Coca-Cola Enterprises combines an existing shared services center with a ‘rightshore’ outsourced solution for better O2C, P2P, and R2R.
 
By Peggy Cope
 
 
Anyone who drives a car knows hybrids are all the rage these days. But hybrid solutions are also becoming increasingly common—and successful—in the world of finance and accounting outsourcing. Just ask Coca-Cola Enterprises.
 
In early 2007, Coca-Cola Enterprises went through a benchmarking exercise with The Hackett Group to see how the organization’s effectiveness and efficiency stacked up against the competition. While the company was doing pretty well on the scale of effectiveness, approaching world-class status, Joe Heinrich, vice president, controller and chief accounting officer, admitted CCE had a long way to go in terms of efficiency
.
“With that study, it became clear that one key initiative we had to undertake was to look to do as much of our transaction processing as possible in a low-cost country, either with a third-party outsourcer or a captive shared services center,” he said. Because of the fact that CCE doesn’t do business in a low-cost country and keeps all its franchise territory in the U.S., Canada, and western Europe, it became clear that the quickest road to achieve efficiencies with the least risk was to outsource as much of the transaction work as possible, and at the same time do more centralization of the higher level transaction processing in its established shared services center in Tampa, FL.
 
The goals on the economic side were to achieve a strong step change in CCE’s annual costs of transaction work through a finance optimization project. The outsourcing initiative would carry the lion’s share of work within that project, which had a stated goal of cost savings in the mid-20-million-dollar mark annually.
 
“We are on track to achieve those savings at the tail end of the transition with Capgemini,” said Heinrich. “Our internal benchmarks have gotten better, and through good people management, we have reduced severance costs.”
 
Blended solutions are becoming more and more common as the FAO market continues to evolve and incremental deals are tacked on to existing solutions. The decision to combine third-party outsourcing with an existing shared services center came about as a result of the company’s work with Hackett.
 
“One aspect of that Hackett Group benchmark was to determine the maturity and stability of each subprocess within our order-to-cash, procure-to-pay, and record-to-report functions. Based on that, those functions that were farther along in maturity were the ones we tended to outsource to Capgemini; those that were less stable and mature, we carved out of the scope for the initial transition,” said Heinrich.
 
But having said that, he noted, as time transpires, the processes CCE carved out of the scope initially in 2007 will become more mature and stable, and the organization is looking forward to the next transition it can make with Capgemini to outsource those subprocesses, as well.
 
Heinrich noted, “It’s kind of a stepping stone, but you’d have to say the first step was a giant leap forward, while the next steps will be incremental.” That first giant leap involved outsourcing 750 positions to Capgemini or to its subcontractor Xerox. The incremental steps will be more in the range of 50 to 100 positions at a time.
 
“But there’s probably another 200 to 250 positions we will be looking to outsource over the next two years, assuming things continue to go well with Capgemini,” he added.
 
 
Making the Business Case
CCE had never previously participated in a large outsourcing project. The C-Suite had held the belief that the firm wanted to keep its employment within the territories where it does business. However, the company had a change of management about three-and-a-half years ago, bringing in John Brock, a former chief executive officer of InBev, chief operating officer of Cadbury Schweppes and chairman of Dr. Pepper/Seven Up Bottling Group Inc., to be president and chief executive officer and a member of the Board of Directors. The appointment of Brock launched a new paradigm of looking at driving effectiveness and efficiency in ways the company had never tried before. Brock’s previous positions had prepared him for the possibilities of outsourcing initiatives, so he came into CCE with no biases against outsourcing.
 
“That opened a door that had been closed, locked, and barred, and gave us an opportunity to put this proposition forward as a viable project. Plus, we had the strong support of the CFO, Bill Douglas, who looked at this and said he wanted to drive hard the efficiency area where we had to make a leap forward,” said Heinrich. The team built a solid business case that went into details that showed a good rate of return and payback, demonstrating that they had done a meticulous job of planning.
 
“That’s why we got the support of our executives at CCE to support this project,” Heinrich noted. “There are many change management principles you go through with people who may be resistant, and one-on-one discussions really helped. You have to go through and address their concerns, and get them to point where they are comfortable with the project.
 
Going Hybrid
For Capgemini, hybrid solutions are already a reality, and they are here to stay, according to Capgemini Americas Business Process Outsourcing vice president and CCE account executive Claude Hartridge.
 
“I think in any outsourcing deals we do, save one, there’s always a blended answer. The exception is unique. Joe’s approach at CCE and more broadly with other companies we are dealing with, means there’s a substantial retained organization. Capgemini is never in it to take on everything within an organization,” said Hartridge.
 
What Hartridge does defend against is companies where the approach is one of “Let’s get it all consolidated first, then outsource.” CCE began consolidating activities in 2001 in its Tampa shared services center. “For those that have not begun that process, it’s a waste of time not to go straight to an offshore solution,” Hartridge added.
 
When CCE started its conversations with Capgemini during the requests for information (RFI) phase and requests for proposals (RFP) stage, the company hoped to get to global processes and standardization prior to outsourcing, but didn’t entirely succeed.
 
“What we did was good, but we should have been more realistic that we would not achieve a global standardized approach prior to outsourcing,” said Heinrich. “If I were to do it again, I would keep my eyes open and say ‘These processes are not going to be fully standardized before outsourcing, it will be more of a lift-and-shift approach. We’ll drive toward standardization once everything is outsourced and stabilized.’”
 
He noted that it’s easier to standardize and get to a global process after outsourcing. “Resistance to standardization is less now that we have taken a lot of the transaction processing out of different countries and put it into one center with Capgemini,” he said.
From the perspective of Capgemini, it is preferable to take what the buyer has, as they have it, and move the work to its centers while working with the client to transform it.
“CCE hoped to not leave the low-hanging fruit for Capgemini, for gains they were trying to achieve. But that’s not our gain,” said Hartridge. “We jointly agreed and identified the achievements for getting to a standardized model, and we will pass that right on.”
 
CCE is implementing SAP to get to a standardized model. Capgemini picked up on what CCE tried to do, and completed the transition “in-flight.” Some of the transformation was completed, some was in process, and some was not done. “The key, from our perspective, was to help get them where they want to be,” said Hartridge.
 
Heinrich said with the benefit of hindsight, he would make a few changes, but only a few. CCE came to negotiation with Capgemini with the preconceived notion that it should bring down the number of headcount doing subprocesses significantly prior to outsourcing.
 
“If I had it to do over, I would outsource as quickly as possible but work with Capgemini to make sure we did it,” said Heinrich, “and I would have paid them on an FTE basis so when we reduced that number, CCE would have had lower costs eventually and arrived at an understanding with Capgemini to make them understand what we were going to do and achieve what we wanted to achieve. The fear factor for me and other leaders on the project was that Capgemini would take all the savings from us if we didn’t lower the headcount prior to outsourcing. That was a clear misconception on our part.”
 
In making its choice of outsourcing partner, CCE went through a rigorous process, starting with the RFI from August of 2007 until the end of that year, then immediately started the RFP phase at the beginning of 2008 through the end of July. Heinrich notes the organization had “lots of hand holding from EquaTerra,” which advised on the process. “That was beneficial—they kept our feet to the fire to get decisions made. Without their assistance, we wouldn’t have had a contract as fast as we did,” said Heinrich.
 
Hartridge commented that the key for many clients these days is speed to value. “For anybody going through this painful, complex process, you want to choose the right partner, but with as much speed as possible. The benefits don’t start until you make the transition. We’ve seen clients that have dragged the process out in the past, which is expensive, and they don’t get the benefits as soon as they should, which is also very expensive to the providers they are in discussions with.”
 
Looking back at the yearlong selection process, Heinrich admits that another thing they could have done differently would have been a more rapid RFI phase. Of the eight firms they chose for the RFI phase, Heinrich said they could have figured out up front the three or four that would finally get to the RFP stage.
 
However, “One thing we would have missed if we skipped the RFI phase was the learning experience for the management of CCE in the project. This is our first outsourcing initiative, so there was a lot of ignorance within our management as to how outsourcing works. The RFI phase gave us common knowledge and a foundation for understanding of what outsourcing is about.”
 
 
The Tipping Point
What made Capgemini the ultimate choice? Said Heinrich, “The bulk of the positions we outsourced were in the order-to-cash (O2C) area. We saw, comparing Capgemini to a competitor at that time, that Capgemini proposed a more solid solution in O2C and had an established site in Guatemala City in which to base customer-facing activities we wanted to outsource and to service North American customers. That put Capgemini into the final round.”
 
In other areas Capgemini was equal to its closest competitor, and it was even a little more expensive. But the O2C area was crucial to CCE, as 70 percent of the heads to be outsourced were in O2C. A year after the decision, Heinrich says CCE made the right decision.
 
“The concept of their ‘rightshore’ solution is a definite plug on their side of the ledger. What they have to offer, in our case, with customer-facing activity and a center where we wanted to locate it, was a key point in the decision process.”
 
“Even though [Guatemala City is] a little more expensive than India, it’s a more accessible time zone, it’s closer to Atlanta or Tampa, and that makes it a better choice,” said Hartridge. “And you have to hear the accent neutrality to believe it.” The workers in the Guatemala City center study English starting in grammar school.
 
At this point, the transition is complete. Only one subprocess remains out of all those planned to be outsourced, about 40 positions. These are in the ramp-up phase now and will be complete by the end of August. The total transition period was 13 or 14 months. Including the RFI and RFP phase, the grand total is about 24 months.
 
Said Heinrich, “If anyone criticized us for being slow, I’d whack them with a sledgehammer and say ‘If you haven’t done outsourcing before, this is about as fast as you’d want to do it.’”
 
Hartridge commented that once a decision has been made to outsource and you start bringing in vendors, particularly if it involves a lot of people internally at the buyer company, “the secret is out.” At that point, it’s essential to be as efficient, prudent, and risk-managed as you can, but speed is essential to avoid making people nervous and damaging implementation.
 
One of the key ingredients of the engagement’s success is trust, as well as a willingness to take risks, and a belief on both sides that the partners are in it for the long haul.
 
“I’ve been able, working with Claude and other key individuals at Capgemini, to establish the key elements. There’s a trust level between us and Capgemini that we could count on, even when we had some difficulties in the transition. The difficulties were not as bad as some horror stories I’ve heard, but there was always a keen sense among people that we were in it for the long haul, that we would drive toward solutions.”
 
Heinrich says now that he could have gone to a deeper level of thoroughness in putting together the RFP. “There’s always more detail you can get, but the more rigorous you are, the better the outcome and the better the contract you will have. That’s a big learning.”
 
Another lesson was making sure that all the information gathered from various providers during the RFP phase ended up in the final contract. Getting past the contract phase and into transition, the one area that was most difficult was the customer-facing activities, particularly in collections with customers and dispute management, where processes are difficult to script. Intuition and experience can be built up over time doing the work, but the initial phases can be rough.
 
“One key thing we learned was to plan for a longer ramp-up period before the go-live,” said Heinrich, to provide a longer learning curve for the people who would be doing the work in collections and dispute management. In fact, the partners altered the second and third phases of the cutover to take these issues into account.
 
As the transition nears completion, both companies are highly satisfied. Said Hartridge: “We are excited about having CCE as a client. We are trying to make sure we ask at every juncture ‘Is there more we can do for you?’ It’s been a great learning experience to meet with the CCE team and work on their issues, and we’re always looking for opportunities to make improvements.”