To thrive amid uncertainty, technology and digital transformation will be key.
The prospect of a global economic downturn, geopolitical uncertainty and talent shortages driven by long-term demographic shifts all weighed on the minds of executives as they responded to our 2023 Key Issues Study.
Executives are looking to technology as they consider how to manage the forces of change: 45% of executives said they are accelerating digital transformation (automation, advanced analytics and modeling) – more than any other response measured, including capital spending and cost reduction programs. The cloud has moved to the forefront as the platform organizations must leverage for agility, growth and transformation. In the study, 42% of enterprises reported having legacy solutions that must be replaced.
But organizational disconnects hold back many companies from achieving the transformation they are targeting. More than one-quarter of study participants across business functions said the inability to successfully transform their business and related functions is of key concern.
Amid unprecedented uncertainty, global business services (GBS) executives ranked their priorities for the coming year
There are some significant disconnects between GBS priorities and planned initiatives
Digital transformation dropped from the top spot in 2022 to No. 6 in 2023, but it remains the one objective for which most GBS organizations (69%) have a major initiative planned. In contrast, fewer than one-half of GBS organizations have initiatives planned to address some other key priorities. GBS executives are mostly confident in their ability to deliver on key objectives – the one exception being improving GBS analytical capability – making it the most important critical development area for many GBS organizations. Ironically, only one-third have a 2023 initiative planned to address it.
Without action, GBS organizations will struggle to meet business demands for more value creation. Therefore, GBS executives need to do a better job of properly balancing resources and priorities.
People-related risks represent the top threats to GBS success
Skills and talent broke into the top three priorities this year. This is not surprising given the high attrition rates reported by GBS organizations post-pandemic, and the continuing challenges to attract and develop people with scarce digital skills. GBS executives are clearly concerned about this area. When asked about key risks to success in 2023, they ranked people-related issues in the top three spots. This is a marked shift from 2021, when only one people issue made the top three. What is surprising is that only 59% of GBS organizations have a major 2023 initiative planned to address this issue.
Small increases in 2023 resources and budget won’t be enough
Addressing these diverse priorities will require resources. The Key Issues Study confirms and quantifies what GBS executives already know: They must find a way to do more with less. In 2023, the GBS workload is predicted to increase by 8.6%, reflecting the broadening of priorities. With more modest increases in head count and operating budget, GBS organizations must be prepared to fill a productivity gap of 4.2% and an efficiency gap of 2.7%. While these gaps are smaller than recorded in last year’s study (5.4% and 6.5%, respectively), GBS executives still have a significant challenge in front of them.
Straight-through processing rates remain low
Most GBS organizations expect the volume of work performed through automation to increase in 2023 – 26% expect it to increase by more than 10%. But according to the study results, GBS organizations have a long way to go to lights-out processing. GBS organizations have an average straight-through processing rate of 21% for all main transactional end-to-end processes – with the highest rate for procure-to-pay and the lowest for hire-to-retire activities.
While automation is the primary strategy for absorbing more work, offshoring remains an effective option: 57% of study respondents expect the volume of work performed offshore to increase over the next year. But few GBS executives expect to increase the volume of work performed through outsourcing.
GBS leaders will rely on technology and digital transformation to close the gaps
Overall, GBS leaders expect a 6.9% increase in technology spending, indicating a growing reliance on technology to increase productivity, efficiency and effectiveness.
Where GBS organizations are investing
GBS digital transformation fell from the top priority, which it has held for the past two years – but it remains at the forefront of the GBS agenda for 2023 and critical to many of the other top objectives.
Executives predict the volume of work performed by robotic process automation (RPA) to grow by nearly 25% in 2023 – more than any other technology. This is in line with projections for increased automation of work. But several other digital technologies are not far behind.
Cloud-based applications are rapidly replacing on-premises legacy applications
The Key Issues Study results show that overall legacy applications deployments will remain flat or decline in 2023. Close to 70% of GBS executives report a well-built approach to cloud technology, with about two-fifths planning to migrate most transactional and analytical functions to the cloud in the next three to five years. About one-quarter (27%) have implemented a cloud-first approach to new applications over the past five years.
Digital technologies mostly meet or exceed expectations
Most GBS leaders believe technology investments meet their objectives:
For some, however, these technology investments have failed to meet objectives – RPA, in particularly, has fallen short of expectations for 44% of those surveyed. This indicates GBS executives must continue to apply rigor when placing bets on new technology.
Many digital technologies remain stuck in the pilot phase
For GBS to succeed, digital technologies need to achieve enterprise scale. Currently, they do not. The Key Issues Study showed that GBS organizations have significant opportunities to expand technologies such as business process management/workflow tools, cloud-based GBS service management and best-of-breed solutions, and virtual assistants – beyond pilot projects or small-scale deployments.
Even the most widely adopted technologies – including RPA, cloud-based enterprise resource planning (ERP) applications and digital workforce enablement tools – have expansion potential.
GBS’ analytics adoption also remains mixed
Many GBS organizations struggle to adequately manage master data across all the transactional services they provide. This compromises their ability to unlock the value of data for the enterprise. GBS leaders must learn to lead on cross-functional master data management strategies. Once a strong master data management foundation is in place, organizations can then turn their attention to creating insight from data and delivering data as a service. This will require investment in skills, tools and techniques for this to be a core GBS capability.
GBS executives’ confidence in their ability to achieve this objective in 2023 is lower than for any of the other top 10 priorities. This is why it is so surprising that only 33% have a major initiative planned to address this objective in 2023.
Artificial intelligence (AI)/cognitive computing have the lowest GBS adoption rate among all smart automation technologies, with moderate expected growth. Data-related technologies are far more widely adopted and likely to grow faster – yet these are still pilots or small-scale initiatives in many organizations, despite the fact that data and emerging technologies tend to net positive returns for most GBS organizations.
Sharpen your focus for 2023
Given today’s unprecedented combination of threats, we believe GBS executives must take progressive countermeasures rather than following the typical recession playbook. Certainly, realigning investments to reflect current top priorities is critical for making meaningful progress toward objectives. Here’s what else we think will make the biggest impact in 2023:
- Be ready to disrupt – and recognize that digital transformation is the key to doing so.
- Engage digitally and personally – ease of use and self-service enablement must be central tenets of the operating model.
- Accelerate application, data and platform migrations to create cloud-based information technology architecture.
- Strengthen capabilities for designing, building and running new technologies around the digital core.
- Focus on how you can deliver value to the enterprise in the current environment – for example, by combating the impact of inflation.
- Aim to strengthen talent management processes and compensation plans to address wage, turnover, and skill risks.
- Reconsider GBS location structure and build GBS center operability.
- Strengthen demand planning and forecasting to respond quickly to change.
- Plan center growth in countries with a growing skilled labor force and invest in labor-replacing technologies.
- Benchmark continuously to understand GBS performance and where you are going.
Download the full report to learn more about GBS executives’ top priorities for 2023, including improving value delivery, acting as a strategic partner, upgrading skills and talent, improving customer experience, supporting enterprise growth strategies, delivering GBS digital transformation, and improving GBS service management capabilities and agility.