Newspapers today are reporting several sales of captive shared service centers to third-party BPO companies. And many more shared services of captives are on the block, like Fidelity, Franklin and Dell - the list seems endless.
This trend reopens what many thought were already settled questions in the shared service versus third-party debate: Which model adds more value to the shareholders and to the firm in the longer run? What should be the roadmap?
Over the last decade and a half, almost all companies have made the same journey; they started as back office support for mundane/routine transactional activities (claims processing, email support, tech help desk), then slowly graduated to value-added activities (invoice queues management, cash applications, general ledger, fixed assets, etc.), before finally moving to crucial processes such as high-end analytics, financial reporting, regulatory filing, etc.
Where does it make sense to use the Shared Services Center (SSC) model? They are best when:
- There is a need to control the end resolution like intellectual property issues or highly complex activities that require specialized domain knowledge. This is especially true where specialized R&D is involved. Technically these are not SSCs but rather centers of excellence where residents and expatriates jointly work together on cutting-edge technologies.
- There is a requirement which states that people doing the work are employees of the company.
- There are legal or regulatory restrictions.
- The enterprise is uncomfortable outsourcing this to a third-party provider. For example, some banks prefer to own the entire process chain due to data and customer confidentiality.
A third-party BPO company is the better option when the company:
- Wishes to benefit from economies of scale
- Does not have the management bandwidth to manage locations across the globe
- Does not have the dedicated technology support to move up the chain faster
- Does not wish to deal with HR issues like managing and retaining employees
Read more about the captive vs. SSC debate in our article,
'Pros and Cons of Captive versus Third Party Shared Services Center.'