31 December 2020

 

As some light appears at the end of the tunnel with the development of a vaccine for the coronavirus, businesses are beginning to reflect on the lessons learned from the crisis. At PX Partners, we have been listening to our clients and others as they tell their stories from the pandemic. Generally speaking, business have found novel and creative ways to get things done. And this question really resonated with us: How best to get things done?

 

Upending of traditional business and operating models was underway before the pandemic took hold. But the pace has accelerated with incredible outcomes. Established industry players have struggled as new participants have disrupted business models and challenged traditional thinking. It is not just a competition for market share but a fight for survival in some cases. It is mind blowing that Tesla’s market capitalisation is larger than the nine largest carmakers combined. And the rally in the Airbnb share price following its recent listing means that it is now more valuable than the collective of the seven largest US hotel chains (figures as at December 2020).

 

This is a time for thinking differently. But where to from here?

 

Play to your strengths
Accept that you cannot be excellent in all things. This acceptance will serve you well. By leveraging specific expertise in supporting core business activity, centres of excellence are developed. Support actors can invest in systems, process and people to continually improve without diverting funds from business growth initiatives as these are the business growth initiatives. Clients benefit from best practice and benchmarking.

 

The traditional model of having an office which organised people into different teams to perform functions has been challenged by COVID. Less people to organise allows the firm to focus on its core activities.

 

Do you need a problem solved or do you need an FTE?
It can be a natural instinct to throw bodies at problems. But are they the bodies needed when the dust settles? Since the Global Financial Crisis there has been much investment in governance, risk and compliance (GRC) resourcing. But it is now obvious that there is more to be done in how these functions operate efficiently and effectively. Traditionally, firms have always been comfortable outsourcing distribution, operations and legal services but until recently, less so with GRC. At the same time, businesses are faced with growing uncertainty on many fronts – technological disruption, growing community expectations, regulatory and political scrutiny to name a few.

 

To meet this uncertainty successfully, GRC teams must be more elastic with the ability to dynamically augment capability when required. Having the right people at the right time enables success; and what is “right” can change tomorrow.

 

Quantify the cost
The impact of COVID-19 has proven that employees don’t need to physically be in an office to achieve the same or even greater levels of output. Outsourcing of non-core functions reduces payroll costs while bringing the benefit of having qualified experts available with a pool of resources. This is especially relevant in times of stress when more may be required at short notice, such as when the early impacts of the COVID-19 pandemic were being felt by businesses.

 

When considering the right mix of resourcing, it is important to consider the cost of an employee is not limited to a salary but extends to all the related costs such as recruitment fees, superannuation contributions, insurance, benefits, training, desk space and technology. So, in reality, the ongoing cost of an employee can be multiples of a base salary.

 

The insource / outsource trade off
A common argument used against outsourcing is the perceived loss of control. Tightly drafted agreements with suppliers, clear service level agreements and measurable performance indicators put paid to that argument. Meaningful reporting from service providers in a standardised format makes for more efficient and impactful management and Board meetings. Issues are easily identified and actions quick to implement.

 

Outsource the ‘people risk’. There is much time spent by managers dealing with the disruption caused by turnover in teams, including difficult performance conversations, resignations, recruitment and induction. Time is better spent on revenue generating activities.

 

By having access to a pool of outsourced on-demand talent, firms can dynamically augment their workforce without the need to hire additional full-time employees. In addition to management time, this saves on fixed overheads.

 

Security of data
The ability of businesses to stand up remote and virtual models to continue business as usual operations has been incredible. There is now an opportunity to build on that success by further exploring options to support business growth by identifying core and non-core functions. Selecting partners with industry leading technology platforms and Software as a Service (“SaaS”) to provide support to non-core functions can enhance rather than detract from the technology security risk profile of a business.

 

Applying this to your GRC capability
A survey carried out by PX Partners in November 2020 found that over 90% of senior executives see a shortage of governance, risk and compliance (“GRC”) practitioners as ‘limiting business success’. In addition, 94% agreed that accessing variable or scalable GRC teams would ‘better support their business’.

 

Some small – medium sized firms may have real need for a senior compliance resource (Head of / CCO level) at the management table day in and day out to provide advice. But when the compliance function is a (senior) 1-person-band, this resource can be underutilised by spending time on ‘compliance hygiene’ activities such as maintaining policies and monitoring obligations. These firms could benefit from outsourcing core, ongoing GRC activities and benefit from the scale and benchmarking an outsourced GRC provider can offer.

 

Boutiques and start-ups often give functional GRC responsibility to their CEO or COO. These firms may not require, or cannot justify hiring, a senior GRC resource. A frequent mistake is to hire too junior for an environment where quick decisions and exercise of experienced judgement are vital (with no “committee” to hide behind!). A solution is to engage an outsourced CRO who can provide the judgment and advice required but without the FTE cost. Distinct from a consultant, this outsourced CRO benefits from a pan industry view but retains an ongoing and deep relationship with the firm and proactively helps identify risks and opportunities from within.

 

jon@px.partners is keen to hear more stories of learnings for business from the experience of the pandemic in 2020. Please reach out to discuss.