Latin America Captives More Equipped for Innovation than Domestic Organizations

By Jon TontiThe Global Business Service center (GBS) is the captive shared services formula of the future that promises to unlock the innovation potential of employees. Latin American companies are uniquely positioned to deploy GBS centers and are largely outpacing their US peers in accelerating the transformation, according to several marketplace experts.

Large companies in Latin America that are just getting into the practice of developing shared services centers are not hampered by legacy single-function service centers and are designing the multi-function shared services centers of the future that will become innovation hubs. A few weeks back we analyzed the Hacket Report that detailed the trends of multi-function, multi-country focused service centers taking advantage of not just economies of scale, but economies of scope and skill as global business services centers (GBS) are tasked with more knowledge-centric activities.

Latin America’s Vigor

Latin American companies are taking the best practices for shared service centers and building them out further without the toil of having to restructure fragmented single-function service centers scattered about the globe. The US was the first to experiment with captive single-function service centers (domestic and international), which creates the reality for many companies of a Help Desk, say, in Atlanta and Accounts Payable in Guadalajara. As US companies are more developed in their global sourcing strategies they are also more rigid, hence restructuring fragmented single-function and multi-function captives into sought after Global Business Services hubs is talked about with enthusiasm yet slow to take hold.

“You would think the US and Europe would demonstrate an abundance of highly matured shared service models as this is now a 20+ year concept in these regions, but we are seeing more talk than action, many US and EU companies have not gone far beyond the transactional processes,” said Brad Dement, partner and financial shared services practice leader at Scott Madden.  “Companies in the emerging market of  LATAM are actually moving faster.  They are taking the leading practices theories from North America and Europe and putting them into operation.  They are hungrier to move through the maturity curve faster and implement.”

Dement talked of a client in Latin America that quickly added (after its captive mastered transactional functions) other elements such as legal, master data, and centers for excellence in engineering.

In the US it is more fragmented, you have to get on planes and talk to different people in different places. In Latam it is easier to move faster because of the dynamic.

Natural Advantage

Companies in Latam building shared services centers from near scratch have a cleaner slate to work with, but they also naturally have had a more regional focus because any large Latin American company’s domestic market (excluding Brazil) is not big enough.  That means “while many US companies are just getting started with their shared services operations serving various foreign markets, LATAM has opened their initial doors with a more regional focus serving multiple countries, cultures, languages, and currencies.  Plus LATAM has already seen the US and EU multi-function models begin to  evolve, so they are building multi-function multi-country share services centers from the outset,” said Dement.

“In LATAM, many organizations report all functions including Finance, HR, IT, General Services, and even Supply Chain to one leader.  This allows faster and more comprehensive answers that consider cross-functional benefits and impacts to the business unit customers. In the US we have more single-function captive shared service operations, you have to get on planes to sell the benefits of cross-functional business intelligence to the CFO, the CIO, HRVP, and the CPO. LATAM is able to implement advanced shared services practices much faster because of this dynamic.”

What to do With the Dynamic?

It seems fragmentation is the enemy and few consolidated GBS hubs are preferred over single-function and smaller multi-function multi-market shared service centers.  That dynamic of IT, supply-chain, finance, HR, etc. all in one place creates a condition for innovation but will hardly guarantee it.  Not everybody references the Oslo Manual when thinking about innovation and when it comes to designing interdisciplinary teams tasked with innovation, aligning the team members is critical.

“You have to understand how an individual defines innovation, get the right mix of individuals together, align the team’s thought process, and give them the supporting technology; that way you can have a more predictable outcome,” says Vinny Caraballo, president of Global Targeting and architect of Project Impact, a global study to measure attitudes, opinions, and disposition of different cultures towards innovation.

The study has brought Vinny a wealth of knowledge about how companies and people of different countries innovate, he says companies can outsource based on how citizens of a country innovate, and each individual can be measured to understand if they think of innovation in an improvement, change, or radical sense.

He remarked that Latin American SCCs are not so compartmentalized, which does allow for an organic mixing of employees with different skillsets.  Technology workers think more in terms of radical innovation; however, Latin America in general tends to conceptualize innovation more in terms of improvement than radical disruption of established practice.

In general, Caraballo thinks companies focus too much on technology and processes when trying to innovate and not enough on their people.

“Technology is not innovation; technology is the product of innovation. Innovation is about people, it emanates from human beings.  You have to understand that and then you can implement the micro-ecosystem.  You have to find the right people, and not simply based on their titles.”

Once companies can understand that according to Caraballo, they can beging to implement supporting elements at three different levels: a Chief Innovation Officer (who is not just and add-on title for the Chief Information Officer), integrated work teams and workshops, and a system to further understand how the individual employee understands and identifies innovation.