In today’s business environment, nine out of every ten enterprises have shared services and 97 percent manage outsourcing relationships. However, the majority have yet to benefit from combining shared services and outsourcing into one integrated global business services framework.
Collaborative engagement through the adoption of Extended enterprise business models
As we look for greater efficiency and strive to focus on our core capabilities whilst reducing costly internal infrastructures the move is then to consider external providers to undertake all or part of the processing. The progression to this extended enterprise model places emphasis on contracts, that in most cases are built around the likelihood of contracting for failure, seeking to transfer most of the inherent risk and responsibility in the event of a default.
This is a fragmented approach.
At the time most UK organisations did business together in a traditional (somewhat adversarial) way: specify precisely what you want; contract an organisation to do it; and give them a very hard time if they fail precisely to meet your specification!
The vision was that organisations would get much better value if they ‘partnered’ – or collaborated with one another. This made a lot of sense: state the requirement that’s wanted in terms of output allowing the bidding organisation to specify a solution giving the potential supplier a blank canvas – how do I do this most cost-effectively?
Proposing such innovative solutions requires the exchange of knowledge, experience and skills between client and supplier… hence… COLLABORATION!
Barry Sheerman MP – World Economic Forum Board Member
The unseen driver of Business to Business Collaboration for sustainable cost reduction and profitable growth
Accenture Strategy research found that 82 percent of companies are focused on cost reduction to free up funds to invest in growth initiatives, yet only 36 percent strongly agree being able to sustain benefits of cost reduction programs.
Often service providers operate completely distanced from the client core business model and management process, by simply focusing on the contract terms that can only provide the financial and performance framework, without due regard to hoe to influence the softer, but equally important aspects.
Extended enterprise business models are creating an innovative environment for collaborative engagement and help identify opportunities for mutually beneficial outcomes.
Apart from creating a proper growth strategy and a ﬂexible operating model, you need insights that inform your cost reduction eﬀorts as well as guide your reinvestments of the realised cost reduction on competing priorities that extend the cost reduction benefits to customers.
Fifty-six percent of CFOs have performance objectives in place for strategic cost management on a daily basis.
Strategic cost management removes activities and processes that do not drive business value.
The Profitability Life Cycle – a fundamental part of the enterprise performance management system
Profitability and cost management (PCM) – a methodology for linking financial and operational management processes – reflects the bottom-line for every company and allows operational managers to understand the financial consequences of their operational business decisions, and financial managers to increase financial control and the predictability of financial results.
It can be used to enhance the business model, enabling portfolio diversification, and value chain integration.
Introducing PCM entails an understanding of the business drivers, changing business processes, and introducing a system that takes you from one stage to the next.
In the first stage, at the macro level, profitability is straightforward to evaluate: revenue – cost – expenses = profit.
In the second stage, key performance indicators of profitability that drive their business, such as cost of goods sold, service and support cost, and product margins come into play.
Next, the critical enquiry stage emerges to set the stage for profitability optimisation:
Why are some customers profitable and others not?
Why do the costs of service go up for certain products?
In the final stage of the profitability maturity lifecycle, you carry out profitability optimisation to help develop a plan of action to improve the profitability of its underperforming activities with customers and products.
Download: THE BROKEN LINK—WHY COST REDUCTION EFFORTS FAIL TO FUEL GROWTH >