KPMG LLP Strategic Sourcing Point of View: Shared Services, Outsourcing Contracts Can Hinder Business Plans Without Proper Governance: KPMG's Walker

SAN FRANCISCO, Feb. 23, 2012 /PRNewswire/ -- Organizations moving to shared services or outsourcing arrangements may fall short of business goals and constrict business plans without first establishing a comprehensive service delivery governance structure says Ron Walker, KPMG Internal Shared Services and Outsourcing specialist.

"Unfortunately, organizations fail to realize how important service delivery governance is to the relationship's overall success," Walker says. "Governance is key to managing the complexity and must be addressed from the very beginning. What often happens is that organizations conduct ad hoc reviews, and therefore, by the time they identify problems, cost and value leakage can be substantial."

"Despite the benefits of a planned and managed approach to service delivery governance," says Walker, "many organizations find managing the governance function to be time-consuming, repetitive and expensive, with governance costs increasing year-over-year."  

In those cases, he continues, the preferred option is to pursue managed governance services. "By assigning governance functions to an expert, organizations can receive more effective service delivery governance at a lower cost," says KPMG's Walker. "Specialized processes, tools, training and experience allow these specialists to be more efficient and better able to handle the complexities."  

He adds that a KPMG study suggests that without solid governance provider contracts can cause combined value leakage ranging from 17 to 40 percent.

He says mishandling cost reduction factors such as invoice and credit errors and reduction/redeployment of governance staff can cut the potential value of the business plan 2 percent to 10 percent.

Walker says mishandling cost avoidance factors such as consumption management and unnecessary change orders can knock out 5 percent to 15 percent of the potential value, and he adds that low adoption rates and failure to innovate can reduce the potential value of the plan 10 percent to 15 percent.

KPMG's white paper Shared Services and Outsourcing Governance, available at http://www.kpmginstitutes.com/shared-services-outsourcing-institute/insights/active/managed-governance-stop-value-leakage-6190.aspx, outlines steps to effective service delivery governance.

KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative ("KPMG International.")

The above views/opinions are the specialist's and not necessarily KPMG's.  The general information provided is not intended to address particular circumstances. No one should act on this information without appropriate professional advice after examining circumstance.

SOURCE KPMG LLP