India has become a global hub for shared services, serving many global companies in search of lower costs, more efficient processes, and business transformation. Indian companies, however, have not emphasized shared services, preferring to focus primarily on top-line growth. This is changing, however, as Indian companies see shared services as an important step in enabling growth and innovation and driving efficiency.

The classic scope of services delivered by shared services will need to change as organizations increasingly demand a shared services model, even for core activities. This trend will require new business models, stronger provider-user relationships, and transformational contracts.

There will be a number of challenges in achieving this transformation in the role of shared services in India. This will require a greater collaborative effort by customers, service providers, and the government.

Within this context, the Confederation of Indian Industry (CII) and A.T. Kearney worked together to provide a perspective on the current state of shared services in India. This paper highlights the benefits, identifies drivers for growth, and pinpoints the imperatives for key stakeholders, including shared services users, providers, and government. We hope this paper encourages a deeper discussion about the role that shared services can play in the next chapter of India's growth story.

Companies devote a great deal of time, effort, and resources to achieve success, but the bottom line is this: The product or service offered needs to be one that people want above all others. It can be dangerous to assume you know what the customer wants. That is where capturing the voice of the customer (VOC) comes in. 

Traditional VOC methods have shortcomings. For example, the information captured often includes several needs, or types of needs, which makes it difficult to compare and prioritize their importance or translate them into product specifications. 

Desired outcome–based VOC adopts a different approach. It uses a framework of customer “jobs-to-be-done” and the “desired outcomes” for these jobs.  Proposed by Clayton Christensen in his work on innovation at Harvard University and Anthony Ulwick in his book, "What Customers Want," on outcome-driven innovation, the method is based on the assumption that customers buy a product or service to help them accomplish a specific task. Associated with each job-to-be-done is a desired outcome, which is the customer’s ideal result of the job getting done. 

The structure and consistency of the outcome-driven customer-needs framework offers four advantages over traditional VOC approaches: 

• Directly identifies underlying customer-value drivers 
• Ensures innovation efforts that are more focused with clear articulation of required improvements 
• Makes it easier to translate customer language to engineering language 
• Provides a clear, supportable connection between future marketing messages and customer-value propositions 

The conventional way of looking at a network is through the direct-value lens: How much does it cost to run the network? Networks are a great deal more complicated than that, and managing them—or, more fittingly, optimizing them—requires an expansive strategic imagination.

No matter what kind of network one manages—hospitality, retailing, banking, leisure, telecommunications whatever it might be—once the network is built, it immediately begins its evolution. Even within a single local market, the network is evolving all the time. As the network goes through its life cycle, perspectives on sustaining it must change as well. The means for doing this are distilled in A.T. Kearney’s Network Optimization Tools, or KNOTs, comprised of eight elements, each focused on a strategic element of the network.

The English word knots translates as les nœuds in French, or nodes. This is an apt image for thinking about the symbiosis of the local and the networked—the balance of savoir-faire métier and savoir-faire local, of the collective intelligence of the network and the specific intelligence of the individual.

Think of KNOTs not as a laundry list of best practices used to build an optimal network but as electrons—each one discrete and at the same time interacting around the nucleus. A national bank develops financial products centrally, but the local branch manager manages the relationship with customers. The national bank maintains good relations with the regulators while the branch manager cultivates the good will of the town mayor. A manufacturer’s leverage with suppliers may be directly proportionate to its number of plants, yet procurement is not only about concentrated volume. It is also about expertise the manufacturer owns in a multitude of categories and brings to bear in the local nodes of its network.

A sobering counterexample is the flameout of video retailer Blockbuster, which channeled its energies into adding thousands of stores and tens of thousands of employees in North America and Western Europe only to be caught off guard by competitors such as Netflix and the rapid adoption of streaming video. In hindsight, Blockbuster’s history suggests an unbalanced emphasis on its real estate network and not enough on the customer experience. The result was catastrophic.

We organize our network nomenclature into three types: production networks, service networks, and distribution networks. La Poste, for example, is a production network in that it operates like a factory producing a product: collecting and distributing mail. Taxi companies, railroads, and airlines are other good examples of production networks. The nodes in these networks are more than just infrastructure. One must own the nodes or there is no business to manage. Closely related to the production network is the service network, typified by telecommunications and hospitality. A hotel network, for instance, cannot deliver a night’s sleep over the Internet. The consumption of its product is done at the local level even though each node in the network is supported by the expertise of the whole. The service is the network.

A distribution network is retail in all senses of the word, especially in its tailoring of products to meet the needs of local customers. Distribution networks are high touch and in certain ways are the easiest networks to think about in terms of nodes. The most familiar example, literally the most concrete, is a brick-and-mortar retail chain. Find a Wal-Mart, and its distribution center will not be very far away.

Today, CPG companies in particular are faced with tough competition, flat R&D budgets, and fickle consumers who crave the latest and greatest products. In this challenging market, how do leading companies stay on top?

We recently profiled 10 of the world’s largest CPG companies to evaluate their innovation mettle and determine how their R&D organizations have adapted to today’s market pressures. Our goal was simple: find out how leaders are reinventing innovation. And our focus was not on one-hit wonders but on companies that are likely to sustain innovation over time.

Our findings suggest that these companies—we call them “sustainable innovators”—apply foresight to the R&D function and avoid the pitfalls that take down even the most potent competitors. Essentially, they think of innovation as an end-to-end value chain that is focused on the future—from idea management, product development, and launch to managing the entire life cycle of every product.

Sustainable innovators share three important characteristics:

• Pursuit of breakthrough, consumer-driven innovation. A substantial boost in sales comes from breakthrough innovations that tap into unmet consumer needs and lead to either new products or significantly expanded product categories. 
• An invent-and-reinvent mindset. Reviews are vital, to continually reinvent even bestselling products to insulate them from ruthless competitors and private label upstarts.
• Productivity linked to innovation. Today’s volatile world requires more innovative thinking to protect and grow market share—a “no sacred costs” approach to product evaluation to reveal changing consumer preferences, new supply sources, and formulations can improve margin performance.

Procurement is not as easily outsourced as other functions—that's because pro­curement results tie directly into the cost of goods sold (COGS) and the business's profit-and-loss statements. Companies are careful not to lose their grip on this important function. Despite a substantial growth in out­sourcing in the past several years, procurement outsourcing is less than 2 percent of all outsourcing activities. 

Only a handful of companies are considered experts at outsourcing pro­curement and, to date, most procure­ment outsourcing is limited to select portions of indirect spend. It is difficult to envision it expanding to all indirect spend areas across companies, let alone into direct spend. Expectations that procurement outsourcing will achieve high growth over the next several years may need to be tamped down. In fact, a few companies recently began the process of backing out of or renegotiating procurement outsourc­ing deals they signed just a few years ago. One large multinational retailer that considered all indirect sourcing categories to be "nonstrategic" under­took a sizeable outsourcing deal that did not result in ample benefits in sev­eral categories. Another global telecom­munications company that "mixed" procurement into a broad outsourcing contract concluded that it was paying too much for average results. Both companies now recognize that their due diligence efforts during the vendor selection and contracting processes were less than adequate.

These experiences exemplify why companies planning to begin procure­ment outsourcing efforts, or intensify already started initiatives, should do so cautiously. There are certain char­acteristics that leaders in procure­ment outsourcing share. For example, the most successful companies in pro­curement outsourcing were not notably proficient in procurement before outsourcing it. Others are succeed­ing by starting with requests for proposals (RFPs) that are smaller in scope and more specific; encompassing a relative handful of procurement processes or sourcing categories and expanding only if these "pilot" efforts succeed. This latter approach reflects the type of caution that is warranted when outsourcing any key corporate function.

Emerging countries—particularly China and India—are changing the face of global markets, as their economies grow by as much as 10 percent per year. In the wake of this growth, these countries are producing some of the world's fastest-growing, most competitive companies. In the steel market, American and European companies were the undisputed market leaders 20 years ago. Today, steel giant ArcelorMittal—formed after India's Mittal Steel acquired Europe's Arcelor—is the world leader. In chemicals, players from emerging economies, including Sabic and Sinopec, are now among the biggest. The quality and knowledge gap between these companies and those from developed countries is shrinking rapidly as their home markets mature. These companies are no longer low-cost alternatives—they are fierce competitors in the export markets.

While many developed-market companies have succeeded in this changing world, a recent A.T. Kearney survey of executives at German industrial companies indicates that there is more that companies from the developed world can do. Many companies have gone "glocal"—meaning they make global products with some local adjustments— but few have the full range of local value chains in these vital emerging markets, resulting in lower market share and growth that lags their local competitors.

To succeed in these booming emerging markets, companies from developed countries must meet client needs—as well as, or better than, local players.

For businesses seeking to improve profits, the low-hanging fruit is obvious. Fixes, such as reducing manufacturing costs, improving marketing effectiveness, or optimizing a supply chain are typically among the first to be implemented. Thus, a company that has already made such improvements faces a challenge. Does it, like the fox, conclude that anything else is out of reach and therefore not worthwhile? In such challenging economic times, a company can't afford to draw such conclusions. Does it then run for a ladder and raise it to a spot where, at first glance, more fruit appears to be within reach? Because of past improvement activities that seemed promising but failed to produce bottom-line results, many companies are wisely hesitant to do so. So is there a way to take a more holistic approach—to use the ladder to learn more about the tree, use scaffolding to align efforts to achieve productive results, and even prune the tree's branches to improve the likelihood of a long-term sustainable harvest?

Yes, there is a way. We call our approach Expanding the Profit Frontier. We've used it to help companies improve overall earnings 300 to 500 basis points before interest and taxes. For example, one company saw a 1 to 2 percent revenue lift when it aligned its pricing and discount strategies with a cost-to-serve model for each customer segment. Another company, initially planning to implement a single fixed-cost reduction strategy, instead combined this one initiative with another designed to streamline the product portfolio, and achieved six times the benefits with this more holistic approach.

Success for these companies was achieved using proven tools to address all of their profit frontiers (cost reductions, price increases, portfolio adjustments and other actions)—and doing so simultaneously as part of a continual business process to ensure maximum profitability both today and in the future.