How to enhance value from your service delivery organisation

This article, prepared by Deloitte Consulting, discusses ways to enhance shared services to become more competitive. If you have any questions or require additional information, contact Mike Vincent at mivincent@deloitte.co.za.

Enhancing Value From Your Service Delivery Organisation

Increasing competitive pressures, coupled with the ongoing push by shareholders for enhanced controls, has made service delivery capabilities for a company’s general and administrative (G&A) functions more important than ever before. Companies are working to drive down costs as well as to enable the business to focus on core strategic challenges rather than simply “run the engine.”

In such an environment, senior executives face a hard reality: To stay competitive, a company’s service delivery organisation must either continually improve by driving down costs, or else risk falling behind. Standing still is not an option.

Many companies have used shared services organisations and outsourcing for non-core, transactional activities to generate economies of scale and improve productivity. Now, companies are searching for ways to further develop these approaches and take service delivery to the next level.

We believe that many companies can find important opportunities to enhance service delivery effectiveness by:

• Expanding their service delivery organisation’s functional scope
• Enhancing internal customer management
• Creating a strong service culture
• Rethinking facilities and infrastructure

Companies that adopt leading-edge approaches in these areas can gain the ability to leapfrog the competition by reaping enhanced benefits from their service delivery organisations.

Increasing competitive pressures will continue to force companies to scrutinise G&A functions to understand how they can better drive shareholder value. Yet most service delivery organisations are the result of a series of individual decisions over the years, resulting in piecemeal operating models that are unable to sustain or expand value for the company.

The need to improve operating efficiencies while simultaneously maintaining or increasing internal customer satisfaction makes it imperative for companies to constantly reexamine their service delivery organisations’ strategy and operations. Companies should analyse their past service delivery approaches and experiences to learn what worked well and what did not. In addition, they should look at and learn from innovative service delivery approaches that other companies are using to achieve success.

For their part, service delivery organisations should make a concerted effort to redefine themselves as strategic business partners and trusted advisors that can help their companies achieve their strategic objectives.

Innovation, fortitude, and a relentless passion for continual realignment and improvement are the defining characteristics of service delivery organisations capable of leapfrogging the competition to become tomorrow’s leaders.

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Filed under: Executive Leadership, Finance, Information Technology, Talent & Human Capital, competitive pressures, customer management, Deloitte, enhanced benefits, facilities and infrastructure, general and administrative, innovation, internal customer satisfaction, operating efficiencies, operating models, outsourcing, productivity, realignment and improvement, service delivery organisation, strategic business partners, strategic objectives, strong service culture, trusted advisors

Using the forgotten art of “Experience Curves” to improve management practices

This article was prepared by Deloitte South Africa Strategy team. If you require a more in-depth discussion on the subject, feel free to contact Dr Werner van Antwerpen at wvanantwerpen@deloitte.co.za    

Experience Curves: A powerful management tool to drive operational efficiency and improved forecasting

In an increasingly competitive business environment, a management team’s ability to accurately forecast its costs and productivity is a key driver of business value. Experience curve theory is a powerful analytical methodology that can support a management team in determining realistic and measurable forecasts based on specific industry benchmarks and achievements.

This article outlines Deloitte’s point of view on how the experience curve can be leveraged to support leadership teams in setting realistic targets and then managing value. With a focused approach, the experience curve forecasting and monitoring process becomes a key enabler to realising superior productivity enhancements.

The experience curve theory has a wide spread of applicability for any organisation that uses a repetitive process. The theory suggests that for every doubling of a unit of production, productivity tends to constantly improve by a factor called the Progress Ratio (PR). The construction of large engineering projects is one example where experience curve theory is readily applied. The principle of experience curve theory is captured in Figure 1 below. Quite simply, if a construction firm is building 8 engineering structures where the first structure has cost $100m, the second unit will cost $85m, the 4th unit will cost $72m and the last unit will cost $61m.

It can be seen that a considerable saving of $39m has been achieved when building the 8th unit, if the initial cost was estimated at $100m.

As companies grapple with current operating environment complexities, the real value of experience curves has become somewhat underutilised because companies do not translate the calculated results into business strategy. In essence, when used as part of the budget setting and performance management processes, experience curve theory is an effective tool.

In Deloitte’s experience, management teams that link quantitative results to business strategy tend to achieve greater success. Using experience curve theory in this practical manner is a key differentiator to drive operational efficiency and improve profitability forecasting.

Read the full article . . . . Experience Curves: A powerful management tool to drive operational efficiency and improved forecasting

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Filed under: Executive Leadership, accurately forecast, budget setting, business strategy, business value, Deloitte, Experience Curves, forecasting and monitoring process, improved forecasting, managing value, operational efficiency, performance management, productivity, profitability forecasting, Progress Ratio, quantitative results, setting realistic targets