Unilever partners with Capgemini to enhance global service delivery for finance and accounting

As finance organizations continue their quest to build global delivery capabilities, some companies are leveraging the networked organizational model.  In this archetype, companies partner with 3rd party service providers to provide capabilities that provides services that would be difficult to replicate in-house. An example is the recently announced deal between Unilever and Capgemini to provide finance and accounting services to 130 countries.  An excerpt from the press release:

Paris, 19 December 2012 – Capgemini, one of the world’s foremost consulting, technology and outsourcing services providers has been selected by Unilever, one of the world’s leading consumer goods companies, as one of its global Strategic Suppliers under its ‘Partner to Win’ programme. Capgemini has also been awarded a more than €100 million five-year outsourcing contract for Unilever continuing its seven-year relationship delivering Unilever’s Southern Hemisphere Record to Report operations, global intercompany processes, as well as Access Control and Reporting & Monitoring globally.

Outsourcing a substantial portion of a finance organization is not for every company.  It takes a huge cultural shift to move in that direction.  However, for companies like Unilever, it enables them to create a more effective global delivery network for finance while enabling them to focus on their core business.

You can read the entire press release at: Capgemini signs a new Finance & Accounting outsourcing contract with Unilever.

Philippine Outsourcing Threatened by a Lack of Trained Workers

Despite the global slump, and perhaps because of it, the outsourcing industry is struggling to find enough trained workers to meet expected demand for outsourcing.  Mayala Business Insight has an article describing the problem.  Here's an excerpt:

THE outsourcing industry may be hard-pressed in adding 80,000 to 100,000 new jobs every year due to what is now described is the acute problem of declining trained manpower.

But despite this, the country’s information technology and business process outsourcing (IT-BPO) industry remains optimistic of hitting double-digit growth in revenues this year.

"80,000 is a stretch," said Trade Secretary Gregory Domingo at the sidelines of the 3rd International Outsourcing Summit (IOS) at Sofitel Manila yesterday.

Addressing the delegates earlier in his welcome remarks, Domingo said: "It is a supply-side problem, not a demand-side problem."

Coming from a wide base of 600,000 workers in the industry, adding 80,000 to 100,000 workers every year suited to the industry’s requirement is a challenge.

Here's the link to the full article: Outsourcing Threatened by a Lack of Trained Workers.

Surprise: Outsourcing Buyers Look at More than Price

A recent survey conducted by HfS Research shows that buyers of outsourcing services are looking for more than low cost when it comes to outsourcing relationships.  The survey asked purchasers of outsourcing services what they thought was important and compared their responses to what providers of outsourcing services thought buyers wanted from them.

It's no surprise that some metrics like pricing aligned pretty well between providers and buyers.  What is surprising is the degree of difference between the two groups when it came to the soft lever of transformation such as governance and change management.  The survey revealed that buyers placed a higher level of importance on these soft transformational levers. Shown below is a graph which summarizes the survey results:

Source: HfS Research

What is surprising is that outsourcing providers underestimate how much help clients would like in managing change in their organizations.  This is obviously an opportunity for those providers, but they'll need to make their capabilities clear so that buyers clearly understand the value these providers are rendering over the contract lifecycle.

You can read the entire post at The Undisputed Facts of Outsourcing Part 7: Service Culture is the New Differentiator.

10 Tips for Better Outsourcing Contracts

Editor's Note:  This post is based on an article at the Shared Services & Outsourcing Network by Canda Rozier, Principal and Owner of Canda S Rozier, LLC.  It's an excellent article and well worth your time to read it in its entirety.

10 Tips for Better Outsourcing Contracts

1) Do your due diligence upfront

2) Define detailed Service Level Agreements

3) Have the outsource provider 'put skin in the game' 

4) Outsource tasks, not authority

5) Communicate, communicate!

6) Define escalation procedures

7) Embrace change management

8) Define exit provisions 

9) Require the vendor to provide transition assistance

10) Have a fall back plan

Manage risk through an Outsourcing Management Office

As more companies look at both onshore and offshore outsourcing for Finance and Accounting processes, there is a greater need to coordinate efforts to manage the risk inherent in outsourcing.  Risk is inevitable in any relationship.  In an outsourcing relationship, the major components of risk include:

• Strategic risk
• Operational risk
• Financial risk

Fortunately, companies are developing effective ways to mitigate that risk.  One way to mitigate outsourcing risk is through an Outsourcing Management Office (OMO).  The OMO is similar to a PMO in that it creates a central standard for policies, procedures and tool sets used to initiate, manage and end outsourcing relationships.  And like PMOs, the OMO can vary widely in its influence over an organization.  On one end of the spectrum is a consultative OMO that provides tools and coaching to govern the outsourcing process.  At the other end is a highly directive OMO that coordinates and aggregates outsourcing relationships and enforces standards.

Some of the activities of an OMO include:

• Coordinate efforts across business units to manage enterprise level risk,
• Provide training to business units on the corporate approach to outsourcing,
• Rationalize outsourcing suppliers to negotiate the best deal,
• Standardize approach to outsourcing to minimize up-front costs,
• Provide contract templates to leverage knowledge from previous contracts,
• Provide coaching to business units involved with outsourcing execution,
• Establish performance monitoring metrics

As outsourcing continues to grow, companies will need to put in place a stronger governance function to ensure that the benefits of outsourcing are realized.  An Outsourcing Management Office is one way of managing that process.

Holding outsourcers accountable for service delivery

Over at LinkedIn.com there's a conversation about holding outsourcing service providers accountable for delivering in accordance with the criteria established in the Service Level Agreement (SLA).  While there are differences, there are some similarities with captive service units in terms of maintaining accountability.  Some things that can be done include:

1. Clearly establish expectations up front.  While outsourced service providers should be considered partners, it isn't at the same level as a captive service unit.  Agreements are much more formal and should be treated as such during the negotiation period.
2. The service provider should provide regular reports with metrics showing compliance with the service agreement.  Depending on the report this could be daily or weekly.  This information should be monitored regularly as part of the governance structure as the client company.
3. Establish a formal reporting mechanism at least monthly.  In addition to daily or weekly feedback, there should be a formal report at least monthly that shows all of the key metrics and how the service provider measured up to the SLA.

When the client company expects regular, written information from the service provider showing the actual performance against the Service Level Agreement, they let the provider know that their performance matters and that it's being monitored.  From the client side, it's essential to obtaining the value from the outsourcing relationship that was identified in the business case.  It doesn't have to be confrontational, it's about two partners living up to their responsibilities.

New survey shows support for Finance outsourcing

A new survey by WNS, a provider of Finance outsourcing services, shows that senior Finance executives support outsourcing.  Shocking, I know.  Seriously though, the survey backs up what I've seen in my own consulting work - that Finance organizations are rapidly shifting to a global delivery model that incorporates resources beyond their own direct organization.  Finance chiefs are looking for stronger talent, a competitive cost structure (read: offshore) and a more flexible cost structure to create a more nimble Finance organization. 

Some of the key findings include:

• Over 75 percent of the finance executives plan to expand their outsourcing programs in 2010,
• Driving corporate cost cutting efforts and improving internal controls are the two most crucial issues in 2010,
• Forty-four percent of the finance executives believe growing the business will be an organizational imperative in 2010,
• Over 85 percent of the finance executives are satisfied with the benefits from FAO (Finance & Accounting Outsourcing).

Here a link to the press release at the WNS website.

Extreme Insourcing: U.S. Edition

As companies who have previously outsourced call center work to low cost countries find it harder to identify additional cost savings, they're asking their partners to help generate more revenue through add-on sales.  As a result, some companies are looking to hire older, more experienced U.S. workers who can work out of their home.  The thinking is that these more experienced workers will be able to generate more revenue even though they cost more to employ.

An article at Portfolio.com puts it this way:

Companies, having cut as much cost as they can, are looking to us to help grow the top line,” said Judi Hand, chief marketing officer of TeleTech Holdings Inc., an international outsourcing company. “That may be the thing we’re seeing the most of.”

The trend is leading outsourcing firms to grow aggressively again in the United States, after a decade in which call-center jobs migrated offshore by the thousands.

Instead of adding new call centers in low-cost cities and towns, clients are asking outsourcing companies to use “virtual” call centers employingolder, more experienced operators working from home.

High-value customers’ calls are increasingly staying in North America, where costs may be higher than offshore, but at-home operators can generate revenue. Simpler and lower-value tasks, which don’t present sales opportunities, are being routed to offshore operators in larger numbers than ever.

This makes me wonder if any Finance activities would be up for extreme insourcing.  The only activity that quickly comes to mind is receivables collection activity.  With internet access, document imaging and workflow, and a dedicated phone line it isn't too much of a stretch to think these calls could be made out of the home.  I do think most other activities would be better handled out of an office location. 

I think the real barriers are organizational and cultural.  Many Finance activities are so integrated that it makes sense to have some level of critical mass at a single location.  Add in a layer of management and controls, and it doesn't seem likely that many Finance activities are heading for the home office any time soon.

Success factors in Finance & Accounting Outsourcing

FAO Research, an independent research firm focused exclusively on the FAO and procurement outsourcing markets, has put together a list of criteria that companies have used to achieve success in their Finance & Accounting outsourcing models:

Working with a Sourcing Advisor Upfront: Four of 10 nominees for our 2008 FAO Awards involved sourcing advisors’ guidance that enabled the prospective customers to have a methodology and processes in place that could lead to successful provider selection, and contract, and manage expectations. 

Effectively Creating and Demonstrating a Future State: Customers with an FAO 2.0 mindset upfront understand that their engagement is being initiated for more than pure cost-cutting reasons, and that a focus on FAO could help them achieve long-term goals as opposed to short-term wins. 

Multiple Supplier Service Delivery Locations: The geographic diversity of FAO service providers’ delivery centers is of extreme importance to FAO customers, as they understand that having access to similar cultures and language skills as their employees and customers as well as having different cost options and geopolitical risk spreading are critical factors for their long-term, global business successes. 

Industry Expertise: Companies that aim to achieve FAO adoption seek to align themselves with service providers who have “been there, done that” with peers in their industry.  Process knowledge and technical expertise requirements differ by industry, as do the drivers and inhibitors for business success in each industry. Innovative companies understand that and aim to leverage the industry acumen of their suppliers to achieve long-term contract success.  

Senior Management Involvement in the Project Upfront and Throughout: Every successful implementation and FAO engagement involves the buy-in and direct involvement of senior management at the start of the project. 

Single, Dedicated Point of Contact: Since outsourcing is a services business based on relationships, single points of accountability are crucial to manage the many parties involved in ensuring contract success, including transition managers, governance leaders, administrative personnel, and the like. 

Introduction of Flexibility into Service Delivery: Adding a component of variabiliy accommodate evolving business requirements, seasonal fluctuations, etc. 

Previous Business Relationship:  It’s helpful to know the company you are working with from your previous relations with them, but it’s not always imperative.  

Establishing FAO Objectives Upfront: These may include cost saving targets, accomplishments desired, or some other types of quantifiable measures so that you can have realistic goals to achieve and also benchmark against after you embark on the FAO endeavor. 

For F&A Outsourcing to be successful, clients need to have well established goals in mind that include more than cost-cutting.  As important as that is, the choice of an F&O outsourcing provider must be part of an overall strategy to deliver finance services globally.

CFOs struggle to measure outsourcing ROI

According to an article in Accountancy Age, many CFOs can't with any degree of certainty, calculate the value of their outsourcing contracts.  According to the study by outsourcing firm Cognizant Technology Solutions, only half of CFOs have even tried to calculate how much these contracts contribute to the bottom line, and of those that did, only 19% were "very confident" in their calculations.

An excerpt from the article:

Businesses in the UK spent 12% more on outsourcing contracts in 2008 than in 2007 according to the National Outsourcing Association and Cognizant’s research found that more than half of respondents expect to see ROI on their outsourcing investments within the first year.

But CFOs say assessing the value of these contracts is difficult because that value is not found in a one-time cost saving ­ a fact borne out by the finding that, of the CFOs that cut back on their outsourcing, 78% cite “unclear value for money” but could not quantify this further.

“Senior executives appear to be making outsourcing decisions based on shot-term cost cutting, but outsourcing’s impact stretches well beyond the in i tial labour, skills and cost advantages,” says Sanjiv Gossain, Cognizant’s managing director for the UK and Ireland.

Here's the link to the full article.

Ten lessons for avoiding outsourcing disasters

Here's a summary of a blog from AMR Research dealing with potential pitfalls of outsourcing deals.

1. Don’t just focus on core versus non-core, but evaluate what is fit and ready

2. Don’t jump at the lowest priced offerings

3. Temper executive expectations

4. Collect experiences of peers in other organizations

5. Think about future flexibility

6. Think about your internal learning

7. Think about the strategic value of IT

8. Evaluate the impact to the local community

9. Anticipate the impact to your corporate culture

10. Focus on broader outsourcing governance across IT, supply chain and financial processes

Conclusion

As the lessons above outline, the impact of outsourcing cuts far deeper than merely entering into a transaction with a service provider. Corporate leaders need to focus on their people, processes and technology in tandem when they evaluate and execute their outsourcing opportunities. Experienced outsourcing practitioners often use the “30% rule of thumb” when they evaluate an outsourcing business case: Simply put, if you’re not taking more than 30% of cost from the bottom-line, it’s probably not worth the upheaval to your business. Adhering to these 10 lessons should help you make that 30% worthwhile, if that’s your chosen path.

I particularly like point 2.  As important as it is, an outsourcing arrangement should never be just about price.  Reliability, the ability to partner with a client organization, flexibility to adapt to future needs and the position of the service in the overall delivery strategy of the organization are all critical factors in deciding what to outsource and to whom.

Here's the link to the full article.

Cognizant buys captive service unit to expand BPO capabilities

An article at Business-Standard.com discusses a recent purchase by Indian BPO company Cognizant.  Cognizant recently purchased the India-based captive service unit of UBS.  As part of the deal, Cognizant and UBS entered into a 5-year service agreement to support UBS' back-office processes.  Estimated revenue over the 5-year period is $442 million USD.

From Cognizant's perspective, this purchase expands their BPO capabilities while providing a guaranteed revenue stream.  According to the the article, "The acquisition will deepen Cognizant’s financial services’ domain knowledge and enhance its capabilities to provide integrated services across consulting and technology."

From UBS' perspective, the deal frees UBS from managing processes that they believe can be better managed by a 3rd party.  According to the article, "For UBS, the sale of the India Service Centre marks the next stage in the development of the UBS offshoring and outsourcing strategy. In recent years, the availability and maturity of third-party outsourced services has grown significantly. UBS has therefore decided to adopt a buy rather than a build strategy for its outsourcing needs, said the company in a statement. This will take advantage of the scale and expertise of third parties to improve efficiency, while reducing costs and increasing flexibility."

An interesting note is that UBS' India Service Center provided traditional support activities such as IT, but it also provided capabilities around research and analysis, something that has traditionally been held onshore but is increasingly seen as an appropriate function to offshore or even outsource.

Here's the link to the full article:

http://www.business-standard.com/india/news/cognizant-buys-ubs-captive-unit-for-75-mn/373422/

Choosing between Captive and Outsourcing

The Shared Services and Outsourcing Network has an interesting article titled "Top Ten Mistakes Made When Offshoring".  It has a number of interesting points but one is the mistake companies make when they are focused much more on the onshore/offshore decision rather than the captive vs. outsourcing decision.  Companies are understandably interested in taking advantage of the labor arbitrage that comes with moving work offshore.  But in their rush to move work, they may make the mistake of choosing the wrong delivery model.

In a captive model, the company essentially goes it alone, building out its office space, hiring staff and managing the center.  At the other extreme, the outsourcing model is handled by another company with the governance (hopefully) retained by the client company.

So what are the challenges around a captive solution?

1.  Unfamiliarity with the market:  Unless a company already has a presence in that market, it can be difficult to navigate the cultural and political environment.  That's why most companies that go the captive route choose a "brownfield" - that is, a shared service site that is usually part of an existing facility.

2.  Turnover of personnel:  Unless a company has an unusually strong brand name (think GE), the churn of personnel could end up being very disruptive.

3.  Lack of management attention: Regardless of the captive vs. outsource decision, company's management must put in place a proper governance function to provide the necessary oversight.  Without the right management attention, many of the benefits in the business case may not come to fruition.

4.  Rising salaries: With a constantly changing world, locations originally chosen for a captive site may not be as competitive as originally thought.  In India, for example, salaries have risen substantially from the time when they were considered a low-cost location.  This can lead to churn in the organization as talent moves from one opportunity to the next (see point #2).

Neither choice - a captive unit vs. a 3rd party outsourcing agreement - is always the right choice; rather, it must be part of a broader strategy in order to choose the right delivery model.

Factors Fueling the Growth of Outsourcing

The outsourcing research firm EquaTerra has new research on the factors fueling the growth of outsourcing services.  The study cites four primary factors:

• Weak economic indicators:  Although expense reduction isn’t the only driver for outsourcing, many organizations are reemphasizing outsourcing to increase their bottom line
• New functions outsourced:  Buyers are focusing on new and growing areas like legal and knowledge process outsourcing, document and electronic records management, industry specific offerings and knowledge intensive services
• Service provider readiness:  EquaTerra advisors are seeing some improvements in overall service provider capacity, in part driven by improved pricing and contracting terms
• Smaller, more numerous deals:  The outsourcing market continues to evolve with more but smaller deals spread across a greater number of service providers and delivered on a more global basis

There's no doubt in my mind that offshore outsourcing will continue to grow as a result of the desire to reduce costs.  This will be especially true if the U.S. slips into a recession.  The other point made by EquaTerra that confirms my own experience is that companies continue to look for additonal processes to outsource.  It's a natural evolution for companies to look at more complex processes, such as legal and other types of knowledge work, once these companies realized the benefits of their initial outsourcing efforts and become more comfortable with a delivery model that includes offshore outsourcing as a key component. 

Top Offshoring Locations

There's a new study by the consulting firm A.T. Kearney that shows the top destinations world-wide for outsourcing. As you might expect, India and China are numbers one and two, respectively. What's interesting are some of the other names on the list. Brazil came in a number 5; Chile at number 7 and Mexico at number 10. Just goes to show that Latin America is coming on strong in its attractiveness as an outsourcing location.

Here's the link to a pdf of the report.