K., and Verma, R., “Exploring new research frontiers in offshoring knowledge and service processes”, Journal of Operations Management (26:2) 2008, pp 135–140.
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Contact Person by Region Austria Roland Schöbel, Senior Manager, +43 150 6325 105,
[email protected]
France Philippe Roubin, Partner, +33 15886 5010,
[email protected] Nicolas Cailly, Director, +33 624 943522,
[email protected] Benoît Caytan, Senior Manager, +33 612 290547,
[email protected] Laurent Lopez, Manager, +33 15886 3439,
[email protected]
Germany Jens Raschke, Partner, +49 211 1714 37510,
[email protected] Robert Wagner, Partner, +49 69 13022 1331,
[email protected] Markus Zillner, Partner, +49 89 54033 6645,
[email protected] Ursula Mathes, Manager, +49 89 54033 7053,
[email protected]
Netherlands Johan van Hagen, Partner, +31 205 049024,
[email protected]
Norway Thomas Magnus, Senior Manager, +47 918 53393,
[email protected]
Switzerland Ronald Frey, Partner, +41 43 299 6598,
[email protected] Patrick Mäder, Partner, + 41 43 299 7321,
[email protected]
United Kingdom Ian Holden, Partner, +44 207 9396 179,
[email protected] Robert Farag, Senior Manager, +44 207 9396 165,
[email protected]
Denmark Søren Ohm, Associate Managing Director, +45 299 9686 0,
[email protected]
Sweden Johan Bergstrøm, Senior Manager, +46 841 0116 95,
[email protected]
Finland Björn Heir, Partner, +358 400 4483 57,
[email protected]
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To get there. Together.
Helping our clients get sustainable, measurable results BearingPoint is an independent management and technology consultancy. Owned and operated by its Partners throughout Europe, BearingPoint provides its clients with the best possible value in terms of tangible, measurable results by leveraging business and technology expertise. The company currently employs 3.250 people in 14 European countries and serves commercial, financial and public services clients. BearingPoint offers its clients a seamless cross-border approach, strong focus on results, an entrepreneurial culture, profound industry and functional knowledge, as well as solutions customised to clients’ specific needs. The firm ranks high in client satisfaction, has long-standing relationships with reputable organisations and is seen as a trusted adviser. BearingPoint has European roots, but operates with a global reach. For more information, please visit: www.bearingpointconsulting.com We are BearingPoint. Management & Technology Consultants
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