Shared Services have continued to expand at a dramatic rate in the last ten years in Latin America – but the level of process maturity at these centers varies greatly. Otto Acuña, Managing Director at Costa Rica’s EXYGE, has observed this transition closely and is beginning to take note of the move by some service centers to develop deeper relationships with third-party outsourcers.
Nearshore Americas: What are the main problems businesses face running shared services operations?
Otto Acuña: The problems depend on how evolved the service centers are. When the services centers are just starting out many of the problems are to do with stabilization. Most of the service centers that I know have been ‘lift-and-drop’ operations – when a business takes its processes as they are, with their good and bad aspects, to a new site. In these cases, once the honeymoon period is over, there is often a need to make the processes that they brought more efficient. Sometimes there are problems of efficiency in management of the service-level agreements (SLAs). In many cases, the service center is set up, but they don’t necessarily know how to manage the levels of service with the business. So it’s very important to establish this provider-client relationship (albeit an internal one) from the beginning and establish how the service center can provide consistency.
As the service center becomes more mature, it has the option to begin to provide services with greater value. There are centers that are focused on giving higher-value services to the same clients and there are others that, once the first wave works out, they begin to bring in more operations from other countries. This presents us with two potential problems: one is that as you could be overwhelmed and efficiency could drop as you bring in more business and process more transactions. And in other cases, when you’ve established yourself but you’re not bringing in more operations, the worry is not so much efficiency, but how to deliver higher value for the amount of money being paid to the service center under the SLA.
The value of setting up a shared services operation should not only be cost reduction coming from the arbitrage.
NSAM: What are the most significant new trends emerging in the shared services industry?
Acuña: One of the trends we’re seeing is businesses looking for third-parties in local markets, with which they can work to generate greater value. If I’m a service center and I have the processes stabilized, it could be that I can reduce costs by handing the lowest-value part of the operation to a third party. This only occurs when the service center is a little more advanced and has moved past the aforementioned issues of expansion, efficiency and value. There are not many centers at this point where they can subcontract their work, but under their control because they have to ensure the same consistency and efficiency. This does not really affect the SLA and the client relationship because the business does not really see whether the services that it is consuming are from the service center or done by a third party that the service center contracts and controls.
NSAM: What are the decisive factors when deciding where to set up a shared services center?
Acuña: One of the most important factors is the location. It depends on the technology, etc. and how you’re going to do it – whether or not it will be a ‘lift-and-drop.’ The model of carrying operations to Latin America is already a proven success. It’s been done for several years now. After the pioneers began to open their service centers – for example Proctor & Gamble has been in Costa Rica for over ten years now – then came others, not just financers, also graphic designers and software producers. People know that it can be done well but don’t always necessarily depend on just one location. There are many companies that have simultaneous operations in two or three countries – Panama, Costa Rica and Bogota, Colombia are the main sites – so as to have their eggs in several different baskets.
NSAM: What common mistakes should businesses avoid when setting up a center?
Acuña: Business cases are one area where there are sometimes errors, as they are not always detailed or thorough enough. You must think not just in the present but in the long-term, but sometimes there is strong corporate pressure and decisions are made which only take into account the labor arbitrage – the differences in salary between the different countries.
The value of setting up a shared services operation should not only be cost reduction coming from the arbitrage. There are other implications and benefits that need to be considered when making the decision. Setting up a service center is a medium to long-term commitment so you must consider what will happen two, three or five years down the road. It’s very expensive to be lifting up and moving operations, so the medium to long-term plan in the chosen country must be very well defined.
NSAM: What are the other main considerations aside from salary arbitrage?
Acuña: There are several other reasons why an organization would find value in consolidating operations, one is standardization of processes, also the compliance with certain rules or policies, sometimes also having more control over the transactions play a role as an argument in the business case. For example, if I consolidate all purchasing operations from different groups under a shared services model, then – beyond the savings that might represent the difference in cost between a fully certified purchase agent in the U.S. and another in Costa Rica, Panama or Colombia – there might be other opportunities that could be part of the business case such as the consolidation of operations, the improved negotiation power that the shared organization might have with suppliers, efficiencies in the supply chain from having everything consolidated, etc.
NSAM: What qualities should you look for when hiring talent in shared services?
Acuña: I’m not an expert in hiring talent but I think the qualities required differ from when you’re first setting up a service center and when you’ve already established it. At first you need workers with a lot of flexibility and grit, people who don’t give up until they’ve accomplished their goals. It’s very important to have the right workers because there is a lot of pressure on them to work quickly and this can often be detrimental to the quality of work they are doing. Then as the center develops, you need people with greater stability and respect for the business processes. You don’t just need people with technical knowledge, but also with the right mindset.
NSAM: What changes will the future bring in the shared services industry?
Acuña: It may not be immediate, but I think there will be changes at the structural level. As there will be more outsourcing to third-parties, the biggest centers will mature and maybe there will be fewer transactional staff – who could be absorbed by the third parties – and perhaps at the management level there will be greater knowledge of how to handle the contracts and how to manage the third parties.
NSAM: Finally, tell us a bit about EXYGE.
Acuña: We’re a consulting company. We’ve been in the market for about ten years now, initially with some data services but since 2007 onward we’ve done consulting in the services areas, we specialize in operational excellence and performance management for the services industries. We deal a lot with banks, shared services centers and the back-office areas of companies in other industries, such as finance, HR, purchasing, etc.