GBS trilogy on the digitalization of back offices I

First part: «Fascination Global Business Services»

Sometime in the 1990s, the digital transformation of the corporate world began. While this process is continuously ongoing, there are every now and then waves in which the topic comes up in public debate. Now this is the case in connection with AI, the generative artificial intelligence. While, visible to all, the «Interface» between companies and customers is revolutionizing, administrations are of course transforming as well. Here, I would like to address the topic of «Digitalization of Back Offices» and dedicate a trilogy to the phenomenon of «Shares Services» and «Global Business Services». Today, in the first part, I'm going to define the area, explain my personal approach to it, and why this fascinates me so much. The second part is then about where the Global Business Services Industry stands today. And the third part is about the future fundamental challenges and where the journey might go.

My approach to shared and global business services

In my early CFO years, our management team had to make a significant reduction in our organization. In building it up - in a country with low-income levels - we felt we had everything on our radar but productivity. This was so painful that I swore it would never happen to me again. Since then, I have always kept an eye on the growth and the size of an administration, conducted benchmarks and tried not to allow unnecessary resources to emerge in «my» organizations. The employees are the ones who suffer, while the responsibility always lies with the management. In the process, I recognized the potential of active organizational development for the back office and landed early at Shared Services and Global Business Services (GBS): in 2005, I wrote my MBA master's thesis on the topic, in 2010 I was part of the leadership team setting up Group Shared Services in IKEA, and from 2015 to 2020 I led their global Group Shared Services organization. So, I've been on the topic for 20 years and have developed my expertise from both an employee and a management perspective.

It is clear: Global Business Services are a «child of the globalization». In an open, networked world, why should accounting, for example, be done in each individual unit instead of merging them and taking advantage of the resulting economies of scale, especially as accounting standards are becoming more and more aligned worldwide?

Today, in 2023, the question is whether the appropriate conditions are still in place, given the new geopolitical development (many see us already back in the Cold War), and on the other hand, the «New Work/Future of Work» development after the COVID epidemic is right now challenging some of the established principles. But let's start at the beginning, with the definitions:

What exactly are Global Business and Shared Services?

  • Global Business Services (GBS) is a term for centralized service delivery models that encompass captive shared services, outsourcing, and centers of excellence (CoEs) to serve multiple business units. Scope can include finance, IT, HR, and procurement, as well as other functions, and can be delivered onshore or offshore. (Source: Deloitte)
  • Shared Services is the now well-established principle of consolidating «non-core» (back office) support services and delivering these from centralized locations to provide lower costs, higher quality/reliability, standardization and harmonization of processes. (Source: SSON, Shared Services and Outsourcing Network)
  • Global Business Services (GBS) is a more mature and integrated version of the shared services model. GBS controls the delivery of business support functions to the core business through multiple service delivery models on a global basis, and it has become one of the most popular areas in corporate development for driving optimized performance across multiple business support services. While shared services has traditionally been viewed as a support function to the broader business, the GBS model positions itself as a business partner that can help the organization meet strategic objectives. (Source: SSON, Shared Services and Outsourcing Network)

Vision Rafal has written an excellent article on the definition of Centers of Excellence (CoEs) and their various executions.

The evolution and my fascination with GBS

The GBS sector has undergone a fascinating development: What initially began in Shared Services Centers (SSC) as a way to reduce costs has evolved over time. First, end-to-end business processes were established, and the next logical step was to drive forward the digitalization of administration together with IT. This evolved into GBS, which assume or at least coordinate functional, process, technological and operational execution competencies in various organizational forms. Somewhat exaggeratedly, it can be said that the core business takes over digitalization in the customer area, and in many companies a GBS organization does this for the back office. Obviously, this is not an inevitable development. Depending on the business model, size, geographic market and the resulting potential, as well as factors such as corporate culture and degree of decentralization, a (multi-) functional shared services approach may well make more sense. Moreover, a GBS organization cannot be introduced «just like that». To illustrate this, I will list the key points of a global corporation whose GBS organization I once visited:

  • Company: diversified group with >$100 billion in sales, >30,000 employees and various autonomous, independent divisions, some of which were built up in-house and some acquired.
  • Global Business Services: >9,000 employees in various locations on 4 continents, providing 27 services in Sales, Finance, HR, IT, Legal and Supply Chain.
  • Goal and Approach: At the time of my visit, GBS had the goal of taking over about 50% of all back- office services in GBS over time, 80% of them standardized and 60% to be performed in in-house SSCs with then about 15'000 employees. For each service taken over, GBS promised an annual efficiency increase of 5-6% per year and planned to reduce the number of different ERP systems involved from >150 to <30.

This example shows the potential of GBS on the one hand and the enormous impact on existing organizations on the other. Internal and local resistance is almost inevitable, and the concept and implementation must be correspondingly well thought out.

My fascination with GBS probably stems from the fact that I like to see and shape the big picture, that I am an integrative personality, and that complexity spurs me on more than it deters me. In addition, I have an affinity for the future, the awareness that the megatrends cannot be stopped anyway and that it makes more sense to shape the future oneself instead of resisting it and in the end taking it over anyway in a rush and adaptation mode.

And this brings us to the topic of future readiness and sustainability. The larger a company is, the more complex and branched out its administration is, the more important it is to develop a strategy for the back offices and to actively shape their development. Allowing administration to mushroom in a decentralized and adaptive manner cannot be an option. This leads to more (coordination-) bureaucracy, slow processes, inefficiency and very high costs.

I'm interested in your feedback, whether it's a comment, a connection on LinkedIn, or a corresponding message.

PS Let the future be your guide - the best in life is yet to come.