What do you do in this economic environment? There is pressure to cut costs and improve results. However, it is well known that cost cutting exercises alone do not have the desired long term impact without the associated transformation and process improvement.

Today there are so many options and many conflicting stories about problems and successes of the various approaches. However, the one thing you should not do is do nothing.

Rumors and studies abound.

  • Companies are pulling their call centers out of India
  • Captives are more expensive than Offshore Outsourcing
  • Shared services and captives give you better cost savings results than outsourcing
  • The budget the President presented will penalize companies for outsourcing

The bottom line is that, as in the past, companies need a business case as part of a strategic or business plan to understand the cost, risks and benefits for their strategy.

If part of the solution contains outsourcing, offshoring, a captive, shared services and/or improving the work in place then the company will need to ensure the goals, objectives, and costs are clearly documented. For any outsourcing initiative this is done in part through a contract with Service Level Agreements (SLAs), for internal initiative a similar but less formal contract should be implemented so there are clear measures for success. Even if your plan is to leave work locally, where it is today, there must be clear goals and objectives for improvement initiatives if they are to succeed.

Today, most companies are planning and implementing hybrid solutions which are a combination of the solutions options that are structured to best meet their goals while maintaining focus on core competencies. If we use a hypothetical company that wants to improve their Finance and Accounting area they may come up with a solution similar to the following:

  • Accounts Payable – Offshore outsourced, simple repetitive work
  • Accounts Receivable – Posting offshore outsourced, same logic as AP
  • Billing – Stays local due to the need for customer interaction, but improve and simplify the process
  • Credit – Sales force interfaces with credit group that is offshore outsourced
  • General accounting – A combination of local and shared service because it is more complex, takes judgement that is not documented and may require account creation
  • Fixed Assets – This company does a lot of capital projects so the fixed assets move to the shared service operation
  • Financial analysis – A combination of local and shared service center operation with a stated goal and plan to move more to the shared service operation

In this example, you can see that the work being done using a combination of solutions that the client feels best meets their needs and goals while addressing any risks that they have identified.

Of course a business plan for the creation of a shared service center, the offshore outsourcing and the determination of what to leave local was created outlining costs, benefits, risks and vision and plan evaluated several viable solutions.

Another important point is that the plan you develop must be a living document. You must constantly reevaluate the solution in light of the process improvements that have been implemented, the economic situation, changes in the company goals, etc. As noted in the example above this company has a vision to move more analytical work into the shared service center to minimize the work required locally and to help standardize their analysis.

There is no one right answer for companies. Each company must look at their risk profile, the urgency of the need for improvement, their culture, and their ability to change to help determine the right solution.