Streaming killed the video store:
How innovative shared services are transforming the way you do business
It wasn’t long ago that Blockbuster and other physical stores ruled the home video market, only to crumble under the onslaught of streaming services such as Netflix. Where will the next set of business disruptors come from? Many experts believe it will arise from the sharing economy, which is already transforming not just consumer behaviours but also the way companies large and small do business with their customers and suppliers, and within their organizations.
Uber and Lyft have already upended the taxi industry by offering ride-sharing services that have significantly reduced the cost of getting from Point A to Point B. Airbnb has allowed property owners to share their spaces while offering significant benefits to travellers. Entrepreneurs across the globe are making life easier and services less costly for their customers by sharing unused capacity and common service platforms. Businesses have provided access to everything from underutilized warehouse and office space to construction equipment. And other shared service providers have created centralized platforms that include office reception services, legal services, IT services and cybersecurity services.
While it’s hard to gauge the financial impact of companies that are part of the sharing economy, professional services firm PwC estimates that global revenues from sharing sector companies could reach US$335 billion by the year 2025. Meanwhile, the Deloitte Global Outsourcing Survey 2018 notes that traditional outsourcing is dead: “Our 2018 survey of more than 500 executives from leading organizations indicates that disruptive outsourcing solutions — led by cloud and automation — are fundamentally transforming traditional outsourcing.”
The report notes that organizations are already embracing disruptive shared services. Cloud solutions are being considered by 93 per cent of respondents, while 72 per cent are considering the adoption of robotic process automation — outsourcing repetitive tasks to a shared pool of software robots.
This sharing transformation isn’t reserved for big companies. Small and medium-sized enterprises are benefitting considerably from the provision of shared service platforms. Traditionally, growing businesses often face an IT department roadblock — where they had to devote an outsized portion of their revenue to build a level of IT functionality comparable to that of larger companies, which could more easily afford the spend. But the playing field is getting flatter. Today, outsourcing to a shared service provider allows companies to preserve precious capital and convert hard costs into operating expenses. For SMEs, that can create a range of pluses: they can reduce their HR and real estate costs while also transforming capex into opex, which can provide tax benefits. And sharing is often more efficient and scalable. When shared service providers offer IT services such as cloud computing or cybersecurity, contracts can be formulated as pay-per-use services. Customers pay for only those services they actually use, and they can quickly scale up or scale down their consumption of those services. The provider manages the capital spend required to maintain the total capacity necessary to serve its customers. Shared service providers can also pivot more quickly to provide customers with innovative technologies, using economies of scale to lower the cost of the latest upgrades across a broad range of customers.
Outsourcing some functions also allows companies to focus on their core competencies, and the intellectual property that makes their business unique and their products and services difficult to replicate. The Deloitte outsourcing survey noted that, while cost savings are important, companies that access shared services as part of disruptive outsourcing aren’t solely motivated by cost reductions: “While cost optimization is still a critically important criterion for outsourcing, it is no longer at the top of the list (nor even in the top five), since disruptive outsourcing, when executed well, can deliver competitive advantage by transforming the way organizations operate, and making them more agile, efficient and effective.”
With shared service platforms cutting across all sectors and providing an everincreasing range of services, competitive businesses need to examine their core competencies and decide which of their internal functions could prove more advantageous to outsource.
Perhaps a 2017 report by The BCG Henderson Institute, Hopping Aboard the Sharing Economy, said it best: “Consumers have already spoken. They appreciate the convenience, variety, and cost-effectiveness of sharing. The economic and business rationale for sharing is strong, both for startups and for incumbents. Companies should be exploring their options in this new world of declining transaction costs and rising consumer interest in sharing. If they don’t, their competitors almost certainly will.”