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Introducing the Dynamic Process Transformation Model

Filippo’s Story

As I (Filippo) drove home from the Procter & Gamble HQ in downtown Cincinnati one evening in May 2003, I wondered why I wasn’t feeling happier. After all, that day marked the successful conclusion of a particularly difficult chapter in P&G’s effort to outsource part of its functional back-office operations. It had been a few years of organizational turmoil. First there was the aborted effort to sell functional services like IT, finance, and HR as a service to other multinationals. Next came the unsuccessful outsourcing of 6,000 employees to Electronic Data Services (EDS). All this uncertainty had been rough on the organization.

I had recently been brought in to drive closure, and we devised a new plan: to outsource two-thirds of the back-office operations to three separate services companies. Today, we had finally announced the largest of the three deals, this one with Hewlett-Packard Services. P&G and HP Services had revealed, earlier in the day, a ten-year $3Bn deal, wherein about 2,000 P&G employees across more than 70 countries would transfer to HP. It was hailed as the largest and best structured and executed Global Business Services outsourcing deal in the world.

I had recently taken on the role of Global Business Services (GBS) leader of P&G. The aforementioned aborted GBS projects had created significant turmoil. My first task in the new role had been to end that turmoil by developing a new strategy and successfully completing the outsourcing deals. Today marked the completion of the first major milestone. Except that something still bothered me.

The Landscape of P&G’s Functional Back-Office Operations

It might help for me to describe the context of this issue first. All companies have functional organizations like finance, sales, HR, IT, procurement, supply chain, and so on. They are the back-office backbone of the day-to-day business processes that deliver the company’s operations. P&G’s strong functions had historically helped it become a global powerhouse. The company restructure program, mentioned in the previous chapter, had taken that up a notch. By sweeping together the operational parts of all these functions into Global Business Services (GBS), we aimed to achieve even more efficiency.

In general, GBS groups focus on running many routine functional administrative tasks, leaving the business units more time to focus on customer or product-specific activities.⁶ GBS organizations deliver shared transactional services, such as managing orders or payroll to all the subsidiaries of the company. Thus, the term Global Shared Services, or alternatively, Global Business Services. P&G had in fact coined the term GBS.

So far this might seem like a rosy picture of P&G’s GBS. It is, except for the fact that earlier in the chapter I mentioned the intention to outsource most of it. It is legitimate to ask why a company might want to outsource such a great asset.

The Early Success of P&G’s GBS

My predecessor in the company, Mike Power, deserves credit for having pushed to create a GBS organization and to lead its initial phase. The first cost reduction benefits of the previously mentioned corporate restructure, which involved creating offshore service centers in Manila, Costa Rica, and Newcastle, were delivered under Power’s leadership. P&G’s GBS was a pioneer in many of these activities. Indeed, this is what convinced the government of Costa Rica to enter the shared services industry, a decision that would over time lead this industry to be among Costa Rica’s top economic drivers.

The new GBS operation, with its offshore centers, was an external success story that drew envy, and inquiries. Other multinational companies expressed interest in buying functional services (such as IT or finance) from P&G’s GBS. That led to the idea that perhaps the new organization could “monetize” itself by selling its services to others.

P&G’s GBS Goes on Sale

However, the idea of monetizing GBS further by selling its services to other companies quickly fell out of favor, since selling functional services was not core to P&G’s mission. It would be a distraction for a consumer goods company to enter that business. Over time, an alternative idea emerged. If P&G’s functional operations could be run in offshore countries, and if GBS operations were not core to P&G’s business, and furthermore, if GBS was in fact a monetizable asset, then perhaps it would be better to sell or outsource all of GBS to a services provider.

That led to the second project: to outsource all 6,000 GBS employees to a single provider.

It is hard for me to overstate just how much of a cultural change that decision was for P&G at the time. The company had historically been a lifetime employer. People started at the entry level and spent their entire career in the company, often leading to their children and grandchildren following in their footsteps. It was hard to imagine being outsourced to a supplier company, because it meant, in effect, moving to a new employer.

This project almost went through, with EDS being the chosen supplier. However, in a strange twist of fate, the deal fell through literally hours before being signed. EDS’s stock price fell dramatically that day for unrelated reasons, which made the sale price unviable. That was just as well, because there had been unease at the idea of selling the entire GBS organization to a single supplier.

That is the point where I took up the Global GBS leader role. The GBS organization felt a bit battered by the twists and turns of the previous years, and it was important for the company to drive all this to closure. Probably a better idea would be to selectively outsource to a few suppliers, each of them best-of-breed in their respective functions. In other words, utilize a combination of the three best providers in IT services, HR services, and facilities services. It was very important to quickly execute this and to drive this uncertain era to a successful close.

My Dilemma Becomes Clearer

This final plan was executed on a war footing. I will not elaborate on the selection of the best-of-breed suppliers, as it is not important for this book, which is about process transformation. By the time the dust settled six months later, we had selected HP for IT services, IBM for HR services, and Jones Lang Lasalle for facilities management services.

On the day in May 2003 that we selected HP, I had a feeling of unease as I drove home from the office. That was the largest and most complex of the outsourcing deals, and it marked the end of a prolonged period of uncertainty.

As I parked my car at home and sat there in silence for a few moments, I finally realized why I wasn’t feeling happier. Perhaps these outsourcing deals were solutions to a symptom, not to a root cause. The root of the issue was simple—the functional operations that comprised GBS were not unique to P&G’s business. The journey from GBS being viewed as a global competitive advantage four years earlier, to being thought of as nonstrategic, had been brutally short. It seemed to me at the time that my predecessors had taken all the right steps in the GBS journey to centralize and standardize operations and to reduce costs via offshore centers. Yet if GBS was not distinctive to P&G business operations, that meant it was fundamentally a commodity. Therefore, nothing prevented our future from being a series of painful outsourcing deals until there was nothing left of GBS. And given the unique capabilities that GBS could bring to the business, was this the best outcome for P&G? If not, what could we do to change that?

Analyzing My Dilemma Eventually Leads to the Idea for Dynamic Process Transformation

I did not at that point have a good answer to my dilemma, and I wouldn’t fully develop one for some time. In fact, as I reflect today on my statement of the dilemma, it strikes me that it was too narrowly focused on GBS. The issue was actually bigger than GBS.

The strategic question was whether P&G’s business processes were fully optimized at the end of this episode of outsourcing. Or was outsourcing just one step in an ongoing journey to achieve enduring competitive advantage via Dynamic Process Transformation?

Perhaps my question should have been—were the business processes that were run by P&G’s GBS, including those which were now operated via outsourcing, so good that they could not be transformed further? In today’s world, in which the capacity of digital technology to keep transforming even efficient operations is recognized, this might seem like a silly question. Yet that question is still worth asking today.

What I Did Not Realize in May 2003

As I drove home that evening in May 2003, I had started to realize that P&G’s business processes needed to keep transforming over time and that the GBS organization could perhaps be an important lever for the company along that path. In hindsight, the P&G GBS of 2003, which included outsourcing some services, was at Stage 2 of maturity. What I did not yet realize was that this spectrum had four stages and that over time we would discover the secret sauce to moving the organization through those stages. I had no way of knowing that over the next several years the P&G GBS organization would play a leadership role in this. I couldn’t predict that it would soon be considered the best in the world in its lane, be awarded multiple times by the industry, and be the subject of case studies in the Harvard Business Review. There was no inkling that information technology would drive the fourth industrial revolution and that organizations such as GBS were uniquely positioned to put together three key ingredients: enabling technologies, process management expertise, and transformation management skills. I did not yet understand the potential of dynamic business processes or that we would be constructing a road map of how to achieve them reliably. However, I had identified the dilemma facing us, and that was a major step toward making the rest of the journey.

Driving Dynamic Business Processes by Using GBS

I learned over time that the GBS framework offered a way to deliver dynamic business transformation. Fast-forward to today, the GBS construct has matured into a full industry. The role of GBS as a leader in transforming processes is generally accepted. This is based on a strong foundation of results. GBS organizations, when set up correctly, deliver annual productivity savings of greater than 15%.⁷ More than 9 out of 10 enterprises, across all industries and company dimensions, use shared services already.⁸ In most large and medium-sized organizations, the GBS scope of work cuts across almost all, if not all, functions.⁹ The GBS global market size is currently $110Bn¹⁰ and growing at a compound annual growth rate (CAGR) of 17%.

Next, combine this potent GBS construct with a codified model for building Dynamic Process Transformation, and things get even more interesting! The codified Dynamic Process Transformation model is a big deal. That’s because there is strong consistency across functional business processes between industries. Processing a payment follows a similar course whether done at Walmart or at Tencent or by the French government. Between the proven GBS construct and the codified Dynamic Process Transformation model, the opportunity for creating enduring competitive advantage is virtually limitless.

Is GBS the Only Model to Drive This Evolution?

At this point it may be fair to ask about the linkage between the GBS organization structure and dynamic business processes. Is a GBS organization structure essential? After all, the examples of Amazon, Zoom, and the Cincinnati wine store don’t involve a P&G GBS-like structure.

I want to be crystal clear on this: Dynamic business processes don’t necessarily require a GBS structure. However, for medium to large companies that start out with legacy functional structures (as opposed to being digitally native), GBS can be a huge enabler. There are only three ingredients needed for dynamic business processes: the three drivers of Open Market Rules, Unified Accountability, and Dynamic Operating Engine. A highly mature GBS organization will operate on Open Market Rules. It will be organized for Unified Accountability of end-to-end business processes. And it will run its day-to-day operations using a methodology based on the Dynamic Operating Engine. So yes, in the right context, a strong GBS organization or a GBS-like structure can accelerate the delivery of dynamic business processes. But make no mistake, organizational structures don’t deliver business outcomes by themselves. At best, they facilitate them.

The rest of the book describes how to go about designing and delivering the road map to dynamic business processes. But first, we must better understand what problems must be solved as an organization sets out to embrace dynamic business processes. For that, see the next chapter.