IT and Financial Services: Value Chain Disaggregation and Shared Services
IT & Financial Services
Disaggregation of Value Chain
Breaking down business operational processes into individual components and focusing each part in the most advantageous location. IT acts as the enabler to re-engineer processes.
Shared Services
Process of centralizing administrative functions into regional and/or global centers. This is achieved by either offshoring the business unit to another location (Shared Services) OR outsourcing the entire process to another entity (BPO).
Benefits
- Streamline transaction processing and offer potential for value-added services, especially effective for financial services.
- Cost Savings: Typically 25% to 35% reduction in costs for finance operation, reduced compliance and audit costs.
- Visibility & Transparency: Consolidation of systems and reduced transaction processing times.
- Improved Governance: Comprehensive documentation of processes and clear links between the processes and respective owners.
- Transformation of Admin Functions: More focus on value-added activities, from transaction processing to strategic advisor.
Limitations
- Regional differences in culture and geopolitical landscape may make it difficult, especially for human resource related services.
- Political: Internal politics and no clear sponsor resulting in internal resistance.
- Skills and Culture: Administrative staff mind-set, no track record in major change programs and cost of staff reduction.
- Systematic: Many disparate systems, consolidation can be challenging and no one wants to give up “their” system proprietary information.
Considerations
Generally, shared services can offer great cost savings for admin functions, especially in finance. Potential tangible benefits exist in improved governance and better visibility of financial information. However, political and cultural challenges can be significant and strong executive sponsorship is required to successfully transition into a shared service model.
Role of Technology in Shared Services
Technology can be used as an enabler for economies of scale and telecommunication can be leveraged to achieve shared service arrangements (Phone Calls, VoIP, Video Conferencing, Emails).
IT Business Process Outsourcing (BPO)
Getting a service provider to do any one or more technical tasks (systems development, data centre management, data preparation etc.)
Advantages
- Focus on core competence of company.
- Gain access to state-of-the-art technology.
- Access to required IT capabilities.
- Faster implementation.
- Freeing capital funds for core business.
- Potentially higher quality solutions.
- Better overall IT management.
Disadvantages
- Loss of control.
- Cost savings may not be achieved and costs may go up.
- Less flexibility to depend on the contractor.
- High cost of switching.
- Sub-contracting issue may increase complexity of the system.
- Lack of IT staff development and losing opportunity to develop in-house IT competence.