Traditional management consulting consists of solving client problems by going in, identifying the issues, and making recommendations. Sometimes it involves helping the company implement process changes, sometimes it involves making recommendations to implement better reporting, and sometimes it means helping them select, configure, test and implement a technology. This is typically rate-per-hour work, even when the projects are longer term.
After spending 30+ years doing this kind of work, I’ve recently taken on a new role in Managed Services at KPMG in the US, one that directly aligns with the company’s growth strategy. With our managed services business, we don’t just make suggestions for our clients, we help drive outcomes. We oversee operations, and we deliver results. We build the centers where the work will be done, we hire the people who will do the work, and we provide all the training and management oversight. We aim to deliver the outcomes the client wants.
Instead of rate-per-hour, the contracts move to cost per outcome. And because it’s an outcome-based model, it’s our responsibility to optimize and streamline. As I tell my people, we must deliver all the things that we used to recommend to our clients. This is our business. The client is no longer directly involved with change management, or training, or management reporting, or individual performance management.
It’s important to emphasize that the client maintains ownership of and governance over their unique policies. KPMG’s role is to translate these policies into data and document requirements and operating procedures. Once the client signs off on these procedures, KPMG manages the work processes and operations in alignment with client-defined policies, and clients pay for the completed outcomes that meet their set service-level and quality standards.
One significant difference is the length of the contract. Whereas rate-per-hour engagements are usually 12 weeks to 6 months, managed services contracts are often 3, 5 or 7 years, with a right to extend. This is understandable, because once you take over operations for a bank or a capital markets firm or an insurance company, and you deliver performance at a reasonable price, they are unlikely to ever want to repatriate the operations. Once these contracts are launched, they’re sticky. The switching costs are very challenging. It’s expensive for the client, because they would have to find another delivery agent , or re-hire to do the work. These aren’t small operations – typically there are 200+ people in each. As a result, these long-term contracts are becoming annuitized revenue streams. And from a financial reporting standpoint, everybody likes them, because you can build on these annuity streams.
Of course, things may change, especially as technology changes. KPMG firms will continue to work with clients to enhance their operations, to continue to deliver the outcomes that they’re looking for. We must maintain our competitive delivery. But compared to other consulting projects, where you deliver the report, or you go live with the project, and you are done, these managed services contracts deliver annuitized revenue.
When people think about managed services, they probably think, “it’s been around forever.” Long before cloud was a thing, managed services would run your data centers for you. There’s been technology outsourcing, and business process outsourcing. But that’s not what we’re doing. Rather than focusing on these kinds of commodity outsourcing, KPMG addresses client needs in more complex operations that leverage our domain expertise in risk and finance, our data and technology capabilities, and our operations delivery expertise in running global delivery centers.
KPMG firms want to be in the areas where our services are aligned with our deep domain experience. We want to specialize. We’re very keen to focus on those domain areas where we are the subject matter experts. Because we grew out of an organization that focused on audit and risk consulting, as we look at Financial Services, that puts our focus squarely on AML/KYC operations. We’ve taken our experience doing remediations for our clients or going in and cleaning up their backlogs and redesigning their processes, and we’ve turned it around. Now, we focus on the outcome and we leverage our operational expertise, our ability to deliver outcomes with high quality at a competitive price, by leveraging our global delivery centers. There’s typically some near-shore work, usually in the U.S. or the U.K., but the bulk of the work is done out of India, so it’s both off-shore and low-cost. India has a great labor pool to draw from, and we’ve got a lot of experience in the centers that we’ve already built there.
We aren’t doing managed services for everything our clients need. We’re only doing it in those areas where we have the domain expertise, where we can bring our own technology and data management expertise, and where we can deliver operational expertise. Combining these three pillars with our global delivery network lets us deliver exceptional quality at a reasonable price.
Every Financial Services organization has challenges in AML/KYC. The work is complicated, and clients are looking for someone who can do it for them. We’re already working with two major investment banks and two global commercial banks, and we run multiple delivery centers for each client. Our deep expertise in the business is driving our success and leadership position in KYC operations.
Throughout this blog, “we,” “us” and “our” refer to the network of independent member firms operating under the KPMG name and affiliated with KPMG International or to one or more of these firms or to KPMG International.