BT Group’s contract with Accenture lets FAO take a real seat at the strategy table—perhaps for the first time.

by Russ Banham

In an evolving, maturing industry, the next iteration in finance and accounting outsourcing is marked by singular engagements that promise more strategic roles for outsourcing service providers at the companies they serve.

The decision by BT Group PLC , the London-based provider of communications solutions and services formerly known as British Telecom, to outsource high-value finance processes from reporting to planning and forecasting through to analysis to Accenture highlights an intriguing departure in the industry. Previously, BT Group had outsourced such traditional back-office functions as accounts payable, general ledger, fixed assets, project accounting, and cash management to Accenture’s delivery centers in Prague, Czech Republic, and Chennai, India. A more ambitious second initiative with Accenture elevates the provider to the role of “strategic partner,” according to Andrew Kemp, director of group reporting, planning, and analysis at BT Group. “They have a key role to play at the corporate level.”

BT Group serves 18 million business and residential customers in 170 countries, providing a broad range of services, including local, national, and international telecommunications; broadband and Internet products and services; and networked information technology services. Corporate revenues for the fiscal year ending March 31, 2007, were $40.7 billion, capping a four-year campaign to widen the company’s services and expand its geographic footprint globally.

As part of this strategic objective, the company in 2005 launched an aggressive financial operations improvement program, which included outsourcing financial transaction processing, with a goal of achieving 50 percent internal cost savings. “We had spent some time looking at third-party benchmark analyses and talking to key stakeholders in BT Group that indicated we were relatively expensive (from a finance organization perspective),” Kemp explained.

Accenture won the contract to assume the multiple back-office finance processes outside the UK. But then, Kemp and his organization began to think in larger terms about the role of F&A outsourcing. “We wanted to contribute to a much greater extent to running the business,” he explained. “The vast majority of the time we were looking in the rear-view mirror and commenting on things that already happened. We weren’t sitting in the front seat with the driver plotting a course ahead and making decisions as a strategic partner in running the business.”

Kemp draws a picture of BT Group’s finance organization as a three-layer pyramid. At the bottom layer is transaction processing, the back-room operations that many companies already outsource to third-party providers. The middle layer comprises an organization’s centers of excellence, what is typically referred to in the U.S. as shared services centers—common activities that are performed in a standard fashion that are used by one or more divisions or units within a company. At the top of the pyramid is what Kemp calls business insights: in effect, a more strategic role for finance. He defines it as “working closely with the business to provide competitor, market, and product analyses and being involved in customer and supplier contract negotiations, thereby adding value to the decision-making that goes on within the business…to drive greater performance. This is the vision for finance at BT.”

Having learned from its benchmarking with The Hackett Group that the bottom third of the pyramid was overly expensive, BT Group examined outsourcing as a prime option. The company had already outsourced (but not offshored) its transaction processing in the U.K. to Xansa, which recently was acquired by its French rival, Steria. However, the company kept its non-U.K. transaction processing in-house.

As its global footprint widened, BT Group began to think about standardizing finance process across the globe. “Three years ago, we were a different beast in terms of our geographic presence, whereas today we are on the ground in 170 countries,” Kemp said. “We began to look for common processes to build a truly scalable model supporting our acquisitions outside the U.K., and language capability was absolutely at the forefront. We went through due diligence and went with Accenture because of its history of partnering with BT, its flexibility of approach, customer-focused model, and empathy and understanding with what we wanted to achieve.”

Climbing the Pyramid
The initial outsourcing engagement with Accenture called for offshoring non-U.K. transaction processing to Prague and Chennai. That took care of the bottom of the pyramid. As the company moved up to the middle of the pyramid, it looked across the global organization to examine how its finance people worked, where they worked, the roles they filled, and where there was duplication and redundancy.

“We have been able to downsize from some 850 roles to about 450 over the last two-and-a-half years,” Kemp noted. “That helped to lift our cost efficiency from the bottom of the third quartile in our benchmarking to the second quartile. I then was challenged by the finance directors to take these 450 people and leverage them to provide greater service at less cost.”

Thanks to the earlier assignment with Accenture, Kemp had spent quite a bit of time in India, and was aware that the capability to provide F&A outsourcing in the country was not only enlarging, it was moving up the value chain to provide analytical services and other “mid-office” tasks like management reporting and planning. Last summer, the company made the decision to outsource and offshore to India about 220 of the 450 roles retained by the firm. “The roles (outsourced) were less customer-facing and by their nature had the ability to be standardized and simplified to a greater extent than we had managed previously…people who performed common activities to try and get some synergy and scalability,” Kemp explained. “We retained the people that had customer intimacy and interface.”

Once again, due diligence was undertaken, and Accenture was appointed.

Mark Beaton, head of outsourcing in the U.K. and Ireland for Accenture, said both Accenture and BT examined what was core and noncore from a process reengineering point of view, with the goal of finding a more efficient way to deliver finance services.

“In their conversations with us, they were interested in building information technology platforms, as well as leveraging global delivery and service centers to support that,” he said. “Lots of companies offshore to India and the Philippines, but our ability to offshore globally and deal with regulatory compliance is a skill not many providers have operational experience doing. What we are doing together has taken offshoring out of the back office.”

In early 2007, BT Group began transferring 50 percent of its reporting, planning and analysis functions to Accenture, a decision that stretched the boundaries of F&A outsourcing by connecting it to finance strategy for what could be the first time. The scope of the outsourcing engagement is broad. Guided by, and accountable to, BT Group’s senior finance executives, Accenture is delivering higher value finance and accounting services, including management reporting, financial planning and analysis, month-end closings and budgeting and forecasting services—all from Chennai. It’s also assisting in designing and implementing a robust control and compliance framework to support BT Group’s Sarbanes-Oxley obligations and meet the company’s internal performance benchmarks and metrics. By automating less strategic reporting and analysis activities, the finance team is enabled to proactively support market and industry evaluations, in addition to customer segmentation analyses and competitor assessments.

It’s a tall order, one that requires a new level of training once foreign to F&A outsourcing, Kemp said (see “The Learning Curve”). It also relies on a novel “virtual team” concept, in which Accenture’s offshore finance specialists are not perceived as separate entities, but are viewed as a veritable extension of BT Group’s finance team.

“By conceiving our offshoring personnel as being connected to BT, they feel a part of the company,” Kemp said. “We do things like shared training programs, shared communication, and something we call ‘Postcard from India,’ which provides information on things and events going on there. We’re trying to spur greater collaboration, getting to the point where we treat them as part of our team and not just outsourced contractors.”
He added: “You can’t close a set of books in a big corporation in rote fashion. You have to rely on people building up knowledge.”

Beaton said the engagement allows BT Group to tap strong finance minds. “We’re providing people in Chennai to BT who are highly qualified accountants and MBAs—not traditional back-office personnel,” he said. “They’re at the top layer of (providing) information on reporting, planning, and analysis.” He added that BT Group had “taken a strong leap forward out of the transaction space and into a more strategic space. Some of the things we’re doing are at the sharp end of business analytics, which we’re building step by step. This is really about moving outsourcing up one or two tiers.”

Standardize & Simplify
Not only is the engagement providing straightway efficiency savings, but also it serves BT Group’s goal of process standardization and simplification. “BT is growing rapidly in its global operations, and we can now get different processes occurring in different countries standardized so all BT people are operating the same way,” Beaton said. “This is real-time servicing around the globe, and our aim is to ultimately process information 24/7. When someone asks a question in U.K. time, we will have the answer to them (from India) that moment. We’re not there yet, but are close to getting there.”
Nevertheless, the unique F&A outsourcing contract is already receiving plaudits. Technology consulting group IDC analyst Douglas Hayward said the contract is “interesting because it takes BT’s use of BPO services into more mid-office tasks…and because it does so using offshore delivery.” He added that the contract “will push back the boundaries of F&A BPO…An improved reporting, planning, and analysis function could help BT’s lines of business to make more profitable decisions, not just cut costs.”

Exercise in Trust
BT Group’s long relationship with Accenture allows Kemp to rest more easily at night. “It’s all about trust,” he explained. The companies’ dealings go back to 2000, when they inked what is believed to be the first human resources outsourcing agreement. Two years ago, when the five-year contract came up for renewal, the two companies re-upped for another 10 years for a reported $575 million.

Having both HR and FAO outsourcing engagements with a single provider—sometimes referred to as a “bundled” or a “multi-tower” BPO strategy—offers unique benefits, Kemp noted.

“It’s rare that a process truly stands alone,” he said. “There are many interdependencies that exist. Having a sole
supplier of those processes allows your outsourcing partner to have a broader understanding of your business and to drive further efficiency across the processes.”

Beaton agreed: “We have their HR, F&A, and have uplifted their global Oracle platform, implementing our own technology in our back offices in Prague and Chennai. When you have HR, finance, and technology in a bundled relationship, and have industrialized back offices, you’re right at the edge of the market.”
Certainly, BT Group is leveraging outsourcing in unique ways. Kemp said the company is achieving greater operational excellence, superior customer service, standardized processes, tighter metrics, greater flexibility, higher levels of visibility, and improved controls and compliance. It also is deriving benefits that few other engagements have realized, he maintains, noting that the first initiative to outsource F&A transaction processing to Accenture has now pared costs per transaction by nearly 50 percent. Total cost of ownership, meanwhile, has fallen by half, while error rates are coming down sharply due to more comprehensive, quality checking of invoices.

But, it’s the second initiative to offshore planning, analysis, and forecasting that has truly taken F&A outsourcing in a new and more strategic direction. Not only has BT Group achieved greater, overall finance performance—the company expects a 40 percent savings on the functions covered in the deal (with an estimated return on investment coming within two years)—but the Group also has more insight into the activities, accomplishments, and concerns of its financial operations.

Kemp said the company has ambitious plans to grow internally and via acquisition, which he believes it can achieve more effectively now and without major
disruptions to the business. “Since our outsourced finance operations, both people and processes, are eminently scalable, it makes acquisitions easier because acquired capabilities (from the acquired companies) can now be easily and quickly folded into our common operating model,” he explained.

As for the future, Kemp is sanguine BT Group and Accenture will continue to push the envelope. “We’re working together to explore the boundaries of the possible,” he said, “collaborating in a way that isn’t constrained by a series of contracts or service level agreements.”