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Designing Your Organization for BPO and Shared Services

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    By Alsbridge

    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:

    • The service management organization is the shared services/BPO operation itself, undertaking the various transaction processing or administrative activities. Some shared services/BPO operations will deliver specialist and expert services. This organization may be an internal shared service center, serving one or many internal customers, or external, which is typically the outsourced/BPO option.
    • The retained organization is the term used to describe what is left behind when the shared services or outsourced activities are transferred to the new service provider. There are two aspects to the design of the retained function. First there is a need to design an organization that is effective in "receiving" the service delivered by the shared service/BPO provider. This will require an organization where there is clarity of responsibility for inputs and outputs to and from the provider. Second, there is a need to design a retained organization that is effective in performing its role in supporting the business.
    • The governance layer term refers to the activities that are necessary to manage a customer/supplier relationship, including the management of service level agreements, performance reporting, billing, and issue resolution.

    Figure 1 shows this diagrammatically.

     Figure 1: Organization design for shared services comprises three elements.
    Organization design for shared services comprises three elements

    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.

     Figure 2: A framework for change management.
    A framework for change management.

    An Approach to Organizational Design

    The approach illustrated in Figure 3 is designed to deliver a working organization structure, which defines:

    • Organization structure
    • Job descriptions
    • Staffing and skill requirements
    • Gradings
    • Clarity about the boundaries with other organizational groups

     Figure 3: An approach to organizational design.
    An approach to organization design.

    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.

     Figure 4: From strategic intent to design principles.
    From strategic intent to design principles.

    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.

     Figure 5: Operating model (an example for finance).
    An operating model example 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:

    • External customers (these could be suppliers, tax and regulatory authorities)
    • Internal customers
    • Other business units
    • The corporate center

    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.

    Organization Models

    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).

     Figure 6: Various models for organizational design.
    Various models for organizational design.

    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.

     Figure 7: Organizational design and effectiveness.
    Organizational design and effectiveness.

    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

    • Measuring and improving shared services performance.
    • Cascading shared service strategy and goals throughout the organization.
    • Providing resources to implement and improve the use of shared services.

    Governance relating to user organization

    • Aligning the shared service capability with the business strategy.
    • Ensuring the shared service capability is adopted and fully used throughout the organization.
    • Evolving the retained function to operate in a shared services environment.

    An effective governance structure can be designed using the following principles:

    • Decision making responsibilities should be clearly articulated and confined to the formal governance structure.
    • Appoint recognized leaders to the governance team. Governance bodies need membership from the business and shared services/BPO communities with a mandate to represent their constituents.
    • Implement a clear communication approach. It's critical that mechanisms exist to collect information and disseminate decisions throughout the organization.
    • The shared service/BPO governance structure should reinforce the roles and responsibilities of the business function and the shared services capability.

    The model in Figure 8 is an example of how a shared service governance structure can be implemented.

     Figure 8: Implementing a shared services governance structure.
    Implementing a shared services governance structure.

    Key components include a governance board consisting of:

    • Senior customer representatives.
    • Heads of profession for the key functions in the shared services.
    • Senior representatives from the shared services operation.

    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:

    • Set the policy for shared services/BPO.
    • Champion convergence of shared services requirements.
    • Determine the performance management regime to be applied and ensure links to broader performance management mechanisms.
    • Moderate and approve plans, priorities and investment.
    • Monitor delivery of shared services objectives.
    • Approve framework commercial agreements.
    • Address and resolve shared services issues which threaten to limit achievement of overall objectives.
    • Consider and approve interventions required to deliver on shared services objectives.

    Service Management

    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:

    • Quality control to monitor standard processes and outputs on a day by day basis.
    • Performance measurement to track volumes and adherence to service key performance indicators within cost parameters.
    • Process improvement teams to manage change requests and to act to correct service non-compliance in a timely manner.
    • Service level agreement (SLA) management to set up suitable SLAs that define the responsibilities between service provider and customer.
    • Performance reporting of key performance indicators (KPIs) and balanced scorecards on a regular (normally monthly) basis to inform the dialog between the service provider and the customer.
    • Customer satisfaction feedback surveys to measure baseline satisfaction with services on a regular basis (normally a sample approach across different customer sectors).
    • Governance boards, which meet on a quarterly or half-yearly basis to review overall performance and prioritize new services for roll-out, improvements to be scheduled or investments to be made.

    These activities link together, as you can see in Figure 9, showing the various activities and tools that typically underpin service management.

     Figure 9: Service management activities.
    Service management activities.

    If service management is deployed correctly, it will help drive:

    • A customer-focused service center culture.
    • An efficient mechanism through which performance against agreed-upon service levels can be managed and nonperformance escalated, as necessary.
    • A focus on service performance and a continuous improvement mindset.
    • A regular supply of data and analysis to ensure that the governance of the shared service arrangements is conducted in an informed, evidence-based manner.

    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:

    • Being clear about the values of the organization and how these link to expected behaviors (so that the way that people are appointed, managed and developed is clearly driven by the values of the organization).
    • Hiring decisions where appointments are made on the basis of attitude as well as technical skills.
    • Promotion and succession planning where decisions on who gets moved are based as much on how an individual gets work done (their behaviors and demonstrated values) as on their ability to deliver results.
    • Performance appraisal and reward where the focus on assessment is to identify and reward those who go the extra mile to deliver customer service or those who work with their teams to bring everyone to the same performance level. The performance management process also creates consequences for poor performers who are made aware of improvement requirements.
    • Training and development where the training and development offerings are clearly linked to developing the behaviors and skills required to drive customer service for each role.

    Planning

    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.

     Figure 10: Shared services lifecycle.
    Shared services lifecycle.

    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.

     Feasibility Study

    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:

    • The concept of splitting the transaction processing activity from the retained function, with a service management "wrapper."
    • A general description of the service organization, with potential options.
    • A high level description of the role of the retained function, the general competencies needed, and a description of how the retained function will buy services from the shared service center or service provider.
    • A general description of the service governance principles and approach.

     Strategy

    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.

    • A clear organization model.
    • Whether the organization structure should be oriented by process, customer or function.
    • High level role outlines for devolved function and the retained function.
    • Outline sizing of the organization headcount.
    • Business as usual principles to be agreed for transition.
    • Ratios and best practice guidelines used to size the organization.
    • Basic volumetrics captured to verify sizing by ratios.
    • Blueprint of key measures and SLA/OLA outlines.
    • Outline description of governance and escalation processes.
    • Formal estimates of likely redundancies.
    • Proposals for a formal consultation process.
    • Consideration of the TUPE implications (in based in Europe).

    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:

    • Full role descriptions, including governance team.
    • Final organization sizing.
    • Completion of job evaluation exercise.
    • Confirmation of pay and grading structures.
    • Full definition of the key interfaces with the retained function/customers and third parties.
    • Re-confirmation of headcount numbers by means of detailed volumetrics for both historic and forecast activities.
    • Identification of key external recruitment needs.
    • Finalization of business as usual teams.
    • Detailed KPIs, SLAs and operating level agreements (OLAs).
    • Definition of key interfaces and reporting and escalation routes.
    • Confirmation of the TUPE situation (in Europe-based operations).
    • Plan for individual consultation and briefings.
    • Completion of formal consultation.

     Build Activity for Internal Shared Services

    Work in this stage will include:

    • Populating the new organization.
    • Setting up governance structures and processes.

     Transition Activity for Internal Shared Services

    Work in this stage will include:

    • Launch of service management and governance activities.
    • Fine-tuning job and role descriptions in the light of day-to-day operational experience.

     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)


    Specialists will advise on setting strategy and focus on policy development. They won't be involved in basic administration and will have greater space to focus on more added value activities such as assessing the impact of future legislation and leading best practices to deliver appropriate policy changes as required. On the infrequent occasions when the most complex policy and process queries can't be resolved by the shared service center, these queries will be passed to the specialists for resolution. A mechanism for managing and tracking such queries will need to be agreed.

    Business Partners


    The role of a business partner is to:

    • Be part of the business management team with specific responsibility for leading the development and implementation of solutions, in partnership with and utilizing the resources of the shared service center or outsourcing provider.
    • Champion, drive and embed the functional agenda with the business customers and ensure its inclusion in the business planning process.
    • Support change initiatives undertaken by business customers.
    • Manage relationships with business customers on a face to face basis (in other words, conduct regular discussions where customers can raise issues, concerns and ideas, etc.).
    • Roll out corporate policies that are the responsibility of the retained function.
    • Act as a communications channel for major communications.
    • Work with senior managers on issues.
    • Consolidate and capture the customer feedback.
    • Use trend reports provided by the shared service center or service provider as the basis for advice to managers on local activity that needs to be taken.
    • Act as a coach for business customers on all functional issues.


    Useful Links

    Alsbridge
    http://www.alsbridge.com/

    Alsbridge's "The Practitioner's Guide to Shared Services and BPO" (links to four guides on the topic).
    http://www.outsourcingleadership.com/research.shtml

    "Volume Two, Organization Design," in PDF form:
    http://www.outsourcingleadership.com/VolumeTwo.pdf

    About the Author:

    Alsbridge is the award-winning consulting firm providing independent, unbiased advice on outsourcing, shared services and offshoring. With a global presence across North America, Europe and Asia Pacific, Alsbridge provides clients with experience and industry knowledge. The advisory firm helps clients reduce costs, improve processes and maximize shareholder value through the use of both onshore and offshore outsourcing and shared services. Contact Alsbridge at helen.ricardo (at) alsbridge.eu or visit http://www.alsbridge.com.

     
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