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Market Talk: Maturity is key to SSC Growth

In the past decades, the recognition of shared service centers in Hungary has improved from the traditional “back-office” view to an important factor contributing to better operational efficiency and revenue growth. While Hungary was at the forefront of SSCs half a decade ago, emerging markets today may threaten the country’s long-lasting reign.

In the past few decades, Hungary has become a mature shared services center market with SSCs focusing on transformation and the optimization of their operations, and not just on head count growth.  

“SSCs were able to continuously improve their processes with ‘traditional’ process improvement techniques, but they are close to reaching the limit of such methodologies,” László Vágó, advisory manager at PwC Hungary, tells the Budapest Business Journal.  

“But this is not the end of the journey; due to advances in automation and digitization, SSCs have the unique opportunity to expand their scope, integrating increasingly more knowledge-based processes alongside transactional processes, and folding more functions into SSCs,” he adds.

His views are shared by peer Balázs Horváth, director of Shared Services and Outsourcing Advisory at KPMG in Hungary. “Low value-added jobs are being automated or outsourced to an offshore location. With that, a variety of new activities and tasks land at the centers that require new skills from the staff,” Horváth says.  

He adds that the scope of services in the SSC market has seen the biggest change, which will be further boosted by automation efforts, which are not yet visible at the moment.

Digital Future

Automation, digitization and artificial intelligence are topics that increasingly come into the center of any business discussion. Some 87% of Hungarian CEOs interviewed plan to implement measures to improve operational efficiencies for revenue growth, the eighth Hungarian CEO Survey by PwC has revealed.

“Being affected by their nature, shared service centers are leading in efficiency improvement, and about to get a digital upgrade supporting the organizations enhancing their improvement. For decades, SSCs have empowered enterprises to generate efficiencies of scale, reduce processing costs and cycle times, and increase the quality and accuracy of services. By combining transaction functions such as HR, finance, procurement, IT and legal into a consolidated service hub for the entire company, SSCs have delivered significant business value,” PwC’s Vágó argues.

The Hungarian SSC market has gone through such an evolution that it is no longer seen as only offering back-office functions that focus only on process efficiency improvement and cost reduction, however.

“Organizations are increasingly looking to generate more value from their SSCs and are trying to take advantage of new and emerging technologies such as robotic process automation, artificial intelligence, and cognitive technologies,” Réka Komáromi, associate partner of Advisory Services at EY tells BBJ.  

“Consequently, the talent requirements for delivering services required for conducting business operations are changing. A differentiation strategy for Hungary compared to other markets in the region would be welcomed in order to ensure further growth in the shared services sector,” she adds.

Réka Komáromi

Strong Growth

Central and Eastern Europe has certainly benefited from the development of the SSC industry, delivering strong annual growth rates in the past decade. This stems from the expansion of SSC services on offer, as well as on migrating more complex and high value-added services into the centers. This market sees increasing competition for Hungary, which has traditionally been a frontrunner.

“While Hungary was at the forefront of the SSC market 5-10 years ago, we now see other markets emerging in the region, showing strong growth in the SSC industry. The Baltic region, for example, has seen significant growth over the last few years and is less saturated compared to Hungary,” Komáromi of EY Hungary says.

That said, the maturity level of the Hungarian SSCs has clearly increased and business models are becoming more complex. More value-added activities are being added to the existing scope of the centers.

“In the past years we have observed that mature centers have been adding scope like transformation management, acquisition integration, demand and supply planning, application development and marketing,” Komáromi adds.  

“Mature Hungarian centers have established end-to-end processes with global process owners reporting into the SSC organizations. The model ensures closer cooperation with the business partners and gives the SSCs a seat-at-the-table with increased influence on the global corporate strategy.”

Low-risk Destination

Central and Eastern Europe is still considered a low-risk destination providing a skilled talent pool with a strong availability of foreign languages. However, that is something of a double-edged sword. The availability of talent is making mature locations saturated, leading to wage inflation and difficulties in attracting and retaining talents.

“Top skills for shared services organizations are process excellence/continuous improvement, functional expertise in, for example, finance processes, HR and customer service,” Komáromi says. Nevertheless, emerging new technologies – AI, data analytics and automation, for instance – are reshaping the market, and players need to be prepared for these transformations.

“The market has become larger with more and more mature SSCs, in turn developing a need for more employees to meet the growing demands, and a different set of requirements: higher experience, more entrepreneurial attitude, higher ownership and more willingness to taking responsibilities to respond to the more complex job requirements,” Gergely Baksay, employer branding and communications director at Roche Services and Solutions, tells the BBJ.

“The market employment is at its peak and as the SSC market matures, roles that are more complex will likely be available, and in turn, the need for simpler, operative roles may be lower. Competition is quite high to get the best talent on the market and companies are developing a portfolio of benefits to differentiate themselves. The stability and central location of Hungary in Europe as well as the educated workforce means it remains very attractive for companies to implement a SSC here,” Baksay adds.

“The labor market was tough in the last couple of years, although that is a little more relaxed at the moment. Salaries have been amended to reflect demand but that is offset by the weak forint,” Horváth of KPMG concludes.

Balázs Horváth