Global Business Services - Thoughts on Operating Model, Identity and Future.

Global Business Services (GBS) - Global Business Service Centers (GBSCs)

Shared Services (SS) - Shared Service Centers (SSCs)

Business Process Outsourcing (BPO)

From the onset of a post cold war globalized and market-driven economy where competition for global consumer markets became the north star for companies, the era of shared services was inaugurated. As companies introduced new products and services, they aimed to keep costs down and one way to do it was shifting Backoffice operations to attractive cost-effective locations where direct costs are lower than the principle or market operating locations. Certain countries have build a reputation of attracting such business ventures and have even made it a strategic economic direction as part of attracting FDI.

Global Business Services (GBSCs) require foundational conditions

Globalization, multilateralism and hyper competition gave rise to GBSs; companies incorporated in market A and present in 60 markets now have shared service centers in 5 locations doing value-added services. Legislation, ease of doing business and attractive operating environment of host countries enabled an influx of companies to set-up those hubs. Infrastructure is another key determinant, such as technological infrastructure and connectivity. Political stability is vital, as investment in those locations is often a single card deal for the investing companies, so success of their investment is paramount. Access to talent is also an important determinant of a setting up a locational GBSC. GBSCs of various companies compete on that front for talent as the scope of work in those centers is comparable. Fiscal incentivization is another big item for setting up GBSCs and it addresses the costs of cost and tax optimization.

In a nutshell, GBSs are a offshoot of globalized connected economy and the need to cap operating costs. Location selection is based on a through assessment that is comprised of multiple criteria of justifying heavy investment and switch to a global shared service model. The article will not deal with the decision or transition approaches for shared service set-up, this is a specialize topic and the rabbit hole goes tends to run quite deep.

Unfavorable forces and conditions for GBSCs

Below is a non-exhaustive list of potential forces and conditions working against a GBS set-up:

• Diminishing multilateralism and the rise of bilateral agreements/arrangements between nations.
• Rise of a nationalistic economy strategy and decision to onshore businesses and their support apparatus to protect jobs and intellectual property.
• Geo-political disruptions such as full or low intensity conflicts at the proximity of GBS location.
• Boycotts and sanctions, extreme compliance measures.
• Change of geo-political environment of host country regime. Change in tax regime and increase of operating cost.
• Socio-economic changes of host country, and talent/brain drain.
• Personal and transactional data privacy and management.
• Rise of distributed, enabling and agentic technologies where physical presence is no longer a strict requirement to do business.
• Sub-standard processes and services, with boutique approaches requiring a surplus of customized approaches based on exceptions.

In a recent principle entity relocation program I worked on, unrestricted access to a qualified talent tool was cited as one of the primary reasons to switch location in favor of a more talent liberal location.

On Operating Model - Maturity of GBSs

Once location is selected, office building procured, tech and infrastructure set-up, talent hired and organization starts taking shape, the transitions train is set in motion. One of the first functions to transfer to GBSCs is Finance and Accounting (F&A) with all its sub processes and branches. SSCs traditionally received the F&A processes and could be considered level 1 in maturity of process and operational transfers. Enterprise systems are key enabler of seamless integration of processes and workflows, such as office and reporting suites, CRMs, ERPs and Service Management Systems.

The 2nd level of maturity is to transition to full blown SSCs+ or GBSCs, which includes mirror functions of the corporate core functions. GBSCs are service organizations similar in structure as the parent company (a company within a company) dedicated to ensure service fulfillment and satisfaction levels. The catch is to constantly lower the operating cost footprint (the unit transaction cost that is constantly monitored via the operational balanced scorecard).

GBSCs that do so well and reach gold/diamond efficiency standards could be pitched to take over new scope of group holdings and other brands in a similar manner to an external BPO. BPOs on the other hand are other means to transition low-value processes and transactions to external providers who carved a niche by mastering the processing of transactions in areas such as procurement for example. They employ centers of excellence to deliver the business capabilities to their clients.

Managed Services is another model used to support the ITC ecosystem of a company by an external partner provider, such as service desks, lifecycle management of digital assets, SLA support, etc...

GBSC Identity - Jack of all, Ace of none, or Ace of all?

An identity crisis might fall on GBSCs beyond their initial inception as value and service providers. In some cases GBSCs are suppliers of talent for corporate projects beyond the service scope of the Business as Usual (BAU). Operational thinning might occur as demand increases which forces some form of demand prioritization regiment. In other cases, the talent pool hired are naturally native to the location, and beyond the language competency, there might be a risk of underrepresentation of the cultural composition of the client markets the GBSCs serve. For example, one company set-up its client care centers in country locations rather than in a centralized fashion in order to be closer to consumers from a language, time zone and cultural perspective.

Then there's the question of decision and financial autonomy of GBSCs. GBSCs must have a harmonious and complementary mission, vision statements and strategy to the corporate master strategy, however companies can seize a golden opportunity and give GBSCs leeway as incubators for innovation and business excellence beyond the repetitive and predictable day-to-day operations. Corporate guideline approvals could be circumvented in GBSCs in favor for more agile approval protocols or leverage seed and venture funds to sponsor and accelerate experiments and pilots. General Managers of GBSCs could be encouraged through budget allocations to compete at cost point to attract further scope and business, they can also foster collaboration among their fellow GBSCs to standardize practices, and build cooperation across other GBSCs across the board.

GBSCs excel at what they do, but as they are approached and asked to contribute to other areas of the business, they are seen as a cost-effective "Do Anything and Everything" style of partner organization which puts strain on the operational model, increase headcount to keep up with the demand influx, and at the same time keeping tight control on the all-important unit transaction cost.

On Future of GBS - A sustainable future-proof business?

Nobody with a crystal ball can predict outcomes of business ventures. People often say that history repeats itself but given the current leaps in disruptive technology, the future has multiple branch out options. One can easily argue, that since the start-up cost of a GBSC is extremely high, odds of it going lights-off is extremely low. However, as the Business Continuity Plans (BCPs) of Covid-19 and regional conflicts were activated in GBSCs, with little to no business disruptions, one can say that the GBSC physical location question might be challenged. The theory goes that with hyper automation of standardized processes, agents would do the heavy lifting of processing with human-out-of-the-loop. For sub-standardized processes, generative and learning tech, could even substitute the necessity of standardization and could easily scale up and manage exceptions with human-in-the-loop as last key controller or intervenor in the chain.

The future of GBSCs also hinges on their P&L model, as they are constantly portrayed as a cost centers. What if, in their drive for optimization and efficiency GBSCs start generating profit in a form of kick-back incentive or a VAT for competitively cost-optimized processes. This pure revenue would go into funds that support continuous improvements, business development and expansion beyond the governance of corporate which allocates standard budget shares as per normal annual planning cycles.

Is the GBS business carve out-ready? As the brand equity of a GBS grows and becomes best-in-class, it could be seen as a company asset, but assets are sometimes up for grabs depending on multiple factors. The key is to maintain a near-complete mutually non-exclusive (flexible) set-up on both company and GBSC side to allow for carve-out should the time arrives. Companies could then plug-and-play their GBS operations into an external BPO offering equivalent service portfolio. Symbiotic relationship between company and GBSC is a valid choice, but it means a more sticky affair when business lines, product lines and even GBS operations need to be sold or liquidated.

Conclusion

In conclusion, Global Business Services Centers (GBSCs) have evolved as strategic cost-saving hubs in a globalized economy, leveraging favorable economic, regulatory, and infrastructure conditions in cost-effective locations. However, as they mature and expand in scope, GBSCs face challenges from changing geopolitical landscapes, talent dynamics, and advancing technology that could disrupt the traditional physical-location model.

GBSCs must continuously balance operational efficiency with increasing demands for versatility, often resulting in an identity shift towards a more adaptive "do-it-all" role. Looking forward, GBSCs may be redefined as potential profit-generating entities rather than purely cost centers. With robust frameworks, they could eventually become flexible, carve-out-ready assets, capable of seamless integration. Future-proofing GBSCs will require a focus on agility, technological integration, and innovative operational strategies to remain resilient and valuable in a rapidly evolving business environment.