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Designing Your Organization for BPO and Shared Services
This article provides guidance on organizational design (OD) for organizations that are undertaking or contemplating a shared service or business process outsourcing (BPO) initiative. It comes from the series, "Guidelines for Shared Services and BPO," developed by Alsbridge to reflect a shared understanding of good practice in outsourcing. Related columns will discuss the following areas: developing a business case, change management and SLAs and service levels, charging and benchmarking.
Organizational design is sometimes used to mean simply the design of an organization chart. However, this article uses a broader definition which covers the operating model, the organizational structure (including the organization chart), the roles, competencies and job descriptions.
For shared services and BPO the model has three main areas, as follows:
Figure 1 shows this diagrammatically.
The reason for making the distinction between the three components is that each has a different job to perform in terms of ensuring the effectiveness of a shared services or BPO initiative, with different requirements in terms of skills and competencies, career and reward structures, culture, and performance management.
Where Does the Organizational Design Fit?
OD is about developing an organization that is fit for purpose. However, it can't be seen in isolation, but as one element of a complex mix of activities that fit together to deliver the overall change to a shared services/BPO environment. Figure 2 describes a framework for change management, of which "Organization" (the OD work-stream) is a critical component.
An Approach to Organizational Design
The approach illustrated in Figure 3 is designed to deliver a working organization structure, which defines:
To get to these outputs, there are often externally imposed "inputs," such as the overall operating model for the wider business, political and strategic constraints, existing structures and people, and headcount targets, which will often have been articulated in the shared services business case.
The outputs are generated from a number of activities, which usually happen in a sequential order (from the top of the diagram below) starting with a statement of the vision and strategy, agreement of the design criteria and sign-off of the operating model.
Strategic Vision and Design Principles
The first activity in designing an organization structure is the development and agreement of the strategic vision and related design principles. The model in Figure 4 gives an example.
While the statements in this example may appear generic and/or high-level, they are important, because they represent a statement by the design team, signed-off by the governance body, of the type of organization that will be delivered.
The Operating Model
The operating model is the first key deliverable in any organizational design. The model describes in broad terms how the new organization will operate and interact with its customers and other stakeholders. Figure 5 shows an example of an operating model for finance.
As can be seen in the example, the operating model does not have any reporting lines, role descriptions or headcount numbers. However, it describes in broad terms what activities are undertaken and how the various relationships work. The diagram shows at a very high level what the shared services operation will deliver.
There are interactions with:
The example also shows that self-service is a key part of the model.
The text that would usually support this model would describe the nature of the interactions, including what information is passed across the interface.
This level of detail will probably be sufficient, for example, for a shared services strategy document. However, a much more detailed description of how the model works will be required for the detailed design of the shared services organization.
Once the operating model has been developed, the next stage is to develop the organization structure to support it. Organization models can take various forms, from functional/process models though to matrix models and market/customer models (Figure 6).
For shared services the design is usually based on a functional model, although when there are multiple customers it's common to find an organization design that incorporates sub-groups that service specific customers within each functional grouping.
The structure of the retained organization is usually based on traditional functional designs. The sidebar, "The Retained Organization," at the end of this article contains more guidance on that.
Job Descriptions, Grading and Role Profiles
These document the roles, skills, experience and competencies required to support the new organization. Most organizations have their own templates for this information; however, it's important to note that the switch to a shared services or BPO environment will mean that additional skills and competencies (for example managing across organizational boundaries and client relationship management skills) will need to be included in a number of roles that have not required these in the past.
How OD Supports Organizational Effectiveness
An organizational design that is fit for purpose is a prerequisite for organizational effectiveness. This is why OD must cover more than just organizational structure, as other elements such as governance and stakeholder management processes play an important role in ensuring that effectiveness objectives are able to be met.
Organization and Links to Governance
Shared service/BPO governance is about making decisions and assigning accountability for agreed outcomes; it comprises a set of processes and structures that are designed to address top management concerns such as:
Governance relating to the shared services
Governance relating to user organization
An effective governance structure can be designed using the following principles:
The model in Figure 8 is an example of how a shared service governance structure can be implemented.
Key components include a governance board consisting of:
This governance board receives inputs from customer forums and the shared services operations management team. The board has responsibility and oversight of the shared services capability and will:
Service management is about building relationships with key customers and stakeholders and ensuring that the services of the shared service operation deliver to their needs. At the highest level service management exists to meet regularly with customers to share objectives, review past performance and set expectations for future activity. A successful service management team will continually check the alignment of the services from the shared service center with the goals and objectives of the customer groups.
Service management is usually made up of the following key activities:
These activities link together, as you can see in Figure 9, showing the various activities and tools that typically underpin service management.
If service management is deployed correctly, it will help drive:
There is no clear cut rule for how service management organizations are usually structured, but it's common to find four main teams reporting into an overall service management director.
Service Governance Team
Responsible for managing key strategic relationships with customers and conducting account planning and contract management discussions. This is essentially a small support team for the service management director, which will normally represent the shared service organization at governance board meetings.
Service Management Team
Responsible for day to day incidence management, service reporting, capacity planning and non-compliance interventions. This team will also prepare monthly/quarterly reporting packs and participate in service review meetings. This team manages customer satisfaction surveys.
Service Development Team
Responsible for scheduling continuous improvement activities, service upgrades and new service implementation management. This team is usually responsible for managing operational risk management and quality audit and compliance activities.
Financial Management Team
Responsible for operational budgeting, management of any cross charging or client billing arrangements and the tracking of project finances.
People and Culture
The higher degree of clarity around services and service standards that SLAs bring about means that service center teams need to focus on developing and maintaining the skills, behaviors and knowledge that drive outstanding service. In the case of an internal shared service center, there's usually a big attitude change required by staff moving from traditional service functions of a back-office job into a shared service operation of a front office service delivery role.
In shaping and developing the culture, the shared service center management team needs to consider the following:
Organizational design isn't a one-off exercise. It should be developed and updated iteratively throughout the lifecycle of a shared services/BPO program. The work on the OD will differ, depending on where an organization is in the lifecycle.
This section describes the Alsbridge FastSource Lifecycle in summary terms and maps the various "types" of OD work onto it, as indicated by the numbers on the diagram in Figure 10.
The Evaluate Phase
The journey to shared services usually starts with a series of evaluations of the options, starting at a high level, with successive drill-downs into more detail as the opportunity and understanding develops. The chart below has three iterations (research, feasibility and strategy); but there may be more or fewer.
The research stage is often undertaken to understand the potential that shared services has to offer; usually this done by analyzing what other organizations have experienced and applying that learning to the current situation. If this research gives a convincing argument that shared services may be beneficial, then usually a feasibility study is undertaken.
A feasibility study is a relatively high-level exercise, which enables the organization to understand the options, and the likely "order of magnitude" costs, benefits and business case. It will usually focus more on the strategic drivers and options, rather than on the detail of the shared services solution. Assuming that the feasibility study is positive and the organization wants to proceed, then a more detailed strategy will be developed.
The shared services strategy articulates the goal (operating model, process scope and outline design, sourcing, financing, etc.). The work on organization design is done in the feasibility study and strategy stages as follows.
Here the business decision is to agree whether or not there's a prima facie case for shared services and to approve the expenditure on developing a shared services strategy. This is a strategic stage "Do we have a strategic need for shared services?" and therefore the analysis will be at a high level, with the primary focus on understanding the business need, the high-level options, the likely shape of the operation (its scope and how it will work), the potential sourcing options, the likely risks, implementation options and timescales.
In terms of organization design work, the feasibility study needs to address:
While the feasibility study is about taking a strategic decision regarding shared services or BPO ("Why should we do shared services or BPO?"), this stage is about developing a clear strategy for shared services/BPO ("How should we do shared services or BPO?"). This strategy will articulate the future model and timing (including the sourcing options of in-house or BPO), based on a detailed understanding of the current metrics and a robust assessment of the available options for improvement. At the end of this phase the organization will have a high-level blueprint of the processes, systems, commercial and operating models, plus a business case and an implementation approach. There should also be stakeholder "buy in" and approval to proceed.
The development of a strategy for shared services/BPO is a much more detailed task than the feasibility study, and it will cover the following OD aspects.
The Implement Phase
The implementation activity in the lifecycle usually takes one of two routes. Either "build and operate in-house" or "outsource." Although both routes deliver shared services, the activities of each route are different. In the in-house model, the organization needs to design its own processes, build the shared services operation and then transition and operate the service. With outsourcing, most of the build and design work is done by the service provider, and the organization's main responsibility is to design and operate the retained function and to ensure successful transition of the services to the new service provider.
Detailed Design for Internal Shared Services
Once a shared services strategy is signed-off, detailed design can commence covering the future operating environment (processes, technology and organization).
Work in this stage will include:
Build Activity for Internal Shared Services
Work in this stage will include:
Transition Activity for Internal Shared Services
Work in this stage will include:
Detailed Design for Outsourced Shared Services
Where BPO is the chosen option, the design and build activity is shared between the service provider and the client. The service provider will design the shared services operation (often they will have an existing facility from which the services will be delivered). The client will design the retained function and will be responsible for ensuring that the services are effectively transitioned to the service provider.
The Evolve Phase
The evolution of the shared services starts with "Go Live" Day 1. Usually the service won't operate at the target level immediately, and so "bedding in" and improving work is needed usually this is an on-going activity that never ends. Also, ongoing improvement work is required to meet changing customer needs, changing technology and the evolution of a customer service culture. This is likely to mean a program of continuous improvement for all aspects of the organizational design.
The Retained Organization
The future service delivery model has significant implications for the retained function. There are two key retained roles that will have significant interaction with the shared service center or service provider. These are the functional specialists and business partners who have the day to day relationship with the business customers.
Specialists (Policy Subject Matter Experts)
Alsbridge's "The Practitioner's Guide to Shared Services and BPO" (links to four guides on the topic).
"Volume Two, Organization Design," in PDF form:
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