GBS trilogy on the digitalization of back offices II

Second part: «The Revolution Behind the Scenes - Where Are We Today?» 

Sometime in the 1990s, the digital transformation of the corporate world began. While this process is ongoing, there are always waves in which the topic comes up in public debate. Now this is the case again in connection with AI, generative artificial intelligence. While, for all to see, the «interface» between companies and customers is revolutionizing, administrations are naturally transforming as well. Here, I would like to address the topic of «digitalization of back offices» and devote this trilogy to the phenomenon of shared services and global business services. In the first part, I have defined the field, described my personal approach to it and explained why GBS fascinates me so much. In today's second part, I will describe the current situation, before going on to look at the fundamental challenges in the third and final part and show where the journey could take us in the future.

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

Today, in 2023, the question is whether the corresponding prerequisites are still in place in view of the new geopolitical developments (many already see us back in the Cold War). On the other hand, the «New Work/Future of Work» development after the COVID epidemic is just challenging some of the principles that have grown up. But first, let's look at the present:

Where is the GBS industry today in 2023?

In GBS, there is no one model solution. The number of factors that need to be considered for a solution are numerous and many of them have a strategic importance. Each company must find the solution that is right for it individually. At the same time, it is important to note that a try-and-error approach can be fatal in large companies. In my MBA thesis, I mentioned an American 1.5-billion-dollar company that gave the following as the reason for its bankruptcy: They pushed through a successful GBS concept from another company. However, they failed to realize that this company relied heavily on centralized processes, which was not compatible with their own decentralized corporate culture. To counteract such failures, I list the most important issues here:

  • Starting position and purpose: Is it a homogeneously grown company or a conglomerate with many different areas? Is it primarily a matter of efficiency, economies of scale and costs, or a digitalization strategy for the back office? Do (end-to-end) processes exist or are they to be created and optimized for the first time?
  • Corporate culture: What values are practiced? To what extent is psychological safety in the focus? What is the management philosophy? Are decisions made centrally and then delegated downwards, or are common goals defined and the majority of decisions made decentral in the business units?
  • Areas: What should be included, and in what order? The GBS hit parade is led by Finance, ahead of HR, Purchasing, IT, Sales and Logistics.
  • Sourcing: Is the focus on an in-house shared services structure or an external outsourcing model? And for the hybrid approach (my favourite): Which functions and processes should be insourced, which should be outsourced, and which should be co-sourced?
  • Locations: Whereas in the past the focus was often on costs (salaries, taxes and incentives), it is increasingly a question of which locations have the relevant resources available in the first place, to what extent these match the existing locations and how this results in the best possible mix.
  • Technology and infrastructure: What IT infrastructure and what technology platforms exist? How can integration with the core business be optimally realized, and what are the requirements regarding integration with external partners? How far has automation progressed? Does robotic process automation (RPA) exist? And what is the approach to AI, generative artificial intelligence?

Once a corresponding target operating model (TOM) has been designed, a cost/benefit and risk analysis must be carried out and an implementation strategy developed. Here, too, there are diametrically different concepts. A transformation that is not compatible with the corporate culture will already fail at the introduction stage. And when making the decision, it is important to ensure that the evaluation is not only based on financial considerations, but also takes into account the other two sustainability criteria (people/employees and environment/geopolitics) and thus assesses their future viability.

A complex subject area in a complex world

There are these many «big» questions, and they are almost all strategic in nature. Accordingly, there are many stumbling blocks, and it is correspondingly important that a transformation toward Shared Services and Global Business Services is not only signed off by the highest corporate level, but also actively supported and its implementation coordinated at the strategic level. This applies both to the targeted TOM and, and in particular, to the implementation strategy, because such upheavals within the company inevitably result in winners and losers.

Another aspect is that very probably not all the necessary know-how is available and up to date within the company. In most cases, therefore, an external consulting company will (have to) be involved. Here it is important to find the right balance, to integrate the external knowledge and experience into the own company in such a way that neither a model introduced elsewhere, for example, is adapted without consideration and adjustments to the own philosophy and culture, nor the external knowledge and experience are ignored.

In my view, the three most frequent and obvious sources of error are:

  1. Executive sponsoring is missing. Responsibilities for the GBS area are too low in the hierarchy. Top management support is lacking, or the affected organizations are not sufficiently involved and some are in opposition mode.
  2. The importance of know-how is underestimated, both in the design of the TOM and in its implementation. In both areas, the technical skills and the experience are needed. The choice of the external consultant is very important.
  3. The journey becomes the destination when strategic decisions (insourcing, outsourcing vs. co-sourcing, choice of consultant, ...) are focused on the transformation process instead of the targeted TOM. Starting a transformation before all stakeholders have internalized, committed to, and formally signed off on the targeted TOM costs a lot of time and even more money.

What is the situation in your company? Do you have a global business or shared services strategy? If yes, is it fit for the future? If no, are you planning to jump on this bandwagon? I'm interested in your feedback, whether it's a comment, networking on LinkedIn, or a related message.

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