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The Shared Services Model – Making it Work for the Middle East

The Middle East consists of 17 countries and we aren’t even talking of North Africa. In this, the Gulf Cooperation Council consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. From an external perspective, several service providers make the error of perceiving these 6 countries are exactly similar – far from it and if anything, they vary considerably in terms of size of economy, maturity of business practices, availability of local talent, acceptability of technology to drive efficienicies and openness to transformation initiatives. For instance, while seeing through the prism of Ease of Doing Business, Saudi Arabia is ranked 13th (globally) whereas Oman is much lower at #65.

SSM being considered more seriously in the Middle East

The Shared Services Model (SSM) has been prevalent since the mid-90s, particularly in the US and Western Europe. It later expanded to Asia – especially to India - but in the Middle East, the idea is still relatively new. To give you some context, according to an Shared Services Outsourcing Network (SSON) Study of the Middle East, a whopping 27% of the companies surveyed admitted to being in the Planning Stage only, followed by another 22% which have Shared Services Organizations (SSOs) less than 3 years old. That’s nearly 50% of the population which posits tremendous growth opportunities for the future. In the GCC nations, Saudi Arab and the Emirates (Dubai in particular) are more progressive in business practices than the rest of the pack, so the overall percentage there is more favorable. While empirical data for locally owned mid-corproates is hard to find, Practus’ view is that SSM remains a distant but desriable objective for a significant majority of CFOs in this category.

Increasingly, given slowdown in several Middle East economies, increasing number of local companies are now giving a serious consideration to the SSM. The SSON Study mentioned earlier also builds a strong case for consistent and aggressive commitment to productivity improvement – 60% of the respondents have claimed a target of 7% improvement. Practus’ own experience with SSMs has been a ~20% to ~45% cost reduction for its clients, with significantly higher savings for clients that were on relatively less mature and poorly organized processes. Middle East CFOs are beginning to look at SSMs not just for cost savings but also for drawing business insights, by layering Advanced Analytics on underlying data in the SSMs. SSMs thus provide both bird’s and a worm’s eye view of business, relieving the Corporate Head Office of a major responsibility and providing them with bandwidth for strategy-setting and governance.

Drivers for SSM

Reasons why companies in Middle East adopt SSM are no different from anywhere else in the world. Middle East CFOs typically look for the these benefits from SSM:

  • process standardization
  • removal of work duplication and incompatible information systems across locations
  • greater tech enablement
  • the democratization of best practices across locations
  • alignment with Service Level Agreements (SLAs)
  • and overall cost reduction

Trends emerging from the region are that functional services in HR, IT, Procurement & Data Analytics are the ones most prominent (in this model). The other significant observation is the emergence of Centres of Excellence (CoEs) which look at optimized delivery through intelligent automation thus moving a major step forward from the traditional realm of transactional improvement.

6 learnings to improve the probability of success of SSMs

  1. The model is relatively new in the region and expectations can be unrealistically high. It is possible that analysts who make PowerPoint presentations may have limited operational experience, don’t understand the cultural & geopolitical nuances and have no skin in the game. Before the die is cast, the financial viability needs to be looked into. If at all an unrealistic projection needs to be called out, then it should happen at the very outset. There is healthy skepticism among decision makers thanks to irresponsible selling by vendors and some uninformed buying in the past.
  2. Adopting the SSM model is a transformative approach. However, there’s going to be no leeway or very little to speak of. As the proverb goes, one is expected to change tires while driving – oftentimes at great speed. In relation to other parts of the world, more time needs to be invested with business leaders in the region to build and maintain their conviction for the model and the need for them to set the tone at the top in terms of discipline and tenacity to successfully see through the change.
  3. We have seen that when you push through great change and operate at the same time, invariably things will fall through the cracks – this needs to be factored in. Secondly, in a region marked by the strong cultural aspect, the collective buy-in is critical to ensure that the SSM personnel isn’t perceived as “the new kids on the block out to get us.” This concern may be partly addressed by hiring locals (especially given the strong trends among local governments to push for localization of jobs), as our experience has shown. There’s no gainsaying that importing talent is fraught with challenges but at the same time, quality and competency are issues that can’t be compromised. From a technology standpoint, there are few limitations to what can be achieved. From a people standpoint, ensuring that insecurities and personal agendas don’t derail the process is most likely to determine the success of failure of the project.
  4. Tech-enabled innovations are still to gather momentum. Last year, an Accenture study found that 63% of ME organizations are “Omni-trapped” - they struggle to use innovation effectively to raise current performance or to build future growth. Only 11 percent of enterprises are exploiting opportunities to free up trapped value. In relative terms, the ability and willingness to wholeheartedly embrace technology could be a significant challenge.
  5. Like in other parts of the world, tangible, measuable quick wins in TAT or cost reduction or cashflow terms makes a significant positive impact to the change management process. SSM vendors need to be able to make this commitment to decision makers upfront, in the pre-sales process, to build confidence around the SSM initiative
  6. A final word. International players are well-advised to not blindly replicate best practices and models that worked in the West. The region is unique and we must condition ourselves to respect the existing knowledge of local players and their customized needs.

Summary

In summary, while there are significant implementation challenges in implementing SSMs, there is a strong business case for it in several companies of a certain scale. The size of potential cost savings and more importantly the process maturity that SSM can bring in the short to medium term and the transformative impact in terms of decision making and governance that SSMs can deliver in the medium to long term, should encourage decision makers in Middle East to embrace the SSM more aggressively.