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I want to understand trends in shared services and BPO models. What type of office work is being done by shared services vs BPOs for financial services and insurance companies, specifically?
Hello! Thanks for your question about trends in shared services and business process outsourcing (BPO) models and the services or processes typically shared or outsourced in the financial services sector, which includes banking and insurance, among others.
The short version is that, in the banking, financial services, and insurance (BFSI) sector, there is a shift away from decentralized processes since majority of the companies in the sector have either a centralized processes model, a shared services/outsourcing model, a global shared services/outsourcing model, or a global business services model. The business functions in the sector that are typically shared are finance and accounting, information technology, human resources, and procurement. Information technology appears to be the function that is most commonly outsourced.
Below you will find a deep dive of my findings.
TRENDS IN SHARED SERVICES AND BPO MODELS
For this part of your question, the best source I found is KPMG's April 2017 report "State of the outsourcing, shared services, and operations industry 2017." I was able to gather the following trends regarding operating models from pages 7, 10, 15-20, and 49-52 of said report.
1. There is a movement away from decentralized processes. It appears the progression is this way: decentralized processes -> centralized processes -> shared services/outsourcing -> global shared services/outsourcing -> global business services. Out of 454 companies from around the world that participated in KPMG's survey, only 16% have decentralized processes, 34% have centralized processes, 18% have a shared services/outsourcing model, 20% have a global shared services/outsourcing model, and 11% have a global business services model.
The operating models differ from each other in the following manner:
a. Decentralized processes - Business units each have their own processes.
b. Centralized processes - Processes serve various business units.
c. Shared services/outsourcing - Processes serve various business units, but these processes are managed by a separate entity or a third party. Governance is shared between entity and business units.
d. Global shared services/outsourcing - This is similar to shared services/outsourcing apart from the global delivery and scope.
2. The centralized processes model appears to be the most prevalent operating model among companies in what KPMG calls the BFSI sector. BFSI stands for banking, financial services, and insurance. Thirty-three percent (33%) of companies in said sector have a centralized processes model. The rest of the companies have either a global shared services/outsourcing model (24%), a shared services/outsourcing model (19%), a decentralized processes model (15%), or a global business services model (10%). Note that percentages do not total 100% due to rounding.
3. The size of the company, in terms of revenue, largely determines the company's operating model. The global business services model is most prevalent among companies with over $5 billion in annual revenue.
4. The BFSI sector ranks third behind the software and tech sector and the energy and utilities sector in terms of maturity of operating model. On a scale of 1 to 5 where 5 denotes high maturity, the BFSI sector got a score of 3.6.
5. Operating models are now more mature in terms of location, standardization, process alignment, customer-centricity, agility, and service portfolio.
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Deloitte has a report too on the subject, although the report covers shared services only. Based on this report, which summarizes the results of the firm's global shared services survey in 2017, the trends in shared services are as follows.
1. Shared services centers, where processes are generally transactional, are increasingly adopting knowledge-based processes. Since 2013, adoption has risen significantly. This trend can be attributed to the emergence of robotic process automation (RPA).
2. More and more shared services centers are handling over three functions. The number has increased from 20% in 2013 to 53% in 2017.
3. Proximity now plays a bigger role when companies decide on the location of their shared services center.
4. Majority of companies prefer transferring processes to a shared services center as-is instead of overhauling them at the same time.
5. Of companies that are not currently using the global business services model, 72% have no intention of shifting towards the global business services model. Of companies that have adopted the global business services model, 4% decided to change back to their old operating models.
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During my research, I have come across the term "market utilities." PwC defines market utility as a "multiparty commercial cooperative that fulfills a common need in a mutually beneficial way based on the capabilities that each party brings to the cooperative and the role that each plays." According to the firm, market utilities can be beneficial in the performance of functions in the financial services sector such as the following: client on-boarding and services, trading, cash and collateral management, and securities clearance and settlement.
FUNCTIONS THAT ARE SHARED OR OUTSOURCED
Based on page 29 of KPMG's report mentioned above, the functions that are commonly shared or outsourced are as follows:
Shared
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Finance and accounting - 45%
Procurement - 45%
IT and network infrastructure support - 44%
IT application development and maintenance -- 44%
Human resources - 43%
Industry-specific process - 40%
Customer service/sales support - 40%
Marketing - 40%
Sales - 40%
Supply chain and logistics - 39%
Outsourced
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IT and network infrastructure support - 44%
IT application development and maintenance - 41%
Finance and accounting - 38%
Human resources - 35%
Procurement - 32%
Supply chain and logistics - 37%
Industry-specific process - 35%
Customer service/sales support - 34%
Marketing - 31%
Sales - 30%
Again, these percentages are based on KPMG's global survey of 454 companies. These companies are from various industries, including the BFSI sector. KPMG cited claims processing as an example of an industry-specific process.
SERVICES TYPICALLY SHARED IN THE FINANCIAL SERVICES SECTOR
From Accenture's 2015 report "Shared Services in the Financial Services Industry," it appears the functions that are typically shared are: support functions, risk, operations, IT, human resources, and procurement. Specific finance processes that have long been shared across business units are: accounting processes such as general accounting, capital planning support, tax accounting; reporting such as financial reporting, regulatory reporting, management reporting, cost reporting, and tax reporting; client or product data management; control assurance; analytics; and planning, budgeting, and forecasting.
PROCESSES TYPICALLY OUTSOURCED IN THE FINANCIAL SERVICES SECTOR
From the April 2017 report of insurance BPO service provider Cogneesol, it appears the insurance processes that are typically outsourced are the following: policy management, claims management, commission management, new business services, data entry, accounting services, and legal services. There are also statements in the February 2017 report of BPO analyst firm NelsonHall that point to the outsourcing of actuarial services, predictive analytics, and legacy platform retirement or updating.
IT accounts for a large chunk of outsourced work in the financial services sector. In its March 2016 report, market research firm Technavio said that IT outsourcing had an 88% share of the global outsourcing market in the BFSI sector.
CONCLUSION
To wrap it up, most of the companies in the banking, financial services, and insurance (BFSI) sector have either a centralized processes model, a shared services/outsourcing model, a global shared services/outsourcing model, or a global business services model. Functions that are typically shared or outsourced in the sector are finance and accounting, information technology, human resources, and procurement.
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