Add new tools to your workbench by convening with your peers, and learn how they are fine-tuning their sourcing approach.  

By Peggy Cope

The gloves are coming off for finance and administrative outsourcing, as the C-suite’s drive to cut costs, improve processes, and fine tune organizations’ business strategies becomes a veritable juggernaut. Along with that drive comes a desire to accelerate the speed to market to achieve nearly instantaneous results. Meeting those goals would be nice today, but yesterday would have been even better, according to anxious executives.
 
In the present market environment, finance leaders can learn even more from their peers and from other experts in the industry. Clients are demanding more tailor-made engagements, and they are bringing more sophistication to the table than ever before. In addition, they want more safeguards in place to avoid the kind of problems that can arise from an economy that’s more prone to financial abuses along the lines of a Satyam 
 
 
In the past, FAO Today’s summits have addressed many critical areas for attendees, with some of the top minds in the outsourcing industry and their clients putting their heads
together to share their knowledge and experience. Sunil Narang, vice president of business solutions partnering at Level(3), spoke at last year’s FAO Summit in New York City about the evolution of FAO, from its infancy as a cost-cutting measure, plain and simple, to a more sophisticated, carefully thought-out strategic framework. In today’s market, he said, the company practices the “Four C’s” of outsourcing:
• Cost
• Capabilities
• Competitiveness
• Change
 
In setting up its engagement with Infosys, Level(3)—an international communications company headquartered in Broomfield, CO—sought to achieve specific goals, and cost was among them. However, the company’s finance group also wanted to lead by example to persuade other parts of the company to go into outsourcing. Now, said Narang, “The only things not outsourced are HR and legal. Every other functional group has been touched. In January of 2006, we had 100 people outsourced; now, we have 1,500 outsourced workers in India.”
 
Other goals included improving scalability and flexibility; increasing the focus on Level(3)’s core competencies; achieving the most cost-effective, efficient business structure it could, for increased profitability; and creating an ability to accommodate incremental resource requirements, for instance, in case of a merger or acquisition.
 
According to Ritesh Idnani, Infosys’ head of BPO global sales and marketing, Level(3) chose Infosys because it saw in the provider a plan to get from the existing operating environment to a new state by helping Level(3) achieve certain objectives: To scale rapidly, grow in an environment where they had already acquired several other companies, and become able to handle a complex operating environment. “We could help them marry some of these goals, some of which were in conflict with each other. We helped bring that about through such benefits as labor arbitrage and new technology, as well as standardization and integration,” said Idnani.
 
The choice of Infosys as its partner hinged on such elements as capabilities and competitiveness, said Narang. The company’s primary partners (it has engagements now with Accenture for IT, as well as Wipro, in addition to its deal with Infosys) are large, profitable, experienced, world-class companies. Level(3) needed its partners to align with its goals of becoming more efficient while reducing the per-unit operating expense, and it wanted to retain the thought leadership, with Level(3) employees on the operational teams and a transition of execution to the partners.
 
The processes awarded were based on a Level(3) review of each partner’s value-add; their current capabilities and process synergies; the cost basis; and how quickly they could achieve deployment. “We told the process owners to think about what was core vs. noncore,” added Narang. And last but by no means least, the company looked to see if there were statutory requirements to consider.
 
One important consideration that swayed the provider choice was Infosys’s strong middle management layer. Narang noted that another company it considered had “very smart top management and good workers, but not very good middle management. How many times would we deal with the top or the bottom? We deal with the middle, where the innovative stuff has to come.”
 
One lesson the company learned during implementation was patience. “We thought we had given them enough time and that they were not doing it right. The success of outsourcing is directly proportionate to the amount of time spent by our people with the partner. We did not do that well, so we did not start well. But we did not give up hope, and Infosys didn’t either,” said Narang. Level(3) learned to stop micromanaging the resources and give them independence and freedom to work, as well as the time they genuinely needed for their tasks. “We have changed that concept big-time,” he said, with great results.
 
Establishing a service level agreement and metrics by which to measure success was not easy for a company that had little history of benchmarking. “We had to set a baseline, then set up SLAs covering quality and audit work. We went through a few teething problems, and Infosys gave us seven or eight auditors free of charge to oversee their people and check on quality. That’s where we built a partnership. They could have turned around and told us we had to pay for it, but they didn’t. That flexibility really helped us to gain confidence and get people on board.”
 
At the beginning of the transition process, Level(3) had finance executives grumbling that the company was sending jobs to sweatshops in India. A learning curve had to be negotiated. Narang created an India presentation for the recalcitrant executives, educating them about how advanced India is, and reinforcing that the workers would not be bonded labor but well-paid professionals. “We spent 2006 telling people what India is all about,” he said.
 
Level(3) has now been able to set metrics, create SLAs, and establish realistic turnaround times, being careful to match turnaround time to quality. “We compromised on turnaround time so quality is 100 percent,” said Narang. The company has managed to reduce the number of invoices that get returned, as well as double payments, through its outsourcing engagement.
 
“We didn’t want these guys to say ‘I’ll do 1,000 invoices and go home.’ We wanted them to say ‘How can I do 1,100 with better quality?’ We wanted them to come up with ideas,” he said. “We put their ideas into the system, where they get reviewed, and if they are good, we will accept them. With the ones that are not good, we go back to the people and tell them why. They feel invested in the process, invested in the quality.
 
“We don’t want to treat them as vendors—they are partners. They put their skin in the game and are willing to take risks with us.”
 
So far, Level(3) has been able to:
• Add more processes without additional headcount;
• Add volumes including from other legacy companies without any additional costs;
• Improve business metrics through a quicker turnaround time and output;
• Achieve huge cost savings shown in various processes;
• Standardized process documents; and
• Streamline processes.
 
Success Through Partnership 
Level(3) is not unique in its outsourcing experience. Most partners in outsourcing engagements will tell you relationships and communications are all-important. Dan Sawyers (chief accounting officer) and Daniel Jones (VP operations) at BPO provider SourceCorp, talked about their own outsourcing journey from a decentralized system based on a large number of manual work-around solutions, to pushing all non-core finance functions to a center in India with Outsource Partners International. With employee turnaround at senior level positions high, morale was running extremely low among the accounting staff. The company was looking to reduce run rate costs by up to $1 million. It needed drastic change but lacked the in-house resources to pull it off.
 
The right relationship was critical, in terms of gaining executive sponsorship, executing the plan, getting the right people working on both sides of the plan, and avoiding excessive whining. The chosen approach was a deep dive, with no turning back.
 
Targeting the change agents was important, said Jones and Sawyers. A senior finance officer became their advocate of change, having been through outsourcing in the past. He knew the culture of the company and the other people involved in the transition. Next, they focused on standardization and communication. Sawyers joked, “Communicate the way we vote in Texas—early and often.”
 
The company conducted a site visit to India to get to know the team. Sawyers noted that cultural training in the U.S. isn’t always sufficient. “In some cultures, saying ‘yes’ doesn’t necessarily mean ‘I understand.’ Don’t assume they really get it. Read between the lines. Dig down and make sure people understand you.”
 
The on-site transition team held mixers with employees. To create synergy, they treated their outsourcing partners as employees. Again, their success hung on communicating and fostering a good relationship.
 
“What you don’t know really hurts productivity,” said Jones. “Time differences matter. We wanted our Indian partners to have a life, so we agreed to split the schedule. We didn’t realize how much backing up we do at night when our partners are trying to get onto the system, creating more latency issues.”
 
An additional gap existed in that the outsourcing partner was moving toward a paperless world, while SourceCorp were not. While the outsourced team was sending information electronically, U.S. employees were trying to figure out how to print it all out. “We had a gap to bridge,” said Sawyers.
 
To ensure communications were effective, SourceCorp coached its team not to damage a good relationship by inadvertently using the wrong tone and coming across the wrong way. Their advice:
• Set expectations early and monitor them.
• Facts and examples work best. Don’t be too general. A conversation with a third-party provider in a low-cost economy can be similar to a conversation with your 17-year-old daughter: “ Where you going?” “Out.” “Who you going to be with?” “People.” SourceCorp learned to find ways around that.
• Be fact-based to discover situations and turn them around. Reconciliation wasn’t good because the preferences weren’t the same.
 
Having established the base for a good relationship, SourceCorp’s engagement has evolved to handle what they refer to as STRM: Stuff That Really Matters. “We realigned the department, pushing more work, all transactional-level processes offshore to India,” said Jones.
 
Continuing the theme of relationships and communication, Manish Sahai, vice president, Service Network Partners, Customer Service International at American Express, spoke about the importance of selling the business case internally. “Given the complexities of the outsourcing environment, we will need to elevate the game for our teams to achieve FAME: Focus, Align, Mobilize and Execute,” he said. “You need to make sure there is alignment up and down the entire organization. You have to mobilize your business partners, as well as your own organization.”
 
In preparing for the future, corporations must focus on talent and their partner’s performance. Sahai also noted that corporate social responsibility will become key for many companies from a branding perspective.
 
“The winners of the outsourcing industry will know the art and science to consolidate, standardize, and innovate in their partner relationships,” he said. “They will be the ones that are able to deliver business value and service excellence through world-class partnerships.”
 
The development of any world-class partnership has to include a certain amount of managing expectations. Robert Arthur, chief of staff of SourceNet Solutions, commented that very often clients don’t know how to set reasonable expectations. 
 
Clients that have large-scale implementations present challenges in the complexity of their ERP systems. For example, said Arthur, they might have three diverse ERPs, but want to consolidate into one. Or, they might have a timeline for what they are trying to accomplish, but never meet it. “We set up the pricing, plan the workforce, and operate based on those timelines,” he said.
 
He noted that in the early days of outsourcing, prospective clients were continuously asking SourceNet to show them the data; now, the question is what do the data tell them, and what will they be able to do with that information?
 
One of the biggest lessons he said the company has learned is that the industry is evolving and constantly moving. In addition, other groups besides CFOs are getting involved in the processes. “We will see more creative ways to generate working capital through processes” in the future, he said.
 
Setting Standards 
Other measurable trends gathering steam in the industry are forming in the areas of standards and practices. Bill Frech, partner and managing director of CFO Services for TPI in North America, noted that one of the latest trends is that people are looking for smaller, shorter-term deals. “They are outsourcing a subset of the area they are looking at—they might start with accounts payable or receivable and test the marketplace, make sure it works, but then we are seeing shorter term deals, below the five-year mark.” He has also noticed more providers trying to serve the mid-sized market, although few have figured out how to support it yet.
 
In addition to the movement toward “getting small,” with smaller deals, smaller scope, and smaller clients, the experts commented on a need to establish industry-wide standards.
 
 
Bob Cecil, executive director of EquaTerra’s Business and Financial Processes practice, opined that the days of pure labor arbitrage are over. “People are seeing beyond that. Buyers and providers are industrializing models, moving toward standardization. In a new twist, we see more specialization in terms of industry focus as the market matures. Most of my clients can figure out North America, but Latin America and Asia Pac are harder to figure out,” said Cecil. Big questions are being asked about how to serve emerging markets, with an emphasis on setting global process standards.
 
“Everyone is talking about it. It’s a Nirvana for clients, but they haven’t figured it out yet. We need to professionalize governance.”
 
David Bickerstaff, engagement director for the Everest Group, has observed clients asking what they can do to make sure they don’t face the same issues repeatedly as the economy and business go up and down. They are looking for savings, and fast, but they also seek flexibility and innovative ways to grow their business.
 
On the provider side, Bickerstaff has noticed an increased interest in serving niches in industry verticals, such as healthcare or energy, which have nuances specific to their fields. “If you can focus on those issues and resolve them, your services will be desirable,” he said. Similarly, he reinforced the trend toward serving mid-sized organizations, particularly at the larger end of the mid-tier, with less than $5 billion revenue.
 
“Success draws more success. Can service providers make money on that size of client or event?” he asked.
 
Looking down the road at the future of FAO, Frech noted that FAO is still immature, when compared with, for instance, information technology outsourcing.
 
“The transactional components are maturing, but that’s why we need to look at standards for SLA methodology, SOWs, etc.,” he said. “Our clients are looking to get through the contract process faster. Taking a standardized approach there will help everybody.”
Most of the experts have noticed that clients are moving up the value chain of F&A, creating a new market in areas that haven’t been explored extensively. Clients are looking for innovation, and they want flexibility in the structure of the contract and ways to reflect that in pricing.
 
According to Cecil, “The more standards can take the ‘noise’ out of the transaction, the better. The market is five to eight years old, but you could mention the true multifunction deals on a single piece of paper.” 
 
Summit to Summit 
Incorporating all the elements of a successful FAO engagement in a way that suits your company perfectly is a daunting task. That’s where a little help from your colleagues and peers comes in.
 
Last year, FAO Today set out to educate, stimulate, and interact with others in the finance and accounting outsourcing industry at its FAO Summit, “The Art of the Deal.” This year, at the FAO Summit Europe in London, May 19, we will tackle “Creative Sourcing for a Challenging Economy.” Finance leaders have never needed this type of information more than they do today.
 
In addition, our FAO Summit North America (Tampa, FL, Oct. 20-21) will give attendees an opportunity to learn important survival strategies to navigate these uncertain times and unearth hidden gold in their organizations and drop more to the bottom line; more importantly, conference participants will discover new ways to lead their companies.
 
Regardless of the theme, however, our goal is always the same: To provide buyers of finance and administrative outsourcing with the information they need to make the best sourcing decisions possible for their businesses, and help them fine tune their strategies for immediate and lasting bottom-line results.
 
We know travel and conference budgets are tight. That’s why we’ve packed as much as possible into both our events in the shortest time frame possible. The return on your investment will be clear and immediate. Join us for one, or both!
 
For more information on this year’s FAO Summits, visit www.faosummit.com.