fdi leaders …making location connections

To share the latest insight on trends in shared services and outsourcing, our friend Sandra Higgison at e-Invoicing leaders OB10 kindly gives us a summary of the presentation led by Peter Moller, European Shared Services and Outsourcing Practice Leader at Deloitte’s recent annual Shared Services and Business Process Outsourcing Conference.

1. Shared service centres (SSCs) are moving up the value chain.

Previously, centralisation projects were focused on rules-based activities, such as matching invoices, paying suppliers, managing cash and reducing cost.  Having achieved many of these goals and brought in continuous improvement and more functions to their SSCs, companies’ sights and expectations are expanding.  Shared services are moving from transactional tasks to advisory services.

To deliver greater value, companies should also determine whether they have consolidated enough.  Organisations with SSCs in place still have around 50% of their finance staff in the business.  The reality we are heading towards is that organisations will only retain the CFO, Treasurer, Head of Analysis and Financial Controller in the business.  Peter gave the example of Oracle, where 95% of its finance staff members are centralised.

2. Adoption of global business services.

Deloitte’s 2011 global shared services survey found that 93% of respondents had Finance in shared service, 60% had HR, 48% had IT and 47% had Procurement.  With these centralised, the end game he described is to continue consolidation by eliminating duplication between these functions, and sharing tools and locations.

The rise of global business services also adds an attractive rung to the shared service leader’s career ladder as this is a C-level agenda item with a direct line to the CEO.

3. Outsourcers gain market share, slowly.

Since Shell lit the outsourcing flame in 1991 with what was then Andersen Consulting, there have been about 850 major finance outsourcing deals.  More than half of these, however, have been signed in the past five years, which shows the initial slow burn.

During this time, outsourcers have built their skills, climbed the learning curve, designed tools, service level agreements (SLAs) and dashboards, and nurtured talent onshore and offshore.  On top of this, they are under pressure to continuously improve.  It makes sense for companies to take advantage of their experience, approaches and drive, but so far the outsourcing penetration for Finance and Accounts among large corporations is less than 20%.

Companies shy away from outsourcing for political issues, such as workers’ councils and government pressure not to outsource, in Continental Europe. They fear processes aren’t stable enough or are too complex, they fear they can’t be improved when outsourced, and fear losing control of their process knowledge.

The new approach is to adopt a hybrid model where transactional activities are outsourced and captive centres or centres of excellence take on higher-value services.

4. SSCs are finding better ways to work in multi enterprise resource planning (ERP) environments.

Companies working with a single ERP are still rare. Most have a number of systems with different teams working on different versions. While consolidation is a good move, new tools are emerging to help people manage a multiple ERP environment.

5. Data turns into insight.

Having delivered labour arbitrage, organisations are using the data they can extract from their SSCs’ activities to continue improving, and deliver greater productivity and value.  Issue-tracking software on help desks helps to get to the root cause and greater visibility from P2P automation delivers detailed spend analysis and better procurement sourcing decisions.

6. Global process owners gain momentum and teeth.

If a company has multiple shared service centres around the world they typically have a variety of approaches and technology choices.  The role of global process owners is to look for process best practices and look for ways to implement them globally and keep them as standard.  This is a permanent role and one that needs local resource to ensure that things don’t change when they look away.

We are impressed by all the media stories coming out about the things you can make with a 3d printer. Guitars, medical implants, clothing, jewellery, car parts, you name it, the list of possibilities is getting longer by the day.

3d printing is part of a mix of new technologies (artificial intelligence, production robotics, molecular manufacturing, new materials) and processes (networked manufacturing, local clustering, niche manufacturing, manu-services) which are allowing developed economies to be competitive in today’s (and tomorrow’s) manufacturing game.  The cost-quality balance is changing and low cost manufacturing locations are now no longer the automatic answer.

The whole concept of personal manufacturing (making things in small batches or even one at a time, personalised to a customer) has huge implications on where manufacturing takes place, on the logistics chain, and the retailing of the product.  The 3d printer may well be changing the game.

As well as the production of finished goods through its additive process, 3d printing also allows for the production of prototypes, allowing people to quickly and cheaply turn ideas in to a reality to take to the market to test out, and it also expands the possibilities on what can be made.

All of this can take place locally (even at home) yet can be delivered globally on-line.  Physical goods can now be made, modified and distributed in the same manner as information.  We reckon this is going to have a big impact on future FDI flows, and we will be keeping a watch on how things develop.

Cloud computing is now a target on the radars of many investment promotion agencies (IPAs).  While it currently accounts for less than 2% of current spending on IT products and services, it is viewed as a big thing for the future.  Most importantly it could be a big job creator.  The market intelligence company IDC estimates that it will generate nearly 14 million jobs by 2015.

The cloud provides significant IT capabilities for little money spend up front, meaning that it can be used by businesses of all sizes, and at any location across the world – emerging economies have the same opportunity as developed economies.

As well as a job generator, cloud computing provides a resource that could be used by IPAs to help them sharpen up their engagement with clients and potential clients.  We are currently looking at ways of using the cloud to leverage competitive advantage for locations.  Get in touch if this is of interest to you.

Our colleague Richard who is based in Germany has been in the UK to follow up our interests in renewable energy:  

This week Manchester played host to RenewableUK 2011 one of the UK’s leading wind, marine and tidal energy industry events.  More than 300 companies exhibited, and over 5,000 delegates from around the world attended the conference. 

This year’s event took place in light of the UK’s government recent publication of proposals for the levels of banded support available for large scale renewable electricity generation under the Renewables Obligation for the period 2013-17 in England and Wales.  The Scottish Government also published a consultation paper (Oct 21) on changes to the Renewables Obligation (Scotland) with consultation closing on 13^th January 2012.  Information on both announcements and details of the consultation process can be found on the Department of Energy and Climate Change’s website http://www.decc.gov.uk/.

The three introductory speeches at RenewableUK all focused on the significant opportunity the wind sector offers in the UK, especially with the plans to significantly expand the offshore wind capacity around the UK coastline by 2020.  It was quoted that the UK should be able to create up to 80,000 new jobs from investments in the wind sector alone.  There is certainly a huge opportunity here for communities to attract significant inward investment projects (20 new factories were highlighted as possible) and at the same time develop their indigenous companies with experience in subsea engineering etc. gained from the oil and gas and offshore sectors.

There does remain however a danger that if the necessary investment in port infrastructure is not made quickly enough then the turbines and other major components for offshore projects will simply be shipped from overseas ports with access to the North Sea.  In this respect the German government’s announcement, made after the Fukushima disaster, to switch off all its nuclear power stations by 2022 and invest heavily in renewable energy (notably offshore wind) and energy efficiency technologies should be noted.  The government there has recently increased its offshore wind tariff to 19 Eurocents / kwh for projects completed from 2012 onwards and it has also launched a € 5 billion co-investment fund for offshore wind financing, managed by the government KfW Bank.  Two projects have already won financing deals from this fund (Meerwind and Global Tech I) and we can expect to see the German offshore wind sector now enter a period of commercial development in the next two years and beyond, competing for investment, components and know-how with other European locations.

Contact us if you want to learn more about this opportunity.

We are always interested in looking at where technology is taking us in terms of new businesses and growth industries.  Our radar has picked up some exciting stories in the area of water technology.

With significant global water challenges ahead, including water scarcity; flooding; sanitation; pollution; and ageing infrastructure, we are seeing technological innovation in countries such as the US, Israel, France, Canada, Japan, Singapore, the Netherlands, Germany and Spain.

The water market is now one of the fastest growing in the world, and water is emerging as an important investment theme.  This is one to watch for future fdi growth.